I and my colleagues are fascinated by financial decisions; who to take out your mortgage with, who to bank with, which ISA to choose and which pension scheme to select for your staff.
Which , Money Saving Expert and the comparison sites are able to list financial products in terms of the interest rates they offer or the stated charges but most of the time, we decide on what we know, what will happen in the first couple of years when the offer is fresh.
So often, what is good today, turns out to be bad tomorrow, the road to financial penury is littered with wrappers marked “special offer” that turned out to be too good to be true.
What’s needed is a trusted source which can provide knowledge not information, that can help people choose on a sustainable basis. To some extent, this knowledge is tied up in the brand; for me First Direct is a bank that has delivered me magnificent service over 20 years, at the same time I have banked with Lloyds and RBS who (for me) have been less good. I remember banking with Citibank at one point, they offered me some free airline tickets to join them, the tickets never turned up nor did the Bank.
My experience , added to the experiences of millions of others makes a brand like First Direct a natural choice for a certain kind of person who likes remote banking. I have never met a First Direct Bank Manager and hope I never do!
So both in terms of interest rates and charges and in terms of the quality of service, there is a common knowledge bank into which people can pick and could be summed up as brand. Think Fidelity, Legal & General , First Direct and latterly Metro Bank – think brands untainted by scandal that people say good things about. I could print a list of financial institutions that go the other way- but that would be too long for a blog!
Bank accounts, mortgages and ISAs are quite easy, not only are they relatively simple to understand but they are disposable, people to change bank accounts, switch ISAs and re-mortgage and though the experience is not always as easy as we’d like, it is within our financial compass.
Pensions are something again. They are the nocturnal beasts of the financial jungle, talked about but little understood, lurking in our financial portfolios with unrealised potential. The simplification of choice at retirement (started with the easy idea of cashing out) has done something to change this.
People want the choice to pay off a mortgage, cash in an ISA or close a bank account. Until recently, a pension was something that was just there, something you owned about which you had little control. That’s changed… as this excellent video shows.
We now have choices we never expected but they come at a choice.
An annuity gives security but it comes at the cost of income
Drawdown is good for income but comes at the cost of security
Cash is flexible but may come at the cost of a tax bill.
And to get to the point of having these choices at retirement we need to make choices throughout our life on whether to join or opt-out of the employer’s pension, whether to make extra personal contributions, whether to use the salary sacrifice option and whether to choose funds or rely on the default option.
All of these choice come at a cost. As TS Eliot wrote
What might have been is an abstraction
Remaining a perpetual possibility
Only in a world of speculation.
What might have been and what has been
Point to one end, which is always present.
All of the decisions we take remind us of the choices we discarded. The “what would have happened ifs” persist
Footfalls echo in the memory
Down the passage which we did not take
Towards the door we never opened
Which is why , on the big decisions, it is always worth considering choices and not jumping into things. Because those memories come back to haunt you.
Over the next three years over 1 million decisions will be taken about pensions, not just for the decision maker but for the staff that he or she employs.
Those decisions will have a material impact on the choices nearly 5m people have at retirement. Some of those 1m decisions will be taken with consideration, many won’t. All of those decisions will be remembered by those affected.
The cost of taking the wrong decision may have no more than a moral impact, the judgement of staff that you didn’t give a flying f*** about their financial well-being.
The cost of taking the wrong choice may impact the retirement of the person(s) taking the decision.
In extremis, a bad decision could leave staff, employer and even the adviser in such a mess that the only beneficiaries are fraudsters and lawyers.
We are not dealing here with decisions can be easily undone. The numbers of people who switch their pensions is tiny compared to those who change mortgages, ISAs ,bank accounts, utility companies. A pension plan is a life sentence.
I find it quite extraordinary that people pay so little attention to the choice of a workplace pension.
By people I mean everyone from the Pension Regulator to the employee enrolled into one with a lot of intermediaries in between.
The difference in outcomes (apples if you refer back to the video) between a good and a bad workplace pension is huge.
http://www.pensionplaypen.com will score all the providers we research and their specific offers to you as an employer on a scale of 1-100. We measure the likely outcomes to staff, based on what we know of the staff and the provider’s offer, we measure the ease of use of the plan to the employer based on what we know or provider and payroll.
It is easy to put a cost on this choice. It is only £499 (+vat).
If you are about to choose a workplace pension, don’t leave the choice to chance, invest a small sum to get the right choice properly documented and certified.