Why do people harm their retirement prospects?

I am running a series of blogs in response to the Pension Regulator and FCA’s call for input (CFI) on the pensions consumer journey. The consumer is you and me and the journey takes us from the start of our saving career to the point when we’ve saved enough to stop work. But like in a game of snakes and ladders, there are times when our retirement prospects recede as we fall down a snake. The CFI call these “harms” and asks why so many people “self-harm”.

When considering these “harms, the CFI identifies a number of behavioural bias’ that could account for poor decision making. These include short-termism, risk aversion, and both a lack of or too much confidence in managing financial matters.

These bias’ are undeniable and they do lead to bad decision making. The CFI asks “have we identified the correct bias’ and are there others we should consider?”

We should be careful about assigning the problem to deficiencies in individuals. This risks absolving Government and governance from taking responsibility for matters which are proving too hard for individuals. This does not mean denying people choice, but it does mean ensuring that people have to opt-out of the desired pathway.  “Desired pathways” assume Government and fiduciaries have a clear idea of what the strategic objective of a policy is.

There is , in all our planning , a flaw that arises out of complacency. Who would have thought in the first months of 2020 that the problems in China would lead us to where we are today. Who would have thought that Japan’s stock market would stagnate for over twenty years? Who would have thought that nominal gilt yields would be negative for so long?

Our financial planning is today based on a new normal that is just as liable to go wrong as our nation’s health, the Japanese stock market or the behavior of bonds. We have an irrational trust in things continuing to happen which is based on flawed models and group thinking. The most obvious example is the assumption that house prices will continue to go up and somehow our house will underwrite our retirement income.

Another assumption is that bitcoin and other crypto-currencies have some magic property which will render investment in real assets redundant. Underpinning most of these assumptions is a belief that there must be better ways of providing for ourselves in retirement than through the boring process of saving into professionally managed, tax-incentivized pension savings schemes.

It is very much the regulator’s business to ensure that the pensions consumer journey is clear and that people are made aware that any attempts to deviate from the default pathway bring risks which could lead to failure. That is why we have rules and regulators to enforce them.

There are – in the long term – no short cuts. People are rewarded for their work and those that are provident with their money, have  comfortable retirements. Trying to disrupt this boring truth leads too often not just to failure but to calamity.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Why do people harm their retirement prospects?

  1. RWT says:

    This Paul Johnson article on the IFS website and the Times – The time to save for your pension is in your 50s, not in hard-up youth https://ifs.org.uk/publications/15456 – is an interesting challenge to what might be called received wisdom.

    In it he suggests: “There’s a policy opportunity for government here. Auto-enrolment into pensions has been a great success. However, minimum contribution rates are the same for all. Rates rising with age, or rising when student loans end or children reach 18, would work better. For most people, the government knows when these events happen. This would be particularly easy and valuable for the generation of graduates with student loans. They need notice no change in their income as loan repayments are automatically translated in pension contributions.”

  2. Chris Giles says:

    Henry, the answer to your question is that people are told to take a pathway adjacent to the cliff edge of a single retirement date rather than a safer one further back!


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