Is that nice Rishi Sunak our only line of defence these days?

Maybe it’s always been that way.  Maybe, when it comes to really huge and cataclysmic events – wars, financial crashes, tsunamis, pandemics – a nation’s treasury is the only pot of money big enough to cope with the consequences for individuals’ finances.  Maybe if anything has changed in recent years, it’s only been an increase in the frequency of such cataclysmic and near-cataclysmic events.

But it doesn’t feel quite like that.  It feels as if the other actors previously in the business of providing financial solutions of one sort or another in the event of calamity –  families, employers, the financial services industry and not forgetting individuals themselves – have largely left the stage, leaving Rishi and his counterparts in other treasuries around the world as the last actors standing.

OK, I exaggerate.  Those other actors are still playing some kind of part.  But perhaps the starkest reality that the pandemic has highlighted is the astounding – and terrifying – lack of resilience in millions of people’s lives.  Without the furlough scheme and all the other State-sponsored financial interventions, gigantic numbers of people would have lost their jobs, their incomes, their homes, many of their possessions and even the ability to feed their families.  When furlough and some of the other schemes – such as mortgage payment holidays – unwind over the next few months, a considerable number still may.

I suppose that looking back over the years, this was always the inevitable consequence of a lengthy period in which institutions of all kinds tacitly conspired to offload responsibility for private individuals’ financial wellbeing onto the shoulders of the private individuals themselves – without ever quite making it clear that this was what was happening, and that people needed to take significant action to manage the new risks they were unwittingly acquiring.

The most obvious example is the shift from DB to DC pensions, which has represented a really huge transfer of risk and responsibility from employers to individual employees – a level of risk and responsibility which employees, despite the apparent success of auto-enrolled workplace pensions, are still nowhere near shouldering.  But actually there are plenty of other examples, many of which aren’t usually seen in terms of risk transfer at all.   How many people raising mortgages to buy their council houses, for example, understood the transaction in terms of risk?  Even the winding-down of large company car fleets, increasingly replaced by private lease purchase contracts, can be sen in the same way.

Which is all fine as long as the pay cheques (pay cheques?  Who gets pay cheques these days?) keep coming in.  During the period when my family’s running costs peaked, I saw myself standing on the roof of the house, a bit like Father Christmas, pouring sackfuls of money down the chimney (who has chimneys these days?).  The money flooded out through every door and window, but for as long as I kept pouring everything would be fine.  Thankfully I never did stop pouring, and everything was fine.  But this year, in millions of homes around the country, it’s been several months since any money came down the chimney, or at least it would have been without that nice Rishi Sunak, and that isn’t fine at all.   

What’s particularly disappointing is the way that the life industry has accepted this massive burdening of its customers without a squeak of protest or (a rather different thing) a trumpeting of its commercial interest.  I remember a well-known industry leader – well, OK, it was Otto Thoresen – saying to me some years ago that if the industry isn’t in the business of helping people manage risk, then there’s no reason for its existence.  But looking at it now, you’d never guess that managing individuals’ risk had anything much to do with it.  Over a couple of decades, the large majority of big risk-managing ideas – with-profits, guarantees, final salary pensions, ASU insurance, annuities – have been whittled away, leaving… well, leaving what exactly?  Leaving pretty much what Otto feared when he spoke to me.

Where do we go from here?  Assuming we don’t want a return to The Grapes Of Wrath, and also assuming – perhaps more questionably – that all those risk-shedding institutions have absolutely no intention of taking it all back on again, it looks like a fairly binary fork in the road.

Either we carry on more or less as we are, with people terrifyingly unresilient but relying on Rishi to bail them out, or at least soften the blow, when things get really ugly (as they seem to do more and more often).

Or, belatedly, the principal actors – the State, employers and the industry – are going to have to work very much harder than ever before to help people understand the responsibilities that they are now shouldering, and to provide relevant, accessible solutions so that they can face up to them.  

As a private individual, I can’t say that I love either of these options.  But I think, on the whole, that if I am actually dealing with a massive burden of financial risk and responsibility, I’d rather be able to understand it and, maybe, at least partially, cope with it.   

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