Abusing the voice of the people – a call for better pensions

Evangelists of social media cite the wisdom of the crowd. But wisdom and gullibility are two sides of the same coin and  those who marvel at the capacity of groups to congregate around their chosen solutions, demonize their herd mentality when the crowd looks elsewhere.

“Vox Pop”, a phrase coined in the 60s, was abused in my childhood in much the same way by politicians and intellectuals looking for democratic validation. Set against them were the dissentient voices of the likes of Bernard Levin and P J O’Rourke who saw  through the phony stats that underpinned pseudo-consensual arguments. Vox Pop was eventually discredited as phony concensus.

The flip-side of consensus is conviction and conviction’s every bit as dangerous as pseudo-consensualism. Populist conviction is what enabled  Kelvin McKenzie to promote lies as truth and get away with it for 23 years. It differs only from pseudo consensualism in that it tells people what they want to hear rather than pretending to listen to what you want them to say.

If I’ve gone a bit Donald Rumsfelt on you, let me ground this periphrastic peragration in an example.

Steve Webb, our pension minister, is currently deliberating on guarantees. He has been told by his civil servants that the public are wedded to guarantees, that they crave certainty and would see a fall in their annual income in retirement as a major calamity. He has been told that in countries where people’s retirement incomes are linked to the performance of the financial markets, people are blissfully unaware of the chance that their retirement incomes will some years fall. He has been told that when markets fall and pensions cut, there is trouble of the kind Governments don’t like.

In the past, the rigid dogma of the guaranteed pensions has been argued with totalatarian conviction. This is my understanding on how the 2009 collective pensions interfada was dealt with…

The Government Actuary told the minister risk sharing didn’t work, the minister told the people there would be no risk-sharing.

Perhaps the vehemence of their arguments was forged from self-interest. Civil servants and others with guaranteed pensions have a lot to lose, especially from those who guarantee them – the people who pay both their pensions and their wages – the taxpayers.

Perhaps they sensed that this conviction might be seen, not least by the minister,  to be grounded in self-interest. Perhaps this is why they have changed their approach. The civil servants now ground the same argument in pseudo – consensus. They have gone to the “pop” and got the “vox”, tapped the wisdom of the crowd and harvested a suitable response. The UK population have told them, via the focus groups they have assembled, that any threat to the populace’s income in retirement would cause civil insurrection (or some such stuff).

This is no way to make policy and I’m sure the minister knows it. But with little feedback from the pensions industry, the results of these focus groups is all Steve Webb has to go on.

Well I am afraid his civil servants are feeding him duff wisdom.

Retirement income in the Netherlands will fall this year (where it is not guaranteed) . It will fall because collective DC pensions are invested in the markets and the markets have not delivered . The price of bread will rise when harvests are poor. Wages will fall when there is high unemployment. Governments will be blamed when things go wrong, regardless of whether it was their fault or not.

All of these things will happen but there will not be rioting along the canals of Amsterdam , nor will there be insurrection at Tescos or strikes as wages fall. Provided ,that is, that people feel that they were aware of the risks of a free market economy.

Those who believed that people could not figure things out for themselves established a political regime with total certainty. They were the totalitarians. Totalitarianism, typically the Communist version, failed when people discovered that it condemned them to a life where they were guaranteed misery. The fascist version differed only in that it condemned others to a life of misery. For “life” subsitute “retirement” and you get where I am going.

Steve Webb’s advisers were wrong to argue with myopic conviction and they are wrong to argue from a pseudo-consensus. They should abandon dogma and embrace common sense.

Dogma A system of pension guarantees is a pre-requisite of mark to market accounting and Solvency II that are destroying defined benefit pension plan  in this country.  The dogma of prudent reserving that underpins the European approach to pensions regulation needs the total certainty of individual guarantees at all cost.

Common sense People take decisions based on their view of probable outcomes. Let’s narrow outcomes down to A and B.

A If you feel that the probable outcome of your investment is £9 but the worst “likely outcome” is £8, then you will see a guarantee of £5 as worthless.

B  If you see an outcome of your investment as £9 but the worst likely outfome as £0, you will see the guarantee of £5 as worthwhile.

Both outcomes are plausible and both should be catered for. Currently people get outcome B  – end of.

The issue for us, is to establish what , with reasonable certainty, we can expect. We will take our decisions on intuition. It’s a complex call but its the kind of decision we take all the time. To take it we need to feel informed and we need to feel trust in those who provide the information. You could call this common-sense decision making.

The difference between our approach to collective pensions and the Dutch approach is one of trust. There is trust that the people who run the great collective DC plans that we are scrutinising in the UK and it’s based on a belief that these plans are managed for the public good.

This trust does not exist for those who run our private pensions, especially the insured DC arrangements that are currently being annuitised in their hundreds of thousands with such disastrous effect. The longer that we allow people to cash in their pension savings  for nugatory pensions, the worse the distrust will get.

We need a proper debate and we need the chance to choose. At present we have neither.We are to faced with what is now being called

“the pension death spiral”

There will come a time when people will wake up to the fact that these Dutch DC plans are paying £1.50 to the UK equivalent’s £1 and they will ask themselves whether the guarantee of £1 is really that valuable if the worst that ever happens to that £1.50 is that it falls to £1.40.

Then they will turn to the people who run our UK pension system and ask them why they were consigned to getting a pension that guaranteed them less than their Dutch cousins.

It will be no good for the next Steve Webb to show them the results of the focus groups  conducted in 2011 and 2012. The poor pensioners will not pay notice, they will say that they were denied the choice of something better and weren’t even made aware that that choice existed.

Pseudo consensus – the democratic approach; rigid conviction – the fascist approach.

Both dogmas will ultimately fail. It’s time for Steve Webb to present the argument in terms that allow us to see both positions and make our minds up on what kind of pensions we want .

Force people to save into pensions that guarantee you £1 when £1.4o’s available round the corner and eventually people will give you the finger, opt-out, cease membership, go round the corner for better.

I’ll keep writing this stuff till we get better.

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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5 Responses to Abusing the voice of the people – a call for better pensions

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