Has this review anywhere to go? Micky Clarke on radio 5 live this morning fumbled with the difference between between Government interventions the charge cap, the annuity market , goodness knows what. Michelle Cracknel struggled to get across her point , some fellow from Killick and Company struggled to promote his firm’s attempts to close the advice gap formed by the RDR.
Having listened to this morning’s debate, everyone wanted to deal with the problem as an issue of distribution, as if purchasing an annuity was as inevitable as getting out of bed in the morning.
The problem for Micky and for just about everyone but the coterie of financial services professionals who profit from the current system, is the public don’t want to go shopping around for annuities. They would rather leave this decision to a trusted expert. That’s what they do with National Insurance, that’s what they used to do with their company pension and that’s what they’d like to do with whatever they’re paying into now.
Why don’t we start this debate, not by looking at how to fix the system, but why we ever came to think that individuals were better off buying a pension for themselves in the first place.
I haven’t read the FCA publication, frankly I don’t want to. I don’t think we needed a thematic review to tell us what we all knew already. we need a review into pension policy that asks ourselves why we are where we are and what we can do to improve things.
We have a perfectly functional state pension system that works efficiently and though it has been a political plaything for generations, is still fit for purpose.
We have defined benefit company pensions which languish beneath the yoke of mark to market accounting but struggle on like sturdy oxen.
And we have the new DC workplace pensions which , no matter how hard we work on the accumulation side, waste a good proportion of their output on a system of pension purchase that is not understood, not properly used and which produces results which can only be described as disappointing.
The market failure is not one that the FCA can address. It can only be addressed through a proper national debate on risk and reward.
We need to ask ourselves how much certainty we require in retirement and how we want to organise our pensions. If we want no risk and want to organise around the insurance companies then we should continue with the current system.
If on the other hand, we are prepared to live with less certainty and want to organise our private pensions on a collective basis, we should return to the system that prevailed prior to the introduction of guarantees and solvency rules that have all but destroyed occupational pensions.
And if we don’t want either, we should put this matter on a truly collective basis and simply purchase more state pension with our pension savings.
Who takes the risk and how? These are the questions that we should be having a national debate about. The ever increasing confusion about annuities will continue indefinitely unless we define what underpins the conversation, what the real choice facing Britain are.
I will carry on banging the drum for this debate to happen, This blog will continue to argue for more strenuous debate and for thinking that goes beyond the vested interests of those who produce and sell annuities and alternative retail products,
At some point, someone will listen. Shopping around is the best thing we can do today, but it is not the solution to the problems with purchasing pensions with our money.