Two days running I’ve had the ‘mountains argument’. It’s been a while since I last heard it but clearly it’s still doing the rounds.
It goes like this: “We shouldn’t tell people how much money they need to save for retirement because, if we do, the sheer size of the mountain they need to climb will frighten them off. They’ll not bother to try.”
OK. So this line of argument is well intentioned. We certainly don’t want to turn people away from pension saving. I get all of that. But let me tell you why it is wrong headed.
Firstly, it assumes people aren’t adult enough to make informed decisions. It’s patronising. The evidence from a few years of freedom and choice and AE is that people can, on the whole, be trusted to do the right things.
Secondly, in his book “The Speed of Trust”, Dr Stephen Covey argues there are 13 behaviours that lead to trust. The third of these is “create transparency” and the eighth is “confront reality”. In other words (in a highly abridged summary of his thesis) we need to be open and truthful if we are to be trusted, even if the truth is tough. That is to say, we need to be honest about the size of the mountain. I guess that leads to the question, “Do we need to be trusted?” to which the answer is “yes”. Unless we’re trusted, people won’t save.
In a sense, this second part of my argument is a little academic, because the saver (or non-saver) will find out at some point anyway. My preference, however, is they find out at 25, 35 or 45 when they have time to do something about it, even if they do disengage for a while before doing so. The alternative is that they find out at 64 – when it’s too late.
Incidentally, Covey’s second behaviour is “demonstrate respect” – don’t patronise!
Thirdly, we know that, as a rule of thumb, people are nine times more likely to tell their friends about the complaints they’ve made than the compliments they’ve paid. This applies whether they’re buying a new phone, dealing with a call centre or discovering how much pension they’ll get. In other words, bad experience magnifies.
Let’s go back to that previously unknowing, now disappointed, 64-year-old. She’s going to tell nine of her friends, young or old, how bad this pension saving lark is. That’s now ten people who are disengaged as a result of our original well-meaning omission. Ten people who’ll have an inadequate pension.
And finally, yes, they may disengage. But that won’t be permanent. We have AE on our side – a war of attrition as we re-enrol every time they opt out. They’ll tire!
Then we have common sense and maturity. As they get older and different priorities assert themselves, they’ll come back to us of their own accord. The mountain will be a bit steeper but still attainable. Even, however, if it’s not, they can always pick a different, smaller, mountain – not an optimal outcome, maybe, but better a small mountain than a molehill.