I have been in this industry long enough to have seen a whole raft of consumer exposés on pensions and must admit that, in general, the industry has never really come out favourably.
The title of the programme interested me – was it ironic or was it to be a user’s guide on which people could rely? Looking back, I am still not sure which it was!
My first problem was that I had not consulted my Radio Times and, just as I was getting into it, it finished – 30 minutes rather than my anticipated 60. It also ended just as they had asked the most interesting question – they had asked a guy what it is like just relying on state benefits, and he was less than keen.
Now I could go on, but I will just concentrate on what were the five key issues for me.
1. A bit of a mention of underestimating longevity, but not followed by a consideration of what longevity could be and thus how long your chosen standard of living could have to last for. (Perhaps even mention a bit on inflation!)
2. A lot of talk about consumer spending - holidays particularly. The Sunday Times travel supplement several weeks before Christmas had a whole front page and centre spread based on the holidays to buy with your ‘pension splurge’. I am all for utility and informed choice, and we learned that one of the guys looking for the trip of a lifetime had cancer – an impaired life. Had he taken advice?
Maximising utility is good if you take into account the other options!
3. A positive point – the consideration of investment scams – overseas parking bays, rainforests and store pods. Indeed, they even featured the advert that allegedly caused the “store pod overseeing body” some issues – one which I mentioned earlier in the year. If it looks too good to be true it probably is and you get nothing for nothing! There are only a few letters between pensions liberation and pension liberalisation!
4. In all the stuff on how pensions were to be cashed in, I am not sure I hear anything on tax – in the FCA’s Guidance Guarantee consultations it was at pains to suggest that the tax treatment is key, so in my mind this is – what is the tax treatment of encashment and could it be done more tax-efficiently (perhaps over a number of years)?
5. My final point – now I am not an expert on behavioural stuff, but I am sure there must be a theory that confirms that if you inform people what they can do then more will have a go! Add to this hyperbolic discounting with a smaller, more immediate reward being chosen over a larger reward available at some point in the future and programmes like these can be a user’s guide.
So, what would the missing half hour have covered? My guess would be; a bit on the pros of annuities, a bit on the details of the Guidance Guarantee (someone must know it by now), a bit on DB transfers and death benefits and a whole section on the importance of good financial advice. I might even have finished with a mention of a General Election in 2015!
Humour(?) aside, the pensions freedoms are a major change to the pensions and retirement landscape – there will undoubtedly be winners and losers!
One of the key responsibilities of our industry over the next few months and years is to make sure that options are presented in language that all can comprehend, so that decisions are made with good knowledge and understanding.
Mike Morrison – January 2015