It’s been an oddly quiet week for the markets – given that President Trump has been rattling the bars of his fiscal playpen again, by attacking his own central bank governor for moving to strengthen the dollar – something which the Prez himself had thought was vital until about two weeks ago, but which is now apparently the work of the very devil. It’s all left the markets, and especially the bond markets, feeling jittery and unsure about future directions.
The Financial Times turns its weekend attention to a domestic development that many of us have overlooked – namely, the heavy rumours that the government is about to pull the plug on the Pensions Dashboard. Yes, it claims, Work and Pensions Secretary Esther McVey has been dropping heavy hints that she intends to kill off the Dashboard project, because she thinks it’s not an appropriate service for the state to be providing. And that it’s a distraction from the Government’s efforts to roll out universal credit.
Leaving aside the fact that pensions and universal credit are hardly competing for space on the same pitch as each other, the implications are potentially serious, and the Association of British Insurers has been lobbying the work and pensions select committee to get the decision reversed. (If decision it be?)
The Pensions Dashboard, as you’ll recall (won’t you?), was announced by former chancellor George Osborne in 2016, as a way of enabling pension savers to obtain an overall online view of the way their pensions were shaping up. The issue was that many employees had a great panoply of different plans in place, all with different rules and outcomes, and that the age of Pensions Freedom demanded something more coherent to help them find their way. And, indeed, to spot any pension plans that they might not have been aware of, and which might otherwise have slipped away altogether.
Now, it was hardly the Government’s exclusive fault that the Dashboard ran into trouble. Almost immediately, IFA Magazine was reporting that barely half of the industry had bothered to align its reporting according to the desired formats. And two years on, an alphabet soup of differing standards is still out there, with some participants claiming that individual businesses ought to be allowed to run their own proprietary versions of the Dashboard – a trend which, the FT suggests, would be capable of shedding more heat than light.
The ABI doesn’t seem to be accepting Ms McVey’s argument that the Dashboard is distracting it from its other main task, that of getting universal credit rolling. The work and pensions department, it says, “is the largest department in Whitehall,” and it “is funded by the taxpayer to do more than one thing at a time.”
Precisely. Ouch.
The Guardian reports on the return of what it calls the Monster Mortgage, a horror from the back catalogue that really should have been committed to the grave in 2008. Clydesdale Bank, it says, has rocked the market with a new product which it says will offer first-time buyers mortgages of up to 5.5 times their income, and running up to £600,000 – and that the buyer will only need a 5% deposit to qualify.
Pause for effect. The last time a major UK bank offered those kinds of loans was in the pre-crash days of 2006, when Abbey (now part of Santander) offered 5 times salary. But that was on purchases where the buyer was putting up at least 25% as a deposit. The Clydesdale offer, on the other hand, tries to ease the pain by insisting on at least a £40,000 salary – and that the buyer should belong to a highly specific professional group that includes accountants, doctors, dentists, airline pilots, solicitors and vets.
Is it compliant with the requirements of the Mortgage Market Review, we wondered? And are the stress tests going to hold? The Clydesdale seems confident – as, presumably, are Lloyds/Halifax, HSBC, Santander and Nationwide, all of which the Guardian says are offering up to 4.75 times salary (and, in Santander’s case, 5.5). But all of them are requiring hefty deposits of 10-15%, and/or incomes of up to £75,000.
Yes, the monster is back, and it’s right behind you. Don’t look behind you – it’s probably too late……
Is there a third way for pensions? The move from DB to DC schemes has loaded the risks onto the scheme members. However, Guardian Money on Saturday has an interesting article from Patrick Collinson in which he asks whether a new pension scheme format adopted by the Royal Mail based on a model which has worked well in the Netherlands and Denmark, might be a solution in the UK for delivering fairer pensions for all?
Basically, the idea is that the new scheme will give workers a regular income in retirement based on their service and contribution, with payments rising every year to take account of inflation. However, unlike traditional DB schemes, the new Royal Mail scheme won’t be guaranteed all the way through retirement. If it becomes too costly then Royal Mail can temporarily reduce the benefits paid out – hence the company is not on the hook for contractually guaranteed payouts which company accountants struggle to accept. There is more detail in the article which is worth a read.
The plight of “orphan” clients who remain with adviser-based platforms when they no longer receive professional advice is a topic which gets a good old airing in the Sunday Times Money section. The tendency of some platforms to charge higher fees to non-advised clients is a particular focus as is the option for such investors to switch to other DIY-focused platforms where costs should be lower.
It’s the age-old debate about investing in gold as a hedge against stockmarket falls which is the subject of Ian Cowie’s Personal Account column. He makes some excellent points reminding us that historically the shiny stuff has generally delivered positive returns when equity markets headed south and also covers the ways that investors can gain exposure to gold – either via bullion directly ( with added complications of storage and costs) or through funds such as ETCs. He also reminds us that gold generates a zero yield – and this is a key selection factor for him in his own portfolio. Therefore as he believes that equities remain reasonably priced relative to the precious metal, he is sticking with his stance of equity investment and not buying any gold just yet. Although he rounds off with some sage words saying “after all, insurance is a complete waste of money until disaster strikes and it becomes the best investment you ever made.” How true.
The Dunedin Income and Growth trust is the subject for the weekend fund focus column in The Financial Mail on Sunday. Under the stewardship of Ben Ritchie and Louise Kernohan at Aberdeen Standard – and with a little pressure from the board – the article reports that the trust is in change mode. Next year, a big chunk of borrowings with annual interest charges at 8% will be paid off, removing a performance inhibitor. Jeff Prestridge also highlights that the fund is changing focus, with the managers looking to find more growth-orientated investments outside the FTSE 100 – including in Europe. They are also the plan to rebalance over the longer term towards companies with lower dividend yields – but with the potential to grow annual income rapidly. Currently, the trust’s yield is 4.9% which Prestridge reports is among the highest of its rival UK equity income trusts.
Meanwhile writing in the Sunday Telegraph, Laura Miller is reporting on the recent platforms report from the FCA but focuses on whether additional tools that adviser-led platforms offer are costing clients extra money. You’ll get the gist of it from the title of “your investment adviser’s freebies could be costing you £750 a year”. Ouch. We’ll spare you the details – you can read the article for yourselves should you so wish.
