In this low rate environment pension liabilities have ballooned and companies have opted to close final salary schemes. Many private sector workers are therefore reliant on money purchase schemes. This means they save a proportion of their salary in a tax-free account ready for the day they retire. Handing this responsibility to individuals is in many respects good provided two things are present: First, have sufficient understanding to enables them to weigh-up what to do before they do it. Second, the institutions that they deal with don’t fleece them. Sadly, in the UK this isn’t the case. Many people do not seem to understand money - not even in the Micawber sense of cash in and cash out. The reason for this is it is not taught at an early age. And if you don’t understand the basics how are you supposed to deal with the firms that handle your investment. Do you end up losing your arms and legs? Could we improve this situation? You bet. Policy should:
Bring money into the classroom and;
Target public information (just like health).The market will also find an answer.
For financial firms that offer value there are benefits. Witness how “passive” is now gaining in the US. Is this a market where the average consumer is better informed? Probably. It will happen here too.