If “pension saving” is now just “saving,” then what’s the point of “pension tax relief”?

Following the Chancellor’s Budget announcements, we now have to think of pension saving from next April onwards simply as savings which you can’t get your hands on till you’re 55.

Much as it may be a good thing to encourage people to save in this way, surely it can’t make sense to give them a tax incentive at both ends – allowing them to make contributions from gross salary, and then to withdraw 25% of the amount they’ve saved without deduction of tax too.

I guess that taking away the tax-free 25% would seem unfair on people who had been saving in anticipation of it.  But I’d be astonished if higher-rate tax relief on new contributions lasted more than another year or two.

“The Tube: An Underground History” vs Stafford Hospital

I don’t know if you remember, but a couple of years ago there was a lovely documentary series on television about the London Underground, and mostly about the people who work there.  You couldn’t help warming massively to pretty much all of them.  A few were a bit grumpy.  But the large majority took obvious pride and pleasure in their work, and day after day happily overcame all sorts of hassles and problems, most of them caused by lack of investment, lack of resources and antiquated equipment, to deliver the very best service they could to their customers.  And delivering that service, for the customer-facing staff, also meant engaging with them with warmth, wit, kindness and good humour.

You were left with the thought that if you were going to come over a little peculiar and need some assistance anywhere, then somewhere on the tube would be  the place to do it.  You could be pretty sure of getting the help you needed, quickly, amiably and from someone who knew what they were doing.

Equally, if you were going to come over a little peculiar and need some assistance, recent evidence suggests that the worst possible place to do it would be on a ward at Stafford Hospital.  If you’ve forgotten the detail of some of the things that went on there, I don’t think I can help you.  I can’t find the language this morning to reflect the cruelty, heartlessness and selfishness of most of the people who worked there.   All I’ll say is that faced with very much the same problems as the London Underground staff – lack of investment, lack of resources and antiquated equipment – they responded as differently as it’s possible for human beings  to respond.

What’s my point?  Simply, that both of these are public-sector organisations.  Opponents of the public sector say that state-owned organisations will always have a bit of the Stafford Hospital staff about them.  In the absence of performance management and commercial motivations, they will always tend to sink into solipsism, putting their own comfort and convenience way above their customers’.  Supporters of the public sector will of course argue pretty much the opposite, saying that all public sector organisations will have a bit of the London Underground staff about them:  free from the tyranny of commercial imperatives, people will be able to do the kind of decent, kind, caring jobs that deep down we’d (nearly) all like to do.

There is then a second level of argument on this subject, specifically to do with the quality and commitment of the managers.  Anti-public sector people say that the managers are pretty much always a) second- or third-rate, and b) pointed in entirely the wrong direction by artificial and usually government-imposed targets which will always be perverted in a way that real commercial targets simply can’t.  Pro-public sector people say pretty much the opposite – that free from the tyranny of commercial imperatives etc etc etc.

Where does the balance lie?  In the public sector, are there more London Undergrounds, or more Stafford Hospitals, or an equal number of each?  And, just as important, how different is the balance in the private sector, and on the whole is it better or worse?

Trying to answer these questions brings out the Libran in me.  I can all too easily see both or maybe indeed all sides.  I can think of other rotten public sector organisations, some within my personal experience:  but I can also think of other delightful ones.  I can think of organisations that used to be useless when they were in the public sector, but are now equally useless (or maybe even more useless) in the private sector – BT comes immediately to mind.  And I can think of lots of horrible and useless private sector organisations, including far too many in financial services, but also a number – I have to say probably a rather smaller number – of decent ones.

In this typically Libran way, I conclude that there is no pattern.  In my experience there is no evidence that either or indeed any form of ownership makes any general difference to the values and behaviours of organisations.

I suppose that if that is the case, and there is no general difference in practice, then we’re all free to form our views on the matter on the basis of principle.  And in principle, there’s enough of the student-era pinko left in me that I don’t find it hard to decide which side I’m still on after all these years.

But I have to admit that I’m not completely convinced by my own analysis.  I have a nasty suspicion that if I wasn’t a) a Libran and b) a pinko, I’d look at the public-sector organisations – I suppose the NHS is the biggest and best, or worst, example – and I’d see troublingly much more bad than good.

What do you think?  You could argue that by now it doesn’t much matter either way – that in the great scheme of things, nationally and indeed globally, this conflict is over and the private sector won.

But looking at how much of the fabric of our society is still in public-sector hands, that’s not really true.  It does still matter.  I’d be interested in anyone else’s views.

Just at the moment, I do rather wish I’d chosen a different career path

I don’t think I’ve ever regretted choosing to work in financial services as much as I do in these days after last Tuesday’s Budget.

It’s not what George Osborne did.  As far as retirement savings are concerned, I don’t think he had much choice.  Annuities – described in one Sunday paper today as “hated annuities” – had become so utterly discredited as a home for the money in people’s pension pots that they had come to act as a major disincentive to any kind of retirement saving.  An alternative had to be found.

