Echo: October 2010

BBC’s recent Panorama programme on pensions raised a number of extremely interesting points.

They focussed on an HSBC personal pension, highlighting how expensive it is.  Whilst their maths could be subject to question (comparing charges subject to fund growth against contributions with no fund growth is, at best, misleading), we entirely agree the idea that financial products are expensive.

At Ovation, we stopped using financial products wherever possible many years ago.  The Ovation Investment Service, for example, uses an online platform, where we use a core satellite strategy focusing on asset allocation theory to provide out performance of benchmarked funds.

Pensions are a tax efficient savings vehicle, nothing more, nothing less.  The demographics in the UK over the next 50 years show that pensions are absolutely essential in ensuring that the UK economy does not go bankrupt due to the ageing population.

Programmes such as this one which baldly state that pensions are expensive are not at all helpful.  They make an extremely relevant point, but sadly it is buried underneath a number of other points which muddy the picture.

The Government need to help as well.  Compulsory pensions, in the form of NEST, are inevitable at some point, and therefore cross party political census on this is needed in order to ensure that the launch of compulsory pensions from 2012, if it indeed happens, is a success.

Action: If you have staff, and you do not have a pension scheme, talk to us.

Are you concerned about your long term investment future? Support for UK Gilts from foreign investors is a sign that they think our economy and future long term growth is still very attractive. On the other hand, it’s also a sign, alongside the support for Gold, that some nervousness over inflation and a market shock still exist.

The main risks to the markets come from smaller global economies which are struggling to shake off the effect of the financial crisis, coupled with the potential failure of the leading global economies to reform their banking and financial services systems, culture and structure.

Reducing debt over the next 5 years could be the answer for the UK. As previous Swedish and Canadian financial crisis have shown, a prudent cost cutting strategy coupled with positive markets can drive the reduction of debt.

Markets at present feel a little high, but then I’m known for being notoriously cautious in my outlook. In my view a major correction is doubtful, but prices may trade back a little as profit is taken later in the year.

Here at Ovation, expectations for the markets remain positive, but we expect returns to be lower than previous years. That said, we feel the markets have the potential to be more consistent and less volatile in the next few years whilst the first stage of the financial crisis plays out