Here is the first page of the two page illustration suggested by Ruston Smith and Quietroom.
I will say again that I am impressed that Ruston Smith and Quietroom have got consensus from a variety of regulators to get their two page illustration over the line . No-one can doubt it is a step in the right direction.
I like the first page’s simplicity, its use of colour, its simple language and the narrative.
But it was a desperate concession to have to sacrifice one of the pieces of information that people valued most – the cost of having their money managed – to get consensus.
I am sure that lawyers will argue that providers do not have to spell out what has been taken out of the pot. But that is not the point, providers are there to help not to hinder the understanding of the people who earn them a living.
In simple terms, people may not have the right to this information laid out for them, but they they won’t read things that aren’t interesting . This illustration is not about what pension providers want to present but about what people want to know.
The research I was shown by Ignition House showed that what people seemed to value most about the illustration (in its non-abridged form) was the cost and charges line.
This blog is about giving people what they want, not what pension providers want people to read.
This goes to the heart of the matter
What people want from their savings is the chance to spend them. They don’t want to be told what to spend them on but they do want to know the implication of how they draw down their savings – in terms of tax and in terms of the sustainability of the draw down (how long till the money runs out).
Of course it’s easy enough to tell people they can have a quarter of their money in one go – without having to pay a penny in tax – people get that – and they like the thought that the money can sit in their bank account where they can get at it, rather than with an insurance company where they can’t (oddly the illustration doesn’t tell you this).
And there is the rub. Nowhere, on any illustration I have read, has there been a section about how I can get my money. How would this sound to you?
Getting your money back
We’ve been looking after your savings for a few years and we’d like you to know you can have it back at any time you like once you get to 55. ,We’ll make it as easy for you to spend your saving from your pension account as from your bank account. You can have your money back by telling us online, by phone or you can write to us -we’ll have your money in your bank account within 24 hours of getting your instruction. We’re working on ways you can spend your savings from an ATM.
If my illustration today told me that, I’d be gripped!
Instead, illustrations are all about you saving more. Whatever you’ve saved is not enough.
The two pager doesn’t have the encouraging message that you can have your money back, instead it has a message about how much more you’d get in a few years if you put more money in.
Unsurprisingly, this got my back up! When I read that, I thought I was reading a sales aid for the pension provider!
At the heart of the problem we have with these illustrations is that we don’t help people to feel they can have their money back! This is the heart of the problem.
Let’s look again at the second page of the illustration
Now first of all, let’s think about that retirement date – your 67th birthday when you told us you planned to retire.
I have filled out a lot of pension application forms and the only people who are certain when they want their money are the people drawing their money out. The answer to the question – when do you want your money – is invariable “yesterday”.
People have no idea when they’ll be spending their savings – most people cannot visualise how they can spend their savings.
If people want to convert their savings into a pension, which very few people want to and even fewer do, then their idea of a pension is what they get from the state – something that goes up each year with prices or earnings or a set amount (because most people know about entitlements).
As the state pension is the only pension most of the 10m savers introduced by auto-enrolment are likely to get, why introduce the idea of a pension that doesn’t go up, doesn’t leave a pension for your loved one and doesn’t give you tax free cash on the side?
We are now going to be quoted Transfer Value Comparators when we apply to convert Defined Benefit Pensions into Cash. Why not do it the other way round?
I really like the idea of quoting people a pension at state retirement age – “what the pot can buy”, but can we please quote that pension on a like for like basis with the state pension and not on the basis quoted above. It simply isn’t right to quote level pensions to people – nor to assume no second-life, nor to remind people that a quarter of their money comes back to them as a tax-free cash sum.
I know that doing this would mean that the £752pm would go down to half that if it was a Transfer Value Comparator to the State Pension but that is the fair thing to do!
My perfect illustration
It’s a two pager. I’d have the first page focussing on how my savings are doing. I’d keep it as is – apart from putting back the line about what I paid in costs and charges. That page could be called “How are my savings doing”
The second page could be called “Getting your money back” and could talk about how the money can come back to you and when.
I’m not suggesting that providers will be able to give pension savers ATM access to their savings tomorrow, but that has got to be the goal; open banking=open pensions.
I do think that people like the freedom to choose how they get their money and that spending time explaining to them that their savings is their money is a message that will do more to encourage to saver than any amount of telephone number savings projections.
People do not believe these projections, but they do know that the more they save, the more they can spend – later (deferred consumption).
All I want to know
I don’t need to be told to save more any more than I need to be told to eat less chocolate or take more exercise. I am not stupid.
I don’t believe any projections given me on a pension illustration, I just get that the more I put in the more I get out. If I want to “model”, then give me a link to a modeller.
I do want to know how my money has grown (what’s happened) and I want to know what I paid in charges.
Most of all, I want a clear idea of when I can get my money and how.
Please don’t tell me how to spend my money, that’s my business.
I’d be interested in the tax and sustainability implications of how I draw my money down – in due course.
Right now – just reassure me that this is my money and available to me from my 55th birthday.