Bank of England chief economist Andy Haldane has suggested advisers do not understand pensions while admitting he too cannot make sense of the increasingly complex pensions market.
Speaking at the annual dinner for think-tank New City Agenda in London last night, Haldane said financial education in schools was lacking in teaching how to apply maths to the real world, such as budgeting, understanding annual percentage rates on loans and deciding on the right savings, pensions and mortgages products.
He said providers have made financial products “deliberately difficult” for the public to understand and “more complex than necessary”, with consumers charged a premium for buying them.
Haldane said: “To give a personal example, I consider myself moderately financially literate. Yet I confess to not being able to make the remotest sense of pensions. Conversations with countless experts and independent financial advisers have confirmed for me only one thing – that they have no clue either. That is a desperately poor basis for sound financial planning.
“This problem is one which, if anything, is becoming more acute over time. More of the risk associated with financial decisions is these days being shouldered, not by the state or companies, but by individuals.
“Take pensions. Over the 20 years, we have seen a secular shift away from defined benefit towards defined contribution pension schemes. That places the investment risk of pensions squarely on the shoulders of the individual, rather than companies.”
Haldane argued this shift to individual responsibility increased the need for easy-to-understand products so that consumers can effectively judge the risks.
He added the Bank of England also had a role to play in explaining its decisions on things like such as interest rates and bank lending to further aid the public’s financial decision making overall.