Received ideas are concepts that have been so often repeated that they can hardly be challenged.
We know when we swing our legs out of bed that the floor will hold our weight, we know that when we get to payday, we will be paid and we know that pensions will be paid in full. These are the kinds of things that go unchallenged because to challenge them would be to question our sanity.
Twice yesterday I found myself challenging received ideas. On the first, I found a blog I wrote last week on “new journalists” had been commented on by “old hack” presumably not such a new journalist. I won’t take issue with old hack as his arguments are unclear – I must have upset his certainties! The second time, I was at a conference of the Pension Network and the person I annoyed was my good friend and spa Mr John Quinlivan.
The received idea that John latched on to was on my list above ;-I questioned whether pensions good go down as well as up. My argument was that it was illogical for us to guarantee individual pensions in the way we do and that we should adopt the Dutch model where pensions can (and will) go down and up from year to year – in line with the markets – in which pension funds are invested.
I wasn’t around when the with-profits endowment was established but I understand that it was created because people buying properties could not afford to invest in a policy that guaranteed to pay off the mortgage. Instead , people agreed to invest in a policy where the premiums were lower but the outcome depended on markets performing to top up much lower guarantees.
The guarantees on Dutch pensions are about 30% of the pension, the guarantees on a with-profits endowment are about 30% of the mortgage.
Initially , with-profits endowments failed their purchasers because the markets did not do their bit and – as importantly, people who bought them had received the idea that the limited guarantee was really a guarantee on the whole mortgage amount.
This misconception came about because insurers became lazy and allowed their policies to be mis-sold, because advisers – especially mortgage advisers, sold these policies to secure the house purchase and the commission and because those who bought the policies, were happy to “go with the flow”.
John’s worry is that non or partially guaranteed annuities could end up like with-profits endowments and that their providers, the insurers, would find themselves having to restitute policyholders to the full extent of their expectations.
Now I’d like to challenge one more “received idea”- the idea that we cannot understand the concept of a partially guaranteed annuity, or a with-profits endowment or a with-profits annuity for that matter!
If you can understand what I have written so far, you can understand Dutch collective DC pensions and with-profit annuities (which operate on the same principle).
The question is whether we have become so lacking in financial self-confidence that we cannot trust the public to understand these quite simple ideas.
The answer is surely “yes we can”. Received ideas , like clichés, are psittacistic. They are accepted parrot fashion without engagement and because they demand no thought – are deeply dangerous.
One of the roles of those who lead rather than follow , it to challenge received ideas , whether about journalism, pensions or financial competency for that matter.
Necessarily, the process of challenging these ideas will get on the wick of “the old hack” who had a dig at my blog, on the wick of my mate John and some of the ideas in this article may have got on your wick too.
But without challenging the old certainties we will not move forward.
So forgive me for mouthing off – I mean well!
- So you want better pensions? (henrytapper.com)
- Will new annuity rules boost retirement income? (confused.com)
- Why you shouldn’t delay buying an annuity – Confused.com (confused.com)
- “The first cut is the cheapest” – transferring legacy pensions (henrytapper.com)
- Can pension saving really grow the economy? (henrytapper.com)
- Annuity Think Tank launches new Private Pension website (prweb.com)
- Annuity crisis sends savers reeling (telegraph.co.uk)
- On freedom, a very special parrot named William, and Indie publishing (michaelpatrickclark.com)
- Outsourcing policy ideas could be a bad idea, say civil servants (independent.co.uk)