Some time ago, more time ago than he would care to remember, Pensions News (PN) was a pupil at a school. He was a pupil at one particular secondary school until he was 18. During his last two years at that school as an A-level student, PN studied economics or at least was present at classes where economics was taught to A-level standard. PN does not consider that he was a particularly good student of economics. He does, however, recall one lesson in which he was (unjustly in his view) rebuked for asking what was described by his teacher as an “irrelevant” question.
During the economics lesson in question, the class was asked at what point they would cease to consume a “free good”. As was and perhaps remains the case with a class full of 16 year old A-level students, the questioner's question was greeted with a sullen silence. Questioners, particularly questioners employed in the teaching profession, tend not to like it when their questions are not answered and/ or when a questioning inflexion is met with a sullen silence. PN was about to find this out as the questioner aimed the same question directly at PN who replied that his consumption of a free good would depend on what the free good was. A pause followed and the teacher suggested that the commodity in this case was “tea”. PN indicated that this was easy; he would not consume any of this particular free good on the basis that he did not drink tea. He did not drink tea as he, PN, didn’t like the taste or, particularly, the after-taste of tea. For those taking notes, this remains the case. The teacher, no doubt nettled at his student’s lack of co-operation (PN now has some sympathy with teachers’ predicaments when faced with uncooperative students but he didn’t have any at all at the time he is taking about), decided to tell him off. It did not matter, stated the teacher unexpectedly forcefully, what the free good was. What mattered was that it was free and what he wanted to know (therefore) was the point at which the demand for a free good would tail off and then cease altogether. Having delivered this rebuke, the teacher turned his attention to a more cooperative student who agreed to like tea and agreed that he would consume the filthy stuff until it was coming out of his ears. At or shortly after this point, he would stop consuming tea. The teacher liked this answer and drew a graph to illustrate the sycophantic student’s consumption of tea. PN acknowledges that you, the reader, may actually like tea and wishes to stress that he means no offence to tea drinkers.
More than once over the past year or so, PN has reported on the consequences of changes introduced by the Government which have the effect of increasing choice at retirement. Whereas individuals who saved for retirement through a personal pension plan used to be required to purchase an annuity with their pension savings, they may now (for instance) take the entirety of their savings as cash (less tax - as PN has previously reported), enter into a form of flexible draw-down arrangement or purchase an annuity. PN has also previously reported that the increase in the number of options has caused an unwanted increase in the number of scams in which persons posing as pension providers encourage individuals to transfer their savings to them so that their pensions can be “unlocked”. PN has also reported that a worryingly large number of people, enchanted by the thought of “cash now”, have been taken in and have handed their pension savings to the fraudsters.
In order partly to address this problem, the Government established an advisory service called “Pension Wise” which it made available to members of the public. The service that Pension Wise purports to offer is “free” - meaning “free” in the sense that it costs an individual no money to access it. Moreover, Pension Wise purports to offer "impartial government guidance about your defined contribution pension options”. Pension Wise (therefore) is aimed directly at those individuals who have been given more choice at retirement. It is possible to make an appointment with Pension Wise by going to its website. For those of you who doubt that anything can actually be “free”, feel free to check for yourselves. PN will add only that you should feel free to do this in your own free time as opposed to that not-so-free time of your employer. Log onto www.pensionwise..gov.uk. Don’t bother trying actually to make an appointment if you are under the age of fifty.
Since its introduction, not many people have used Pension Wise. PN is confident that this news will mystify you, the reader. It certainly seems to have mystified the Government. In PN’s opinion, the general failure to use Pension Wise could have been explained by his 16-year-old incarnation; consumption of a free good does depend on what it is that is being offered for no charge. If, for instance, a free good was being offered and it was cucumber or coriander (as well as tea), PN himself would be prepared to run several miles in the opposite direction of the cucumber / coriander stall so as not to have any. If the “good” in question were cheese pie, PN can think of at least one pensions lawyer whose consumption of cheese pie would remain at zero and whose head would shake slowly at the thought of anyone consuming something as starchy and counter-intuitive as a pie with cheese as its main ingredient (after pastry). So it is with Pension Wise. Many people aged 50 or more, having been told about Pension Wise, that it is free and what it is supposed to do, have still decided to ignore it. The mystified Government has taken action.
