Monthly Market Report - January 2018

1st January 2018

Every budget for the last two to three years has featured increasingly concerned commentary about the likelihood that tax relief on pensions contribution is due a radical restructuring. To date there hasnít been any big move but the higher rate relief is surely not long for this world. But if it does get removed at some stage in the future, it will only prompt a much bigger debate Ė how do we encourage more people to save and invest for the long term? Thatís already the focus of a government commissioned Patient Capital review. Savings rate will also be helped along by the move to increase contributions to the auto enrolment pension from 1% to 3% next year. But though this increase will undoubtedly help at the margins, the underlying problem remains the same. In simple terms, despite a relatively long bull market in risky assets (one of the primary components of a diversified portfolio of pension assets) most ordinary savers and investors are still not putting aside enough money Ė and they also have unrealistic expectations about likely future returns. Multiple studies have shown this to be an uncomfortable and inconvenient truth Ė the latest of which is from Schroders via their Global investor Study. The report does have one good bit of good news Ė we Brits arenít too bad when it comes to long term saving. The Schroders report finds that non-retired UK investors are saving a higher proportion of their income (11.3%) for retirement than the European average (9.9%), and roughly the same as the global average (11.4%). That figure also isnít too far away from 12.4% level most investors thought would be needed to save for a comfortable retirement. Unfortunately, as the chart below shows, this assumed annual contribution is actually likely to be inadequate given expectations of returns. 

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