Britons have 68% of their portfolios in cash – despite the asset class delivering returns of less than inflation for last 65 months, since Bank of England base dropped to 0.5%.
This figure is the biggest issue facing the investment industry according to Jeremy Roberts, head of UK retail at BlackRock, who commissioned the revealing survey.
“We are living longer – which is positive news – but brings its own set of challenges. Cash simply will not deliver an income in retirement, and not enough people realise the implications of staying in that asset class. The onus is on our industry to change that.”
Roberts said that while the Government and individual savers had to take some responsibility for financial education, the City must get involved too.
“We need to educate the end consumer about the dangers of staying in cash. Of course people remember 2008 – and before that 2000 – and are concerned about capital preservation, but staying predominantly in cash is not a good investment idea,” he added.
Pension provision is shifting from the responsibility of the government to the responsibility of the private sector and the individual. It started in October 2012 with the implementation of auto-enrolment, ensuring almost all British workers are making some savings towards retirement. Some economists predict that auto-enrolment is the beginning of the end for the State Pension – if auto-enrolment is effective, the state can absolve itself of responsibility for the elderly, and wipe off the considerable pensions deficit from the public purse.
Recognising this shift in responsibility, the asset management industry has begun to devise products that focus on the end consumers’ goals rather than cookie-cutter asset allocation. Outcome orientated solutions will become increasingly important – and prevalent – as both advisers and private investors ask different questions of their portfolio. The Retail Distribution Review introduced at the beginning of last year insists financial advisers do due diligence investigating their clients’ investment goals.
“The end consumer is less concerned with having 30% in bonds, 30% in equities in order to beat a benchmark, and more concerned about paying school fees, or securing themselves a decent pension income,” said Roberts.
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