Over the next few weeks I am going to be telling thousands of people how their pensions have done over the last 12 months.
I am conscious that some people who – according to my textbook – have behaved worst – have done best.
They are the people who chose to put their pensions in cash rather than be invested in bonds and equities.
Meanwhile some of the people who behaved best and chose to be in a pre-retirement annuity protection fund , have done worst.
Of course I can lecture those in cash that they’d have lost out with that strategy in almost every year since 2010 (but 2022) and I can console people in the annuity protection fund that there were times last year when the cost of an annuity was down by more than 30%.
But I don’t think that will stop the cash investor looking smug and the annuity investor looking crestfallen.
But most people don’t choose what fund to be in, they have fund choice done for them and even if the fund selection tips them into the wrong assets , they are supposed to take the rough with the smooth (these default funds don’t guarantee you anything).
All of which isn’t helpful to the thousands of people investing in workplace pensions without much idea of where their money is going or what the difference between investing and “saving” into a Cash ISA is.
Most people choose not to invest where they can help it , which is why Cash ISAs are more used than investment ISAs. But when called on to make a choice, most people choose not to, which is why 95% of savers are defaulted into the same fund.
You might choose to make your default a cash fund (one master trust does – for religious reasons). Another religion won’t allow you to take interest so you can’t invest in cash. We don’t choose our faith on financial grounds but many faiths have investment convictions.
But most people do not have strong conviction about investments and are prepared to take other people’s words for it. Until things go wrong, which in 2022 they did. The problem is clearly demonstrated by the BlackRock Life Path Flexi default – which is in a number of workplace pensions.
Note the absence of cash, the increasing weighting to bonds from 30 years from the target date and the slithers of diversification making this anything from a 100:0 to a 40;60 fund.
Add to that a policy of hedging currency risk thus missing out on potential gains from converting dollars and other overseas earnings to the weak sterling,
It’s easy to see how – through following perfectly reasonable convictions, this BlackRock fund was a stinker in 2022.
So do you tell your staff that they got unlucky or that Blackrock screwed up or do you just say nothing? I guess most trustees and employers will say nothing about 2022 and wait for 2023 to get people back on track (which it is already beginning to do).
Do you only sing when you’re winning?
The anecdotal evidence I am getting from the workplace is that because people have got wind that their workplace pensions have done badly (and most workplace pensions provide online fund valued direct to your phone), people are taking a lot more interest in their pensions than ever before.
Sorry to say it, but people read bad news not good news – ask any journalist.
So what if you aren’t going to talk to your staff about “what’s good” about your pension plan right now? What if you decide now is not the time to do the financial wellbeing stuff for fear of a riot in the staff canteen – or a spat on Teams chat?
What does that say to your staff? To use the language of the terraces – it says “you only sing when you’re winning”.
My advice to employers and trustees and firms who specialise in well-being, financial education or whatever phrase you use for your comms, is to get out and talk about how your workplace pension did in 2022 and why people’s statements are showing losses year on year.
I’d only do that if I knew whether what happened to my staff’s pensions went worse than what happened to others and I’d be keen to know why.
So I’d suggest that you invest in an AgeWage VFM report to find out just how bad (or good) your news is – but I would say that wouldn’t I?