Let’s stop pretending guidance is enough.


News that the Government has thrown out proposals for compulsory guidance to protect us from ourselves comes as no surprise to me , though it has clearly angered Ros Altmann.

Writing on her blog, the former Pensions Minister writes of  the  “Government trying to weaken consumer protection for pensions”. This is doubly odd; Ros is a Tory Peer – accusing her own side of having it in for soon to be pensioners is bizarre; but even more bizarre is her belief in self-help through “guidance”.

Those most at risk of being ripped-off in retirement are those in need of advice not guidance. If we are to learn anything from Port Talbot, it is that ordinary people are not in the least interested in managing their own pensions, they want to hand the hardest, nastiest problem in finance to somebody else. That person is typically a pension trustee (the vast majority of those with the choice, voted for BSPS2). Where the trustees were rejected, people put their trust in the financial advisory system, a system that unfortunately let a number of steel workers down.

I’ve published this mini-poll on this blog before, but here it is again. It was taken on October 23rd towards the start of the steelworkers time to choose on the steelworker’s own Facebook page.poll bsps

The poll was conducted by a moderator of the site and he framed the question; please note – 82.6% of those who voted , voted to have their money managed by an IFA.


Why guidance is not enough.

In her article , Ros Altmann has a touching faith in ordinary people’s capacity to make sound financial decisions with the help of guidance.

“Automatic guidance can help pension customers make the most of their pension savings”.

“Customers need help to understand complex pension choices”

“Free, unbiased, expert guidance is available but many don’t get it”

“Auto-enrolment into free guidance will improve take-up and protect many more customers”

“Government is now trying to remove the automatic guidance clause”

“A shame pension providers have not supported this much-needed change”

“It is in the interests of the industry, as well as consumers, that people have proper help”

These are the headlines and substance of Ros’ argument and I couldn’t agree less. Guidance is a great thing for those who are prepared to pick up the phone and listen, people who have a confidence in the complex system of financial products  that underpins pension freedoms and people who are taking their retirement planning into their own hands.

For most right-wing commentators, this should be all of us. From the mid eighties onwards, there has been a concerted effort to create sufficient financial resilience among ordinary working people , so that Government can “democratise risk“, dismantle collective pension structures and leave us to be master of our own financial destinies.

Whichever right-wing think tank we point at , the answer is always the same, give people the tools and they will finish the job. Pensions Wise was the realisation of their vision and Pensions Wise has failed.

Why do we need “consumer protections”?

The reason the Government needs to protect consumers is because it has given everyone the right to harm themselves. In giving property rights to those in DB schemes back in the 1980s, David Willetts was roundly applauded by the people who wanted to manage their own wealth (his own). But the first round of pension freedoms led to pensions mis-selling and the costly restitution of people advised to transfer – into the DB plans from which they had been “liberated”.

In giving pension freedoms to all, George Osborne simply compounded the earlier mistake. In order to cover his tracks, he instigated Pensions Wise which has been helpful to those who are prepared to listen and trust , but no good at all to the vast majority of people who want someone else to look after their money.

Guidance is “sausage and chips” to the scammers.

sausage and chipsThroughout last year, TPAS were having to take down adverts from scammers purporting to be TPAS, to be supported by Ros Altmann, to be doing the Government’s work. In ever more audacious statements, lead generators claimed to be offering us the guidance we needed. It’s “sausage and chips” stuff.sausage and chips 2

Scammers are clever, they understand that people don’t want guidance, they want to be told what to do. So for every sausage and chips supper , there is a Darren Reynolds, ready to take the after-dinner order.

vega certAnd once someone has put their trust in the financial adviser, the money is gone. It could be going to a fund that offers a “guaranteed 6.5%” (Prufund) or be “Ultra Conservative” (Vega Algorithms) , it could have been invested in Cape Verde or Dubai or in St Lucia (Friendly Pensions). People were prepared to hear the narrative the adviser gave them, because they had decided to trust in the advice.

(By the way – I am not saying Prufund guarantees 6.5% pa – it doesn’t, but that’s what steelworkers I spoke to thought they were buying into).

Financial Advice is a minority sport

I’ve likened advice to a minority sport for a reason; like fox-hunting , it is great for the few who can afford it , but is meaningless to most people, who can neither afford it or enjoy its benefits. My friend Al Rush won’t have most ordinary people as clients, not because he’s a snob, but because they don’t need financial advice.

What most people need in retirement is a well organised wage for life from the State and from their workplace pensions. They also need cash to manage life’s emergencies and a sinking fund for occasional pleasures such as holidays, gifts and so on.

If people do need guidance, it is to understand how the State Pension works, how it interacts with Universal Credit and how their workplace pension supplements the income from the Government. When asked, and the CWU did ask, people choose to have a “wage for life” rather than to manage their own pot. The 89% “wage for life” vote from the Royal Mail workers was a vote against a DC pot or a cash balance paid to them from a DB plan. It was a vote for what ordinary people have always wanted, a “wage for life”.

This is no different from BSPS , where the vast majority of those who voted, chose a wage for life in BSPS2 or the PPF and those who voted for freedom, actually chose to have their “pot managed by an IFA”.

If you don’t trust your trustees , then your financial adviser is your alternative , but what makes you special enough to need an IFA? (as Al Cunningham would ask)

People choose to be “free of freedom”

As I have said in my CDC submission to the Work and Pensions Select Committee. Most people want to be free to choose, but will choose the security of a managed solution. If we want those solutions to default to Self Invested Personal Pensions, which is frankly what the financial services industry would generally prefer, then we can persist with the current approach which will have people transferring out of DB into a range of “advised” solutions, people coming out of workplace pensions into a range of “advised solutions” and those advised solutions being of varying quality.

