Anthony Hilton: Put some fun into pensions and maybe more people will get one
Saturday 18 February 2012
You just have to mention the word pensions to see people's eyes glaze over.
They either feel guilty that they are not saving enough, or worried that they are being ripped off by fund management charges. So an honourable mention here for Ros Altmann, the director general of Saga.
She thinks that people who commit to save regularly in a pension scheme should automatically be entered for a monthly, £1m draw.
What she is trying to highlight is the negativity which surrounds so much of the pensions and savings debate. The emphasis from product providers and government is so heavily skewed towards the unfortunate consequences of not saving, and the dangers of taking too much risk.
The problem is this has become counterproductive, and sets up additional barriers among those who most need to be convinced that pensions are a good and necessary thing.
Ms Altmann's idea is nothing more than to bring a bit of fun and excitement into saving. She wants to create positives to offset the negativity. And she is surely right that something needs to be done to improve the image of pensions.
Nor is it a daft idea. It worked a generation ago when National Savings premium bonds were launched. They offered no interest but paid what were for the time, big prizes. Since then the success of everything from newspaper scratchcards to the National Lottery shows that people do respond to an incentive.
The Government appears unwilling even to consider the idea, but Ms Altmann has done a public service by underlining how and why pensions have to be made attractive and interesting.
The savings habit will never get ingrained if it is seen as a chore.
For most Brits, charities are not a top priority
The University of Aberdeen marked its 500th anniversary in 1997 with the biggest fund-raising drive ever attempted by any British university outside Oxford or Cambridge.
Now, 15 years on and thanks to the drive of its recently retired Vice Chancellor Sir Duncan Rice, it has been notably successful.
But it has been a hard slog, as I can testify because I am on the university's fund-raising committee, so I had a particular interest in attending the Pro Bono Economics lecture on charitable giving delivered by Sir Howard Davies. He was until recently the director of the London School of Economics.
Apparently we are more generous than many European countries, where they have more comprehensive state support systems and higher taxes, but we still give at less than half the rate of Americans. And a lot is trivial. Some 58 per cent of the UK population give something, but 40 per cent of those donors give less that £10 a year. Only 7 per cent give more than £100 a year.
A positive spin on the bankers' bonus saga is that they would have more to give to charity, but in this country at least it does not seem to work like that.
Michael Portillo told Radio 4 a few weeks ago that when Margaret Thatcher slashed the top rate of income tax she hoped it would stimulate a big increase in charitable giving, but it did not happen then and has not happened since. There are some big givers – notably among the hedge funds interestingly – but total charitable giving in the UK, which is estimated at £11bn, has barely increased over five years.
Meanwhile in the past years some 69 American billionaires have promised to give away at least half of their fortunes while in the UK in 2010 there were only 174 donations of over £1m.
A praiseworthy effort by Lord Myners to encourage people in the City to commit 10 per cent of their estate to charity may eventually change this, but it is still early days. When Coutts, the banker to the affluent, asked its high net worth customers if charity was a top priority for them, two out of five Americans said it was, compared with one in three Irish, one in four Swiss but only one in six of the Brits.
The reasons why people give are complex, with the warm glow and enhanced public status two obvious ones. But above all it is emotional rather than rational, with a bias towards localism or the personal. That inevitably means that ancient universities do better than modern, affluent areas do better than the less affluent.
And what all this shows is any idea Government may still have that charities can pick up a lot of the work provided by the state is pie in the sky.
Pedestrian hedge funds join the mainstream
When they started, hedge funds were targeted at seriously wealthy people and the pitch was that if they were willing to pay the eye-watering charges – a 2 per cent annual fee and 20 per cent of any gains – then they could have their money managed by exceptionally talented people.
The crash showed that success in fund management is more often a matter of luck rather than skill, and most funds did very badly when faced with a real test of their abilities. Their clients stopped admiring the Emperor's new clothes, realised they did not exist and regretted their foolishness.
Many also asked for their money back – at least what was left of it – and by some estimates almost half the hedge funds wound themselves down and closed because they had become too small or had too tarnished a reputation to continue.
Last week I bumped into one of our biggest managers of fund of funds. These try to make hedge fund investing easier and safer for their clients, in the same way that the pool of shares in a unit trust offers a safer way into the stock market than investing directly in individual shares.
Such managers have a useful role because it is difficult from the outside to know what individual hedge funds set out to do and whether they actually do it. His business is about doing that homework. He then creates a parcel of hedge funds he likes and invites clients to invest in these through him.
What's interesting, though, is how his business has changed. Five years ago before the crash the majority of his clients were individuals. Today the individuals have lost heart and the majority of fund of fund investors are pension funds. Hedge funds have joined the mainstream.
Inevitably, this has brought compromises. They have dropped the charges a bit, they are a lot more open about what they do and they take fewer risks. The result inevitably is that their performance is becoming more pedestrian, which makes one wonder what the pension funds think they are paying for.
I suspect they may wonder that themselves before too long.
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