In almost every conversation I have had about the purpose of a pension dashboard, up comes the word “engagement”.
Engagement has become the horse to the savings cart, “you can’t expect people to save more unless you’ve engaged them with their savings” is the usual cry of the dashboard-istas.
But all the evidence is that we engage with our pensions not when we’re saving, but when we want to spend our savings. The crudest examination of TPAS enquiries shows that most people are querying claims – not asking for help on how much to spend.
It is only in the marketing departments of the pension saving institutions that dashboards are seen as a means to get people to save more. Government happily subscribes to that myth as it gets them out of worrying about the auto-enrolment rate, the demise of properly funded DB pensions and the ongoing worries over the state’s in retirement liabilities – most particularly issues to do with long-term care.
But it simply isn’t the case that the dashboard is there to help people save more. The prospect of a pensions dashboard is appealing because it helps us to spend our savings.
We are not helping people spend their savings
If you speak to pension pricing actuaries, they will refer to paying you back your savings as a “claim”, they will tell you about the “cost of claim” and they will look bleak.
Frankly, reducing the cost of claim, is greatly to be desired – if you are a pensions pricing actuary. The easiest way to reduce the cost of claim is to reduce claims. It is unsurprising that we are now hearing about the advantages of pensions as inheritable wealth, the cost of claim of paying a pension as a death benefit is very low, and the value of maintaining the pot under your management till death do it part – is very high. You do not need to be a behavioural economist to see that pension providers are rather keener to promote saving than spending and rather keener to promote pensions as a source of inheritable wealth than as a wage for life.
We are not helping people to spend their retirement savings because it is easier and more profitable not to.
The dashboard needs to come with a steering wheel
I will persist with my mnemonic AGE.
A is for Assist (helping people find their pension), G is for guiding people to sensible spending strategies and E is for equipping people to get their money back. The point of the dashboard – for anyone over 50 is primarily to get you retirement ready. AgeWage will get people ready for retirement, it will assist, guide and equip to spend.
People are not mugs, they know the value of compound interest, they know that they should do their saving when they are young and that is why the highest level of AE opt-out is among the over 50s, the over 50’s – who are prime customers for the dashboards are not playing catch-up with pension saving, they are thinking about making the most of what they’ve got.
To extend the metaphor, they aren’t interested in the dashboard so much as the car – they want the steering equipment and they want a financial satnav and they want it now.
It is not irresponsible to meet this need. It is deeply responsible. One of the biggest causes of pension mistrust among ordinary people is the fear that they won’t get their money back. The sooner the pensions industry stops talking about paying people their money in negative terms (claim) and starts promoting the value of what people have – the better.
Making spending easier
In case anyone hadn’t noticed, we are in an era of “faster payments”. If you want to pay someone money, you can request a same day transfer from your bank account and that money will arrive in someone else’s bank accounts that day.
But “faster payments” aren’t talked about by pension companies. When I visit pension admin centres, I am shocked to see customer’s birth certificates being used to verify a payment. We still talk of service standards to pay a claim of 10 working days – that’s no faster a payment than happened 25 years ago. Insurance companies and master trusts have spent a fortune on modelling tools to help us save more, but invested very little in making it easy to get our money.
What is more, when I read the IGC reports every April, I see very little attention being given to “claims experience”. The IGCs seem to be as blind to the problem as everyone else. When I talk to DC trustees about how they promote “claims”, they look at me blankly, I am talking about tomorrow’s problem.
But paying people back their money is not tomorrow’s problem, it’s the problem that most people have with pensions today.
We have got to make it easier for people to spend their pensions – it’s a matter of trust.
If we make it easy to spend, people will choose to save.
Mark Scantlebury and Vincent Franklin, the people who started Quietroom, tell the story of working with the Halifax through the credit crunch in 2008/9. The bank called in Quietroom to arrest the outflow of savings following the collapse of Northern Rock and Bradford and Bingley.
Quietroom turned the situation round, not by making it harder for people to take their money, but by training Halifax staff to make it easier. The perverse consequence was that people stopped trying to withdraw their savings and started trusting their bank a little more.
The pensions dashboard is likely to improve engagement and trust in pensions, but it will do so because it will make pensions accessible for people to spend. As with the Halifax, so with Pensions, a simple and open approach to helping people spend their money should result in people seeing the point of pensions.
Promoting pension spending
We’ve just come through ten years of austerity. The watchwords have all been negative “prudence”, “belt tightening” , “caution”. Whether it be the corporate balance sheet or our pension savings account, there is plenty of cash around.
We have become so risk-averse over the past ten years, that this article is probably considered treacherous!
But I believe that now is the time to promote the pension dashboard as the way to learn to spend our pensions, not another ruse to get us to save more.
The joy of having a regular monthly income to pay the bills is mine. I have a pension, I chose to work- I don’t have to. I still save and though my savings have gone down in 2018, I still invest for the future. I can honestly say that pensions make me happy and allow me to live life the way I want to. That is because I have financial independence from work – my pension makes me self-sufficient.
We aspire to a world without work!
We save to get this self-sufficiency – we want the freedom not to have to work.
The pensions dashboard can assist, guide and equip us for a world without work – which is what most people want!