I have been in furious correspondence over the weekend with a friend , over one of the key words in today’s pension lexicon “engagement“. There is a strongly held opinion by many in pensions that we should require people to seek guidance before taking big decisions on pensions, just as we require people to use a solicitor when we purchase a house.
Engaging with retirement
The pension freedoms do not ,it seems, include the freedom to “do it yourself”. Here is Ros Altmann, commenting on a thread started by Steve Groves which includes some gibberish and some good sense- it’s worth reading and can be found here.
The advice gap is a real problem. Need experts who can advise individually and impartially and products that are not full of jargon or misleading headline rates that hide full costs. I have long called for a National Wealth Service to help people make the most of their money but it won’t give free advice which is a problem while people believe it should be free or don’t want to pay for someone to help.
They wouldn’t dream of designing their own house extension and building it themselves, they’d pay an architect. Savings, Pensions, investment and debt are all areas where expert help is important and issues that people are too often uneducated in.
Workplace is ideal setting. A national strategy to help people manage their money. But needs to be impartial. Simple messages about pensions being precious and long term, not to be raided too young. Debt being manageable and the dangers of compound interest even at low annual rates.
What Ros is describing exists, it is called the Money and Pensions Service and it delivers through TPAS and Pension Wise. But it is not generally used, it is used by about 10% of us and the worry is that these 10% are people (like me) who are validating their decisions, not winning hearts and minds to pensions being “precious”.
Making pensions interesting…
Just saying pensions are precious doesn’t make them precious. But a pension statement showing how much someone has in their pot and why it’s so much more than the saver put in – is interesting.
But people can’t do this. This is partly because you do not buy a pension like you buy a house. If you buy a house in 1980 for £30,000. , today you can expect it to be worth at least £300,000 – and you have had the utility of living there to boot!
The £30,000 you have put into pensions over the last 40 years, might now – along with contributions from employers and the taxman, also be worth £300,000. But most people haven’t even opened their pension’s front door and looked inside. They’ve no idea of annual percentage increase on their money (IRR to the experts) and no idea if that API was good or bad news.
Pensions are really boring because we don’t make them interesting. They do not do anything that houses and cars and pay-packets do, we can’t live in one, drive one – or even spend one (till late in our working lives).
We should not be forcing people to be engaged with pensions. People shouldn’t have to go to MaPS or pay for private advice, forcing people to engage is not what Government’s should do.
Instead we should be going out of our way to provide people with interesting information
Engaging with ESG
My furious correspondent feels the same way as I do but his beef is with the moral pressure being put on savers to make their money matter , and he is so angry, he sends me emails in red ink.
….it should never be necessary to engage, and firms should not be able to dismiss savers’ concerns on the basis that they didn’t engage.
Contrary to the prevailing zeitgeist , “Red-ink man” does not think that we should be cramming ESG down people’s throats.
I genuinely don’t think people should need to think about how money is invested for the common good, and I think we’re in extreme danger as metropolitan metrosexual elites of thinking everyone shares our values. If they did, Caroline Lucas would be PM.
People have many many definitions of common good, and for many people it won’t be a consideration. That doesn’t make those investors bad people, and if we persist in this idea that there are 2 strands that people should be thinking about, you go down a road of suggesting a trade-off, that good people engage and pay a higher price for a commitment which is actually quite feeble – you end up with the financial services equivalent of “10% of our profits support unspecified community causes” baloney in consumer goods.
We ask savers to make impossible decisions to trade off considerations about future returns which are unknowable and about “common good claims” which are green-washed or incomprehensible.
Can Red-ink man and I agree?
I don’t want a pensions system which requires people to get advice or even guidance. I agree with Ros that the products should be simple enough to choose themselves (which is of course what happens with defaults). But the cost of establishing and maintaining a National Wealth Service , along the lines Ros envisages would dwarf the cost of MaPS and would simply be there to support a system that should not need it.
What people want and need is to get information about the progress of their pension pot which is genuinely interesting. I have a vested interest in providing that information so I’ll leave the last word to Red-Ink man
I don’t want a pension system that’s equivalent to an organic veg box to make a small subset of people feel better about themselves.
I want a pension system that is properly regulated and choice-edited to deliver good long-term outcomes and a Government which takes action on climate risk, which sends the right signals to investors in the whole chain so doing the right thing is a no-brainer.
I genuinely think people *should* need to think about how money is invested for their vision of the common good.
Encouraging apathy is the last thing people need with respect to pensions and where their money is invested.
The big problem is that 99% of people do not understand how the economy works, neither how to invest. It is a huge mountain in terms of education that people have to climb to get liberated.
At this moment 90% of people listen to financial p..nography. And get the results, 70% are cautious, and the others who have a higher risk preference do not know how to invest.
I seem to remember that Stakeholder Pensions were designed to be so simple they could be sold without advice – except hardly anybody bought them (or maybe it was a problem of supply?). So Basic Advice was introduced to give advice on Stakeholder Products – except hardly anybody took it, perhaps because hardly anyone provided it.
Low uptake of free help from the Money Advice Service and the Pensions Advisory Service suggests that price may not be the issue when it comes to seeking or taking advice.
It may take more than “genuinely interesting” information to get people to be – sorry to use the word – engaged. From the concerns I have read in the trade press from financial advisers about “insistent clients”, it seems that many people prioritise short-term satisfaction over long-term security. It’s not clear to me what advice or information would change that.
Henry. I am sure you remember the days when most larger firms operating a pension scheme for their staff had a team of employees who were specialists on the pension scheme, were available to give valuable guidance even for annual member statements, but most importantly to provide a real understanding about what retirement could look like and how the pension scheme benefits could address that need. Sadly they have long gone by the wayside due to the risk of “advice” being given which they were not longer qualified or regulated to deliver. Once again an unintended consequence of increasing regulation which has been replaced by “member portal”/ call centre scripted information/ interminable queues for telephone support (often unanswered) all creating the landscape which is touched on above. Do not worry about the importance of ESG clouding the issue! Just try and get an answer to what is being delivered by a workplace pension lifestyle fund which is understandable to the common man.
Sorry, but I’m very much in favour of boring pensions.