No, what’s fantastically depressing and demoralising is something else:  the fact that with the death, or near-death, of annuities, the industry has now through its own greed and incompetence managed to destroy all three of the biggest and best ideas it’s ever had when it comes to looking after the long-term savings of ordinary people.

The first two, managed funds and with-profits, became unsustainable the best part of a generation ago. Managed funds were the obvious investment solution for long-term savers, well-balanced and well-diversified, but were destroyed by villainous overcharging and lazy, third-rate, incompetent investment management.  With-profits was the obvious risk management approach, providing protection against the potential catastrophe of steep market falls in the run-up to retirement, but was destroyed by the arrogance of actuaries, hiding their often-terrible decisions behind such impenetrable opacity that in the end it became almost impossible to have any confidence in them.

And now it’s annuities.  Annuities are still by far the best available solution to a problem which has become more and more widespread in the era of ever-increasing life expectancy, namely the problem of outliving your savings.  Many people who choose the kinds of other solutions that will become available after the Budget will suffer serious poverty in the last stages of their lives.  But, again, the industry has managed to discredit one of its own best ideas, and again greed has unsurprisingly had much to do with it:  pension savings providers have been far too keen to roll their customers over into their own annuities even when far better value was available elsewhere, to the extent that it’s now an accepted truth that this vitally important market is completely dysfunctional.

To understand just how disastrous these three self-inflicted wounds have been both for the industry and for its customers, imagine that something similar had happened elsewhere – in, say, the pharmaceutical industry.  Imagine that having developed three of its most powerful-ever treatments – for the sake of argument, antibiotics, statins and antiviral treatments for AIDS/HIV – the industry had screwed them up so badly with poor-quality manufacture, poor prescribing and overcharging that all three had to be withdrawn from the market.

The resulting financial losses to the industry would have been gigantic.  But the losses of other kinds  to its customers would have been much greater still.

Of course I can’t argue that the follies of financial services have cost anything remotely like the same number of lives – but when it comes to the quality of life especially in people’s later years, I think the costs are on a very, very substantial scale.

And that’s why just at the moment, I’m wishing that I’d chosen a different career path.

Excellent, that should be the next three years of consultancy sorted

I’ve spent the last three years or so silently (and quite often not-so-silently) thanking Callum McCarthy and the FSA/FCA for the RDR, which has generated about 50% of my work over the period.  It still offers plenty of potential, especially if there is an RDR 2 to follow, but I suppose I have to accept that it’s past its peak as a provider of consultancy projects.

So now, at exactly the right moment, my silent and not-so-silent thanks swivel towards the Treasury – and specifically the Chancellor, who I hope will have prepared the ground for the next three years with his proposals about pensions, and to a slightly lesser extent about ISAs, yesterday.

Thinking about ISAs first, it seems to me that what’s important is that he’s taken them across the dividing line from incomprehensible-to-ordinary-people to comprehensible-to-ordinary-people.  This is potentially both important and timely.

When ISAs replaced PEPs, the really bad thing was that they were so horribly much more complicated. If you tried to explain about the two different kinds, with two different limits, and the way that you could move money from A to B but not back from B to A again, people would glaze over in minutes.  You could see that pretty much all of this was going straight into their Too Difficult file.  The only bit which was simple enough to cope with was the Cash ISA.  Most Cash ISAs were, and still are, pretty rotten products.  In most cases a standard rate taxpayer could get a better return out of a higher-yielding product even after paying tax.  But still,  Cash ISAs are easy, accessible and tax-free – they’ve taken in billions.

Now, as far as I can see, all ISAs are easy.  I think you can now explain them without the glazing over.  As the basic vehicle for the kind of simple mass-market investment services that I’ve been banging on about for ages, they’re suddenly super-fit for purpose.  Hooray.

And then of course there’s all the retirement income stuff.  That’s going a long way in the opposite direction:  this market was once extremely simple, featuring basically bog-standard annuities and nothing much else, then it started getting complicated with different flavours of annuity and the alternative of drawdown, and now it’s going to get very, very complicated indeed with all sorts of new products and in particular hybrid products, which will involve things like taking all your money out of your pension pot and buying a a slice of a portfolio of managed buy-to-let properties to generate your income.  And so forth

Oddly, having been championing simplicity a couple of paragraphs back, I welcome all this new complexity too.  People genuinely do have different requirements from their pension pots.  For many, it’s the one time in their lives when they actually have to make a financial decision that’ll really matter.  Which means it’s the one time in their lives when it’s a really good thing that there’s a wide range of options available.  And also, very likely, the one time in their lives when they really need good and personal advice.

