Nudge nudge – pension truths we can’t spin but can explain!

james-smithWell you probably don’t get the refernce, unless you’re 45+. A generation of us were brought up on innuendo, saucy postcards, Dick Emery and odd adverts for chocolate bars. Innuendo gets you there in a roundabout way – a bit like auto-enrolment gets you saving , without ever saying so.

The trouble with innuendo is it relies on everyone being complicit – being “in on” the big idea. Go and blurt it out and all the fun’s gone out of it. Innuendo can become a replacement for the real thing and the 70s and 80s were rather shorter on delivery than the implied promise had suggested.

The nudge culture has really come of age over the past five years, that ruddy book everywhere! We’ve fallen in love with the innuendo, the nuance, the sidelong glance that implies you’re in the know. To build this fabulous nudge construct, we have had to create buzz phrases (I’m in) code words (NEST) and abandon old-fashioned words like “pensions” that give the game away.

But no matter how we might like to measure success in terms of engagement or disengagement (have we ever had a policy success based on people doing nothing before), the success fo auto-enrolment can only be judged by how effectively our savings turn into long-term retirement income.

I was at a discussion recently when a group of experts discussed SMPI (Statutory money purchase illustrations). These are the things we get once a year from our pension providers telling us how much our pensions are going to be worth in years to come. The problem is the basic assumptions about what’s going to happen have to be changed each year to reflect what has actually happened as well as what we expect to happen. Reality has proved a harsh editor.

The value of projected pensions has changed and will continue to change. You’d have thought with all the talk about efficiencies , that we’d be expecting more from our pensions rather than less. We should expect more, workplace pensions are getting more efficient. But you couldn’t guess this from the illustrations which have shown a steady fall in the pensions we can expect. This is mainly down to the rising cost of buying a pension at retirement.

The argument in the room was around the psychological impact on savers of their seeing their savings buying less rather more over time.

One very bright lady suggested that we should find a better way of presenting the information so that it showed us getting more pension in the future or at least didn’t spell out the fact that we are likely to get less quite so dramatically. PENSION INNUENDO I thought.

So what would happen if we had some kind of “truth commission” in pensions that decided to tell things as they are, explaining that because of QE annuity rates are sky high and you’re buying half as much pension for your saved pound today as you were 10 years ago? What if someone spelt out the implications of our living ten years longer than we were expecting to when people like me started saving for retirement. If we explained that most of the pension savings we made into pre-stakeholder pensions is being eaten away by high charges?

Nudge nudge, know what I mean?

Many believe that to talk about these things would be to open up Pandora’s box. Keep a lid on the box for those winds might blow us anywhere.

But I’m not so sure. When Martin Lewis told people how their money was being wasted he didn’t get them to stop saving money, he reinforced people’s will to be savvy in their saving. Martin’s shock tactics got shock results and millions of people now work the system to tilt things back in their favour.

It was the absence of spin and the “telling people how things were” that endeared him to the consumer.

My worry about so much of the nudge culture is that it sails so close to the wind, any closer and we would be lying. You can dampen down volatility in NEST’s default and imply you can get growth without volatility (when there isn’t enough money to matter), but if you forget to mention when the volatility muffler is switched off that pensions go down as well as up, you will simply be deferring anguish. NEST needs to be preparing people for rough waters while sailing them round the “safe) harbour.

All this talk of retirement savings accounts plays well to the nudgers but what happens when people come to retire? The harsh reality is that purchasing an annuity is not a nudgeable event- its a cliff edge event and you need to understand what is going on if you aren’t to end up a culled seal on the beach.

All innuendo, nuancing and nudging is a pre-cursor to the main event. Behind every saucy seaside postcard there’s SEX, behind every retirement savings account there’s a pension. Frankly neither tend to live up to the billing they get!

I would like to see a pensions truth commission which was empowered to answer the really hard questions people have without spin or resort to some kind of pension innuendo.

The suggestion that my colleague James Smith made at the discussion about SMPIs was quite brilliant. He suggested that every illustration contain a hyperlink to a you tube video. The video would feature the actuary whose work went into the assumptions talking through the illustration and explaining the bad news as well as the good. James is one of those rare people who is incapable of lying, I think they re-wrote the honesty DNA for him! If people like James were able to tell people why their pension illustration had gone down,I’m quite sure he wouldn’t beat around the bush, he’d point out it’s because pensions are more expensive for us to buy.

Much of the product information we get on pensions is still delivered in paper format (including SMPI illustrations) but we are moving towards digital transmission (it’s not hard to issue a SMPI as a PDF’d e-mail attachment). We need to look to the future and make sure that digital tecbnology is used not just to bring down communication costs but to enhance the experience of the customer. The advice gap is meaning less and less face to face eplanations but new technology enables people like James to tell it as it is without nudging or glossy brochuring!

Social media has a great way of getting people to the truth. You don’t need to search too hard these days to get to the real facts and the sooner we start using the tools at our disposal to explain why things are as they are, the better.

James is an actuary who believes in explaining things as they are, face to face so people can make informed choices. There aren’t many people as clever as him, I know no-one as honest but the wealth of people who get SMPI illustrations he devises never get to hear him explain things as he did to us.

I call on everyone who produces a SMPI illustration for their company to take a step back. If you want people to engage with your pension savings plan you need James Smith or one of his actuarial colleagues. Let’s hope they’re coming soon to a YouTube channel near you.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Nudge nudge – pension truths we can’t spin but can explain!

  1. Con Keating says:

    You say early on that auto-enrollment gets people saving. But does it really? There is evidence from Denmark and Australia that many of these “savers” in madatory arrangements in fact go out and spend and borrow more because they are “richer” or at least feel it. A form of SMPI, rather than simple annual statement of the cash value of the personal account, can go far in letting people know just how poor they really are.
    As for sex, perhaps the pension payment could be partly in kind – viagra and cialis will be long out of patent before these pensions get paid and the pensioners won’t be able to afford much else.

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