When you look at the UK equity market, it is quite apparent that the systematic institutional selling of equities is continuing at a pace.
This has been ongoing since 2002, as pension funds seek to secure their position in the face of apparently huge deficits. Meanwhile, the large life funds have sold equities to meet the requirements of the regulator, which will inevitably lead to poorer investment returns from with-profits investments in the future.
Is it any wonder that confidence in with-profits investments and company pension schemes is at an all-time low?
What has happened, and indeed what is still happening, is that these institutions are letting their investors down by committing one of the most fundamental and basic mistakes of selling equities after a market fall.
In the short term, it may well be that pension schemes and life offices are able to tick the various boxes of accountants, auditors and regulators and, to that extent, they will escape short-term blame.
But in the long term, nobody will be able to tick the box that asks “did you do the right thing for your investors?”
This really is a case of the lunatics taking over the asylum, in the form of outsiders dictating how money should be invested.
Most notably, we have to ask ourselves if putting future pension deficits on company balance sheets is truly relevant or justified when it means the closure of so many final-salary schemes. These deficits, as yet, have not arrived and indeed there is a possibility that they may never do so. After all, if someone can’t repay the mortgage balance tomorrow, it doesn’t make them bankrupt.
Time will be the judge of this issue, but by the time judgment comes around, most of the civil servants and accountants who have dictated these changes will be nicely retired on their comfortable final-salary pensions!
Adrian Shandley is managing director of Premier Wealth Management
The views expressed are those of the author and not those of the company he represents.IFAonline
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