Posted by James McNeile, Partner
On 1 September 2016 Withy King LLP merged with Royds LLP. The trading name for the merged firm is Royds Withy King. All content produced prior to this date will remain in the name of the firms pre-merger.
Education, education, education
Our top priority is to overcome decades of neglect and make Britain a learning society, developing the talents and raising the ambitions of all our people.
When Tony Blair, seeking re-election, made that speech in 2001, he was referring mainly to young people. But we have recently had two articles in The Times which show that those nearing retirement seem to be as much in need of education as the young.
The first was the astounding news from financial advisers Chelsea Financial Services that £33 billion (that is, £33,000,000,000) of investors’ money is languishing in funds which had been underperforming their peers for each of the last three years. One fund had lost its investors 31.9% over that period – and lest you should think these were all small and obscure funds, £10.7 billion of the £33 billion was held in Scottish Widows funds and £3.7 billion in Legal & General funds.
The second article described how in the USA employers had offered staff the choice of committing to make higher pension contributions out of future pay rises. The average employee contribution rose from 3.8% of pay to 11.6% over the very short period of 28 months. The employees made no immediate sacrifice, and their take-home pay packets never shrank, while their retirement savings took off. Some commentators suggest this would have been a less onerous commitment than the UK’s auto-enrolment.
Where the education comes in is that the investment world has changed radically over the course of the last 20 years. Information previously available only by subscription to qualified financial advisers is now freely available to all on the internet, in many cases provided by organisations with nothing to sell and no axe to grind. You can, for example, go on to www.trustnet.com and find out how your employer’s defined-contribution pension fund is performing, and compare its performance with others in the same sector.
From there it is only a short step to discovering the ins and outs of investment trusts and shares, taking out a subscription to Investors’ Chronicle, and to discovering that some websites (e.g. www.moneyextra.com) will let you set up, again completely free, dummy portfolios of shares. If you “buy” a notional £1,000 of each share, you can track their performance and also the percentage rise (or fall) in value since you “bought” them.
In due course the more adventurous may set up their own online stockbroker’s account and start running their own self-invested personal pension. If that is successful, there is nothing to stop you transferring your “pot” in your employer’s pension scheme into your personal pension. In case you are wondering, that is what I did. I am drawing down the maximum amount of pension HMRC will allow me, but my personal pension fund continues to rise in value. The cost to me is £180 a year, plus the dealing costs of buying and selling investments.
A few weeks ago Professional Pensions magazine asked its readers whether employers should educate their employees about this do-it-yourself approach. The overwhelming response was yes, but many had misgivings that such education would be interpreted as recommendation, and could lay the employer open to claims if the employees’ investments were unsuccessful. However, giving generic advice has always been possible, particularly where the dummy portfolio approach exposes the employee to no risk of loss at all.
The advantage from the employee’s point of view is that either the employee will not need to use an independent financial adviser, or if he does, he will be fore-armed with information enabling him to better appraise the advice he is given.
What is education for? To allow us to do things ourselves, without having to rely on others.
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