What's wrong with making a fast buck

Am I a despot? Or, more accurately, is it possible for an article to be published in this section with which I do not entirely agree? The answer to these questions must be yes and no, judging by the appearance this week of a piece by David Prosser in the survey on investment trusts on pages 6 to 8.

The argument centres on whether it is always beneficial for investors when so-called "arbitrageurs" buy up shares in their investment trusts in the hope of making a swift killing. This happens when the "discount" - the difference between a trust's share price and the value of its assets - narrows significantly.

At present, there is an average discount of 12 per cent between them, meaning you can buy pounds 1-worth of assets held by an investment trust for 88p. Arbitrageurs have been snaffling up investment trust shares and forcing them to "re-organise" - either wind themselves up and sell off the shares, or convert into unit trusts, or offer a cash opt-out to those who want to sell up and go.

David notes that in doing so, they can add value to a trust's shares and, by implication, benefit smaller investors. Moreover, canny investors who spot investment trusts where there is a huge (and recoverable) discount between the underlying asset value and the share price, could also gain.

All true. Except that what is not always considered is whether some of these changes are to the long-term benefit of investment trust shareholders. For example, if you convert to a unit trust you are likely to face higher annual management costs on your investment. If you opt to liquidate your shares, it may be at the expense of an immediate capital gains tax liability.

Almost by definition, arbitrageurs are typically in-and-out merchants, mostly interested in making a fast buck. Insofar as they have forced investment trusts to re-organise themselves for the benefit of all shareholders, well and good. However, smaller savers who are in for the longer-term may not always find themselves benefiting from their co-investors' money- making strategies.

A few weeks ago, I asked the Benefits Agency to tell me how much state pension I will get when I retire in a few decades' time. The actual result hardly matters (though it certainly won't be enough to pay for all my expensive habits). What interested me were the mechanics of the exercise, which even gives a breakdown of how much will be paid should I choose to stop work early. Fascinating and frightening stuff: it's enough to want to make you save hard.

You too can ask for a pension projection by calling the Retirement Pensions Forecast unit, on 0191-218 7585, and asking staff there to send you form BR19.

Should you feel retirement planning is worth investigation, The Independent is offering a free 26-page guide on the subject, sponsored by Eagle Star, a low- cost personal pension provider. The guide is, however, genuinely independent. You can ask for one by calling 0800 776666.

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