Harrumph!
That’s the sound from the pensions industry and a good part of the advice profession in respect of the idea that pension savers might take their pots and run.
And harrumphing turned to apoplexy the other day when some upstarts from a firm called Wise Pensions noised things up with talk of a pensions credit card.
I don’t know anything about Wise Pensions other than they are part of the Wise Group and they have a name that’s asking for trouble if something goes wrong.
But I do know a guy called Steve Bee (@pensionsguru) who I used to work with at a company called Scottish Life (shortly not to be called that any more; a sad day).
Steve used to tour a lot and from time to time I would go with him and present to IFAs. You had to sit through me banging on about whatever before the guy in the dark glasses with the overhead projector came on (those of you who know Steve will get that).
I remember on a tour in (I think) 2004 or 2005 that he talked about the idea of having a pensions cashcard. Sometimes you’d put money into the hole in the wall, and sometimes you’d get money out. It would move pensions from being ‘far’ money to something people could relate to, and it would cross that bridge of making the intangible tangible. Something as simple as a bit of plastic can do that. It would rehabilitate pensions in a single stroke and make them sexy in a way they’d never been.
Steve was right. It took 10 years or so, but we’re here.
The patrician elements of our industry have been quick to condemn this as irresponsible. You can’t be trusted! they say. You can’t get your hands on your pension money until you prove to us you won’t do anything silly with it!
This is as logical as not allowing your toddler to play with the ball until they prove they can share it nicely with their sister. And it’s just as patronising.
Treat people like children and they’ll act like children. Whether it’s the IMA saying that people can’t deal with transparency on fund charges because they don’t know how their car’s engine works (grrrrr), or the pensions industry saying that people mustn’t take money in the way they want to, it’s like we are asking for a toddler tantrum and thrown food. With pension reform, savers are being offered a chance to never have to interact with pension companies ever again. That sounds good to a lot of folk, I’d suggest.
Another wise man, John Lappin of Mindful Money, said a brilliant thing to me the other day – that pension savers with a decent amount in their pot will be prudent in retirement – because they have been already. They’ve done their bit. They’ve proved they can play nicely with the ball. They should be trusted.
And if people with smaller pots (maybe above triviality but not enough to buy a decent annuity or get into drawdown) decide to take the money, pay off debt or go on holiday or whatever, why not? It’s their money. At the lang cat we call this phase GYMBOA – Getting Your Money Back Out Again. It’s our name for decumulation. The key being it’s the client’s money, not ours as an industry.
People doing this are acting rationally, despite protestations to the contrary. They’re acting in accordance with one of the most fundamental economic principles – that of utility. They are saying they will derive more utility or enjoyment from using their money in that way than having an extra £25 a week or so for the rest of their life (which is about right for a £25k pot for a male, age 65, good health, 50% spouse’s pension with a 5-year differential, G5, no escalation) . They get to decide that.
And if that’s the sum of their pension provision, then they’re depending on either working in retirement or state benefits or both anyway. All they were doing was replacing some or all of their own means-tested benefits. Those of us paying tax would probably rather they didn’t do that, but you know what? The country will stand.
Everything’s up in the air at the moment. Guidance, pension freedom, sunset clause, adviser charging – it’s not a time to bet everything on knowing how it’ll all turn out. But we do know that people like control. We do know that most people are sensible most of the time. We do know that there are dafties out there. But dafties will be dafties.
So where do we start as the pensions world breaks apart in a way which suggests we might not get assets to hang onto for as long as we had planned? No-one’s sure.
But trusting people isn’t a bad place to begin.
