A Which survey has found that less than a quarter of consumers — 23 per cent — said they trusted long-term financial products, such as pensions. Speaking to Jo Cumbo of the FT, Gareth Shaw – Head of Which? Money Online, said

 “We’ve found that trust in longer-term financial products — such as pensions — is worryingly low and that consumers are not getting the information they need to make good retirement income decisions…this lack of trust combined with a pension ‘knowledge gap’, leaves consumers disengaged and lacking detailed knowledge about the pension options available to them.”

Gareth’s message is more complex than my headline suggests. On the one hand, lack of knowledge of pensions is stopping people making good retirement decisions. On the other, lack of confidence in the pension product, is driving people to make bad decisions.

We should not underestimate the scale of the problem here. Since the changes in tax rules that released ordinary people from the bondage of the annuity, there has been a calamitous failure to build either the knowledge or the product to give people the easy, obvious and good choice they want.

Yesterday I reported on Frank Field’s intention – as Chair of the DWP Select Committee, to look at how collective pensions might be able to provide such a choice. I will not rehearse that argument other than to say that stopping work on collective defaults in 2015 now seems a retrograde step – one that could -even now – be reversed.

I’m also interested in the knowledge gap.

There has long been a belief in Government that if we financially empower our citizens, Britain can create a sense of self-reliance which can remove from Government the burden of financial shortfalls in later life.

This thinking seems to come chiefly from the Treasury, which has difficulty empathising with the financially dim, for obvious reasons.

I don’t blame clever Treasury economists for being unable to comprehend what it is like to not understand Treasury set rules about pensions and tax, but they might want to have a conversation with Andy Haldane at the Bank of England about just how hard it is, when it comes to thinking about one’s own situation, to make the right decision.

I don’t think there is a knowledge gap, so much as a confidence gap. People do not feel confident taking decisions for themselves, and end up taking no decision, parking money in bank accounts rather than investing for later life.

Product or knowledge of product – it amounts to the same thing

The report is ambivalent about whether it is lack of trust in consumer’s knowledge or in the investment product that is at the heart of the problem

Which? surveyed 255 over-55s who had accessed their pension pots since April 2015. The research found that many of these savers became daunted and confused when it came to making a decision about what to do with their retirement savings, leading to inertia.

Which? also found that because trust was so low in long-term financial products consumers felt there was little to be gained, and much to be risked, by switching providers to get a better deal.

Whether it be product or knowledge of product, the outcome is the same, people do not make decisions that they are proud of and the result is that 77% of those surveyed are not trusting their pension planning.

An opportunity for advisers?

Advisers like John Mather regularly have a go at me for disparaging the need for independent financial advice. I’ll say what I said at a recent NEST insight conference, independent financial advice is a minority sport which is enjoyed and valued by those with the means to pay for it , but is not within the means of most ordinary people.

That does not make independent financial advice the less valuable. It is an aspirational product but it is not a mainstream product.

It makes no sense for Pension Wise to signpost independent financial advice if the independent financial adviser will not advise. Many referrals are simply turned away by advisers who – quite properly – explain that the customer has neither the assets or the need for the service on offer.

What independent advice can offer – which Pension Wise guidance cannot – is the provision of a definitive course of action (with a big fat PI insurance policy sitting behind it).

People want to be told what to do , they want recourse if the advice turns out to be rubbish and they want products that live up to their expectations. Frankly – 77% of people have clocked that they are not going to get all three!

We need a proper debate on the art of the possible

My good friend Derek Benstead claims he can never be right with his assumptions, but he aims to be 100% wrong in an even-handed way!

If David was wrong by under promising and over delivering 50% of the time, and over promising and under delivering the other half of the time, he would consider himself a success.

People will have to get used to not getting exactly what they want 100% of the time. They will have to get used to seeing their retirement income stalling and maybe decreasing in bad times, just as they are used to wages stalling and decreasing in bad times.

There are no 100% right answers that give certainty of the right amount of income all the time! The certainty of an annuity is the certainty of failure, people will find equal certainty in keeping their money on deposit in the bank. The certainty of equity markets is that capital is at risk (income less so). The certainty of investing in debt is that not all debt will be repaid and the good debt doesn’t pay much interest.

That debate is long-overdue!

Of course many people will point to property and declare their house(s) , their pension. I have always pointed out you cannot buy a sausage with a brick and unless you are very well organised, houses carry the same kind of risks as any other investment.

What is different is that we understand houses and how rents work and how to deal with bad tenants and so on. We do not understand how equities and bond and bank deposits work, so we don’t understand these investments. We don’t understand- we don’t trust – we end up taking poor decisions and so the cycle of mis-trust is maintained.

I have yet to hear our pension experts- be given the air-time to explain how pensions work to the general public. I have yet to see a proper debate that asks how we intend to restore confidence not just in pension saving – but in the payment of pensions.

We need a proper debate on what is possible and what is not. One that really addresses whether people are wanting to be able to manage their pensions. We need a debate that looks at how pensions are invested for the long term in terms of risk and reward, paying proper attention to the value and cost of guarantees.

This is where I hope the FCA will go with its Retirement Income Study. 83% now find workplace pensions are good for them, but 77% of us don’t trust ourselves or our pensions to deliver. Surely the message must get through, we know how to save, trust investment defaults but know little to nothing about how to turn savings into a wage for life!

We need help, we need the knowledge that what we do will deliver and the trust in ourselves to press the right buttons when we need to.

Financial Conduct Authority [FCA] offices in Canary Wharf, London. Photo by Michael Walter/Troika