Never in the field of personal finance was so much owed to so many by so few.
It’s not quite Winston Churchill, nor the Second World War, but the spectacular implosion of Neil Woodford’s funds is an episode of rare significance. When was the last time the machinations of a fund manager lead the Today programme or Ten O’Clock News?
Gallons of ink has already been spilled on each twist and turn of Britain’s best-known fund manager’s downward spiral.
So I’m not going to bore you with details of “illiquidity thresholds” or my ruminations on the rights and wrongs of pushing best-buy lists to unsophisticated retail investors.
More interesting – and more important – is the longer term impact on the pensions landscape. This isn’t just a matter for small private investors – the ripples will be felt in the
institutional world, too.
Woodford’s troubles have been so publicly
dissected that anyone in a position of power or responsibility will be wondering what is means for their patch, be that a high-street IFA, corporate adviser or multi-billion pound master trust. I’m a trustee of the Daily Telegraph’s staff pension plan – we will be discussing the ramifications in our next meeting.
Politicians, of course, are most likely of all to react to scandals of this sort. Which brings us to Guy Opperman and his grand plans for workplace pensions.
In February the pensions minister unveiled proposals that would see billions of pounds in company pension schemes moved from vanilla FTSE 100 stocks and bonds into start-ups and other illiquid assets.
In his foreword to the DWP consultation, Opperman said he wanted to “diversify and improve returns to beneficiaries” while at the same time boost investment in “important sectors of the economy”, namely smaller firms, green projects and infrastructure.
Schemes of 5,000 or more members would be nudged into considering these investments, by being obliged to state their approach to them on at least an annual basis.
“It is remarkable” how Canadian and Australian pension funds invest in British
infrastructure, said Opperman, when it is still rare for domestic schemes to do likewise.
You sense Brexit has something to do with all this – when and if we leave the EU it will be handy to call on £60bn or so in DC plans to prop up UK Plc.
Irrespective of motive, of course Opperman’s is a good idea. That wall of cash should be put to better use. Investment consultants and advisers love to extol the virtues of taking the greatest risk in the early years of saving. Yet many default funds of the largest auto-enrolment providers go the opposite way.
If you can’t take some risk when you’re money is going to be locked away for 35 or more years, when can you? Reckless conservatism is one of the reasons there’s such disparity between auto-enrolment default funds, as revealed by Corporate Adviser’s recent research.
For these reasons and more, the pensions minister’s plan is sound. But I fear it could become another victim of the Woodford scandal.
Yes, those affected by the suspension of his funds are largely DIY investors, and not workplace pension savers, but in the world of public policy, that nuance may not matter.
Even though pension savers can’t touch their money until their 55th birthday – unlike Isa investors who can cash out with a touch of a button on the Hargreaves Lansdown app – “illiquid assets” has just become a dirty phrase.
Good luck convincing trustees – many of whom will have been personally affected by the suspension – that they should approve putting their members’ cash into impossible-to-value and hard-to-sell investments.
Good luck too, answering to the Treasury Select Committee and its excellent chair Nicky Morgan MP, if an unquoted holding goes pop and it transpires millions of savers were exposed.
In theory, it shouldn’t matter. But that’s the problem: in reality it is not hard to see savers, trustees and MPs taking a dim view of anything even vaguely comparable to the mess Woodford has got himself into.
This shouldn’t be the end of the road for Opperman’s vision for workplace pensions. But unless he prepares his arguments now, there is real danger the policy will be left in tatters.