Should we be empowering consumers or regulating providers?


Well we’re on to question three – all the proposed eight blogs  will be sent to WPC as our evidence – when I mean “our”- I mean mine – and the thoughts of anyone who cares to comment.

So here’s this morning’s exam question.

What is the relative importance of empowering consumers or regulating providers?

Quick Answer;   Chris Radford’s response to this question is always “we need better products”. I agree, products first – empowerment second – you cannot empower people to make good use of rubbish products.

The regulation of pension products for auto-enrolment by both FCA and tPR has so far been a success – they’ve kept a proper market going, driven away the crooks and it looks like we’re moving towards a future where we can draw our pensions collectively. More of the same please!

Empowerment hasn’t worked

If the 31 years since Pensions A day have taught us anything, it is that people do not want to be empowered to be pensions experts. More than 99% of people joining NEST – use the NEST default fund, most insurers now accept that no matter how much financial education they do in the workplace, 90% + of members will triple default (auto-enrol into standard contributions and funds. While marginal improvements can be made through workplace education programs, people tend to regress as soon as they change jobs.

Attitudes to defaulting have changed over the years. When defaults first arrived with stakeholder pensions, the herd mentality was decried by pensions experts who clearly felt we all could be our own CIO. Time and auto-enrolment have changed that. We now begrudgingly accept that it is better to be sub-optimally in – than empowered and out.

Which rather flies in the face of “pension freedoms”. Rousseau reminded us that though man is born free – everywhere he is in chains” and so it appears with people’s behaviours at retirement. Only 6% of us are seeking advice when we start thinking of crystallising our pensions and starting the “drawdown”.  Most of us (me included) are putting off the crystallisation event, knowing that it will trigger consequences about which we know little but care a lot.

We are frightened of the HMRC, of investment, of running out of money and we are frightened of the people who claim they can help us – the financial advisers.

Having rubbished the default means of spending our retirement savings – the annuity, we have found nothing to replace it. The consequence is that the amount of the collective DC savings pot being spent is tiny. The latest HMRC figures on drawdown suggest that we have financial constipation. The truth is that we are no more empowered to be our own actuaries than we were to be our own CIOs.

Regulating Providers

All efforts to empower the population have failed. We still have the same numbers engaging with their saving today as when i started out in 1984. We may have better tools to see our investments – but we have not become better at investing. We rely more than ever on defaults – the watchwords are “where do I sign”.

This suggests that our need for fiduciaries to manage our affairs – is stronger than ever. Whether we are talking about oversite and governance (IGCs and Trustees) or product design (insurers, asset managers and platform providers), it is the delivery of value for money within the product that is the critical success factor to the everyday saver.

So the Regulator must continue to regulate the sell-side and accept that the buy-side just “wants better product”.

By better product, I don’t mean “optimal product”, the quest for optimised solutions has been a millstone around the regulatory neck – and I particularly mean the FCA. Implied in the default solutions we use, is the assumption that what is on offer is the best option for most people, not for all people.

When we look at the default solutions that are emerging, we see that they are characterised by being low-cost rather than “low-risk”. The savings plans that we use for accumulating pensions use asset allocations that would be thrown out of court by the Pensions Regulator were they employed by Defined Benefit Schemes. The only person I know to have employed a 100% equity strategy to fund a pension deficit was Terry Smith (of Fundsmith). He did so with the backing of his personal savings which he put in hock to the Tullett Prebon scheme. That Terry’s bet paid off is to his great credit, Terry can rightly call himself his own CIO.

But it remains a fact that the DC accumulation strategies that we use for workplace pensions – adopt the same asset allocation as the maverick approach that Smith could only employ by providing private collateral. NEST has proved so far , that it is possible to replicate the diversified approach of growth strategies in DB plans , without breaking the bank on asset management fees. It seems to me that if the Pensions Regulator paid half as much attention to DC funding strategies as it did to DB funding strategies, we would have considerably better outcomes for DC savers. If we can combine the bravery and skill of Terry Smith with the prudence of those who run the PPF – we could have DC products that were fit for the 22nd century – when much of today’s saving will be spent!

If DC accumulation could be better regulated, the same could be said (cubed) for DC decumulation. The rather feeble recommendations of the FCA’s retirement outcomes review, focus on default investment pathways. It’s an idea that reminds me of sheep tracks off a mountain. They’re better than nothing but hardly the safest way down.

