The images of financial resilience  

In the aftermath of the collapse of Northern Rock in 2008, many savings institutions were hit with a run on deposits from savers keen to put their cash under the mattress.

Mark Scantlebury and Vincent Franklin, who were then setting up Quietroom tell the story of how they were called in to stop people withdrawing their savings. Subsequently, HBOS credited the pair in saving £400m flying out the door. But the strategy that Quietroom advised upon was not intuitive to the bankers – quite the opposite.

Quietroom suggested that the call-handlers and tellers , rather than making it difficult for people to have their savings back, promoted Halifax as a bank that would make it easy for savers to withdraw their cash – no questions asked.

And as soon as it became clear to savers that they could have their money, they stopped and thought about it, and they stopped withdrawing – because they trusted the Halifax again. Lock-ins, even partial lock-ins – are usually counter productive.

The mark of a good pension system…

Is that it puts the right money in the hands of the right people at the right time. Clearly in Australia, where Super is seen as a good system, a lot of people who need money right now – are getting it.

Down Under, nearly 10% of the Aussie workforce, or 1m workers, have taken advantage of emergency measures to dip into early to their Super, or pension pots, if facing Covid-19 hardship.

— Josephine Cumbo (@JosephineCumbo) May 7, 2020

I suspect that this is considered a “bad thing” by most pension people. But is it? If you follow the Quietroom logic, the Super system is working fine. Nathan Long, who is a really good guy, has I think got his tone wrong (if I can be so Hancockian)

One to watch. I’m hopeful there will be renewed focus here in the UK on building financial resilience in the months ahead, once we’ve pulled clear of the crisis.

— Nathan Long (@LongPensions) May 8, 2020

For me, “financial resilience” is usually associated with saving money not spending it. I guess many people will consider HMT’s furlough scheme the opposite of financial resilience. But it is underpinning the current lockdown and the lockdown is generally accepted as necessary. I have tried to suggest that rather than preaching to savers, the gospel of financial resilience, we preach the gospel of Quietroom and offer savers over 55 “ease of access to their savings”.

I was thinking of how to build resilience from younger ages, but the balance is important at older ages too. This is the time to use cash in an emergency fund to prop up taking reduced withdrawals from drawdown because of market conditions.

— Nathan Long (@LongPensions) May 8, 2020

Nathan’s last point is particularly interesting as it is when market conditions are tough, that people want money (toilet rolls etc). We become hoarders because we fear – irrationally – that if the money is not under the mattress – it isn’t ours.

But of course as soon as you make it easy to get your money, the issue with  trust disappears.

But if money held for a rainy day cannot be drawn on that rainy day – without a big chunk being taken out by “market conditions” , then people have a different problem.

Sunny day money stays invested because it’s not needed but if you are advertising a rainy day pension (with all the freedoms) with sunny day money, then people are going to grumble. You need an “all weather” fund that you can draw on whether its rainy or sunny. Part of the problem people have with pensions is that whenever they want their money – the market conditions are raining cats and dogs!

“Financial resilience” is austerity’s twin brother

The last financial crisis taught people that when the financial system buckled, they had to pay the price. Austerity cannot be promoted a second time in two decades and nor can “financial resilience”.  People need to be aware, that even if its just a sidecar, their pension saving is theirs to spend without lectures on financial resilience!

Andy Leggett supports Nathan’s position by characterising it a “putting customer’s first” and I’m quite sure a lot of financial planners and SIPP providers do feel that stopping people raiding their pension is just that.

@LongPensions not sure I quite get your point Henry but putting customers first should be in shareholders’ long-term interests

— Andy Leggett (@sipphound) May 8, 2020

But I’m not sure that the customer sees it that way at all. The customer sees paying his bills as more important than having to pay extra tax on a big pension withdrawal, or being hit for six by market conditions.

Vulnerability

One definition of vulnerability is a “lack of financial resilience”. Two months ago a whole load of customers who are feeling vulnerable felt anything but. The IGC reports all spoke in glowing terms about how the insurers were treating their vulnerable customers, usually without referencing the likely impact of the pandemic.

When we come off furlough, then we may see up  new vulnerable customers numbered in millions. They will be needing an extra wage and a good proportion of them will be of an age that they can draw it from their pension pot (s).

I notice that the Government is considering setting up a COVID-19 Digital Sandbox to help those who’ve become vulnerable, use financial services to meet those vulnerabilities.

My questions to financial services providers – holding money for people in pensions are

“what steps are you taking to make sure that money can easily be accessed from their pension and how can people get help to mitigate the risks of penal taxation and market conditions?”

To my mind this is what the vulnerable customer is interested, not in lessons about getting “financially resilient”.