There is a great phrase in literary criticism “negative capability”, it’s the latent meaning in a statement that implies much more than is said. Here the power is in the unsaid.
The negative capability of the over 55s.
Much is made of the delinquent behaviour of those who exercise their rights to cash in their pensions. They have the right to take money into their bank account and trigger punitive tax-charges which they pay from the money drawn. And yet the numbers doing this are very small. We do not have a Lamborghini culture even amongst those with pots that can buy such cars.
Indeed the statistics suggest that the problem with drawdown is in its negative capability. The majority of pots are not being drawn down. They remain buried and those who own them remain silent- as if beyond the grave.
What money is being taken from pension pots is the tax-free cash allowance, which is being treated as free-money, a kind of terminal bonus that is for the most part , sitting in people’s bank accounts – not invested – nor spent – it’s undead money.
In its recent survey of the market , the Lang Cat report that 33% of the drawdown that is happening is unadvised (an FCA number). Most people who are drawing their savings are doing so with an adviser but the negative capability of drawdown is the silent majority who sit and wait, waiting for someone to tell them how to get their pension.
Us over 55’s may not have liked annuities, but at least they triggered us to spend our savings.
I am not a student of behavioural economics but I’ve read enough and heard enough from those who are to know that when faced with an unsolvable problem such as “how to make my money last as long as I do”, most of us put it in the “too hard” box to revisit at a later stage.
The best lack all conviction while the worst are filled with a passionate intensity and cash out (often finding themselves in the hands of a scammer). Keeping money in your pension pot (where it is invested and does grow tax-free) is certainly a better strategy than encashing the pot.
But it is not what we saved for. We saved to spend on our retirement and on our families, we may have saved to realise a dream – our own business, a special project – the achievement of a lifetime ambition.
This is the negative capability of the drawdown market, the realisation of those plans that could be achieved if only the capital built up within pensions could be realised in the right way.
The default behaviour is to lack conviction, it may seem better that way to begin with. But the opportunity cost of doing nothing is counted retrospectively. Those who sit on their pensions for want of courage may regret their decisions as much as those who foolishly cashed out.
We need to know our positive capability.
Here I find fault in our current view of retirement outcomes
My criticism of policy makers in the pension space is that they are complicit with inertia.
Inertia means that pots are invested longer, which is good for the pensions industry (which garners investment fees on invested wealth). It is also good for many people who should not be supplementing income in their late fifties and sixties, but continuing to save.
But it is not good for people to have money in pensions and have no idea how much or how to spend it. People need a plan and by and large most people go through their fifties with no financial plan. They find it very hard to know how hard they should save to stop work , they find it hard to envisage how they can turn their pots to income, many people find it hard to find where their money is.
We hope that this will change with a pensions dashboard, but I think it unlikely that the Government’s pension dashboard will answer these questions in a timely way. I have been waiting four years to use a dashboard in earnest and I doubt I am half way down that path.
We should not be relying on a pensions dashboard to be able to spend our pension savings. A dashboard is a tool, as Pensions Wise is a tool, it is not in itself the answer.
It is all too easy for the DWP (and the Treasury) to commission a procurement exercise and create a Governance structure and set out a timetable and think it has done its duty.
And it’s all too easy for those who profit from people’s inertia to watch as pensions dashboard morphs into pensions crossrail!
What needs to be done?
The Government should be looking at the money which sits undrawn in the pension pots of the over 55s and construct a plan based on this money getting spent. It is good for people to spend their pensions on the things that pensioners enjoy and to enable working people to wind down from work.
Encouraging people to think of their pension pots as positive capability, rather than cash which must be preserved, would be a good policy decision. It would solicit howls of indignation from those in the wealth preservation business, but they have their customers and they are doing little or nothing for the 94% of us who don’t pay for their services
Encouraging people to find their pension for themselves (without waiting for a dashboard) would be a good policy decision.
Encouraging people to understand what they have got and take positive decisions about organising their affairs so they can draw down from a single pot, would be a good policy decision.
Encouraging those in the drawdown market to improve the service and the price of the service they offer from their products would be a good policy decision.
Creating spending strategies (default pathways) for providers to adopt , would be a good policy decision.
Encouraging the provision of scheme pensions through CDC would be a good policy decision.
Positive capability at the top
What worries me most about negative capability is that doing nothing is infectious. If policy-makers see the impact of people doing nothing with their pension pot is not actually harmful, then they will accept the line of least resistance and do nothing.
What this will mean is that the money we have in pensions today will not benefit people in terms of lifestyle until too late, people will hang around in work long after they wished to pack it in and the money that sits in pensions will not be recycled into the economy through spending.
Worst for pensions, people will continue to regard their pension pots as a worry rather than a positive benefit.
Right now – we are making it too hard for people to have their money back. That really must change if we are to restore people’s confidence in pensions.
We need a positive mindset from the Pensions Minister down, pensions are marvellous things, they give us the confidence to enjoy our senior years. We should present them as such – as having the positive capability to change lives.