Kim North: Raising the stakes on pension investments

By Kim North

Jan 07, 2019

The headlines have been dominated by Brexit over the last year.

Sterling has come under continued pressure and volatility is hitting the market like never before. Both make it difficult for investment recommendations to be made.

Meanwhile, transfers from defined benefit pension schemes continue at a pace, with the value of transfers in the third quarter of this year totalling £8.6bn, up from £8.2bn in Q2, according to the Office for National Statistics.

Mercer expects this trend to continue, with around £60bn to be transferred over the next three years.

Commentators are split as to whether clients should transfer or not, and only time will tell, depending on the performance of the chosen replacement investments. The life-changing cash sum available from such transfers, twinned with the market noise around Brexit, has raised the stakes as to where to invest this huge wall of money.

Indeed, investments in pensions have also been high on the year’s news agenda, particularly with the Financial Ombudsman Service and judicial reviews concerning Sipps. Following the recent judgements, most Sipp providers will now not allow non-standard investments, thereby taking away many investment opportunities. It is disappointing we are turning into a nanny state when it comes to what one does with our own pension money.

The FOS has said clients need to be compensated if a Sipp provider does not carry out adviser-style due diligence on their investments. But Sipps are simply tax wrappers, in the main held on platforms. Many Sipp providers do not hold the permissions to provide advice, so the rules need to be changed.

What if a poor-performing fund from mighty investment houses such as Invesco Perpetual, HSBC and Aberdeen Standard, who all have five funds listed in Bestinvest’s latest Spot the Dog guide continually underperformed? Would the discretionary fund manager need to compensate? I think not. But is this fair? Clients only see profit or loss and have little understanding of risk.

My wishes for the new year are to stop DB schemes falling into the Pension Protection Fund, to see the reintroduction of a Sipp permitted investment list and for the FCA, FOS and FSCS to work more closely together.

Kim North is managing director at Technology & Technical

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