This question was posed on the Pension Play Pen Linked in Group by Jonathan Lawlor, a distinguished actuary and someone who thinks about these matters with an independent mind.
He had been reading a new paper by Debora Price “Financing later life: why financial capability agendas may be problematic:” which states
There is “no evidence that financial education has any substantive long term impact on financial outcomes”
There are a number of challenging thoughts in the paper:
” we see that it is individuals that must change their behaviour to meet the needs of the market, rather than the other way round……
They are no longer citizens of equal value to the State but now consumers who must play their various responsible parts in the functioning of the financial services industry”.
It is language like this that serves to construct failures in the government project for the provision of financial welfare in later life through the private sector not as the result of flawed government policies, but rather a result of flawed people.
Following the logic in extracts such as these, if the financial services market does not work efficiently, does not lead to innovation, offers poor quality and poor value for money,it is not the fault of government in designing the system, but of individual ‘consumers’ for not being sufficiently well informed. “
This view of the individual , at the mercy of what the financial services companies give them is commonly held, not just by academics but by “consumers” in general.
But it is a selective view. There remains a substantial body of opinion, of which Debora is both representative and a thought leader, who consider the role of the state to ensure that financial outcomes are good , both by intervening in the financial services market and by delivering pensions which have nothing to do with insurance companies, asset managers and financial advisers.
Indeed most people, were they aware of its value, would regard their rights to the basic state pension as their largest unencumbered post retirement asset.
I am sure I am misrepresenting Debora in suggesting that her view is unbalanced. I know her and have spent a fair few hours in agreement with her. If I differ from her, it is because I am on the inside of the private pension system and she is looking in.
I know that there is a strong bedrock of decent people within pensions who are fed up with seeing the pensions industry being dragged down by shoddy practice in whatever form. Who aspire to restore confidence in pensions by practicing what we preach.
Practicing what we preach
I would include among these people the 40 odd people who work full time for TPAS, the 400 odd case-workers who provide services for free to help people resolve pension disputes, the army of lay trustees who sit on pension trustee boards for nothing and the many people like Jonathan, who are actively engaged in finding new ways to old problems.
I don’t think that Pension Wise is the answer, but nor do I expect it to be a disaster. It will be what it sets out to be, a way to help people organise their thinking around the money they have at their disposal to supplement the collective benefits they have.
“Financial products” , annuities, income drawdown from SIPPS and Personal Pensions and the variants that are likely to mutate from Defined Ambition are not the answer for most people.
These products require people to make the “right decisions” and Pension Wise will not – in itself – be able to do this. It may be the catalyst for some to take control of their finances as Martin Lewis is the catalyst for many people to go debt free.
But we don’t generally have the financial capability to do the complex maths to work out how much to draw from our savings to make them last. Nor can we easily grasp the concept of insuring against long term care and we are hopelessly inadequate at doing the asset liability modelling to make the right investment decisions on our glide-path to death.
Even if we get so far as getting a plan, we then have to make choices on how to implement it and that means understanding the range of financial products and choosing which are best for us.
People should not be demonised for not being good at pensions
It is not fair to make ordinary people feel guilty for not being able to think all this out.
Instead , we need to find new collective mechanisms for people who aren’t wanting or able to navigate around all the choices I’ve just talked about. Thankfully there is a piece of legislation making its way onto the statute books that enables such collective schemes to emerge.
And it is important that these new collective pension schemes (known today as CDC) are allowed to emerge without them being strangled by the financial services industry.
I am with Debora that it is not the fault of people that they don’t get financial services. Nor are they naughty for not being able to do the maths.
People should be able to join collective schemes without the need for financial advice and not just because they are lucky enough to work for an employer who is prepared to set one up or participate in one.
Everyone should have the right of putting their retirement savings into collective arrangements – either run by the State – as NEST is – or by the kind of organisations who really do care for people in older life.
In case anyone is any doubt – such organisations do exist.
Pensions Wise is one such organisation.
Perhaps Debora sees it as a shield to fend off charges that “Freedom and Choice” is a reckless abdication of responsibility. Anyone who has heard Michelle Cracknell speak or seen TPAS at work would not damn Pension Wise for that. It is what it is.
Nor should we dismiss all financial advisers and employee benefit consultants.
Some commercial organisations that provide financial education in the workplace are part of this Force for Good.
I can say that with some confidence as I work for an organisation that really thinks about how these issues and is trying to provide financial education that does not promote products but aims to ease decision making.
We should not and do not say “it’s your fault”. But we can’t pretend that people are prepared for the financial implications of a long life.
Debora is right, Pensions Wise and Workplace Financial Education are not enough to sort the problem. The problem cannot be solved by personal empowerment or “the financial capability agenda”.
The solution to society’s problem with later life lies with society and with social or collective financing. We need to continue to rebuild the state pension, we need to get a proper system of funding for long-term care in place and we need to find a home for people’s pension savings that is not a “financial product”.
Without Pensions Wise things could be a whole lot worse, it is not the answer in itself, nor is it a sticking plaster, but to be successful it needs to signpost to proper defaults.
Debora Price – Pension Champion
We are very lucky to have Debora Price saying these things. I might add she is a great golfer (currently ladies champ of the Pension PlayPen Golf Society)
But if you really want a proper understanding of her views, I urge you to spend 30 minutes listening to this (thanks John Lawlor again -for sharing).