Self-help – Can you “DIY pensions”?

iphone6

iphone6

“The instruction manual is missing”

– the first thing my partner said when she opened her new smartphone, I’d kindly donated her for Christmas. I was close to having a Michael Winner moment.

“That’s because you learn how to do it on the phone”

“But how do I get started….?”

For iphones read pensions, at leas for novices. The UX (user experience darling) diverges about 30 seconds into getting started.

IPHONE UX

Key words; easy, friendly, simple ,fun ,sexy

PENSION UX

Key words; hard, jargon, numbers , boring, frustrating.

There are plenty of pension communications firms who are telling us that pensions can be “easy,friendly,simple, fun and sexy” but they’re not. You cannot make pensions easy/friendly….sexy with a picture.

Believe in pensions

They really don’t lend themselves to Christmas humour, like…

Santa

If we let the people who run pensions , loose on Christmas, this is what we’d get.

Quietroom Christmas card

Quietroom Christmas Card – thanks folks!

Thankfully, the people who run our pensions are beginning to see the point of talking the language of the people who spend them.

This was the DWP’s Christmas quiz which I managed to get zero right – ending up a Christmas pension Turkey.


 

The truth’s that there’s currently no simple  way we can know all we need to know about pensions, to manage our own retirement effectively.

All this stuff about making pensions sexy is fun when you’ve had a few mince pies but it doesn’t help elderly people managing their day to day finances and it doesn’t help those of us planning our retirement to work out where we are compared to where we want to be,

To manage money we need real online information. When we withdraw cash we expect to see our balance and we expect to speak to someone on the phone or check our account online  24/7. The absence of immediate accurate data on our pension account is a major obstacle to self-management of our pensions.

Even if we can get data on one account, there is very little help in aggregating that data with the other key accounts (bank, mortgage ,savings and other sources of income – such as the state and occupational defined benefit schemes.

This is changing, the new platforms such as MoneyHub and LittleBlue are now able to access the data, organise it and present it in a way that makes those with the right skills, capable of “doing it themselves”.


The new skills needed.

The current generation of pensioners and soon to be pensioners are not skilled in digital self service. I’ve just wasted 30 minutes trying to download a plug-in to show that DWP quiz (#fail) and I’m sure I’m not the only 50 something that struggles to organise usernames, passwords and remember the name of the sites and apps I need to manage my money.

Nobody taught us this stuff when we are young and we’re still looking for the instruction manual!

Moneyhub1

 

Restoring confidence in pensions

The biggest problem with our pensions is that we don’t think they are “ours”. To find out what we have we have to ask a series of permissions. We need permission to access data from Trustees, insurance companies and even the providers of self invested personal pensions.

We then need permission to act, typically we need to get advice from our adviser or to sign a number of indemnity forms to prevent us being ripped off by scammers.

Finally we need to wait for confirmation of what we’ve done, usually in the form of a letter which typically arrives at the wrong place at the wrong time.

Faced with so many obstacles to taking action, most of us take no action.

Can we put the instructions back in the box?

I worry that the obstacles between us and our money continue to make pensions “other people’s money”.  I worry too that the complexity of the rules that surround pensions are making it difficult for this to change.

I know that the Government are worried too. While the primary economic driver for the forthcoming changes to pension taxation are fiscal (the need to put a cap on tax relief), the justification for changes will be that they’ll make pensions understandable.

As with pension freedoms, the Chancellor is pushing at a half-open door. The public’s dis-satisfaction with financial advice matches their dissatisfaction with annuities.

Following the announcements on March 16th (in the Budget), we will hear from Harriet Baldwin, Osborne’s right hand lady, on the outcome of the Financial Advice Market Review.

I think the Treasury sees the two announcements as linked. Together they are hoping to crack the hegemony of the intermediary and put ordinary people back in control of their finances.

Certainly, if ordinary people were able to manage their pension account as they manage their ISA account, the Treasury would be telling itself “job done”. The instruction manual is in the box, or on the phone – or on web chat.

moneyhub3

 

A word of warning

While ISAs have been an outstanding self-service success story, they are not a pensions panacea. The current default investment mechanism for ISAs is cash and I’m quite sure that many people are in cash for retirement from an early age. While I can understand the desire for certainty, I know the capacity of people to measure the opportunity cost of an investment strategy retrospectively.

The “what if” mentality is most obvious these days by reference to property. A big mortgage, properly serviced, will have provided geared returns (at today’s property prices) that trumps any other form of return.

Many advisers will point to the last two paragraphs and ask whether the general public are sufficiently aware of investment risks to make long-term investment decisions.

I am not among these advisers. I reckon that with proper defaults, sound fiduciary governance and a lot of good messaging, we can improve the nation’s personal financial management – whether of credit card debt or pension saving.

My “word of warning” is “believe”. We have to believe in our capacity to restore confidence in pensions. Without self-belief, we will fail.

Believe in pensions

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to Self-help – Can you “DIY pensions”?

  1. Con Keating says:

    There is a problem with the mantra that ISAs are an outstanding success – the measure of success should surely be the returns ultimately achieved not whether consumers subscribed large sums of money to them – and by that return metric, they are far from impressive.

  2. Michelle Cracknell says:

    1. Pensions are sexy! They make you happy after work.

    2. The issue is not fancy marketing material with trendy language. The issue is we need to make the process easier, We get people contacting us asking how to start a pension. It is the hardest question for us to answer. Bonkers!

