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A greater understanding

I hold the very pompous title of senior economist at the IPPR. This title has been a standing joke at the institute for some time because there have in fact been no other economists working here.

As the senior (and only) economist, it could be assumed that I would fit the FSA textbook model of a well informed, rational, indeed sophisticated, consumer who understands the range of financial products available and makes carefully balanced decisions that match my long-term aspirations.

So why should a sophisticated consumer such as myself be looking forward to the outcomes of the Pickering and Sandler rev-iews? To understand whe-ther and how these inquiries are likely to help me as a consumer, I thought I would undertake one of those periodic reviews such as the high-street institutions offer for free to their customers.

This review would be aimed at addressing what I do and do not understand about my personal finance choices.

I do this with the assumption that if a senior economist such as myself has problems, then so will everyone else.

I understand that I should be saving as much as I can into my personal pension so that I build up an adequate fund for my retirement.

I understand that stakeholder pensions have benefited me personally, not because I have one but because the competitive pressures they have exer-ted have brought about a significant reduction in my charges.

I try to understand why my pension provider takes up to six months to process any paperwork associated with, for example, increasing my contributions but sometimes my understanding wears a little thin.

A greater part of my pension contributions goes into a managed fund and a small part into a with-profits fund (you can und-erstand from this that I am reasonably risk-averse). I understand the managed fund but I definitely do not understand the with-profits fund.

However, my provider is a mutual and my with-profits fund makes me a member. I understand that this could be a good thing in the event of demutualisation.

I understand that I will have to use my pension fund to buy an annuity and, unlike lots of people apparently, I understand that I can shop around for that annuity.

I do not understand why the age 75 limit is a big issue. Anyone wealthy enough to wait until 75 without taking out an annuity is by definition not worth worrying about by someone working for a centre-left thinktank.

Anyone who thinks that someone else should be able to inherit their pension clearly does not understand the purpose of a pension.

I do not understand whether or not I should contract in or out of Serps and I fear that I will not understand the state second pension either. I take professional advice on this one.

I do not understand how people on below-average earnings can be expected to understand their choices in this context either, especially when the stakeholder regime allows little leeway for advice to be offered on such complex issues. I can understand why pension providers find the whole opting-out thing a real pain.

I understand occupational, personal and stakeholder pensions. I do not understand what the Trea-sury&#39s individual pension account is. Does anyone?

I understand individual savings accounts and I understand mini and maxi Isas. I have a mini cash Isa and I have mini stocks and shares Isas. I do not have an insurance Isa – I do not understand them.

I did not understand all the propaganda from the financial experts two or three years ago who were saying that cash Isas were a waste of an Isa allowance and that you should put everything into stocks and shares Isas.

I thought that having cash and stocks and shares Isas amounted to a wise strategy of diversification. In light of declining stockmarkets, I appear to have had the last laugh on this one. I now understand that financial experts can occasionally talk complete twaddle.

I do not understand how providers get away with all the billboards in early spring promising, in big letters, a 9.2 per cent a year return on the latest high-yield bond Isa while pointing out in only very small letters that you could in fact lose money as well.

I do not fall for this but I understand how others might and this makes me angry.

The moral of all this is that there are many decisions faced by ordinary people and many products offered by providers that are breathtakingly complex, with much of this complexity a direct result of public policy.

Fortunately, from what I know, this is well understood by those undertaking the reviews and so I am somewhat reassured and I understand that the outcomes of these reviews are indeed very imp-ortant – even for senior economists.

Will Paxton is senior economist at the IPPR

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