a financial vaccine?
Yet another consultation (the 11th this year) arrives from the FCA, looking to nudge people of my age into the arms of Pension Wise and away from scammers.
This looks sticking plaster on a wound that will continue to bleed our savings for some time to come. Take up rates for Pension Wise remain low and the dial is not likely to move much once the proposed changes come into place.
I have read the paper but it was heavy going …..
I’m not quite sure how I managed to insert the paper as I did, but I’m keeping it on display because it shows just how long-winded these papers are getting.
In practice, the 39 pages boil down to this
we propose that, when a consumer has decided, in principle, how they wish to access their pension savings, or transfer rights accrued under their existing pension to another pension provider for purposes of accessing their pension savings, pension providers must:
- refer the consumer to Pension Wise guidance
- explain the nature and purpose of Pension Wise guidance, and
- offer to book a Pension Wise guidance appointment.
This is the big idea to get the guidance points illustrated at the top of the page- into play.
Financial vaccination
There is an obvious comparator, it is what the NHS is doing in getting us to go and get vaccinated, where there is pretty well universal take up (see C10-arg blog The public response to vaccine hesitancy – Joseph Robertson)
The way to win people’s hearts and minds is to present a clear counter-factual. If you don’t get vaccinated you run the risk of getting Covid whenever your third wave arrives and what’s more you’ll be limiting your capacity to join into the new normal (as you won’t get a covid passport). I know that isn’t exactly what the Government is saying, but it is what the public is hearing.
For Pension Wise to become as relevant as a vaccination, it is going to have make a promise as compelling and that is a very long way from what the public are seeing. Pension Wise is not going to vaccinate us against scamming , nor is it going to provide us with a definitive course of action about what we should do with our retirement savings. Instead, it is seen by the majority of people I speak to as extremely worthy, very boring and rather ineffective. A bit like going to a vaccination center and not getting the vaccination.
The alternative
Rather than putting people in financial harm’s way, which is what pension freedoms do, why not turn the question round and provide people with a financially healthy way forward that pays them a pension with them having to buy an annuity?
Ensuring that every DC pot has as its default a scheme pension paid from a collective retirement fund is not fanciful. It simply requires any provider, whether the funder of the trust or the supplier of the contract, to offer directly or through a third party, a properly managed collective pension scheme set up and managed to pay a wage for life in exchange for the pension pot.
This doesn’t mean that the current choice architecture of investment pathways should be disposed of, but the variants – cash, annuity and DIY drawdown would be self-select options and only accessed where an individual wanted to make a positive choice.
This may seem like a return to the bad old days of compulsory annuitisation, but it is not. The annuity was the only option unless you could prove you had adequate income elsewhere. The opt-out proposal I’m mooting simply follows the tried and tested approach to pensions which is to put the onus on people to opt-out and not opt-in to the right decision.
The “right decision”
We are of course a long way from having consensus that a CDC scheme pension paid from a collective pool and insured by the collective pool is preferable to the investment pathways.
We are looking for a financial vaccine to protect people at retirement. In my view CDC will pay most people what they want better than any of the investment pathways – it is our best hope going forward.
A CDC pension could be paid from any existing DC trust that was willing to convert to CDC and could be authorised as one by the Pensions Regulator.
I see – within a decade, CDC sections existing as the “wage for life” default option, of all the master trusts and it may be that one or two large employers decide to commercialise their existing DC trust based schemes. Put simply, if I wanted to defray the cost of providing a DC scheme to my members “to and through” retirement, I would offer the facility admit the public to my CDC provided they were transferring benefits from elsewhere and I would admit these savers on commercial terms.
This should not prove a problem for the ABI, whose members are prominent either as funders of master trusts or suppliers of investment platforms and funds that will sit within CDC arrangements. Nor should it be a problem for the PLSA, for whom CDC should be a lifeline for ongoing relevance.
Where these proposals will meet with most opposition will be from scammers who will have to justify the arrangements they propose as opt-outs of collectives – on a value for money basis.
