Brexit, Trump and Pension Savings
On 24th June, after the Brexit vote, I predicted that Donald Trump would win the American Presidential election. I never wavered in that belief throughout the campaign.
Why wAS I so sure?
Irrespective of the rights and wrongs of the decision, the vote for Brexit was an anti-establishment vote. A significant number of people have had enough of Government, big business and bureaucracy. They have seen bankers ruin the economy and keep their jobs and their big salaries and they have seen politicians acting with impunity in all kinds of ways. They wanted to say “enough”.
In America the same anti-establishment fever was clearly in evidence and frankly you don’t come more “establishment” than Hilary Clinton! A victory for her opponent (whoever was put forward) was inevitable.
What has this to do with retirement planning?
At a time when anti-establishment fever is all around us we need to find ways of financing the level of income expected by people in retirement. If Hilary is the epitome of “establishment” in American political circles, I would suggest that “Pensions” are about as “establishment” as you get in financial terms. People are reacting against traditional savings.
So what can we do?
We need a complete re-think of the industry. If we were to go into all our thoughts on this it would be a book rather than a blog (and I have promised to try to cut our blogs down to 600 words) so let’s make do with a few key ideas:
- Remuneration: The Financial Service industry generally, and the pensions industry specifically, is created to serve one master – the shareholders of the suppliers! Fund managers are not there to provide good investor out-comes, they are in business to pay dividends.
- Regulation: We have Regulators who seems to believe that more information leads to better understanding and to better outcomes. This has led to a world where we are swamped with paper and data but no clear information and advice.
- Active Management: Despite the statistics suggesting that active management does not add value, 80% of retail investments are in active funds. Why? Because that is the only way an adviser can justify the costs that he or she has to charge to make money.
- Activism: Despite the combined intellect of the investment community we still have an issue with investment managers (as shareholders) not holding corporate management to account for its actions.
All of this drives the wrong behaviours. Investment products are opaque, complicated and costly and there is no incentive to transparency, simplicity and efficiency. Corporate Governance is sloppy and unaccountable. Confidence in the industry is low.
This is fueling the anti-establishment bandwagon.
Furthermore, there is evidence that the new generation of savers want their money to “do good” as well as earn them a return. No longer is return the be all and end all of savings. Why can we not create a world where saving is for the common good as well as for your good?
People do not want to live in poverty in retirement but at the moment that seems to be better than the alternative; putting money into a damaged system to fund inappropriate businesses. We need to make the savings attractive in both the short term (by making it socially positive) and in the long term, by offering good (not necessarily stellar) returns.
John ReeveBrexit, Trump and Pension SavingsentJoh