Is Pension Wise doomed from the start?


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.

Pension Wisemichelle

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.

F1rst Actuarial hi-res

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)

golf 044

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).

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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20 Responses to Is Pension Wise doomed from the start?

  1. says:

    Debora appears to be quite right in the assertion that financial education does not necessarily improve individual financial outcomes‎. From my experience as a chartered financial planner in private practice specialising in lpong term financial planning the statement is true, in isolation. The statement underlines the fact that as humans we want to know what we want to know when we NEED to know it. Whether ‘knowledge’‎ of a subject is specific and detailed is irelevent to most people if it not timely.Pension provision at a basic level is taken for granted in modern society where the state provides it. A personal driver to gain detailed information on income in retirement may be inspired by a relative finding themselves financial embarrassed a retirement age. Most people need that stimulus to create interest. The specialist adviser or caring employer can, and often does, ‎stimulate that interest by presenting examples of failure to act rather than explaining the detail of the savings mechanism.When you want to make a call you use the phone, how it works is of no interest, per se, or relevance, unless it fails in the task. Sent from my BlackBerry 10 smartphone. From: The Vision of the Pension PlaypenSent: Saturday, 31 January 2015 08:29To: tpohalloran@btinternet.comReply To: The Vision of the Pension PlaypenSubject: [New post] Is Pension Wise doomed from the start?

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    henry tapper posted: ”

    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: wh”

  2. henry tapper says:

    Thanks TP

    I am an adviser like you and work with caring employers who do want the best.

    Many people don’t see the range of financial products currently available as providing sustainable solutions and certainly neither individual annuities or capped drawdown has “done it ” for most people.

    Simply signposting more of the same is not going to make Pensions Wise a success. In the long-term, it’s going to have to provide people with collective solutions that don’t need day to day management but provide more than annuities.

    Do you think that such products will emerge or are we going to end up with a pensions civil war!

  3. Michelle Cracknell says:

    “The answer is education”. I often hear this when I attend seminars. It reminds me when I was at school and my common cry was “why do I have to learn passages from Macbeth, how is that going to help”. I do not believe that education is the answer, I believe that empowering people by :
    – giving them the questions to ask – themselves, their pension scheme or others and
    – giving them the map of the pensions world – who does what and for whom.

    This gives people what they need to make the right choices for them

  4. henry tapper says:

    That’s an interesting take on it Michelle. Does the geography lesson help with the navigation or do you still need a pilot?

    Or do you end up singing

    No matter where I roam
    By sea or land or air
    You’ll always find me singing the song
    Show me the way go home!

    I’d like to think that the “home sweet home” option is the one that is absolutely obvious and staring you in the face – that’s what we need to build (IMO)

  5. I entirely agree with Michelle that the important point is giving people the questions to ask. Education is important but it’s important for people who need it for some specific purposes – they need to understand ‘why and how’ and they need to understand it for more than one occasion.

    People who need the ‘answer’ don’t need to understand ‘why and how’ just ‘what’ and for that they need the questions that will lead them to their bottom line.

    What worries me is whether, when they’ve got the questions, there is someone who can answer them.

  6. Andyjags says:

    So what are the question?

    Try this one:

    I will reach 65 in June £200k in a DC pension and noting else apart from basic pension plus £40 SERPS and a few £ in ISAs and a mortgage free house. I am single and have no plans to leave anything much to relates.
    I am a non smoker with no health issues,cans both my parents alive.

    If don’t want to tie up all my money in an annuity. Not just now anyway.

    But I don’t want to run out of money either.

    I think I would like about £20k a year after taxe

    I am willing to take some risk with investments but not too much.

    So what guidance can I expect, and then what advice?

    • henry tapper says:

      Hope Michelle reads this! One thing you can do Andy is look at buying soe extra state pension and have a look at pensioner bonds ( if there any left) CDC might be handy for you but it wont be around till 2016🎁. Thats it b4 i get imprisoned by the man from the FCA

  7. Gerry Flynn says:

    If Andy has been working all his life say from age 20, then he should qualify for the full State pension, in fact he has paid an extra 10 years for nothing so why should he pay a further £800 a year?

    • henry tapper says:

      The key word is consider. With his state pension forecast in hand , he should be asking whether there is scope!

      I understand that generally there is!

  8. andyjags says:

    For the record, I cannot buy more basic pension – as Gerry says, I have the full rate.
    I could buy more of the new tangles Type CA (I think that is what it is called) which is more SERPS. I THiNK I could, but who can tell as it is all too hard. It is also a poor deal as I have to pay of it out of after tax income but it will be taxed – I sense a misselling scandal.

    I look forward to whether the guidance tries to tackle any issues. Michelle’s comments may be fine I am frankly sceptical on guidance and advice for the vast bulk of the population, especially in the next few years before we have the long term AE generation with substantial pots coming along. But I still await the tangible help in the whole process in terms of answering my questions, rather than telling me how to ask them.

