Andy Haldane famously said he didn’t know the first thing about pensions and that has been taken to be a call to action to the pensions industry to bore us all about tax-relief, the advantages of regular saving, starting early and using workplace pensions. All of these things are readily explainable but they don’t explain why people see pensions as a kind of unexploded bomb which they fear rather than love.
In 2022 , two things happened to pensions that have been very unsettling. The first is the LDI blow-up, which I have written enough about, the second is the lifestyle blow-up which I haven’t written enough about but won’t trouble with you now.
There is a third thing that scares people shitless about pensions, and that is that we are giving our retirement savings to people we don’t know who do things with our money we don’t understand and who – when asked – are very bad at explaining what they are up to.
Right now, those people who have our money are debating whether to invest our money into a range of alternative investments – alternative to the things they are currently investing in. Currently they are investing into publicly quoted companies the shares and bonds of which you can buy on stock exchanges around the world or more easily via shares and funds that invest in all the stocks and shares at one go.
Alternative investments invest in everything you can’t buy in the stock exchange (except for sex and drugs and rock and roll) which are deemed inadmissible assets. Actually , that’s probably not true, I may own some of the rights to the Rolling Stones, Bob Dylan and David Bowie if I own alternative assets but whether I do or don’t , I’ll probably never know.
In a long (and probably boring) blog , I published this morning, I suggested that it would be a good idea, before investing our money in these alternative assets, if the people who get paid for managing our money spoke with the people who make decisions on what pension schemes we save our money into (our employers) about what they were up to.
Because, as a boss, I’d be generally interested to know what Nest and Legal and General (my workplace pension providers) are doing with my money. My latest Nest report shows that my fund is down about 7.5% in pounds shillings and pence and 17.5% in inflation adjusted way- these figures are September to September and there’s a two minute video from the man who manages my money (Mark Fawcett) which says it could have been a lot worse (which I know to be true).
Legal and General also tell me what is going on through factsheets and I know I’m down about the same with them. Losing 17.5% of my spending power when I was 60 is scary, but it could have been worse , some “safe” funds are down 30% September to September and that means the buying power is down 40% (after taking into account inflation).
Any investment that can lose you this much of your savings in a year is scary, Andy Haldane is not alone in asking “how can this be?”.
Workplace pensions are so scary because we don’t know the risks we’re taking but we know that they are out there. We were told that a “pre-retirement” fund was “low-risk, but how can a “low-risk” fund go down 40% in a year? Some explanation is needed, not just from the person managing your money, but the person who was responsible for being in your pension – your boss!
But your boss doesn’t know any more about how your workplace pension is run , than you do. Why should your boss? So long as the pension scheme is on the list of authorised workplace pensions, your boss has done his or her bit. Which is pretty scary for your boss because if you are like me , then your pension scheme has lost you more money in 2022 than you have earned.
Explaining what is going on is not a very easy thing to do, so most communication people like to stick with the easy questions “should I save more”, “Is my Money being invested to save the planet?” – all that stuff where there are nice green sparkly answers.
But in the back of people’s minds is the knowledge that they don’t have any knowledge. They don’t know what goes on with their pension and they don’t know who to turn to to find out what’s going on. A two minute video of Mark Fawcett is better than nothing but heh! – this is my retirement we’re talking about!
2022 is the year that a bunch of savers (like me) ran into a snowdrift and we’re stuck -without much light, in the cold – waiting for someone to dig us out! That’s scary!
Now the people who have driven my train into the snowdrift, are talking about alternative investments. I’d be a lot happier if they could explain to me just what was wrong with the old ones and how they are going to involve a train crash in the future.