Jon Cudby is both brave or foolish to take on Paul Lewis over Paul’s remarks at FT Adviser events over the past few weeks.
As the next speaker up at two of them, I heard what Paul said, what the questions from the floor were and – as Jon chaired one session, I was able to chat with Jon about the issue.
Jon won’t win because Paul is a) fleeter of foot, b) noisier and c) tactically right. Paul is telling people what to do right now and right now he is saying that cash is the best place for people’s money when they don’t know what to do!
Paul Lewis knows how to tweak the tail of the advisory community and there is no point in arguing as he will win.
This is of course not what anyone would call a strategic approach. Strategically speaking, an investment in real assets provides a hedge against inflation and gets you the risk premium that comes from tying up your money. Cash doesn’t get you these things but in the short term cash has advantages
- your cash is protected (at least up to the £85k level)
- there is no inflation to protect against (in the short term)
- drawdown is too expensive and risky for most small savers
- annuities are a busted flush (because of the cost of the guarantees)
- without proper advice, there’s a real risk of being robbed by fraudsters
Now I’m sure that learned advisers can disagree on all five points but at a tactical level, I think Paul is absolutely right. For many people – cash may be the best option – until something better comes along.
There are however some “buts ” about. Firstly if the cost of getting to cash is the busting of the pension , using “freedoms” then the cash may come with a ludicrous tax-bill. Only a muppet would needlessly pay 45% tax to have cash in the bank!
Secondly, it’s not good enough for Paul to sit on the fence about what should be done to get products in place which offer cash plus. I have looked Paul in the face and delivered a sermon to him on the advantages of a collective approach to spending pension savings.
I have not seen any engagement with potential solutions from Paul, which is a shame. We cannot move forward without investing time in looking at the new ways of paying people back their money. Even a collective cash account with a proper payment system would be a step in the right direction,
- But shouldn’t we be looking beyond that – to ways of paying people collectively?
- To collective insurance mechanisms to provide people with protection against the prospect of living too long or needing long-term-care?
- Shouldn’t we look to bring down the cost of drawdown from 2.5% pa to 0.25%?
I say that the current system works for those with the wealth to afford advice and it works for those with the smallest pots who can use pension savings to pay off debt.
But pension freedoms are not working for those in the middle who are stuck for what to do and will be parking their savings in cash rather than risk it on (perceived) risky and expensive investments in equity and bond funds.
Paul’s tactical approach is ok for now but not good enough for tomorrow. Paul is a responsible and able journalist with a clear conscience and a will to see the right thing done.
There is no use arguing on twitter or on this blog – I’m going to see if we can find a way to work together to make things better!