Asset management firms may be drawing pensioners into unacceptable levels of capital risk by relabelling funds as a source of retirement income, an industry specialist has claimed.
Henry Cobbe, managing director of BirthStar, a technology firm focusing on investment products, criticised asset managers for rebranding unsuitable funds to attract investment under the new pension rules.
Mr Cobbe said consumers were being invited to put money into several products including equity income funds under the new pension rules.
He warned that by placing their savings into an equity fund as a source of income from the age of 55 or older, those in or approaching retirement could risk capital loss.
Mr Cobbe said: “We are seeing some funds being relabelled to imply that they are fit for purpose (to provide income in retirement), including equity income funds.
“But if you are were running a defined benefit scheme, you would not have a 100 per cent equity exposure.
“If the fund is chasing yield, it could be introducing unacceptable levels of capital risk in the retirement context.”
Although Mr Cobbe did not name specific firms, consumers have been targeted by advertising before and after April’s pension changes.
In the 26 April Sunday Telegraph, an Artemis Fund Managers advert said: “Your retirement nest egg could become a source of income profits.
“Now that the pension rules are changing, there are more ways to feather your retirement nest. With income funds, for example.”
It went on to say the group had “expert profit hunters in strategic bonds, income, global income and monthly distribution. Each offering a compelling alternative to putting all of your nest egg into one annuity basket”.
The advert gave a clear risk warning for investors, noting that past performance should not be seen as a guide to future performance and the value of an investment or income can fall as well as rise.
Dominic Thomas, principal at London-based Solomons IFA, said: “If you are going to stick all your portfolio into one fund you are on a hiding to nothing. But if a fund is part of a broader portfolio it is probably not a problem.”
Right to reply
Artemis declined an invitation to comment on this article.