The concept of collective spending of a single pot – is at the heart of Collective Defined Contribution. To my mind, the pension industry’s refusal to grasp the opportunity to provide default decumulation through CDC schemes is extremely odd. But I sense that in their engagement with the needs of Britain’s postal workers, those civil servants in the DWP charged with writing the regulations for CDC to work, see beyond the job in hand – and to the bigger picture, the half a million of us who each year approach the point when we want to spend our pension savings,


The shift from DB to DC pension provision is only a part of the story, the introduction of 10m new savers through auto-enrolment completes it. We are now a society saving for the “nastiest hardest problem in finance” ( William Sharpe), more in hope than expectation.

The solution to the problems ahead do not lie with getting people more engaged but in getting people a product to engage with. Currently drawdown is not the mass-collective solution – it needs advice which isn’t there. We need better solutions – better products and providers who can deliver them. The Regulators are critical to the shaping of the pensions landscape.

While the 6% of the population who do engage are likely to carry a disproportionate amount of the nation’s wealth, the 94% of us who don’t (and don’t take advice) are the ones who need regulatory care. We will not be regulated into self-empowerment but we will sign-up for products that clearly do what we want them to.

WPC questions

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Should we be empowering consumers or regulating providers?

  1. This is a really good article and is argued very well. Maybe that’s the reason there are no comments yet! Everyone just agrees with it. Me too. However, the blog has highighted a much bigger issue – the problem seems intractable.

    One question that springs to mind is wy can’t we have both? Regulated providers working with empowered consumers? Why is this being presented as mutually exclusive?

    The article says empowerment has not worked, I might go further and say empowerment is never going to work in the current situation. One reason is linked to the previous blog on value for money – – if people can’t determine value for money they have no better means of choosing one product over another than the spin of a roulette wheel. That’s gambling disguised as empowerment!

    Pensions are complex – and most people hate complex! They have better things to do than pour over dry marketing material trying to sort out what is best for them decades in te future.

    When you buy a house you leave all the “technical” stuff to “experts” in various regulated industries – the surveyor will report if it’s sound; you leave it to the lawyer to make sure there’s no public footpath through the living room; mortgage brokers advise the right mortgage etc. etc. The buy-side has more immediate “practical” short term considerations: ease of commuting to work, local schools, shops, where can I put the barbecue etc. Humans are not “long term”. Decisions are made on the short term benefits.

    So when it comes to pensions you are are asking people to consider complex data now and choose what might be in their best interest 30-40 years in the future, no chance. Not possible. Forget it. Choosing the default is predicated on the default has been designed by “experts”, probably chosen by everyone else and so can’t be bad – it might not be the best – but can’t be bad. In the face of no better information to the contrary, follow the herd. This is never going to change. It’s the human condition.

    Besides, it’s not possible for anyone to know what’s in their best interest in 30-40 years. Their circumstances will change many times making the initial conditions of the original decision no longer valid. Like portfolios, it needs review and rebalancing.

    So it is necessary to have “experts” that must present the complex data of pensions in a digestible package for ordinary people. Here’s the next issue. Financial experts do not present information in “digestible packages”! So generally people are still not going to see “value for money” and will ask “so what do you advise?” and then they will go with whatever the answer to that is, putting their trust in the expert! That rust should not be taken lightly – but that’s for a different blog.

    Now you have an door open to the scammers – who by the way are better at creating digestible packages of information than regulated experts! In fact not just digestible but tempting! But they use fraudulent misprepresentation to do it and that’s where regulation comes in!

    As the blog says: “This suggests that our need for fiduciaries to manage our affairs – is stronger than ever. ” However, those with fiduciary obligations need to own that responsibility – not just chant it as some meaningless mantra and then not act in accordance with the real meaning of “duty of care”.

    Consequently I also agree with: “So the Regulator must continue to regulate the sell-side and accept that the buy-side just wants better product” and Chris Radford’s response quoted above: “…we need better products” follows.


    1. The sell side need to be creative in designing better products
    2. Information to the buy-side needs to be digestible and enable easy comparison
    3. Pension solutions to be reveiwed and changed as the years roll on
    3. Regulators actually need to regulate pro actively!

    The last one is really important. If you open the door to scammers you need to put in place aggressive bouncers on that door to keep out the undesirable low life’s attempting to rip off the honest hard working clients! The FCA and Action Fraud can in no way be described as effective bouncers!

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