How Malcolm Small was ahead of his time

Update

I wrote this article 6 years ago, 4 years before the Pension Freedoms (which Malcolm Small predicted). Malcolm is now dead and this article is dedicated to his memory. It was originally called “Sherbert Dib-Dabs for breakfast”

 

Malcolm was a dandy, an enthusiast and he knew what people wanted. He saw freedoms way before others. I don’t agree with all his views , but I respected him for having them.


 

Malcolm Small, the Beau Brummel of Pensions Policy has delivered us an IOD Policy Paper offering us a Roadmap for Retirement Reform. It has a number of fairly uncontentious recommendations and a radical call to “simplify the architecture we know as a “pension“.

Malcolm warns us

If there is no change, people will change behaviour anyway. We think they are already doing so, and we expect new retirement funding systems to emerge in coming years which will have nothing to do with a “pension” as currently understood but will aim to do the same job.

This is a marker in the sand. Malcolm, wearing another of his hats runs an organisation called TISA- the Tax incentivized Savings Organisation which promotes funds and fund platforms that manage Wealth.

Malcolm is arguing with his IOD hat on , for a world that would suit the managers and distributors of funds very well. He can rightly point this year to the fact that for the first time , more voluntary savings were made into ISAs than pensions. Like my friend Mark Laurence (see “how to buy a pension“) Malcolm enjoys the simplicity and flexibility of an ISA and like Mark, has every reason to want to keep his and others money in funds rather than annuities.

And here is the thing; the IOD argument is that unless the Government pull down the Berlin Wall that keeps money in Pension Annuities, people will avoid pensions. Power to the people!

As a certain Liverpudlian might say “my arse”!

If I offer a choice at breakfast between Granola and Sherbert Dib Dabs , nine out of ten children will chose Sherbert Dib Dabs. Despite this being the wrong nutritional choice.

If I offer ten Directors the choice of their pension fund as taxed cash or taxed pension, nine out of ten Directors will chose the cash.

There is a skew in both cases, children know no better and Directors are entrepreneurial leaders who don’t want to (and don’t need to be protected from themselves).

The IOD, like the Adam Smith Institute and other right-wing think-tanks argue the case that what is sauce for the Directorial goose is sauce for the plebeian Gander and they are wrong.

I refer to a brilliant paper by Ben Jupp, written in the late 90s when compulsion was being considered as part of the Blair Government‘s Stakeholder reforms. Ben argued that Government’s had a responsibility to ensure citizens had a minimum level of guaranteed income in retirement sufficient to ensure they were not a burden on others (eg future taxpayers). In 1998, he suggested that level of income was around £11,000, today we could roll that forward to around £15,000.

Ben was not arguing for a pot of money that might or might not provide £15,000, he was arguing for an upgraded Basic State Pension (which we will have) , a system of semi-compulsory saving (which we will have) and continuing reform on the pension system to make it easier to understand and use- and more effecient in its outcomes.

I’m pleased to see the DWP responding to these challenges and commend the policy initiatives they have taken.

But to return to the Roadmap for Retirement Reform- it is not as it advertises a road with “tough decisions ahead”. It is a road to the sweetie shop.

The IOD road offers the financial equivalent of Sherbert Dib Dabs for Breakfast.

I am a child, at least in financial matters. Giving me my retirement savings as cash when I pack in work is like giving Billy Bunter the keys to the tuck shop. I will gorge myself, I will bloat and I will run out of cash in my early 70s , become a burden on my family, on local authorities , on the NHS – I promise you that I, like millions of other feckless gits, know no other way.

I need a pension because I am incapable of not spending it all at once. What is more, it is not just me and the other financially incompetents of my acquaintance. This is precisely what happens to Governments. Give Gordon Brown a couple of years when he exercises “prudence” and what happened. Prudence, like the rusty exercise bike she became, was shoved in the back of the shed and off Gordon went – splurge, splurge splurge.

The problem of all these free-market right wingers is the same. They have created a fantasy world fully invested in funds that enable the financial elite to clean up while the rest of us wipe out.

There is no-one I would rather spend a lunchtime in the Oxford and Cambridge club drinking a decent claret with than Malcolm Small (hint!).

However I will not be following his roadmap. His roadmap leads to the sweetshop and I know I cannot resist.

Instead I will be doing the hard miles saving into a pension plan with a view to getting a pension that will keep me out of harms way in my later years. Right now, I’m very glad that I’ll be purchasing that pension later rather than sooner but that is a temporary not stuctural difficulty.

There is nothing wrong with pensions. If I could put up my roadsign, I’d put it up directly outside the DWP.

No U-turns Mr Webb

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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