I attended the excellent Pensions Play Pen monthly pensions discussion today, the group founded and generally galvanised by the equally excellent Henry Tapper, pensions person extraordinaire. Today’s topic for heated debate was Advice/Guidance? Does it Matter? This is a topic close to my heart and I’ve been writing about the importance of advice gaps for some time, in our increasingly privatised, financialised systems for late life welfare. Followers of the madness that is the British pension system may know that this topic of advice or guidance is something of a swirling storm, as (1) we migrate our paid labour force into an opt-out workplace pension system known as auto-enrolment, which is manoeuvring people into essentially an equities based and therefore risky private pension system, and (2) we crack wide open the decumulation and other investment decisions that ordinary people need to make by giving them carte blanche to invest how they will when they take their pensions. Ordinary people that is, with modest pensions and modest incomes and modest savings and varying housing assets and complex families and complex needs, who must make complex financial judgements when they transition from accumulating pensions, savings, debt and housing to working out how to spend these assets, such as they are, over their rather uncertain life spans, from their rather uncertain and ambiguous dates of retirement, with uncertain care and health needs into the future.
The Chancellor has said in recognition of this complexity that everyone must have guidance (or was it that everyone must have advice?). The storm is partly because the legal and policy worlds are making nice distinctions between “advice” [clear recommendations based on personal circumstances, differential outcomes, legally accountable, highly regulated, requiring rare skills, therefore expensive, and undeliverable to the population at large because of cost and skill issues] and “guidance” [??? on accountability, hmmmm? on regulation, and ?!? on who will be giving it and how much it will cost, deliverable we think by a well designed web based decision tree that ON NO ACCOUNT tells people what they should do]. But ordinary folk make no such distinctions – these semantic differences are in ordinary parlance a nonsense. If I go to my Dad, or my partner or my mentor for guidance, I am hoping she or he will advise me on what it is they think I should do. If you were me Pops, I might ask, what would you do? Give me some guidance. I say this to our students all the time – well, if I were you….. It’s no wonder even the Minister is confused.
But anyway, in my head, I really struggle to see what advice looks like for the prudent modest earner with a modest lifetime pension pot (let’s say a single man, £60,000 in total after the credit card is paid off, with no other pensions save a state pension), who has, let’s say, £4,000 of savings in the bank, lives in a small house outside the South-East that can’t be traded down, and has just been made redundant age 62, in good health but a bit of arthritis beginning in the lower back? (11 variables or so). Even if it could magically be given for free, and even if some of the people who are so adamant that ON NO ACCOUNT should decision trees end up with a RECOMMENDATION were willing to stick their necks out and actually make a recommendation, what would it say? Where should our newly retired person put his money, and how much can he skim off every year for his modest consumption?
Although there’s much to think about on these issues, there are two points I want to canvass here. The first is that we do tend, in this conversation, to talk as if these decisions about what to do with the money are the pivotal ones on which outcomes rest. If people only knew how to save and invest wisely, they would be all right, is the underlying assumption. This means if you’re not all right, it’s your fault for not choosing the right branch of the decision tree, for not investing correctly at the right moment, for not choosing this path instead of that. We might have known better than you, secretly, but we gave you all of the information in a decision tree – silly you for not taking the right path. This way of thinking is to deny two things. First, the right path can only really be known with hindsight, and what seemed a good decision may turn out to have been bad (e.g. putting your pension savings into Equitable Life, investing in equities right before a crash, …); second, that powerful – very powerful – external forces affect people’s financial outcomes differentially in later life – global recessions, unemployment rates, interest rates, stock market variations. Perhaps we’re asking the wrong questions. Perhaps what we need to be thinking about is how the vicissitudes of life affect people and cohorts so differently, and asking how to share these risks fairly between people and between cohorts, rather than let these risks lie, rather randomly, where they fall. I gave an interview last year to Ageing Bites about these issues, and I think we are not thinking nearly enough about them.
Second thought. Henry asked us, does it matter? While I am extremely concerned about advice gaps, I really am, honest answer, I don’t know. None of us do. Will it make any difference to long term outcomes (I mean over the whole life, I mean until death), if people get (a) guidance, (b) advice, or (c) nothing at all? We tend to (for good reason) set in place, measure and evaluate processes. We really don’t much evaluate outcomes. It struck me during the conversation today that with 350,000 people being shunted into “guidance” regimes in the near future, the position is perfectly set for a randomised control trial – a really rare thing in social policy planning. The objection would be I guess that we couldn’t ethically randomise people into the “nothing” group, or perhaps even (despite the people who believe it’s enough), the “guidance” group, and I would understand this objection though I think it ironic. Maybe we could rely instead, though, on the natural experiment that will happen, since many people will in fact get nothing, and many will get “guidance” and a small few “advice”. But to set up a research project of this nature is very tricky and incredibly expensive, and a real evaluation would need to take place over decades. Henry said rather challengingly, it’s the job of academics. Point taken Henry, if anyone wants to fund this critical study, give me a ring…..