Is Direct Investment the way forward for pension savers?

 

It’s a third of a century since Sid spread the word about the bargain of buying British Gas shares.  The dream of a shareholding democracy flickered, spluttered and was finally snuffed out by funds.

Nowadays – direct investment in the shares of British and overseas companies is restricted to a few sophisticated investors who know what they’re doing, not the mass-market pre-occupation of the silent majority. There was a time – but the time when most of us owned shares directly is long gone.


Sid did well

Sid was born out of the privatisation of British Gas, Telecom and a number of other large state owned enterprises – which were thought would be more enterprising under private owners. So it turned out to be and by 2011 the Guardian was telling Sid and others

“Investors have actually done very well out of this, making 12 times their original stake if they have held onto their shares over the years,” he said. “A lot of people know they have the shares, but may not realise their worth. When people are trying to make ends meet, they might want to look out their certificates.”

Following later demergers and mergers, someone who bought shares in the initial privatisation could now hold shares in three companies, Centrica, BG and National Grid.

Not only could Sid see the Centrica vans and watch as the National Grid pipes were dug in, but he could sell his shares with clear instructions and pricing. The Guardian told its readers

SimplyStockbroking would charge investors £8 to sell shares through a nominee account, or 1.25% of the value of the stock (minimum £12, maximum £40) for those in certificate form.

The process should take about 10 days from the point of applying to sell the shares to getting money in your bank account.


But Sid never got involved in pensions.

If Sid had been investing a decade later, he could got his personal pension to buy his shares or he could have invested them into  his PEP (the forerunner of our ISA).  That might have saved him a little tax and helped him resist the temptation to sell his shares for a quick buck.

But the kind of personal pensions being sold (by people like me) in the early 1980s were not for Sid. If Sid wanted a pension , he joined a big company and made sure he hung around long enough (five years back then) to make sure he got a promise that would be paying him a monthly income today.

Sid went viral because of that postman, he’d probably be getting a Royal Mail pension today. The postman did not have to think about investing for his retirement then (and thanks to CDC should not have to think about it today). But Sid probably does.


Sid’s pension today

Sid – the ordinary bloke – is now in a workplace pension. Unless he works for the Government, that pension’s building him up a pension pot and is invested in funds.

Sid doesn’t know what the pot is invested in, it could be Centrica or National Grid. Infact Sid has probably never given his investment a moment’s thought. Like some of  these people.

These people generally haven’t been told where their money is going. If they could do some research they might find out their money was invested in funds but just what their funds invested in would be a mystery. Instead of getting a clear instruction – as the Guardian was giving – of how to turn funds into money, people are generally unaware of how they get their money out of a pension.

Poor old Sid. 33 years ago he was buying and selling shares and today he is being auto-enrolled into funds he doesn’t know anything about.


“Funds” have got some explaining to do.

I read during the week an article in one of the trade papers which had a video of fund managers telling each other that the Woodford thing was a lot of fuss and bother over nothing. It made me smile to see their complacency.

I don’t think the public are complacent about funds, I think they are beginning to ask some questions about these funds – which don’t tell them where their money is invested and make it hard for them to get their money back/

The people who manage these funds need to be very careful. Not only are people a lot more interested in where their money is invested (see video) , but they are not at all pleased to hear they may not be able to get their money out of these funds as easily as they supposed.

Were they to be given all the facts about the money taken out of their funds to pay management fees , they’d be even more fed up. The biggest howl of anguish over Woodford is at the news of how much Woodford is taking out of the fund to pay for his services. When they see the amounts going out of the fund, they object.

Woodford may be an exception, but to the general public, he is the one fund manager that everyone’s heard of and he represents fund managers much more than Mr Cummings at the Investment Association.


We live in a sophisticated technological world

Whether fund managers like it or not, people are going to carry on asking awkward questions about where money is invested and how much it’s costing. They are going to want to get rather better answers than they are getting at the moment. They are going to want to see their investments as Sid did and to be able to get their money back as Sid did.

They are going to want to be able to use their phones to find this information out and they will want to use their phones to change things if change be needed.

We live in a sophisticated technological world where  – should fund managers not step up to the mark – those people who understand what users want – will give them it.

Direct investment – avoiding funds – may be just what people want.

Sid

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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