Similarly with pensions. One of the five largest pension schemes in the UK is the Pension Protection Fund, an organisation which was brought into existence a little over a decade ago to put some kind of rescue in place for pension schemes which had failed elsewhere.
Today, it has assets of £28 billion, the aggregate of all those failed schemes plus some investment return and has paid out more than £3 billion.
The fund is a big improvement on the void which existed before and it has more than a quarter of a million members who depend on it because they had previously been in schemes that failed.
Unfortunately — but necessarily, to keep costs manageable — it pays out to most of them rather less than they had previously been promised in their original pension schemes.
Though grateful to the fund that leaves another 250,000 people who might reasonably feel let down by the long-term savings industry.
But the biggest problem of all is that the naked self-interest of the savings industry drives it to design products which suit itself not its customers — often requiring quite large initial lump sums, a commitment to regular payments and restrictions and penalties for early cash withdrawal.
It then tries to sell these to the public, and the offerings are studiously ignored.
When the public don’t buy them, rather than change the products (as should happen in a capitalist system), the savings industry demands instead that young people be “educated” — as if this was North Korea — to turn them away from being feckless.
However, if alternatively, the savings industry were to look at the problems facing young people — mountains of student debt, stagnant incomes and unaffordable housing — and set about designing products which might actually help, it might get a better response.
We shall soon see.
This week Seedrs, the crowdfunding site, began raising money for Plum which has a product specifically designed to help non- savers to save.
To people of my generation this sounds positively Orwellian, but it is also very clever.
Artificial intelligence can predict financial behaviour by closely monitoring a person’s existing pattern of spending and comparing it with what has gone before.
Thus the founders of Plum have developed an algorithm which monitors a person’s bank account.
It then notes every couple of days when, on the basis of its predictions, there might be a small amount of cash which could be diverted to savings, without impinging on the person’s lifestyle, and duly makes the transfer.
It is the electronic equivalent of emptying one’s pockets into a jar at the end of the day, but with the advantage that it will do it only when it believes you will not need to dip back into the jar.
Interestingly, before launching, the company’s joint founders road-tested the idea.
One of them set aside all the money left in his bank current account at the end of the month; the other relied on the algorithm to analyse his transactions and calculate how much he could safely put aside during the month. The algorithm won hands down.
The implications of this are profound because if artificial intelligence can predict financial behaviour then it paves the way for a complete solution to personal financial management.
It would be a simple matter then to link those savings flows into an automated investment platform such as EQ Investors or Nutmeg and thereby get people not only saving but investing without having to think about it.
And it would pose an existential long-term challenge to existing fund managers whose business models rely heavily on attracting clients who already have money.
