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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