But I don’t think there is any evidence that that is what ordinary people want.

What people want is to have value for money pensions which pay them a wage for life. That’s what the people I spoke to in Port Talbot thought they were getting, it’s what the people who Angie Brooks advises thought they were getting and it is what millions of people saving into NEST and other workplace pensions think they will get.

People save for retirement and want an easy life when they get their, they want to be free of choice, not to have freedom of choice, they want advice not guidance and they want products that give them predictable outcomes – they can trust.

Put guidance to one side

What Ros Altmann and her friends in the House of Lords want is a kind of automatic guidance that will be a complete waste of time. An enforced Pension Wise which will become a chore for people looking to get on with it.

What I want is a system which provides everyone with a default option for their money – an option which we can code-name CDC – but which will be better understood as a “wage for life”. It is in fact a “target pension” , rather than a guaranteed pension and it can be bought at retirement instead of an annuity and exchanged back for cash , in case of emergency.

It’s a wage for life that is not underpinned by a sponsor or insurance guarantee but relies on the old-fashioned principles of trust and mutual assurance. There is nothing about this “wage for life” approach that needs advice or guidance, though people are free to go to the new Government Advice Body for more information or indeed pay for an opinion from a financial advisor.

Let’s put guidance to one side for the moment and focus on the main event. Let’s give people what they actually want, not what we think they need.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to Let’s stop pretending guidance is enough.

  1. John Mather says:

    Do you think it a little late to seek understanding of a scheme at the point of retirement? Education might be better earlier.

    However if you are arithmetical challenged and are told you have a Gold Plated secure income for life of up to 66% of your final salary then of course you can believe what you selectively remember. When the promise fails of course it must be the fault of someone else usually the wicked IFA never the fault of the architect of the scene or the trustees or the sponsoring employer. I thought one of the mission statements of the blog was to restore faith in pensions. When will that start?

  2. Rachel Brougham says:

    Thanks Henry. I’ve always had a problem with the contradiction that is “we know what’s best for you” at one end (auto-enrolment) and “you’re completely on your own when it comes to accessing your benefits” at the other (freedom & choice). And I agree wholeheartedly that auto-enrolment into guidance would be a complete waste of money and resource; you only have to consider the number of people who simply wouldn’t turn up to an appointment made for them without bothering to cancel (the irony that is inertia…).

  3. Michelle Cracknell says:

    I disagree. Independent and impartial guidance can take people up to the “decide & buy” moment. Sometimes, guidance makes people realise that they need advice. Most people today, for a variety of reasons are not taking regulated advice. Guidance is essential if we are going to have the best possible chance of ensuring that people make the most of their retirement income. If default guidance was in place, it could have stopped some of the horrors of Port Talbot.

    PS When will the industry stop doing the advice versus guidance argument?

    • henry tapper says:

      I’m not really into the advice v guidance argument – more the “why can’t we just make it obvious for people to know what to do” – camp!

  4. bobchampion says:

    I am 100% in Michelle’s camp.
    We also need to educate our consumers. In very broad terms a 30 year old has a 10% chance of dying before they are 65, hence we sell life assurance. A 65 year old has a 10% chance of living to 100. Therefore they should consider insuring some of their income in retirement to ensure they can meet their essential spending.
    This is the basic education they need.
    I also do not agree with the arithmetical challenged argument put forward by John.
    How many jobs can you do with no knowledge of arithmetic. People measure, people estimate and people judge distances, all require mathematical judgement. This leaves out recreational activities, betting, playing darts, card games where judgement is made using probabilities, if we communicate in ordinary peoples language, we should be able to encourage more to advance their knowledge, be it through what is today known as guidance or advice.

  5. I’m with Michelle and Bob here (and enthusiastically so about the word ‘advice’. I’ve been in the advice world for a long time and it’s nothing to do with regulated financial salesmanship).

    People need to understand the consequences of the *type* of freedoms they can choose. Once they are aware of that – and in the most personalised detail possible – then they can start looking for the best deal in the most appropriate option. That’s where they may need the help of an objective financial adviser, or they may decide that their needs / costs / understanding are such that they can go their own way.

  6. I’m with Bob – but he puts it much better than I could: “How many jobs can you do with no knowledge of arithmetic. People measure, people estimate and people judge distances, all require mathematical judgement. This leaves out recreational activities, betting, playing darts, card games where judgement is made using probabilities, if we communicate in ordinary peoples language, we should be able to encourage more to advance their knowledge, be it through what is today known as guidance or advice.”

    The problem is not how we communicate probabilities. We have nothing to communicate until we can calculate them. When you can calculate them (such as because you are using stochastic modelling to capture the range of potential outcomes, as sustainable real rates of draw and spending), the language is quite different, much more intuitive and has the same meaning for both parties. It is also possible for the client to ‘self-select’, as a counter to the economic interest the adviser unavoidably has in the selection. In fact, I would argue that in the best advice process there is no recommendation as such, only informed self-selection.

    You can see an example here: http://definedbenefitpensionsadvice.co.uk. This is a DB-transfer microsite Fowler Drew built for SEO-led marketing. The calculator uses a stylised version of our model to get some quick answers about relative advantage based only on investment factors, even when you do not have all the necessary bits of information at the preliminary stage. The calculator is a bit amateurish as an example of user interface design, I’m afraid, but it gives a sense of the point I’m making: what you can do with quantified chances – like quoting odds. It also points to the future of advice being much more quantitative and mathematical – so a combination of expert systems and communication expertise.

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