Tinker, Pension, Changes, Why?

Firstly a question…

How many pieces of law were passed in the UK  in 2012 containing the word ‘Pension’?

Before conducting the research for this blog post I’d guessed that there were 5 or 6.  At most, 10 to 15…

Actually there were 94 pieces of new and amended legislation in 2012.

Whilst these 94 amendments does include changes to the schemes run on behalf of our nurses, soldiers and postman (among other public servants), it did strike me that nearly one hundred changes in pension law in a year seemed slightly excessive.

Interestingly whilst 2012 was a busy year in the world of pension legislation change if you compare it to 2004 (52 pieces of legislation).

However it seems like our legislators were having a slack year pensions wise last year if you compare it with 2005 (210 pieces of legislation) and 2006 (173 pieces).  That’s no surprise really considering the run up to A day and the scope of the changes during that time.

Now I’ve got to admit.  I haven’t read all last years legislation, or the 45 changes in pension law which have already occurred this year and it’s unlikely that I’ll find the time to do so soon (you can find the details of every legislation change at http://www.legislation.gov.uk/title/pensions).

However the scope and range of these changes as well as the numerous announcements which impact our lives in retirement tells me one thing.  We seem to love to ‘tinker’.

However whilst as professionals we might get unnaturally excited about flat rate state pensions, annual allowances and the numerous and various pensions reforms….most people don’t care.

Legislators and Pension professionals might think that these minor changes provide individuals with an incentive to save.  The fact is that most of the minor changes seems to help the individuals who need it the least (the wealthy) but have very little impact on anyone else.

This data from Scottish Widows seems to illustrate this.  Wealthy people save more, not only in cash terms but also in proportion.  Lower and Middle earners save less.

So.  If tinkering with pensions isn’t working….what will?

I believe that we’ve started along the right path.  Instead of tinkering we’ve made a root and branch change with the introduction of Auto Enrolment.

Only time will tell however I believe that Auto Enrolment will help people save more for their retirement, especially if our ‘quasi-compulsion’ model works as well for us as it has for the Australians.

However that’s only part of the puzzle…

Those of us who are financial planners know that the “why” is far more important than the “what”.  We all know that Pensions are just a vehicle designed to achieve a goal and we know that, as long as we help guide and support our clients to get to their destination efficiently.   The ‘vehicle’ plays a part but isn’t what we should focus on…

So, how about this…

Instead of tinkering with products (be it Pensions, ISA’s or Child Trust Funds) let’s focus on helping product manufacturers and legislators understand that the decision to save or not isn’t based on these changes but something more fundamental than that.

The good news is that the FCA seems to understand this.  This paper talks about how, as humans, we make decisions and how this impacts some of the financial issues we face as a country.

I haven’t given enough thought about how we do this yet.  However the starting point has got to be, as a country, to stop tinkering with our ‘cars’ and give more thought about where we actually want to drive and how we’re going to get there…

As ever I’d be interested in knowing your thoughts.

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