If you’re struggling to get your head around pensions, you’re not alone: not even the Bank of England’s Chief Economist can make sense of them either.
Andrew Haldane, one of the UK’s most senior banking officials, has warned that pensions are impossible to understand.
He pointed out that ordinary workers had little chance of making informed financial decisions for their retirement when experts and financial advisers ‘have no clue either’.
In a speech at the New City Agenda annual dinner Haldane admitted:
“I consider myself moderately financially literate - yet I confess to not being able to make the remotest sense of pensions.”
“Conversations with countless experts and independent financial advisers have confirmed for me only one thing - that they have no clue either. That is a desperately poor basis for sound financial planning.”
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Growing problem
Haldane warns the problem is getting worse over time as pension decisions are shifted from the state and firms onto the shoulders of individuals, who aren’t offered simple, easy to understand financial products to manage these new responsibilities.
He also says the way maths is taught in schools is a major part of the problem as it lacks real-world relevance. “A great many people find financial issues difficult and boring. That is a weak foundation for making good financial choices. At least some of those problems originate in the mental block many people encounter when it comes to mathematics. Finance is a numbers game.”
Research by the Department for Business, Innovation and Skills, suggests there are 17 million adults in the UK whose standards of mathematics are no higher than those of a primary school child.
Haldane has called for simplification of pensions and ‘re-orientating’ the school maths curriculum to be more practical to help bridge the information gap and help workers make better financial decisions.
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Making pensions simpler
Tom McPhail Head of Retirement Policy as Hargreaves Lansdown supported Haldane’s comments, but says there’s lots the Government can do to make things simpler. These include:
- Scrap the Lifetime Allowance
- Scrap the Annual Allowance Taper
- Introduce a 7-day pension transfer guarantee
- Merge the FCA and the Pensions Regulator
- Simplify PAYE rules around drawdown income payments
McPhail commented: “The Government hasn’t yet exhausted its appetite for pension reform, with another pension bill announced for the next session of parliament. There are still plenty of ways they could make pensions simpler, if they were minded to.
“Aspects of the system, such as the Lifetime Allowance, the Annual Allowance taper and the PAYE rules around Drawdown regularly leave even financially literate investors gasping at their perverse complexity. There is also room to make the functioning of the pensions industry more sympathetic to investors, for example by introducing a 7-day guarantee of pension transfers.”
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