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Tom Kean: Collective DC is yet another blow to simplification


As I get older, I realise there are certain things in life that show up my lack of proper breeding. Take rugby. I was fortunate enough to be invited by a certain Scottish company to an England International at Twickenham a couple of years ago (before the rules on incentives and entertaining smothered any last vestiges of fun).

Having played a little schoolboy rugby, and been a moderately keen follower on the telly, I know one end of the rugby pitch from the other, but I wouldn’t claim to be an expert by any means. However, when a particularly subtle foul occurred, I was honest enough to admit I did not understand what was going on.

Enquiring of my fellow supporters, it quickly became clear that none of them knew any more than me, so we all just sat there, happy in our collective ignorance.

It is a bit like TERs. Until a year or so back I had never heard the phrase, and pondered what else am I missing here as it does not quite feel like the end of the story.

And would you believe it, along comes further “clarification” from the fund houses that there are indeed even more costs that perhaps might be better to disclose rather than have it found out at some future date.

At least I am honest enough to admit that I do not always understand things, rather than pretending to or, even worse, assuming that someone else does so I do not have to.

But one thing is crystal clear: your average consumer has absolutely no chance of understanding the nuances of our profession. Types of advisers, ways to pay them, investment costs, ways to get the best advice; the list goes depressingly on and on.

And so to the latest “whizz-bang” initiative, the laudable-sounding initiative to pool people’s funds Dutch style. Surely that strikes a further blow to our collective wish to simplify things?

Do you think I’m mad for thinking this sounds like they might be riding a popularity wave of Nordic crime thrillers? It can’t be! Either way, in what parallel universe can this be a good thing? A “new new” kind of pension to cement the utterly perplexing image of pensions in the consumer’s mind.

I have only been doing this for 27 years, but even I am struggling to think of one unambiguous advantage of these new proposals. Actuarially driven, pooling mechanisms and untested governance make me wary.

We already have a proven mechanism in personal pensions that has stood the test of time. Simple individual pots with no one else to blame but the member if they do not save enough.

Granted, people might be slightly better off if they are pointed towards a good quality default fund, and are safe in the low-charging world that we now inhabit, but both of these have a miniscule impact on the outcome when you compare the decision not to do it 30 years sooner.

Auto-enrolment has clearly changed the coal face forever and probably for the better; but that will not stop a bored and disengaged public remaining disillusioned, despite the recent Budget initiative which removed the final barrier to entry once and for all.

Tom Kean is director of Thameside Financial Planning



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