There, of course, is the rub.  Looking at it from an adviser’s point of view, this wonderful new multifarious retirement income market is piled high with potential sources of remuneration bias.  When an adviser is faced with a retiree invested in a defined benefit scheme, the adviser has a choice between leaving the client where he or she is and making no money, or transferring them into a DC scheme, taking all the money out and raising a nice big adviser charge.  Equally, an adviser can recommend an annuity to a retiring DC saver and make a small one-off arrangement fee, or a complicated drawdown scheme which requires ongoing supervision and secure ongoing remuneration for the rest of the client’s life.  And I’m sure some of those hybrid schemes that haven’t been invented yet will offer excellent remuneration for advisers who tell clients to take out all their money and invest it in Bahamas-based film production companies, or whatever.

Yes, the more I think about it, the more I think there’ll be a whole load of emerging remuneration-bias issues that are going to need sorting.  All grist for the RDR2 mill, I reckon – and, hopefully, my next-but-one three years’ worth of consultancy.

Do your marketing communications pass the 29 Bus Test?

We were a diverse bunch as usual on my pleasingly-uncrowded 29 this morning – a handful of students, a few office workers, various NHS workers on the way in to UCH, a couple of mums taking small kids to school, someone who looked like a murderer and a couple of seriously off-the-beaten-track Japanese tourists.

But nearly all of us had one big thing in common:  22 out of 24 were on their phones.

I have major doubts about many – even most – forms of mobile marketing communication.  The huge majority of brands are unwelcome in social media.  Display advertising doesn’t work well.  And although people keep telling me that younger users don’t agree, I still think that the large majority of m-commerce applications are horribly slow, clunky and complicated

But if all of this simply means that we have more work to do to start making the most of mobile, I can’t help thinking that we’d better get a wiggle on.  When it comes to reaching the passengers on the 29 bus, mobile is quite literally the only game in town.

“Consumers not as stupid as they look” shock.

Back in the pre-PC 1950s, advertising guru David Ogilvy famously commented: “The consumer is not a moron, she is your wife.”  The gender assumptions don’t bear too much thinking about these days, but the substance of the comment still does – especially in the financial services world, where we’d still much rather describe consumers as “idiotic,” “stupid” or “irresponsible” rather than think about things from their perspective and realise why they’re behaving as they are.

I’ve recently come across another good example of this foolish propensity of ours, in the important but slightly esoteric field of annuities.

For some while now I’ve been hearing a growing chorus of very sniffy and critical industry comments on consumers’ behaviour when it comes to annuity selection.  “Bloody idiots,” people say.  “They receive a pack making it perfectly clear that they’re entitled to shop around – yet well over half don’t even bother, they just go straight to their pension savings provider and take whatever they’re offering.  A stupid mistake – and a very expensive one.”

Yes, it’s easy to read this as either laziness or folly, or indeed a combination of the two.  But, as someone pointed out to me last week, perhaps it’s not quite that simple.

The thing is, the very large majority of consumers simply don’t recognise the distinction that we in the industry make between the “accumulation” and “decumulation” stages of retirement saving.  The way they see it, these are absolutely not two separate, unconnected processes, such that it’s perfectly sensible and appropriate to separate one from the other.  It’s all one thing – it’s called getting a pension.  Going to a different provider for the post-retirement part would be as odd as, say, going to a different restaurant for pudding, or to a different shoe-shop for the left shoe.  It’s all one thing, and you get it from one place.

Looked at in this light, messages from your pension company about shopping around and exploring the open-market option are easy to ignore – and, if people do pay attention to them, very hard to understand.  Why is a company which has been receiving my contributions for thirty years or more trying to get rid of me just at the point when I can start getting some of my money back?

As I say, if you think of pension saving as a game of two halves, it makes sense.  If you think of it as one continuous process, it doesn’t.

So often – well, pretty much always, actually – when people in the industry are baffled or appalled by consumer behaviour, the reasons are entirely to do with the assumptions on which the behaviour is based.  Understand these, and understanding the behaviour is easy.

Sometimes, admittedly, understanding consumers’ starting-points takes a bit of effort and imagination.  But for all those of us in marketing, isn’t that exactly what we’re supposed to be doing?

Mysterious Messages No.47

There’s a poster in the window of a local charity shop which says PLEASE BRING US YOUR UNWANTED CATFOOD. It always makes me wonder who has unwanted catfood, and why.  I suppose the obvious answer is people whose cats have just died, but how many of them walk past this Camden Town charity shop every day?

Also, someone has handwritten on the poster the additional message HARRY’S FAVOURITE IS FRISKIES.  If the original poster reflects a good deal of optimism, surely this displays too much.  Are there really enough superfluous-catfood-owners walking past the poster that we can afford to be brand-specific (and, what’s more, specific about an esoteric niche brand that can’t have more than a couple of percent market share)?

You may say that given my evident curiosity, I should pop into the shop and ask how well the poster works.  Do people often come in to donate quantities of unwanted catfood in general, and Friskies in particular?  But I only find myself standing outside the charity shop while waiting for the bus to work, and it isn’t open at that time.

Bad news not just for me, but also of course for anyone aiming to drop off a few boxes of unwanted Friskies on the way in.