Amin Rajan is a clever man and he has written a very good article in the FT that starts

The UK Financial Conduct Authority’s recent exposure of the abuses around the 2015 pension freedoms that enable people to cash in their gold-plated pension pots caused few surprises

Few surprises in the circles in which Amin and gold-plated pension literati move. But perhaps Martin Woolf of the FT (who liberated his gold plated pension) and Merryn Somerset Webb (who would have done if she’d had one), might baulk at the next statement that concludes

Diligent regulatory oversight is essential, but it can only go so far. Individuals also need basic financial education that counters the desire for immediate gratification and promotes long-term thinking

I hope that Jo Cumbo can organise some financial literacy lessons for her short-sighted colleagues! It is very fashionable to argue for state intervention to improve “good behaviours”.

The OECD’s attempts to change human nature

Amin Rajan points to various initiatives around the OECD designed to show how  individuals themselves do makes a big difference to retirement outcomes.

But Amin points out that the bar is set low, the best that we can do in the UK is to point out the dangers of being ripped off by scammers. The FCA may huff and puff about the numbers of people deserting gold plated plans, but they can do nothing to stop the thousands of steel workers taking their transfers in Port Talbot, Redcar, Motherwell and Scunthorpe.

It is unfair to call such people short-termist or in search of instant gratification. The conversations I have had with steel-workers have focussed on what the Pensions Regulator calls “integrated risk management” and workers call the likelihood of their benefits going into the PPF.

While I agree with Amin that they have worked for a lifetime without any preparation for the decisions they now have to take, I see no sign of short-termism or fecklessness. Of a recent poll on the Steel-Workers self-created Facebook site, only 4% of steel workers were going to take the cash, the remainder were going to take their chances with an IFA, go to the new scheme or let their benefits pass to the PPF.

This is not the behaviour of feckless, short-sighted or ignorant people; it is the behaviour of well-organised , deep-thinking, financially responsible workers who have their and their families financial futures at stake.

Where we are failing people is in not giving them obvious things to do.

For Martin and Merryn, managing a large pot of money may not be daunting. I have friends who find the challenge of managing a SIPP portfolio as much fun as I do my Betfair Account.

But I do not find managing my money easy – or enjoyable – especially when I see my pot diminish because of “market volatility”.

I have absolutely no wish to manage my pot on a day to day basis to avoid the calamities of sequential risk, the tax implications of the AA, LTA, IHT and MPAA.

I want a simple annuity like product that allows me to participate in world markets with risk mitigated by being part of a collective enterprise. I am happy to share some of the good times and get less in return for some protection when times are bad. This is a lesson I was taught at school by Joseph, who stored wheat in good years so that when famine hit Egypt, there was grain in the bad.

I want a product that is provident in that way. I also want a product that looks after my obligations when I am alive , looks after my partner when I am not and lasts as long as I do. I do not want to confuse this “wage for life” with the money I am putting aside for my offspring.

What I am describing is a product that does not exist in the UK any more. It hasn’t existed for many years, not since the times when you could transfer in DC pots into defined benefit schemes in exchanger for more scheme pension.

Product is needed more than hand-wringing over financial literacy

Over the past 8 years I have argued that people should be given access to scheme pensions from the state.

• I would like the DWP to explore issuing pension bonds that give people rights to more state pension. ( I suspect the low rate of conversion would shock many)
• I would like the PPF explore offering to take people’s DC pots and in return give them a scheme pension – based on rated determined as affordable by the PPF.
• I would like to see collective decumulation from NEST and other large occupational schemes – a NEST pension from a NEST egg.
• I can even see a free-standing master-trust being set up from scratch to fulfil this financial need. (this is the most practical model for CDC as it requires no sponsor, only aggregation).

All of these ideas are based on mutual insurance of longevity and market risks. All could re-use existing operational structures efficiently and accurately.

All would require keen management of people’s expectations, especially over the rate of pension which would need to be adjustable (conditional is the current jargon).

All of these ideas demand political courage, foresight and a collective will to tackle the problems we are currently facing by sharing risk – not dumping it.

Flunking financial literacy – it’s universal!

Amin Rajan, like his friend Todd Rupert, has spent most of his life trying to find a way to make us financial plebs more literate. Todd Rupert recently declared after years of investment from T Rowe Price, he had given up on making his customers their own CIOs.

But that is what tens of thousands of steel workers are about to become.

Pointing the finger of blame at poor financial literacy rates, is no good. No country has seen great improvements in financial behaviour recently. If we learn, we learn slowly and at nowhere near the pace needed to cope with the speed of risk transfer that is happening in the UK.

We are collectively rubbish at financial decision making, especially when it comes to the long-term problems of living too long and dying slow unhealthy deaths.

We urgently need collective products that help each other to more certain , more efficient and less stressful financial futures. We need pensions paid to us which meet our realistic expectations. I admit that we need some education about what those expectations should be, but that is a different matter from simply supplying the CETV with a disclaimer on the outcome.