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Weekend press review: the next big mis-selling scandal?

The Financial Times majors on a story that eight large corporate pension funds have received an official warning about the possibility that their employee members may be ill-advisedly persuaded to dump defined benefit schemes for defined contribution funds.

The FCA and the Pensions Regulator have jointly issued the warning to Lloyds Banking Group, Sainsburys and six other schemes where there have been notably large outflows from DB to DC schemes in recent months. The Regulator’s fears are that unscrupulous advisers may be trying to drive up their transfer businesses by pushing exaggerated worries at company scheme members. Whereas, the FCA says, abandoning an assured DB retirement income in favour of a riskier personal pension is “unlikely” to work in the best interests of most members.

One recent example has resulted from the recently-announced plans to merge Sainsburys with rival supermarket chain Asda, in a deal which will leave Asda’s current owner Wal-Mart in charge of the ongoing pensions management for its Asda employees. The implication here being that some current Sainsburys employees are being persuaded that their future pension management would also fall under Wal-Mart’s control.

But then, the Regulator can be forgiven for being sensitive. The collapse of Philip Green’s BHS group in 2016 left locked-in pensioners at the mercy of the pensions lifeboat scheme, with the result that many lost a large part of their pensions. And last year’s scandal surrounding the DB to DC switch by Port Talbot steelworkers, many of whom had been badly advised to make the transfer, has added to the tensions.

The FT quotes a spokesperson for the Pensions Regulator: “Our primary concern is that DB scheme members requesting a cash equivalent transfer value [from their pension scheme] have all the information they need to make an informed decision about what is in their best interests.”

Money Mail carries a dark warning that a combination of Brexit fears and rising interest rates are swiftly eroding the valuations of house-building firms across the UK. The country’s ten largest builders have seen £3.6 billion lopped off their market capitalisations during the last two weeks, the Mail says, with the biggest falls being seen at Persimmon, Taylor Wimpey, Barratt, Berkeley and Bellway.

The immediate cause for the downturn has been the news that three members of the Bank of England Monetary Policy Committee (including chief economist Andy Haldane ) voted this month for a rise in lending rates; the other background story, though, is that the Mail alleges that building company bosses have been helping themselves to unusually large bonuses and pay deals ahead of the expected tightening. And that shareholders are in near-open revolt.

Should we be alarmed yet? Economists are predicting one or perhaps two 0.25% rises in the bank rate this year, from the current level of 0.5%. But the vast majority of new mortgages are on fixed rates, rather than variable rates, so there should be some cushioning. The snag is that that won’t help the housebuilders, of course, whose clients will always be opening new mortgages at the future rates which will presumably be higher.

The Times Money section has a plethora of investment-orientated coverage this weekend. “The next big mis-selling scandal” is the title of its lead story, focused of course on advice to transfer final salary pensions into DC schemes. Times Money reports that in the first three months of 2018, £10.6billion has been transferred from such schemes. The overall total for 2017 was £36.8billion, with much of it relating to transfer of DB schemes. With the watchdog due to report later this month on its investigation into the pensions market, the Government has said that it would wait for the report before commenting on most of the work and pensions select committee’s recommendations about pension freedoms. Clearly, this is an issue which advisers need to take very seriously indeed and proceed with extreme caution when considering the transfer of such benefits.

When it comes to investment matters, Mark Atherton is looking at the rise of global income funds. He points out that the income yield tends to be lower than more traditional UK income funds but overall it’s a positive piece which suggests investors consider all approaches. Funds mentioned by some of the experts commenting within the piece are M&G Global Dividend, Artemis Global Income, Lowland and Standard Life Equity Income.

Atherton is also warning investors to be on their guard about the decrease in the annual dividend allowance to just £2000 from April this year. It means that those with investments of more than about £40,000 which are not held in a tax efficient wrapper, might fall victim to tax they weren’t expecting.

How a US- China trade war will affect global markets. With fears rising that a trade war is looking more likely following tit-for-tat tariff threats between the US and China, The Times asks what this might mean for investors. Needless to say, the outcome would not be a positive one with the potential to stoke inflation and to quicken the pace of monetary tightening in the US.

Finally, David Prosser is highlighting the benefits of using a platform to buy, sell and hold investments. There’s a comparison of costs for the leading players and generally the message is that this is a cost effective and efficient way of managing an investment portfolio – although he reminds readers that the costs and terms do vary.

The Brunner Investment Trust is the subject of the fund focus column in the Financial Mail on Sunday. Rather refreshingly, the trust’s chairperson and investment manager are both female.

Brunner has been undergoing an overhaul – an exercise which is still a work in progress as Jeff Prestridge reports. He writes that quarterly dividend payments have been introduced to make the trust more investor appealing and there is a strong commitment to grow the overall annual dividend by more than inflation. There is some restructuring of debt planned and a move towards a more concentrated portfolio of around 60 holdings, compared to 70 at present as the manager believes it will deliver better investment results.

Prestridge also mentions that shareholder Aviva has made no secret of wishing to offload its 18 per cent stake.
Lucy Macdonald, the trust’s investment manager, comments that she is adamant that its withdrawal from Brunner can be handled without too much disruption. She says: ‘Aviva does not want to be there long term as a shareholder and we understand its position. What we are striving for as a trust is a broader spread of investor, keen to participate in our commitment to growth in both income and capital.’

Meanwhile, the Sunday Times Money section is warning those with foreign holiday properties which generate income, that HMRC is upping its interest in such areas. The article reports that HMRC has sent warning letters to people it suspects – rightly or wrongly – of hiding income o capital gains abroad, telling them to pay unpaid tax by 30 September or face substantially increased fines and back taxes for what is known as a “failure to correct”. Ouch!
Interestingly, the Sunday Times also highlights a report from Blevins Franks, which provides financial advice to ex-pats and those looking to move abroad. It revealed a sharp rise in enquiries since the Brexit vote two years ago, with people looking to move to the EU before 29 March 2019 to start the process of obtaining residency cards. Other research seems to back this up.

Finally, the Sunday Times Ruth Emery has written a very positive piece about the benefits of working with a financial adviser after a bereavement. In it she talks of deeds of variation, effective use of ISAs plus advice on pension benefits – especially where the pension pot is in excess of the lifetime allowance. Let’s hope that readers heed her advice and embrace professional financial planning as well as legal advice at such times in their lives, as well as more generally in order to avoid some of the pitfalls associated with the lack of sound advice.

With the rise in popularity of ethical investing, millions of people are being duped into believing that their pension is invested “ethically” when in reality they are exposed to sectors such as oil, gas and tobacco. That’s the message reported in the Sunday Telegraph Money section.

Experts have warned that, as sustainable investing grows in popularity, savers must be wary of “greenwashing”, where funds that are marketed as socially responsible still own companies that damage the planet.
The article reports on figures from the Investment Association, showing that more than £100m flowed into so-called ethical funds in April alone. Overall, £15.8bn is now held in these funds, £2.4bn more than last year.

Last week the Government unveiled plans to force pension trustees to take ethical issues into account when they choose investments, thrusting sustainable investing into the spotlight.

While it may seem reasonable to assume that a fund promising “responsible” investing will shun oil and tobacco companies, this may not be the case. Most of the industry uses a blend of ethical, sustainability and governance criteria when choosing investments. The Telegraph suggests that simply being a well-run company that is robust enough to weather future challenges could be enough to qualify under the “governance” heading, allowing environmental concerns to be disregarded. The message is that if ethically responsible investing is a priority, then extra care should be taken when it comes to due diligence.

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