    And I still await anyone raising what I see as a key starter for 10. I wonder if any Advisors do.

  9. Brian Johnson says:

    As I see it guidance is about ensuring people know the right questions to ask and advice about getting detailed options. Guidance can never provide a detailed plan for everyone.

    Any advice for your example situation is complex and would need a detailed fact find and know your client session to tease out your plans and attitudes to risk in additional to understanding your plans for your home (relocating/improvement/maintenance/releasing capital). There is the need to do some financial modelling to understand what is achievable with your attitude to risk and to minimise your tax liability.

  10. says:

    A really interesting debate. The problem is that there is more than one problem to solve. Firstly, too many people are unaware of how little they are likely to receive from the state compared to their needs/wants in retirement. Secondly, too few people understand the resultant need to make their own provisions in addition to the state pension provision. These two problems are a question of education. If people were to be educated about this, the next problem would be to understand how much they would need to set aside on a regular basis to provide the desired level of income at retirement. Then the next issue would be to understand the uncertainty of reaching their goal even if they were to set aside the amount they have been told/believed they need to set aside because inflation, investment returns, health and life expectancy are future unknowns. These are all education issues. Next, there would need to be an ability to actually afford to make these contributions. If the affordability is there to make such contributions there would then need to be an understanding that choices have to be made between current gratification versus future gratification i.e. not spending now in order to be able to save to fund future spending. This is not so much education as willingness to make long-term decisions. This is where the soft persuasion skills come in – just like they need a doctor to make them take a course of medicine so most people need to be told or reassured that they need to make a decision to save. So even if people were in full possession of all these facts, they still need someone to inspire or motivate them to make the sensible choice. So actuaries and guiders are good but you also need face to face persuasion in most instances. Given that regulation has made access to good quality financial advisers so expensive access to this valuable set of people is not available.
    So it then becomes an issue which can only be addressed by changes to society and culture. Our politicians need to speak as one and continually reinforce the message to save, save, save. Education is vital, but leaving it until someone is 65/at retirement age is really rather late. The Guidance Guarantee will not be a disaster, it simply won’t help much. The time when education and guidance are needed is at the start of one’s career and throughout one’s working life rather than waiting until the end.
    Take Andy, he has no hope, some hope and Bob Hope of getting £20,000 per year after tax with just £200,000 plus his stated state pension entitlement to look forward to. No amount of guidance will help him achieve this goal unless his guidance is to make sure he doesn’t live more than 12 or thirteen years. Education needs to start with young people and also our politicians need to be more honest. For example it is blindingly obvious that the only way to provide the long term care solutions needed by our ageing populace is to pay more for it. But in the years of austerity no party is saying that we need to pay more taxes, instead focusing only on rejigging the health and social care budgets. That’s just fiddling whilst Rome burns. As a nation and as a human race we need to understand that we have to go without more now to provide later. No amount of education will help unless our society and our cultural values change. It needs to become as socially unacceptable not to save as it now is not to wear a seat belt or to drink and drive. Information and education alone do not cut the mustard. Although they are necessary they are not sufficient. A bit of a rant but the big disgrace is that our politicians do not speak with one voice, so the message is not communicated to the electorate in time. Guidance Guarantees and Pension freedoms give people more choice about how to consume their rations, but do not address the fundamental problem that by the time they retire only the few have enough rations to last unless the many partially starve themselves whilst alive. Markets may be efficient for the economy but they do not necessarily produce the right outcomes for people when they retire.

  11. Hi everyone, and apologies for taking a few days to realise this discussion was going on and to respond! I’ve also posted a response to a slightly different discussion also sparked by the article going on in the Pension Playpen LinkedIn group. As I’ve said there, real apologies that the paper is copyrighted by Emerald, but it is based on a public lecture (21 minutes) that I gave last year, which is on YouTube here (on the Ageing Bites Channel), if anyone is interested:

    I guess fundamentally, I think the State Pension is the most important element of all. When I was a lawyer I would have to confess that I barely realised the State Pension existed, let alone, honestly, had any idea of its importance, but now I know that it is the crucial thing that keeps most people out of poverty. Showing how precarious income is, really, in later life. I still want to make the system that exists work better though, and I guess there are two main ideas that I was trying to convey – (1) the idea that we can solve any of the current challenges by financial education is really flawed. A brief reference list for those wanting to know more is at the end of this post. (2) That we have to be careful, because the financial capability agenda is so seductive, so hypnotic, so demanding, that it stops us asking much more fundamental questions about inequalities in later life.

    But of course I also think that those in the business of giving financial information, advice and education should do the very best they can, and should be reflexive about what they do, and regulated appropriately (whatever that means). And that many do an excellent job. I agree with all of that, always have, trust some of them myself, with my own money. But I think this should be accompanied by real attempts to measure long term outcomes, not short term outcomes, with a view to understanding inequality, and differential outcomes, the outcomes that matter to people, and that take account of the whole integrated system of state, employer and private pensions – i.e. how much do they end up with in old age. This is such a difficult thing to do, that you have to think about very long run datasets, the kinds that will be around for 40 years, and that capture the pension, income and social variables that we know really matter. And no-one will pay for that.

