IF YOU’VE entrusted your pension savings to richly- rewarded money managers only to find their performance bears little relation to their pay, you’d be forgiven for thinking you may as well do it yourself.
Thousands of investors have decided in recent years to go their own way by using self-invested personal pensions (Sipps). These pension tax wrappers are designed to let people manage their own pension investments rather than leave it in the (not always capable) hands of fund managers.
Many Sipp investors will consider themselves affluent, experienced and knowledgeable. That may be so, but it doesn’t necessarily make them capable of running their investments with the required expertise.
The extent to which pension investors are taking their chances with Sipps and all that they house is becoming clearer. The Financial Services Authority (FSA) has been subjecting Sipps operators to close scrutiny in recent months. On the back of that work, it has now published a damning report warning that Sipp operators are putting consumers at risk of significant detriment through a “failure to adequately control their business”.
The regulator claimed some Sipps had been a “conduit for financial crime” – albeit without much evidence – and said many were promoting investments without knowing they would come with a painful sting in the tail from the taxman.
Of course, most Sipp providers and trustees carry out their due diligence and avoid exposing investors to excessive risk. But the rapid growth of the Sipp market in recent years – growth that shows few signs of slowing – has created room for a fair few operators with no qualms about selling investors into unregulated schemes they shouldn’t be touching with a bargepole.
The esoteric blend of investments offered in Sipps are part of the appeal. Yet research earlier this year by Sipp Investment Platform found that there are almost 300 alternative investments available for Sipps, up from 50 five years ago.
Some of them are simply scams, but their inclusion in Sipps has given investors a false sense of security that has cost them dear. If your pension cash is tied up in a Sipp, make sure you know how it’s invested. If you’re thinking of using one, ask yourself what you’ll get from it that you can’t get from a conventional personal pension.
HOUSING benefit has become one of the great political footballs du jour. The Tory conference earlier this month was treated to David Cameron and his chancellor alluding to claimants as shirkers and scroungers.
Yet the government’s own figures show that the vast majority of people claiming housing benefit are in work.
Now we find that there’s been an 86 per cent spike in just three years in the number of working people needing housing benefit to help pay their rent. More than nine in ten housing benefit claims last year were made by households where at least one person is in work, according to the National Housing Federation (an English body).
The government continues to press ahead regardless with plans to restrict housing benefit, seeking to take it away from under-25s altogether. The UK government bangs on about helping the working poor; cuts to housing benefit will have quite the opposite effect.
The main reason the housing benefit bill is going up is the sharp rise in rents, which is due to the slow housing market – increasing demand for private rented property – and the continued undersupply of affordable rented accommodation.
Rents are going up in Scotland as much as anywhere and will continue rising, thanks partly to the unintended consequences of legislation such as the new tenant deposit scheme.
That means the number of people who don’t qualify for social housing but cannot afford private rented property is climbing fast.
The shortage of affordable housing is a problem that’s not going away. The Scottish government has announced a new affordable housing package, but it’s also slashing the social housing budget, a move that will inevitably add to the pressure on the private rented market.
We now face a scenario in which not only home ownership is out of reach of those on modest incomes, but private rented property is, too. That, not housing benefit, is the real issue.
TODAY’S Smart Money looks at the FSA’s new rules for the mortgage market. In the regulator’s mind, however, you’ll be taking time out to read PS 12/16 (The Mortgage Market Review – Feedback on CP 11/31 and Final Rules) for yourself.
On Page six it says the paper should be read by anyone who has a “mortgage or other home finance product” or is planning to take one out. Sweet, really, in a naive way, but it does make you wonder about the FSA’s perception of the consumers it’s job it is to protect.