The Economics of Beans and Dentists
The 1997 Labour manifesto included a paragraph that would shape the next decade and a half of policy in relation to personal finance.
Up to 1997 the funds held in personal pensions had grown markedly; by 50% between 1994 and 1997.
But the politicians had noticed a problem. The market had developed Personal Pension Plans that were expensive and the charges were front end loaded. So they seemed to offer poor value for the mobile, job hopping 1990s workforce.
"Things can only get better" rumbled in the background. And Tony Blair promised us pensions.
"Too many people in work, particularly those on low and modest incomes and with changing patterns of employment, cannot join good-value second pension schemes. Labour will create a new framework - stakeholder pensions - to meet this need. We will encourage new partnerships between financial service companies, employers and employees to develop these pension schemes." said the manifesto.
According to the ABI, the amount of money invested in pensions fell in real terms for the next 2 years. It made a tepid recovery but by 2008 (the last available figure) it was back below its pre-stakeholder level.
In the interim the much vaunted “Sandler” suite of stakeholder investments fell so flat on their faces that the industry can barely even remember that they exist.
The politicians scratched their heads and wondered what on earth had gone wrong.
Yet still, after 13 years, the penny hasn’t dropped. The treasury thinks that you can sell pensions like you might sell cans of beans. Make them cheap and accessible, goes the train of thought, and the punters will buy them. But this is the economics of the GCSE textbook. Pensions, investments and life assurance aren’t beans: they’re dental treatment.
Real economists have long pondered the relationship between the supply and demand of preventative dentistry. The basic conclusions are obvious; take away the dentists and you take away the demand for their preventative treatments.
Without the dentist the range and priority of their painful interventions are unfathomable. And for the main part the public is lacking the motivation to directly find ways to part with their hard earned cash in exchange for some unspecified potential for reduced future pain.
Only when the dentist points out that your "enamel is pitted" do you suddenly become keen on the application of a "pit and fissure treatment". Nobody spends their evenings considering whether they should settle for a filling or go the whole hog and buy an execution only Gingival Graft
The lesson is clear: if you want a population with healthy teeth and gums then you need to make sure that you have a large supply of dental assessments. Making the actual treatments "cheap" or "accessible" will have little or no impact on their own.
Pensions, savings and life assurance are themselves based upon the exchange of cash for the reduction of future pain. Like it or not, if the government wants to address the big financial issues of our age (like the cultural lack of savings and the underinvestment in pensions) then at some point it will have to realise that maybe advisers have a part to play.
Yes, this comes with the dangers of overselling and of mis-selling (both of which are chronic issues in the dental industry as well). And maybe the cost of transactions needs to be much higher than 1.5%. But these risk are insignificant compared to the dangers of individuals not getting any financial treatments at all.
It's too late for a filling when all of your teeth are rotten.