a bottomless pot

The capacity of the pension industry to pour advice, guidance and financial education into the bottomless pot seems limitless.

I define the “bottomless pot” as the perceived resource needed to make informed choices on retirement finances, a pot that never seems to get full, perhaps because most of the advice/guidance and financial education goes in one ear and out the other.

The Work and Pension Select Committee (WPSC) spent a fruitless morning listening to a variety of pension industry experts telling them that more resource should be poured into the bottomless pot. This included providing mid-life MOTs (lots of discussion over whether this was the right term), Pension Wise (lots of hand-wringing that PW didn’t reach beyond the people who were already engaged and calls for a fundamental rethink on advice v guidance (as if consumers care whether they’re getting a definitive course of action of a set of pathways).

The conclusion;- as stated in the FT’s Pension Expert headline.

More advice needed on ‘fiendishly complicated’ pension freedoms.

Stuck with fiendish complication?

It seemed , listening to the two sessions, that British savers had no choice but to live with the investment pathways offered them at retirement – unless of course they were lucky enough to have the prospect of a defined benefit pension.

At no point in the three hour session did anyone question the desirability of getting people to take fiendishly complicated choices. The debate simply reverted to the same theme- more advice, advice earlier in the savings journey, relaxation of advice v guidance rules.

When the idea of a pension scheme providing a pension was introduced ,Dr Julia Mundy, who sits on the FCA’s consumer panel likened CDC to a Ponzi Scheme. I have written to Dr Mundy to ask what  evidence she has for that comment.

Others pouring scorn on collective solutions that take fiendish complication out of it included Laurie Edmans , who called them “with profits arrangements” and told the committee that

“Product providers or scheme trustees will be wary of being considered to have raised expectations that are not realised,”

Dr Julia Mundy

Just what people’s expectations for their retirement savings in workplace pension are, was not explored in this meeting.

I suspect that most people expect a workplace pension to pay them a pension. In reality, it will offer them four investment pathways and what the economist Bill Sharp called “the nastiest hardest problem in finance”

It seems that we are stuck with fiendish complication and that we will be pouring advice into the bottomless pot for some time to come.

Challenging the received idea

Having endured the two panel sessions (which can be watched from this link), I wrote to Stephen Timms.

Despite the late start, the two sessions were very well managed – thank you for your chairing.

I posted on twitter

 I suspect that whether in financial services or in occupational pensions, there is a general view that people need to make choices at retirement and this comes from three decades where we have aspired to make our workforce financially aware and self confident.

I’ve been at this financial education thing nearly 40 years now and like Laurie Edmonds, see no significant improvement in people’s capacity to be their own CIO and actuary.

I am a firm believer that people who save for their retirement want and expect a pension from their savings and that workplace pensions should pay scheme pensions on a CDC basis.

Two of the largest commercial master trusts, Lifesight and L&G have facilities for transferring in sections of other DC schemes including “those at retirement”.

The point made by Paul McMahon that master trusts could not seed CDC pensions as a default way of returning savings as lifetime income, ignores the fact that these transfers can do just that.

I am really surprised at the lack of innovation among my colleagues who are not addressing the needs of retirement savers and I was sorry that after listening to the sessions, I heard nothing new.

Please do not ignore the growing group of people in and outside of pensions who want to innovate through CDC

Lessons from Westminster

The panelists for these sessions were the usual suspects, representatives of the FCA consumer panel, policy heads of TISA, PLSA and ABI and the odd superannuated luminary (Laurie Edmunds, Paul McMahon).

Those who govern need to hear too from the people who have to take these fiendishly complicated choices as to how they feel about them and whether they’d prefer not to take these choices at all.