I found this diagram recently in a paper by John Adams from 1999 entitled Risk, Freedom and Responsibility. It attempts to summarise different people’s attitude to risk-taking based on their views about the kind of world they live in, represented by a ball sitting in very different types of landscape. It explains a great deal about pensions.

Much is often made about our seemingly inexorable shift away from collective solutions to problems to individualised ones, aided on the one hand by technology like tablets, smart phones and other devices which make it easier for us to create our own environments and cut ourselves off from each other, and on the other by a loss of trust in many of the traditional collective organisations, such as banks and governments, which have previously been used by us to pool our risks and protect the most vulnerable.

If this is true, then it would be represented in the diagram by a shift in world view from right to left.

Others focus on the triumph of the American business model or ABM as the dominant school of political and economic thought in the globalised world of today, just as socialism was in previous times. This model leads to a belief in low taxation, small government, minimal market regulation and the reliance of self-interested materialism of individuals within these markets to deliver what we need. Despite its name, it is not a description of how American business actually works, but just one of what Adams would call the “myths about nature” which often determine our thinking about risk and much else besides.

If the triumph of the ABM is true, then it would be represented in the diagram by a shift in world view from bottom to top.

Adams points out that most people exhibit several of these world views and move between them, sometimes very quickly, but I think that it is easy to see where the stereotypical figures from the UK pensions landscape might sit. For instance, many owners of SMEs are calculated risk-takers who believe that things tend to turn out okay on the whole. That is how they became business owners in the first place. So, in the diagram above, taking a few risks with the football is not going to lose it, but there might be a reasonable amount of bouncing around: ie they are individualists.

In the top right hand corner are the hierarchists. They do not believe that the environment in which they operate is fundamentally benign but they do think that it can be managed. This is why their landscape resembles a series of speed bumps: the football cannot be allowed too much freedom or the consequences might be serious and it is possible to deny the football that freedom. This is the world view of a large number of civil servants and actuaries, which is why the public sector is still running defined benefit pension schemes and the private sector (with the smaller schemes overwhelmingly sponsored by individualists) has largely retreated from them. The larger companies, which tend to harbour their fair share of hierarchists, have been the slowest to abandon such schemes.

In the bottom right hand corner are the egalitarians: people who believe that giving the football anything more than a light tap is likely to lose it forever. Nature is unforgiving and cannot be controlled, but the less we do to destabilise the environment, the longer she is likely to let us live. The resource and environment group of actuaries, with their focus on limits to growth and the implications of this, are likely to contain a number of egalitarians in their ranks.

And where are the pension scheme members? Well, even 15 years ago Adams reckoned on at least 40% of the population being fatalists. This is the perfectly flat landscape representing the idea that it does not remotely matter what you do with the ball, the end result will be the same. Adams cites a survey carried out in 1998 on young adults in England in which, when they were asked to imagine that they could only have one of two rights – the right to vote in an election, or the right to obtain a driving licence, 72% chose the driving licence. I think it is probable that this proportion would be higher now.

So we have pension schemes largely inhabited by fatalists and run either by individualists, in the case of smaller schemes, or by hierarchists in the case of larger and/or public sector schemes. The reason they have had to be auto-enrolled into schemes they did not choose to join themselves is because they do not fundamentally believe that it will make any difference, which makes the cost of it at any price too high.

However they are not comfortable being fatalists. The Pension Regulator’s survey of defined contribution (DC) pension scheme members in 2012 revealed that the three things they wanted most of all were:

• Someone making clear to them how much they needed to save;
• Being able to talk to someone to understand their pensions better; and
• Clear communication from their employer and their pension provider.

All of which would make them less fatalistic and feel more in control. Whether you feel this would move them upwards into the individualist camp or diagonally across to the hierarchical camp (or even over to the egalitarian position) probably depends on your politics, but none of these positions are fixed. The recent floods have shaken many business people’s faith in things basically turning out okay in the end, and the credit crunch certainly moved many people out of hierarchist into either egalitarian or individualist territory.

What it suggests to me is that the way we organise pension scheme membership may be fundamentally flawed. Talking to members about their risk appetite or tolerance to risk is starting from an individualist perspective: that the world is a benign place, nothing too extreme is likely to happen and the only choice for you to make is how you want to invest your money. But it makes no sense if, assuming you can be coaxed away from the fatalist position, you turn out to be an egalitarian or a hierarchist. And this position probably makes no sense to the sponsor of the scheme.

When asked, sponsors of smaller schemes are very clear that they do not support the idea of collective schemes. They want to run their own schemes otherwise a large part of the benefits of the arrangements to them are lost. However, if auto enrolment is to deliver the changed relationship between the public and pensions everyone hopes for, I think prospective members are going to need choices about more than investment strategy. If members want to pool risk I think they should be able to, and collective schemes alongside firms’ own DC arrangements, perhaps with joint membership, may be the way to achieve this.

Individualists, hierarchists, fatalists and egalitarians. As Adams points out “the clamorous debate is characterised not by irrationality, but by plural rationalities.” It is a debate which has a long way to go yet.