How many times have you scanned a long wine list full of expensive options you don’t understand and turned with relief to the back page to find the house wines?
Reasonably priced and selected for you by the management, they represent the best views of people who know better than you and are selecting in your interest. Restaurateurs are trustees of the culinary world.
Whether we have chosen the restaurant or not, we can see no reason why it should not be knocking out its house wines to please us. If we find a bottle of Blue Nun there – at £30, we have every right to walk out before the first course arrives! The house wine is a sign that the restaurant is on our side and that it’s trying to make choices easy for us.
We won’t get the sommelier recommending the house wine (especially if it comes in a box or tin); you won’t get a financial adviser recommending the house pension. People who want to – can pay for something bespoke, most of us want a quality product at a reasonable price that does what it says on the label. Something that the house is proud of.
But nine times out of ten, people will choose the house pension, as they accept the house savings vehicle
“Choice architecture”
The DWP has just finished a consultation on “choice architecture” – the presentation of the pension choices to those at retirement, struggling to find a decent option at a decent price. People looking for a value for money pension that does not require a degree in pensions management to understand or use.
Put aside what the pension solution should be (I cover this elsewhere), I would like to be presented by my pension provider (L&G) a house pension which has been selected for me.
I would like a few tasting notes. I would like to know the basic details as I’d like to know a little about the house wine, or the house pizza or any other house special. I’d like the right to say, “no thanks” and choose off the extended pension list, something more to my taste.
But nine times out of ten, people will choose the house pension, as they accept the house savings vehicle. It is slightly different when you are converting from being a pension saver to a pension spender, you need to make a positive affirmation of what you want, and you need to give your bank details to the organisation paying you your money (you of course also have the right not to have money back).
House pensions are a good idea all round
If you don’t want wine – don’t buy it; if you don’t want a pension – don’t buy one.
But all over the world, governments are waking up to the fact that people aren’t swapping pots for pensions and governments are demanding more be done to promote a house pension option.
The point for trustees is that a house pension fulfils two duties, first your duty to the consumer to make a reasonable pension option available. Offering a pension scheme without a pension is asking for trouble.
Secondly your duty to your scheme is to create a marketable selling point which will attract your pension some attention.
This latter point is underestimated. A trustee’s duty must include a recognition that unless the scheme is commercially viable, it has no future. That is the hard truth behind the move to consolidation. Trustees of commercial master trust must consider why employer would want to stay with them and why they’d want to switch to your trust. Even large schemes with a single employer need to justify to their sponsors that they provide a return on the sponsor’s investment. The alternative is that you and your scheme will be consolidated.
While the primary duty of a trustee is to the member, part of that duty is to ensure that the scheme remains relevant and can be sustained. There should be an alignment of interest in success for funder, trustee and sponsor.
Creating scale
Commentators have often pointed out that nudge theory is about creating a simple pathway we can all follow. Auto-enrolment nudges us into a savings pattern into workplace pensions dependent on a regular deduction of money from our pay. By concentrating flows into a small number of qualifying workplace pensions, new flows are increasingly creating economies of scale. Straggling schemes are being picked up and consolidated all the time. Savings scale is created by the rigorous application of house specials – known as “defaults” (I think that defaults could be known as the “house choice” too.
If an asset manager knows it is part of the default, it offers terms based on securing 90% of scheme flows, the terms are better. The funder can concentrate 90% of scheme resource on optimising sound investment administration, the house fund becomes a success out of proper usage, people understand this as they understand that the ingredients of a house special are likely to be better, for the size of orders the restaurant is making.
But the argument goes that people have different needs at retirement and cannot all be offered the same house special. Instead, we offer them investment pathways, which is like bringing out the chariot of cognacs and fine whiskies when all people want at the end of a meal is to finish off the wine.
Making a night of it
Many people get to the end of the meal and want to clear off because they suspect they will be sold expensive muck which they’ll end up buying because they’ve had a few. I fear this is why investment pathways are popular with some pension providers, they are high margin products that people buy when they find they have a bellyful of savings in their pot.
We are at our most vulnerable when the drinks cabinet is being wheeled around but most of us ask for the bill and head for the door when it hovers in sight.
If the restaurant offered us an opportunity to relax and enjoy an after-eating experience, it could continue to offer us the house products and most of us would be happy to stay for as long as we could. That is how good restaurants get good reputations. Pension schemes that offer pensions – keep their customers for as long as the customers stay upright. There’s a lesson there for providers, as well as for revellers!
