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.
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.
Throughout 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.
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.
And 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.