Pensions: Dull, complex and expensive – BUT SEXY!!!

In an earlier Blog (31 October 2013) I once wrote:
“I think it is fair to say that there are perhaps only a few journalists who relish the prospect of reporting on pensions; throw in a bit of tricky looking mathematics and mainstream reporting tends to reinforce the understandable clichés about pensions being dull, complex and expensive. I actually happen to believe that a good pension scheme is, in its way, all three of these things – but that is perhaps a subject for a later blog.”

Below was that ‘later Blog’ written on 4 November 2013 before Steve Webb tried to make things sexy…

Dull: let’s face it everyone knows that pensions are dull. Perhaps that is until the moment you get your pension commencement lump sum or perhaps the day your first pension payment hits your bank account. So, notwithstanding that little period of excitement when your pension – hopefully – gives you the ability to retire in comfort, we probably want pensions to remain dull. The thing is pensions are essentially just too serious to be exciting. I want ‘Match of the Day’, my ski trip, the gig I am planning to go to or latest novel I am reading to be exciting; I want my pension to be safe, secure, steady. I want my pension looked after by serious people who will protect me from any excitement.

Complex: don’t get me wrong I am all for simplicity, especially where simple works well. However, we have to recognise that a level of complexity can be important. I want my pension to be protected by first class governance procedures, I want the custody arrangements buttoned down, I want investment managers vetted and selected via a sound a well-considered process. Above all I want to have confidence that someone is looking after all the complex stuff. I don’t necessarily want to be part of the complexity; I would prefer clear communications and that any choices I have to make be as simple as possible. So, in summary, I want to experience the serenity of the swan gliding across the water; I don’t want to see all the hard work that I know is going on underneath.

Expensive: a good pension costs a lot of money. In order to get a good pension outcome you must have high levels of contribution. There is no magic in the fact that defined benefit pension schemes have provided millions of people with excellent pensions over the years – the simple fact is that these schemes have received large contributions. If defined contribution schemes also received high contributions they too could produce consistently good outcomes. So, by all means make sure that you get value for money from your pension provider and advisers; that is simply good governance and sound business practice. But above all recognise that a decent pension will always be an expensive commodity.

Now, we want them to be sexy.

I will admit that I am as guilty of using this term as many twitter users. In fact I gave a pensions presentation at the Institute for Turnaround’s National Conference a few weeks ago that was predicated on the very idea that pensions are indeed…sexy!

My basic premise was WOW look what they’ve done to pensions! This was before the changes to taxation of benefits on death.

So, the question now is: do i still think that pensions are dull, complex and expensive?

I am willing to change my mind. I enjoy a good reasoned debate and being persuaded to move to an alternative position is an interesting experience. Having said that, on this one I am sticking with my original premise, albeit with a slight addition to the front end in the form of the word ‘Underneath’.

With the benefit of hindsight perhaps I should have written:

” Underneath pensions are dull, complex and expensive”

As i said in my original piece, I am all for simple where simple works. There are a lot of good simple things that are happening in pensions. I would include in this the two big ongoing pension revolutions: automatic enrollment and ‘freedom and choice’.

I love the fact that the only real remaining objection against pension saving – “my money is locked away until I am 55” – is actually one of its real benefits. All the other deep breath moments where you had to explain that  – “yes that is a downside but you need to take that on the chin to get all the good stuff” – have been swept away.

The benefits of introducing ‘freedom and choice’ are palpable and immediate. At my cricket club one of our members turns 65 next January. Near the end of the season we had an animated chat about pensions and all the animation came from him as he explained his rather well thought through retirement plan based on his options from next April. The important thing is that a positive vibe about pensions that comes from those retiring is the best advert pension saving can receive. I do believe that ‘freedom and choice’ has started, in places, to create this vibe.

The key here is that it must be the workers who decide that pensions are sexy. You can’t make people believe that something is sexy – they have to feel it themselves. So – note to pensions industry – please don’t try marketing them in this way.

On the other hand I am very happy for pensions to be marketed in terms of being:

Exciting: yes a financially secure retirement is exciting but somewhere underneath someone must be doing all the dull stuff

Simple: yes please! Make pensions as simple as possible for members. So long as all the complex stuff is taken care of

Value: yes! We all want good value pensions but don’t lose sight of the fact that it takes lots of money to fund a financially secure retirement.

So have I changed my mind?

Well, sort of…

JPR

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