James Coney  

Time to make pensions easier to understand

James Coney

James Coney

There was a comment at the bottom of a story about pensions the other day. “When you say they had a £45,000 pension, what do you mean? Is this per year?” the reader had asked.

The figure was the average pot size, but the reader had a totally fair point.

People use the word pension interchangeably to describe the annual income they receive, the size of their pot, the contributions they make, the product they have, and the state payout.

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Is it any wonder that those who do not work in the pensions industry are so confused?

The financial industry, as a whole, is terrible at cutting through all this and speaking to normal people in a way they can understand. It is part of the reason why pensions are so confusing, because there are just so many products and so many different things being referred to by the same jargon.

We need to get beyond this very quickly, because there is a new problem on the horizon: that of very inexperienced savers who find they have a lot of pensions because of auto-enrolment. 

Which takes us on to the pensions dashboard.

I have written before about the dashboard, and why I am against it. In brief, there is no good having something that will not give you the whole picture – particularly if the pensions in question mean very different things.

The more I read about it though, the more questions I have, which will need answering in the feasibility study – and not just ones about the technology behind the dashboard.

For example, is Aviva going to willingly hand over to Prudential hundreds of bits of customers’ details that gives an insight into how their customers are behaving? In which case, what scant bits of information will one company be prepared to feed into a rival’s system?

Isn’t there one giant data protection risk? And doesn’t that make it a fraud risk?

We have already seen the advent of open banking, which is supposed to allow consumers to put all of their products in one place. That seems sensible, but in reality it means giving up loads of passwords and other confidential pieces of information the banks do not generally like you giving away. 

Many banks have already changed their terms and conditions to make it clear they will accept no blame if you are the victim of fraud after doing this.

Will not the whole thing just be another massive cost that smaller advice firms will not be able to stomach? But if they do not, they will be left behind.

The pensions dashboard seems like a solution driven by the insurance industry to solve the problem of multiple pots, which will just become even more prevalent thanks to the brilliant success of auto-enrolment.

The real answer to that issue should be pot-follows-member (or portable pensions, as I like to call it), but of course the insurers do not like that idea.