Don't Get Complacent on Pensions, Chancellor

Editor's Views: Auto-enrolment has been a huge and unexpected success, but the current savings limits need to be nudged higher at next week's Budget

Holly Black 6 March, 2020 | 10:48AM
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editor

Has there been a more successful UK government policy in recent history than auto-enrolment? It’s hard to think of one.

Time to up the Ante on Pension Savings

Figures this week showed a record number of people are saving into a workplace pension scheme – hurrah!

It’s weird to think back to all the humming and hawing that took place for years in the run-up to auto-enrolment. When the system was first introduced in 2012, sceptics predicted the drop-out rate would be huge – that people didn’t want to be “forced” to invest.

Actually, fewer than one in 10 workers drop out. And many of those who do have already reached their lifetime pension saving allowance, so this makes perfect sense for them. Even as the minimum contribution levels have gone up in recent years, the drop-out rate has got no higher. That’s a fantastic and unprecedented achieved.

Of course, the big sparkly elephant in the room is that we are all still not saving enough for retirement.

Next week is the first Budget since Boris Johnson’s landslide election victory and there are a slew of predictions over what rabbit the new Chancellor might pull out of his hat – scrapping inheritance tax? An income tax giveaway, perhaps?

It might not be a crowd pleaser, but this would be a good time to make plans to start notching up the minimum auto-enrolment contributions again. If the Government doesn't up the ante on pension savings, even the relative success of this policy won’t be enough to give future generations a comfortable retirement.

Don't Panic - Buy Insurance

Coronavirus panic has stepped up another notch this week and it’s entirely understandable that people will be worried about how the economic impact could affect their finances.

But, actually, it’s times like these that we can really test the mettle of our investment porfolios. Because a portfolio should never just be filled with exciting growth stocks and flavour-of-the-month investments. A well-rounded portfolio will have built in insurance policies that may seem lucklustre on day-to-day basis but prove their worth at times of stress.

The problem child of my portfolio for years had been that gold ETF. That makes perfect sense when we’ve been in a largely uninterrupted bull run – no one cares about gold when markets are setting new highs virtually every week. The ETF is now up 30%.

Interestingly, the Asia fund I hold is also flying. Around 40% of its assets are in China – a market many investors will have fled from in recent weeks. But the Chinese stock market has actually recovered all of the losses it endured in those first days that the outbreak was announced. If I had sold at the bottom of the market, I wouldn’t have been able to capture the bounce back.

Meanwhile, our number-crunching shows that fixed income, property and money market funds have all posted positive returns since the start of the year.

If your portfolio is full of red numbers at the moment, rather than think it’s time to run for the hills, perhaps use the opportunity to rebalance and consider whether you could make it more rounded in general, so you have insurance policies that can kick in the next time things get hairy.

Time to Celebrate Women Investors

This weekend is International Women's Day and while that might be cause for celebrations in many industries, in the finance world it's a bit of an uncomfortable reminder of how far there is to go to level up the playing field. 

We've been bleating on about this for ages, so forgive us if we're getting boring. Last year we revealed there are more open-ended UK funds run by men called Dave than there are run by all women. 

So we're using the opportunity to fly the flag for women in investing, whether it's looking at some of the most highly-rated funds with a female at the helm or speaking to some fantastic women across the industry for their views on the year ahead.

I've said it before, and I'll say it again: women make for fantastic investors and we all need to invest - to grow our money; to secure our financial futures; to have our say on the world around us. Keep your eyes peeled for more in the next few days, we're not done yet. 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk