Weekend press review: Woodford and patience

by | Jul 31, 2018

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What’s the one thing that most advisers are agreed on? Right, it’s that we need to stop messing with our convoluted pension system and give the poor tormented souls in financial planning a bit of a break for a year or two. So what does the Treasury Select Committee decide to do? Right, scrap the whole system of tax reliefs and replace it with something else.

Or at least, that’s the way the Financial Times is telling it. According to Kate Beioley, the policy group is calling for the scrapping of the current system of proportional reliefs, the introduction of a flat rate relief for everybody, and the compulsory introduction of auto-enrolment for the self-employed.

That’s just for starters, actually. The 59 page report (https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/565/56502.htm) also calls for changes to savings, and for the scrapping of the Lifetime ISA. Yes, the one that’s been in use for just over twelve months. And why?

Partly because the graduated system of pension contribution reliefs works better for higher earners than for lower-paid workers, the committee says, and a bit of levelling out is in order. Partly because pensions have yet to catch up with the gig economy, which allows pseudo-self-employed people the freedom to wriggle out of the need to provide for their old age. (That was our phrase, not the FT’s.) And partly because the paucity of LISA offerings suggests that the providers are not really on to it. Well, that and the fact that LISA accounts are probably reducing the amounts being paid into conventional pensions.

 

There are many questions to be answered here. Bringing the self-employed into auto-enrolment would entail the need to have “an employer” (who?) making contributions from his own non-existent side. It would force the Chancellor back into conflict with the self-employed, who were already infuriated by his (swiftly withdrawn) attempt to raise their taxes (remember that?)

And mostly, the FT’s commentators say, it won’t happen any time soon because it’s bonkers to mess with the entire pension system at a time when the Treasury will have every other kind of Brexit-related worry on its mind. Tom Selby, senior analyst at AJ Bell, says he puts the chances of a short-term reform at “slim to zero”. We’d say that’s on the optimistic side.

The Financial Mail on Sunday is reporting on a meeting last week at which Neil Woodford met with professional investors. On the agenda was the performance of the Woodford Patient Capital Trust which has disappointed investors since launch in 2015. However, the article reports that Woodford is in defiant mood. He remains confident that the underlying portfolio will deliver for investors over the three to five year time period that was originally set out. There have been some holdings which have disappointed – and this has been heavily publicised – but some successes too. His claim that the message is in the trust’s name – and that investors should remain patient. Whether his optimism is borne out through better results in future is anyone’s guess. Here at IFA Magazine we’ve seen many occasions when successful managers experience patches of underperformance. The fact remains that Woodford has established a very strong reputation over a long period of time. It may be too early to write him off just yet!

You know that summer time is here when the Money sections start running articles on pet insurance and other such areas which don’t get a look in at busier times. Hey presto – the lead story in the Sunday Times Money section looks at the cost of veterinary treatment for pets – and of the cost of pet insurance. Enough said!

As we’ve said many times, we always enjoy reading Ian Cowie’s personal account column in the Sunday Times. This week he’s mulling over the possibility of the future legalisation of cannabis for medicinal purposes – and the investment opportunities that this might bring. He’s confessed to a speculative punt on a Canadian company which produced medicinal cannabis as part of his forever fund – although he has recently resolved to avoid such punts! It’s unlikely that you’ll have clients wanting to discuss a similar approach but it makes for a good read nonetheless.

The Sunday Times Business section discusses expectations that the Bank of England might raise UK base rate at the meeting of the MPC this Thursday – with expectations of such a rise at roughly 90%.  A rise to 0.75% would mark the highest level for bank rate since March 2009. However, it’s not a done deal and is likely to be a close run thing amongst the 9 members of the committee. Will they or won’t they? Only time will tell.

Botch-job builders take the lead in the Sunday Telegraph Money section. This consumer finance story isn’t quite our area so we’ll leave that one for now. On an investment note, Gavin Lumsden is writing on green investment funds. According to Gavin, next Wednesday marks Earth Overshoot Day, which is when it is estimated humanity will have exhausted nature’s “budget” of natural resources for the year. It’s quite a thought. For those investors for whom ethical concerns are a factor, he points out some infrastructure funds involved in the generation and sale of renewable energy, and environmental funds investing in companies with eco-friendly products and processes. It’s worth a read if this is an area of interest for you.

 

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