  3. Bob Ward says:

    Hi Henry
    Do you have trouble sleeping along with Con and Michelle who I see replied at 7:30 this morning! I like the i6 by the way although I find it a bit slippery to hold; I prefer my i4S with its leather ‘Masters’ cover which protects it well so I won’t change until I can get another worthy cover.
    I have spent most of my working life writing idiots guides to using IT in the financial sector from cashless shopping, mortgage processing, administration and over the last 4 years AE. IT engineers and programmers don’t write user manuals that users can use! It’s always based on assumptions we know where the button is. How many times have you seen ‘Go to Input and then select each item’ – when the user doesn’t know where the Input button is or how to select an item. Many users are still non IT savvy especially in the retirement sector. Much is being done in the background about getting info out to consumers (mobile apps are being developed although even web based info isn’t up to scratch really) but progress is slow with the tail wagging the dog as IT people approach the topic from a programming point whereas it should be driven by the end user experience. How many IT companies or departments have a dedicated experienced end user on their payroll – zilch. Beta testing goes on with invites for comments but by then the core programme has been created and any ‘tweaks’ needed go onto an elasticated list of up-dates which extends into next year when early user involvement would have matched the half ready product much closer to needs. Current providers are slow to move on with new developments because they approach changes from an IT perspective counting up hundreds of man hours without really understanding how simple some alternative processes can be or understanding what it really is the consumer wants
    I like the Scrabble card – deep thinking, ‘you don’t really know the other person’s motives or desires’ but the dissection of the Christmas carol is too much.
    Consumers just want to know the basics: How do I get money in; how can I see it; what are the entry and ongoing charges; how and when can I get the money out.
    Simple information is needed and therefore this simplifies the processes needed to supply it: Balance, transactions, can do and can’t do, how to do it – that’s it. All these can easily be put on screen, no need for complicated instructions on how the info got there. I have worked on benefit systems over the recent years only to find: “Here we have a system for you, lets have a day’s scope meeting, we can give you all these bells and whistles, you will need to read several manuals to get the most out of the system. All the consumer wants is a radio box with two buttons – how do I turn it on and off, and how can I listen to a different station

  4. bobchampion says:

    Henry,
    I like your analogy but a DC pension will never be the equivalent of a smart phone.
    A smartphone becomes an extension of you, the number of apps you add determines the extent it becomes you. It is not just a communication tool.
    The app we need on our smartphones is the one that helps us play the game of wealth creation during our working life and then aids our wealth disbursement during retirement.
    A DC pension is one component in this game. Two questions that may form part of the game could be-
    Question; I am a 25 year old living in rented accommodation who has spare income each month should I
    (a) invest the spare income in a DC pension?
    (b) pay off some of my student loan?
    (c) invest in a help to buy ISA?
    Question: I am 65 years old and my partner is 63. We are both very healthy and active. We were looking forward to retiring this year. We calculate that we need a combined annual income of £23,000 per annum, but our state pension plus annuities will only provide us with an combined income of £18,000 per annum. Retirement is now not so attractive. How much longer do we have to work to close the shortfall? Will we be as healthy and active then? By the way the house we have lived in for the past 30 years is worth £600,000 is there anything we could do to utilise that wealth and embark on the retirement we were so looking forward to?
    A DB pension is deferred pay and therefore designed with one outcome in mind to provide an income for life. The value of which is often grossly underestimated.
    A DC pension is no more than a tax incentivised retirement savings scheme, albeit probably the most efficient long term savings product there is, which now comes with a high degree of flexibility to meet individual needs. As with ISAs, DC pensions do not have to be that complicated. It is a matter of accumulating savings that can be utilised by an to individual needs during retirement be that an income (usually for life but maybe for a target period), a lump sum, ad hoc lump sums or even bequests on death.
    A DC pension is not really a pension, that is just an option as to how the accumulated savings can be utilised. Maybe if we stopped talking about them as being retirement savings schemes and the variety of solutions they can help solve when coupled to individual household retirement situations they will become DIY pensions.
    but to do that we need the “wealth game of life” app on our smartphones of which “DC pensions” is a key part but not the single component.

  5. Brian Gannon says:

    The public who take advice are actually not unhappy with advice, it is more that the vast majority of the public don’t receive advice. They are unhappy in their perception of advice, but most respondents to surveys have not actually received ongoing advice so are commenting on a thing they have not received.
    As a counterpoint, those clients who receive ongoing advice from me are generally a) happy b) grateful c) informed d) wealthy and e) pay more than they need to if I did not have to cover my and my firm’s bottoms with reams of meaningless and unhelpful documentation. The regulators and ombudsmen are so out of kilter with each other that advisers end up having to be overly cautious, and hourly fees and numbers of hours worked on documenting the conversations have become too high. This means the average man and woman in the street do not ever receive ongoing advice. Because it is too expensive. And because it becomes a boring experience for them.
    Pensions do not have to be complicated but the trouble is no matter how simple they are to understand it is impossible to know or explain the future. So for advice to work it needs to be taken a little and often.
    It is not that hard to explain sustainable withdrawals from Pensions in %age terms (and to convert %ages into £, shillings and pence). The key thing about pensions is that people just do not take advice early enough and so do not pay in enough because they have no idea how much it costs to fund a worthwhile pension income throughout retirement. SO by the time they get to retirement age those nice people at Pensions wise give them the information about their options about forty years too late.
    I agree with Con that ISA s have NOT been a success in terms of providing a sensible long term income stream, since they are largely held in cash rather than invested in a diverse balanced way. In fact they have been a failure as they have stopped people getting tax relief on pension contributions and have made people think (incorrectly) that they are doing well by putting aside money for the future. Politicians of all parties fail to engage the public and are themselves often ignorant of how much we need to save for an adequate retirement. They run away from hard decisions and don’t tell it like it is. They are too concerned with winning votes and making out of date points about high profile scams.

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