Who do you believe? When someone says an investment is low risk should we take what is said at face value? Members of the public can, but advisers are expected to check. Putting money on deposit ought to be as safe as any investment – as long as the bank is still there tomorrow – quite likely, as a huge chunk of the UK banking system is now nationalised. Putting it under the mattress isn’t 100% safe either, as you might get burgled, kidnapped or your home might burn down. And putting it into a fund managed by a large or respected institution ought to be considered safe too – especially if that fund is stated to be low risk. Seems our competitive human nature encourages stupidity regularly among a few fund managers, and here are some examples:
Few years ago, zero-coupon bonds and funds were sold like this and were ideal for investors who did not like risk and did not need income during the term of the investment. They were basically very simple. If you bought one at say, 75p with a maturity in 5 years time of 100p, then you knew exactly what your total and annual returns would be – in this case, 25% total return or about 5.9% p.a. compound.
Trouble was, the fund managers decided to be clever and gear up, meaning they borrowed (using the investments as security) and then used this money to buy more contracts, rather like betting heavily on your own race horse. If your horse wins, you get the prize money and the profit you have made on your bets. If it doesn’t win or things do not go as planned, you end up out of pocket which is what happened. Clients lost money on an investment which was very simple and if left alone, low-risk.
Last month, Standard Life earned themselves a £2.45 million fine when it misled investors on what was supposed to be a simple cash fund for pension money http://www.whatinvestment.co.uk/making-money/investment-funds/investment-funds-in-depth/1110918/standard-life-says-sorry-to-98000-investors.thtml
And proving the old saying that hubris is followed by nemesis (pride comes before a fall) this video talking about a “low-risk” Arch Cru fund that invested a huge chunk of its money in a shipping venture http://www.citywire.co.uk/adviser/-/news/collective-investments/content.aspx?ID=378824&re=8277&ea=234851 using shell companies in the Channel Islands, really takes the biscuit. http://www.citywire.co.uk/adviser/-/video/other/content.aspx?ID=379032&re=8278&ea=234851 Financial Advisers have their own grapevine and while there was plenty of warning that this particular fund was not what it said on the tin, some decided to ignore it.
Wednesday finds me at a seminar hosted by www.consultationinstitute.org for local Government officers that deal with elderly people. Since this is relevant to long-term care, seems worth a visit. Main event is an interesting talk given by Michael Foster MP for Hastings & Rye. Without any effort on my part, his answer to someone else’s question includes the three blindingly obvious remedies to someone who has not got a big enough pension – contribute more, manage on a lower income than you planned, or work longer. His comment that Pension Credit will help those still short of pension didn’t mention its complexity which puts a lot of people off applying. Interesting comment too that in 1908 when the first (means-tested) State Pension was introduced, the average length of time people received it for was 2 years. Someone at State Pension Age now can expect to receive it for between 10 and 20 years and longevity has recently been increasing 2 years every decade.
Main subject of his talk is the Equality Bill http://www.equalities.gov.uk/equality_bill.aspx currently going through Parliament and there is still time to put your point of view. Alas, didn’t get a chance to ask a cheeky question – with an election coming, will this Bill actually reach the Statute Book? as some of the questions were ramblings rather than actually asking anything. At the end of any Parliamentary session, there will inevitably be legislation at varies stages of progress. Negotiation or if you like, horse-trading between the various political parties will mean that some will be allowed to go through while others get chopped. Will have to see if this bill makes it.
Another situation I would have liked to ask about occurred in one of my pension surgeries recently. Lady wants to take her pension benefits from her employer’s scheme and my advice is mainly about the type of annuity she should take – level or escalating? However, being fit and healthy and with no dependents to worry about, she wants to carry on working. As one or two other employees have done this, she asks me if she can do this? Only HR can answer but her situation raises some interesting issues. Working after the Scheme Retirement Age will provide useful extra income but she will not have the same benefits as someone younger than the Scheme Retirement Age, like Death-in-Service Benefit, Private Medical Insurance and so on. She will be at an obvious disadvantage compared to her colleagues – just the sort of issue you would expect the Equalities Bill to address? Looks like another wait & see.
Following speaker is from National Audit Commission showing the huge regional disparities in proportions of elderly people – almost 2/3rds in Dorset while cities & conurbations have a much lower proportion. Some authorities are very well prepared for this while about 30 per cent haven’t got any plans or policy in place. Interesting to see what works with different local authorities. An electric scooter or shopping buggy scheme in one authority where a fleet of 20 is available for people, has very positive feedback – with one user saying, that they feel they have a life again. Something that might have helped people here http://www.georgeemsden.co.uk/2009/12/james-bond-is-in-a-wheelchair/
Another scheme designed to prevent elderly people falling costs £158,000 a year and is managed by a Falls Prevention Officer (sic). Have heard of Teenage Pregnancy Advisers in some local authorities, but not this latest one. Savings are huge apparently as hip replacements cost £20,000 a pop and if 15 falls are prevented each year (their figure) then the savings to the nation (but not the local authority) are £3 million. Wonder if these will survive the election?
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