Helping smaller savers get the most out of the pension reforms

Dominic Lindsey has been beavering away for some time now, collating the views of industry experts and producing what I can best describe as a “superblog” that sets out to fix the freedoms George Osborne landed on us in 2014/15.

The freedom to take your money as you want is given short shrift

The Pension Freedoms have been very popular to date and it is important to note that the greater flexibility will benefit some people – for example bereaved partners or people with terminal illnesses.

and the report concludes that

 However, consumers without these special requirements are running risks that they may not be aware of or prepared to weather in the event of a market downturn.

Without strong and quick action the level of detriment will increase as more consumers will reach retirement.

Engaging and empowering consumers by providing them with information and encouraging them to take up guidance is important but that alone will never be enough to help consumers with small to medium-sized pension pots get the best possible retirement income.

Even if they want regulated advice, they may not be able to afford it and advisers generally prefer to take on clients with higher levels of wealth. The Government and the FCA cannot expect that the market will deliver innovative, appropriate and good value products for these consumers.

There needs to be a far more proactive approach to ensure that these consumers get a good deal and that when a market storm hits it does not destroy trust in pensions and the hopes of thousands of consumers for a comfortable retirement.

The onus should be on Government to make it easy for people to take reasonable decisions, through increased use of default options

The report is a call to action for Government to intervene in every aspect of the retirement process.

The principal agencies chosen for intervention are NEST, MAPS, Pensions Wise, the Pensions Dashboard and Government’s legislators and regulators.

The report calls on expert comment but – as the comment is anonymised, it is strangely abstract and means that the second half of the report is a series of abstract comments.

A lament for the past

The inexorable logic of this paper is that we should not have ditched a state organised second tier. The report doesn’t actually lament the loss of SERPS, but it certainly implies that Big Government has the answer to the problems of financial exclusion, poor levels of financial capability and no obvious improvement in financial education.

The unconditional support for Pensions Wise , that Lindley’s contributors show, is touching but flawed. I haven’t encountered much enthusiasm for Pensions Wise, even in my meetings with senior civil servants. It has become the Government’s get out clause. That less than 10% of those entitled to a Pensions Wise meeting take it up is a disgrace. I’ve done Pensions Wise and liked it. But there’s the problem, Pensions Wise is put together for people like me, by people like me.

This is unfortunately the problem with “Fixing the Freedoms”.

There is too much whingeing about the past and too little engagement with the future.

Take the section on pension dashboards which is littered with imperatives. The dashboard must be comprehensive and include not just pensions but just about everything else. The implication is that such a dashboard must be state managed.

Similarly when considering the “choice architecture”people have  to get the money back, the report calls for “an annuity clearing house”.

And as for manufacturing, it’s NEST that is put forward to deliver innovation.

Taken together , the remedies in this report are paternalistic and rely on the state for implementation. We might as well go back to SERPS.

So what of the private sector?

The report will be welcomed by the large existing players who are benefiting from the freedoms ;-they know only too well how to exploit the weaknesses of a command economy.

Look forward to further calls for compulsory guidance , standardised dashboards and streamlined products that hand back control to a small clique of insurers, the ABI , the IA and Origo,

The innovation of open banking is ignored in favour of a range of “solutions” from this clique. So there is a lengthy examination of the products that were ditched following the cull on Defined Ambition and Pot Follows Member.

But these solutions aren’t based on what people want, they are based on what is good for us and the view of what is good for us is based on received wisdom.

There is no place among the solutions for CDC (which gets a mention but no more).

Nor is there any examination of what Fintech’s call the User Experience (how we engage with what’s on offer).

The only notable innovation in the distribution of products has been increasing use of the workplace as a means of distributing retirement income products.

The advances in technology which puts finances in the palm of ordinary people is ignored. If people can organise their cash using internet banking , then why can’t they organise the return of their retirement savings the same way?

The key drivers to engagement, the capacity to understand what we’ve got, how it’s performed and how we can get our money back are hardly discussed.

The report represents a view of consumer behaviour that is top down and pretty well ignores the demands of the bottom up.

Consequently, the private sector is seen as agents of Government initiatives rather than the drivers of change.

In short,  the report perpetuates the lack of innovation , by ignoring the sources of innovation. 

The downside of this worthy work

I expect to see this report seized upon by those in Government who wish to see a kind of pensions “command economy”.

It will appeal to those who want a reversion to the status quo of the past thirty years, rather than the destabilisation of the pension freedoms.

But there is a downside to this. If we simply go back, we miss the opportunities of the future and we risk missing the tide of enthusiasm for what is new.

This worthy work quite ignores the enthusiasm among the British public to go green. It ignores our new found capability to use digital hardware and it fails to engage with the critical lessons of internet banking – that lead out from open banking.

The downside of this work is that it returns the pensions debate to the 1990s.