FTAdviser.com

Advertising

The baby boomer generation has been engaged in a massive gamble that shares would produce enough money to pay a decent pension. And that gamble has failed, leaving many facing working into retirement or eeking out an impoverished existence.

While asking them to take the gamble, the government stacked the odds against them by reducing the tax benefits for pension funds.

Dr Altmann suggested that nobody should be gambling money on the stock market that they cannot afford to lose and that they would probably be better off investing in index-linked gilts.

While I agree with Dr Altmann on many issues related to pensions, I must take issue on this occasion. Yes, the generation coming up to retirement has taken a gamble and lost. Yes, they were encouraged to do this by the government and the investment industry.

But are gilts really the alternative? I believe in the capitalist system, I believe in a free market economy. And as such I have to believe that in the long-term shares and dividend growth will produce a better return than other forms of investment. Indeed, if it had not been for state interference in the form of Gordon Brown's tax raid on pensions, investors would have seen a far better return on their money.

There are lessons to be drawn from our current malaise, however. Investors must learn to curb their greed and be willing to convert their share investments into gilts and cash as they approach retirement. Currently they often have far too great an exposure to equities.

Financial advisers are often caught between a rock and a hard place here. If they advise reducing the risk on a portfolio and the stock market collapses, then they are heroes. But if the stock market continues to rise they can expect an earbashing from disgruntled clients who are likely to gripe about what they could have received, rather than being grateful for what they have got.

And, as Dr Altman says, the government has a role to play by issuing more long dated gilts to provide wider options for investors.

As is often the case, it all comes back to education. Investors must learn to accept realistic goals and their advisers must accept that there is more to a pension are flogging one off-the-shelf product from an insurance company.

Lost the plot

So FSA has bottled it once again. Faced with pressure from the insurance industry, they have backed away from fully enforcing a ban on using policyholders' money to mis-selling bills.

The decision appeared in document CP 09/09: "Proprietary firms will no longer be able to pay compensation and redress payments from their with-profits funds, where they arise out of events that occur after the rule takes effect. The position in relation to events prior to the effective date will be unchanged."

So any compensation or redress from new mis-selling cannot come from the with profits fund, but for all past misdemeanours they can still raid policyholders' cash.

The Financial Services Consumer Panel describes this as a "backward step" and says that "having uncovered unfairness, the FSA should resolve it".

Predictably, the FSA has allowed intense lobbying from the powerful insurance industry to override consumer fairness. Reading through the comments from respondents in this consultation paper illustrates how many insurance companies are still living in the dark ages.

Some argued that policyholders have no interest or rights in any inherited estate that might exist in with profits funds. Others referred to previous consultation papers without appearing to have noticed that these have been overtaken by clarifications and later statements.

So once again the dinosaurs have outwitted the FSA and consumers will be left to pick up the bill as insurers continue to raid their savings to pay mis-selling bills.

Don't let go

The fund category merry-go-round organised by the Investment Management Association has left Invesco Perpetual looking green around the gills. Its flagship income funds now languish at the bottom of the income and growth sector over the short-term, because Neil Woodford has steered clear of banking stocks.

Those tempted to engage in a bit of bashing should beware. Following previous period of underperformance Mr Woodford has gone on to outperform the market by some degree.

If anything, this illustrates how unhelpful these categories can be. I have never been convinced that they add anything to consumer enlightenment. And the decision to move the Invesco funds seems to have been prompted to some degree by the spite of rivals who are jealous of their success.

Mr Woodford might not have been fulfilling the precise criteria for an income fund but he has certainly added more to the incomes of his investors over the years than most other fund managers. I will be sticking with him no matter what category the IMA puts him in.

- Email: t.hazell@gmail.com