In a shock admission, the chief economist of the Bank of England says the UK pensions system is so complicated that even he can't make sense of it, so you need to work hard getting to grips with your SIPP
The Chief Economist Of The Bank Of England Claims Not To Understand Pensions
Bank Of England Top Man Upsets The Pension Industry
During a recent speech entitled The Great Divide, Bank of England chief economist Andy Haldane said he didn’t understand the pensions system in the UK, and in his opinion, many advisers don’t either.
He told the audience that financial services providers deliberately make their products difficult for the public to understand and more complex than necessary, often with consumers being charged a premium for buying them.
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.
If you're interested, you can download the full speech from the Bank of England.
Not surprisingly, advisers were furious, claiming his comments were "extraordinary" and "irresponsible". One even offered to visit him at the Bank of England in Threadneedle Street with the promise of free pensions advice.
According to Which? almost half of 50 to 65 year olds don't know the full rate of the new state pension, so perhaps the Bank of England chief economist has a point.
In case you were wondering, it’s £155.65 per week as of April 2016.
Whilst appearing to be rather aggressive towards the pension industry, the Bank of England chief economist was merely highlighting the complicated pension framework that’s been modified many times, with some of the most substantial changes occurring within the last year or so under pension freedoms.
In a positive vein, he called for classroom teaching to be linked to finance, so people know how to draw up a monthly budget of debits and credits, how to make sense of the Annual Percentage Rate on a loan, and how to decide between competitive savings, pensions and mortgage products. He also suggested more courses should be available to adults to help them better understand financial matters.
He acknowledged the Bank of England also has a role to play in explaining its decisions on things like interest rates and bank lending, to help our financial decision making, which must include the effective judgement of risk.
When it comes to self-invested pensions, that’s entirely the point. If you’re in control of the financial decisions of your pension fund, you need to be fully informed so you can look forward with confidence to a prosperous retirement.
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