Dr Who, a staple of recent Christmas Day viewings, will certainly be one of the big draws for the BBC on Christmas Day, (7.30pm, if you’re wondering). The popularity of the show is undiminishing as humans have always had a fascination for time travel. One wonders why? Probably because it seems to be an ideal way for us either to change the past or forecast the future, two issues which would be very useful for anyone. Who wouldn’t correct some previous action if they could and who wouldn’t like to know the future consequences before they make a decision?
Unfortunately, time travel is not possible so when we are making key decisions, such as what type of pension to invest in, we cannot go forward to ultimately find out which approach is best. So we cannot be sure when we make a choice that we have made the best one. It is this truth that is not being brought out in the pension charge cap debate.
In the main, there are three crucial factors that will affect the amount of money that we have in our old age: the amount we contribute, the charges of those who are administering our pension, and the investment returns achieved. Of the three, the first is obviously under the control of the employees themselves and the third is completely unknowable. Hence everyone’s focus is on the second factor, i.e. the charges.
But without knowing the returns on the investment, the focus on charges is nonsense; we would all happily pay higher charges for higher returns. So why will the government not be honest in their advertising and admit that they cannot be certain whether the investment will be a good one or a poor one; the only thing we can be certain of with auto-enrolment is that the employee who saves will have some money to top up his or her state pension when retirement comes and the one who doesn’t, won’t.
Instead, we are treating the public like children by trying to make it seem that there are no risks involved in these pensions, probably because everyone is afraid that if they discuss the risks, people will opt-out of this flagship project. Rather than resolve this issue the obvious way by making the saving compulsory, the government is glossing over the risks and over-focussing on the charges issue. They are also trying to set up a smokescreen by conjuring up bogeymen in the form of the financial services sector, saying the baddies in the financial services sector are trying to steal your money.
Capping charges is a desperate attempt to blur the fact that auto-enrolment is making ordinary workers take risks in the financial market with their money. And no matter how many rules we bring in, the truth is that some will always have been better off if they had stuffed their money into their mattress. Of course some providers do charge too much but if we’ve learned nothing from the last 50 years, surely we’ve learned that trying to fix the market doesn’t work?
Without a Tardis to see the future, no one can honestly state that a low-charge pension scheme will deliver more than a higher charge one, as investment returns will always differ between schemes. As people’s lifespans start to stretch out towards that of the Time Lords, it would be better if the solutions were based on a more honest assessment of the problems.
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