“Free markets – great for vegetables, less so for pensions”
Right-wing think tank Civitas has what looks like a very interesting report out today – interesting because it comes from the right. If the press release is accurate it is a devastating attack on the private pensions industry and a call for the state to be more active. In other words the kind of thing I might write, although I’d probably do it somewhat more politely.
Its basic arguments will be familiar to anyone who has read any of the RSA’s work on pensions, so ably led by David Pitt-Watson.
- Defined contribution pensions are not really pensions and get eaten up by high charges.
- There is systemic market failure.
- Behavioural economics shows that people do not respond in the ‘rational’ way that neo-classical economists expect them too.
- There needs to be a bigger role for the state, and tougher regulation of private pension providers.
Even more interestingly David Green’s foreword argues that everyone should be able to transfer personal pensions into NEST, the new low-cost scheme established to make auto-enrolment possible and provide pensions for those on low to medium incomes. (Disclosure – I am a member trustee of NEST).
At present NEST savers are forbidden from transferring funds in or out of NEST and there is an annual limit on how much anyone can contribute. This was introduced due to pensions industry lobbying, and in the interests of establishing and maintaining a broad consensus around pensions reform (by no means a bad intention – even if this for many was a concession too far).
The best sub-head in the release is undoubtedly “Free markets – great for vegetables, less so for pensions”. In many ways this is a statement of the blindingly obvious.
Free markets work perfectly only if you can have perfect information about every possible product/service you are buying. Of course they can still work pretty well without absolutely perfect information, but you have almost no information at all about a pension as you have to wait decades before you can know whether it has performed well. It’s too late by then to take it back.
But for Civitas to say this is almost shocking.
However there is still room for disagreement about vegetables. Thanks to Stuart White for drawing my attention to the cobweb model which explains what can go wrong in agricultural markets.