Most people hate making financial decisions. They put them off if they possibly can. The research required to make most financial decisions is difficult in itself and it also forces you to confront issues you do not really want to think about. No wonder procrastination is the norm.
This is simply human nature, which is not easy to change. Well-intentioned educators keep saying we need more financial education. What the FSA and the Consumer Finance Education Body mean by that is more education about the financial products, sales and advice processes authorised by the regulators.
The problem with this is that it makes the same wrong assumptions as finance theory. Its model is that we are rational creatures attempting to maximise our utility. We are content to take responsibility for our own actions and our own future. The more choice we have the better.
None of this is true. We do not like those rational computations and choices and all the evidence shows that we are very bad at them, especially when weighing long-term against short-term rewards, because of hard-wired characteristics, especially the way the limbic system (gut, emotion) overrides calculation. We are social animals and much prefer going along with the crowd to painfully working things out for ourselves.
Knowing how we are as human beings, consider what you would ideally want as a system for long-term savings. You would want a long-term retirement savings system that opted people in without any choice, did not require them to take any decisions about how their money is invested and delivered a reasonably predictable stream of income in retirement. You would want the option to top up these savings with a simple plan that required no difficult decisions, generated very low volatility and gave a clear caution that it would not pay you back at a profit for several years at least.
Advisers may consider I am being patronising but do not be misled by the small fraction of the population who consult a financial adviser. The financial system should be designed around the simple needs of the many, not the complicated wants of a small minority.
A combination of a career-average defined-benefit pension scheme for employees (with as near a clone as can be devised for the self-employed) and a with-profits savings plan would meet the needs of the vast majority of people. They really do not need anything more complicated. Neither product is, in principle, hard to design if you accept the role of the state as backstop insurer.
Instead of recognising that longevity and inflation can only be managed collectively, we have created the situation where everyone has to struggle with them individually but cannot manage the risks effectively. In fact, the only possible solutions are socialised ones where the risks are shared.
Nest makes a start in terms of auto-enrolment but still uses an automised investment solution where a socialised one would be better. With-profits has been killed off by life office stupidity and regulatory incompetence and people are expending vast amounts of money and energy trying to recreate its results, which is like trying to create a family car out of mismatched parts designed by a dozen different manufacturers.
Over the next decade, I expect conventional views to shift towards collective, socialised solutions to the savings issue. In the meantime, we will all pay more than we need in our attempts to insure the uninsurable.
Chris Gilchrist is director of Churchill Investments and editor of The IRS Report