    I also agree with Henry that restoring confidence in private pensions is paramount, and that many people are doing everything they can to do that. But guidance? Nope, not for me, I think the whole thing is a bit of a red herring, my views are here:
    Which is not to criticise Pension Wise. I don’t mean to do that, and I really hope that it does the best job possible. On this, Andy’s poser and the answer string to it are illuminating.

    Henry puts his faith in CDC, well, I think we have to pool risk somehow. The state does that best for me, and though lots of issues with them, DB systems mostly did it well too. Shared risk is pretty critical, I think.

    Want to teach something in schools that will help pension provision? Teach young girls and boys about how to share financials equitably in their first cohabiting relationships, especially through the births of their first children. I ran a session once for high school kids, and it was really illuminating. I tried to upload the slides for you, but couldn’t work out how.

    And on a final note, it is true that I am Ladies Champ at PlayPen golf. I think I am also the only ‘lady’ who has ever played in the competition. It generally surprises people that I play golf. I kind of like that.

    Those references:
    de Meza, D., Irlenbusch, B. and Reyniers, D. 2008 Financial capability – a behavioural economics perspective, London: Financial Services Authority.
    Fernandes, D., Lynch Jr, J. G. and Netemeyer, R. G. 2014 ‘Financial literacy, financial education, and downstream financial behaviors’, Management Science 60(8): 1861-1883.
    Frankfurter, G. M., McGoun, E. G. and Allen, D. E. 2004 ‘The prescriptive turn in behavioral finance’, The Journal of Socio-Economics 33(4): 449-468.
    Hastings, J. S., Madrian, J. S. and Skimmyhorn, W. L. 2013 ‘Financial Literacy, Financial Education, and Economic Outcomes’, Annual Review of Economics 5: 347-373.
    O’Connell, A. 2007 ‘How effective is financial education?’, Policy Quarterly 3(3): 40-46.
    Willis, L. E. 2011 ‘The financial education fallacy’, The American Economic Review: 429-434.

  12. And a little ps – I found this on my blog, written in 2011, about bringing financial education into schools…

  13. henry tapper says:

    I could arrange for AndyJags to meet my Sicilian friend, he’s an actuary who can confidently predict the day of your death (for a suitable fee).

  14. henry tapper says:

    Michelle- your comment

    As pension schemes are being redesigned, and Defined Contribution schemes become the norm, experts are increasingly calling on government to improve pension/retirement education for school leavers.

    But is there any evidence, anywhere in the world, that “educating” school children makes any difference at all to retirement planning at any point in the lifecourse? I know of none, but would be really interested if anyone else does. Cynical old me thinks it’s a useless diversion from the real issue which is role-of-the-state (and effectively, compulsory old age income provision through taxation, however branded) and the role of voluntarism in the private sector. Voluntary retirement provision suffers from a host of complex structural and psychological problems (like low paid jobs, poor terms and conditions, pensions designed to favour the better off, short termism, financial complexity, debt, competing financial needs e.g. housing and children, moral hazards relating to the benefits system etc etc etc) which are now very well documented and are really very difficult to solve. And what would we teach anyway? The most educated, highly skilled, highly specialised, financial managers were unable to prevent a global financial crisis that wiped out the values of equities and has left older people in very difficult circumstances with no income from their mostly modest savings. I know many highly skilled, highly educated, very well advised professional people who had their whole pension in Equitable Life. Which incidentially was also recommended by the Consumer Association (Which) as a Best Buy for many years. Tricky.

    I agree

    • Brian Johnson says:

      Henry, educating people allows them to read and do basic maths. You also highlight the many complex decisions people are required to make at its basic level around consuming now or consuming later. Teaching people the basic understanding of risk (low risk doesn’t mean no risk and about different investments, interest rates so they can make informed decisions.

      The financial crisis started as a low risk outcome but was made worse by “experts” who didn’t investigate or understand what they were buying. Was Equitable Life supposed to be a risk free investment? Certainly in the last few years before it “failed” IFAs who questioned it’s ability to continue to meet the promised rate of long term returns were accused of sour grapes as Equitable Life didn’t pay commission. There was a risk that if short term investment returns fell for too many years below that required in the long term for their business model to be sustainable it would reach a position of no return and “fail”.

  15. Henry, did my long response post? It is still showing as “requiring moderation” on my screen. Clearly WordPress knows something about me that I don’t!
    I agree wholly on the kids education thing. I found two old short blogs of mine in my journey round the web today – written in 2011 but I still think this and its seems still pertinent:

  16. Silvia Camporesi says:

    Reblogged this on Department of Social Science Health & Medicine at King's College, London and commented:
    SSHM Dr Debbie Price’s challenging latest paper on “Financing later life: why financial capability agendas may be problematic”

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