Speaking at an annual dinner for London-based think-tank New City Agenda on Wednesday, Haldane said pensions are too complicated for even advisers to understand, creating a “desperately poor” situation for people planning their finances for the future.
“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,” said Haldane.
He said the problem was becoming “more acute”, accusing providers of making financial products “more complex than necessary” so that they could charge a fee for buying them.
Haldane also raised concerns that the recent reforms, introduced in April last year giving people unrestricted access to their pension savings, have removed the responsibility to save from companies towards 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,” he said.
As a result, he argued, consumers now need easy-to-understand products so that they can successfully judge the risks.
Financial advisers are “well-versed” in pensions, says Towry
Andy James, head of retirement planning at IFA firm Towry, disagrees with Haldane’s comments, arguing that the financial advisory industry is “well-versed” in pensions.
“I am disappointed that Mr Haldane feels the advisers he has been speaking with do not understand pensions.
“Frankly, in my opinion, he has been speaking to the wrong people. The industry as a whole is well versed in pensions and whilst better education for all in the long term will assist, sensible financial advice is really the only option for those who lack the understanding and/or confidence in the current system,” he said.
He blamed the complexity of some products on the “mire of legislation”, adding that many consumers had little confidence that long term pension products would yield the promised returns.
“The current complexity is much a part of the mire of legislation, so to lay the problems at the door of Providers is somewhat disingenuous. Certainly, the lack of sensible use of pensions as a retirement vehicle can come down to individuals not really understanding them and therefore unsurprisingly many are not willing to save into them.
“There is however also the issue that even if you do understand them, can you be sure what they will look like when you come to take benefits? These are long term savings vehicles and constant changes in the way that they work does nothing to instil confidence,” said James.
Simplifying pensions
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said there are many ways in which the UK government could simplify pensions.
“Aspects of the system, such as the lifetime allowance, the annual allowance taper and the PAYE rules around drawdown regularly leave even financially literate investors gasping at their perverse complexity.
“There is also room to make the functioning of the pensions industry more sympathetic to investors, for example by introducing a seven day guarantee of pension transfers,” he said.
Furthermore, McPhail called for the Financial Conduct Authority to merge with The Pensions Regulator.