Individuals who contribute to personal pension plans are normally provided with information about options at retirement as they approach retirement age. The information in question usually comes from the pension provider which, usually, is an insurance company. Within the information provided are details of options, warnings about failing to take appropriate (financial) advice and warnings about the danger of pension scams. Although all of this is not a bad idea, the problem is that the information tends to run to 100+ pages. Incredibly, persons decide that they are not interested in any free good mentioned within the 100+ pages of information as they have no time to read about it.
PN admits that he finds it hard to believe that people might not want to make time to read a 100+ page document about pensions. Evidently, the Government shares his puzzlement. The Government’s reaction has been to support an initiative whereby 100+ page documents are condensed into a single side of A4 paper. This is quite an achievement; significant enough for it to be reported on by the Financial Times (FT). According to the FT (in its edition of 14 October), the pension provider / insurer LV=, has issued its one-sided A4 “Pension Passport” to about a thousand of its policy holders. Again according to the FT, the Pension Passport includes “the essential information a customer [needs] to access open market retirement product options” and a clear message to visit the Pension Wise website. The results of sending the document to a thousand or so LV= customers has interested the FT. LV= has reported an increase (by a factor of ten) in the likelihood of someone visiting the Pension Wise website and a 60% increase in calls to the Pension Wise information line. Information which would tell us how many individuals actually went ahead and consulted Pension Wise for guidance is not available.
At present, there is probably not a great deal we can say about this initiative other than to acknowledge that there at least has been an initiative and that someone has taken it. Informing an individual of the existence of a commodity and that that commodity is free is clearly an important first step in the process of encouraging consumption of that free good. Getting the individual then to consume the free good (or in this case, use the free service) constitutes a further, more difficult step; particularly if the individual is likely to need persuading that the commodity in question is important enough for him or her to need and then consume. Telling PN (for instance) that he needs cucumber and will feel better for having consumed it is not likely to improve the chances of him eating cucumber. So; what we are left with is this. Many individuals do not like pensions enough to find out about them. At best, we will all ignore pensions until it becomes clear that having one is vital. In the same way, PN will continue to ignore tea, cucumber and coriander unless he thinks that consuming the stuff is essential (e.g. he has to consume the stuff to remain in employment). This brings us back to the problem the pensions sector has been faced with for many years; how to make pensions interesting. Perhaps the “Pension Passport” is the first step on the route to providing an answer. If the “Pension Passport” is adopted by all pension providers and not just LV=, we may find out. Until then, the risk is that many of us will continue to treat pensions generally and Pension Wise in particular in the same way that PN treats cucumber and his former colleague treats cheese pie; even if it were free we would not consume it.
PN wanted to finish with a story containing a surprise and an example of something that probably started life as the sort of strategy Napoleon would have come up with but risks ending up as the sort of plan a “Baldrick” (he of “Blackadder” fame) would have thought of. [Readers may need to be reminded that Baldrick’s solution to his mother’s low-ceilinged roof was to cut off her head.] In a moment of insight, the Pensions Regulator (TPR) (whom PN normally sympathises with) has devised a way of detecting the sort of pension scam PN referred to above and in his last edition. TPR’s plan is simple and straightforward but contains an implicit assumption that we will all recognise a scam when we see one. PN leaves it to you, his reader, to decide whether the plan is simple in the “Napoleon” or the “Baldrick” sense. TPR has launched some online messaging, using Facebook, Twitter and YouTube to warn consumers to be vigilant about the risk of pension scams. One Mr Broomfield who is TPR’s Head of Intelligence said earlier this week that he needed “consumers to help us find and stop scams. We can all use our eyes and ears to spot the scammers before they can profit at our expense.” Surprised? So was PN. PN had no idea that TPR had a head of intelligence.
Until next time……..