The more literary-minded readers of Pensions News (PN), that’s all of you surely, may be aware of the substance of a poem by Samuel Taylor Coleridge. The poem, called Kubla Khan, describes a dream or vision in which the hero, Kubla Khan (but allegedly Coleridge himself), decrees a pleasure dome within his place of residence; Xanadu. Said dome features fertile ground in which there are incense-bearing trees which produce certain substances. The poem concludes with what appears to be a warning to the reader to beware of Kubla Khan and, possibly, the substances featuring heavily in the pleasure dome; “weave a circle round him thrice, And close your eyes with holy dread, For he on honey-dew hath fed, And drunk the milk of Paradise”.
PN thought of this last stanza when he read, over a month ago now, about a campaign being directed by the association of British insurers (ABI) to make pensions language “simple, clear and consistent in order to help customers better understand their retirement options”. Recalling the precise, pertinent comments of his spiritual mentor (Mr Clive James) on the subject, PN remembered reading that Coleridge was apparently high when he wrote Kubla Khan and he (that’s PN, not Coleridge) wondered whether the relevant members of the ABI had been standing too near to Coleridge’s incense-bearing trees or whether they had been under the influence of certain substances (let’s agree to call them “honey-dew” and “the milk of Paradise” for the purposes of this note) at the time they decided to take on the task of simplifying pensions language.
You, the reader, may recall that PN expressed scepticism about the ABI’s prospects of success in its mission to make pensions language simple or at least simpler and thought (and still thinks) that the words “simple, clear and consistent” are invariably dangerous terms to employ in the context of pensions.
Since writing about the ABI’s campaign (any reader staring at this article wondering what substances PN has been taking is now referred to PN of 22 April 2016), much has happened in pensions and the subject has continued to feature prominently on the pages of respected journals such as the Financial Times (FT) up to and including the last few days. Some of the recent news may simply coincide with what PN has been telling his readers and other news may not. About this, PN promises to try to make as much sense as possible from hereon in.
As he was probably speaking to his uncle Mark a week or so ago, PN repeated his scepticism about the ABI’s chances of getting the population to engage more actively in pensions through what appears, essentially, to be the production of a pensions dictionary. PN’s uncle was unsurprised at PN’s scepticism (PN has “form” on this score) and said so. It was then PN’s turn to be unsurprised when he read in the FT a day or so later that a senior official at the Bank of England (BoE), Mr Andrew Haldane, had admitted that pensions were “so complicated” that he could not make “the remotest sense” of them; even though he, Mr Haldane, considered himself to be moderately financially literate. Brushing aside for a moment what appears to be clear evidence of Mr Haldane’s modesty, PN read further what Mr Haldane had said. He had said that he had had “conversations with countless experts and independent financial advisers [who] have confirmed for me only one thing – that they have no clue [about pensions] either.” For the record; PN and Mr Haldane have never spoken or otherwise communicated through any other medium.
Writing in the FT a couple of days after Mr Haldane’s revelation, Merryn Somerset Webb told Mr Haldane that he was being far too modest by referring to himself as “moderately financially literate” and argued, cogently PN thought at the time, that pensions were not, in fact, all that complex. PN then went on to read a further article (on page 1 of the weekend edition of the FT this time) which seemed to confirm that the subject of pensions not only mystifies the average BoE senior economist but is designed to. The article, written by the FT’s pensions’ correspondent, Josephine Cumbo, announced that research carried out by something called the Transparency Task Force (TTF) reveals that pension savers are seeing the value of their pension funds decrease by more than one third over the lifetime of their investment as a result of “hidden charges”. The findings of the TTF study are due to be presented to regulators next month and they will demonstrate, according the TTF chairman, that there are “more than 100 types of costs and charges being routinely applied to pensions and investments, many of which are being hidden from the consumer”. On reading this, PN felt that he would have accepted a dose of the milk of Paradise had it been offered to him. It is perhaps fortunate that nobody was around to offer it.
Mr Haldane’s view of pensions appears further corroborated by the debate going on about what to do with the British Steel pension scheme; a scheme which is or which seems to be deterring all and any buyers from purchasing what is left of “British Steel” from Tata.
Having been urged (in the general sense) to do “something” about the steel industry, the Government is trying to do something but it cannot, it seems, agree on what the “something” is or would look like. Perhaps the milk of Paradise has run dry in Westminster. The Government is, it seems, unable to agree on how to deal with the pension scheme which, as PN reported two weeks ago, has a fund value of over £15bn. The Government’s chief advocate for the “let’s do something” campaign (Mr Sajid Javid) is due to hold discussions with Tata’s board this week and the talks, talks which will have happened by the time you, the reader, have read this, are alleged to be about a deal which will be done about the pension scheme. The deal will, allegedly, separate the pension scheme from the corporate entity. That entity will then be sold, devoid of pension scheme, to a third party. The scheme will be run independently from the business. Members of the scheme will have the option of remaining in the scheme or entering the pension protection fund. Tata will make a lump sum contribution to the scheme and the Government will “help to underwrite its liabilities” (so stated the Daily Telegraph) for a finite period after. It will come as no surprise to readers to read that the Department of Work and Pensions has described the alleged plan as “risky” and no less of a surprise to hear that many commentators have, hysterically in some cases, warned of dire consequences if the so-called deal on Tata is allowed to go through. Had PN read the rules of the British Steel pension scheme, PN would have given a view on the so-called deal and, having read them, may have concluded (as some have) that, in order to address the problem of the pension scheme, the law should be modified. The problem with this conclusion would have been that, like most answers given by pensions commentators, it is purely rational; and purely rational answers to real problems should generally be ignored on the basis that dilemmas such as this one arise through a conjunction of circumstances which involve the demands of humans (vis. politicians in this case – PN is not referring to the needs of steel workers to have jobs) which are often not rational at all.
Perhaps the plan to solve the Tata problem has, in part, been a reaction to the complexity that surrounds pensions and pension schemes and that complexity has been simplified in the minds of (some of) the Government by the consumption of honey-dew and the milk of Paradise. After all (and as Mr James himself has observed), the ingestion of certain substances constitutes an escape to simplicity, which is no mystery at all. Perhaps the ABI and Mr Haldane will need some sort of substance, provided such substances have not all been consumed by the Government, before they attempt to simplify the language of pensions.
Until next time……