View more on these topics

Gregg McClymont: Will the UK ever be a nation of investors?

Gregg McClymont

Turning a nation of savers into a nation of investors: surely this is the objective of pensions freedoms. A shift away from the insurance-linked guarantee of annuities; a rejection of cash in the bank.

Instead, an army of pensioners invested in equities, fixed income and alternatives all the way through retirement. Income drawdown in action.

As an objective, it is a tough one. Investment has always been a minority activity in the UK. Of course, millions of UK citizens have had pensions savings invested for many decades but it has been done so on their behalf – the risk lying with the pension scheme sponsor and the beneficiary unaware of the investment dimension to their retirement savings pot.

It is easy for those of us who work in the investment world to forget this. Since the time of Victorian novelist Anthony Trollope, skepticism about the unpredictability of investment has infused popular culture.

To put it another way, the UK has not been like the US: a nation where everyday individual retail stockmarket investment was established a century ago. Keynes famously urged UK policymakers in the 1930s to maintain the “closed shop” institutional bias of the London Stock Exchange. After all, he said, if “markets can remain irrational longer than you can remain solvent” then the dangers to individuals were especially acute.

Since then, an established class of retail investors has emerged in the UK, created in no small part by the “Tell Sid” popular capitalism pioneered by the Thatcher governments. But investing remains a minority pursuit. A plurality of the £700bn in (non-property) retirement income assets held by retirees aged 55 an over is in cash. Likewise, the majority of the £365bn held by 55-75 year olds both retired and still working.

Paul Lewis’ recent research into the returns to be had historically from cash versus shares makes the case provocatively. But more basically his argument is this: cash does not disappear. It makes real returns. The return is guaranteed.

Resistance to investing appears even stronger among future generations of retirees. BlackRock found 62 per cent of millenials agree that “investing is like gambling” and, despite their longer investment horizon, hold high amounts of cash – 70 per cent of portfolios in cash or cash like investments. “This generation harbours certain beliefs that risk preventing them from developing a fully productive relationship to investing,” concluded Merrill Lynch recently.

Professional investors emphasise the importance of a diversified portfolio, as laid down in modern portfolio theory, to offset the impact of inflation but more widely because the equity risk premium over the long-term has been a significant source of returns, especially when combined with allocations to non-correlated asset classes.

For individuals, however, following this advice can be hard. Harry Markowitz’s own retirement planning was somewhat less sophisticated than the theory that won him the Nobel prize for economics. No efficient frontier was drawn by the father of modern portfolio theory. Instead, as he explained: “I visualized my grief if the stockmarket went way up and I wasn’t in it, or if it went way down and I was completely in it. So I split my contributions 50/50 between stocks and bonds.”

Gregg McClymont is head of retirement savings at Aberdeen Asset Management


Helen Dean, Nest

Nest under fire over manual direct debit system

Government-backed scheme Nest’s method for collecting contributions is under fire for making auto-enrolment “as difficult as possible for SMEs”. Before pension contributions are sent to Nest, employers must manually approve payments each month despite direct debit arrangements being in place. The scheme says this allows employers to know exactly how much they will pay. However, […]


Old Mutual Wealth set to float

Old Mutual has set out more detail on its plans to carve up the business, with Old Mutual Wealth likely to be separated out through a demerger. In a statement published this morning, Old Mutual says it has progressed with its stated aim to split the business into four: Old Mutual Wealth, South African lender Nedbank, […]


Now: Pensions to add 200 staff

Auto-enrolment provider Now: Pensions is to boost staff numbers by nearly 200 after launching a new office in Nottingham. The firm opened its first office out of London last year and is now expecting to add 192 roles over the next two years. Now: Pensions is nearing one million savers. Chief executive Morten Nilsson says: […]


Talbot & Muir revamps Sipp offering

Bespoke provider Talbot & Muir has launched a new Sipp to replace its two existing products. The Elite Retirement Account and Simple Retirement Account will close to new business in September and be replaced with a single, more flexible Sipp. The firm says the new product will give advisers peace of mind as they will […]

Rayner Spencer Mills: Why we rate the Artemis US Select Fund

Ken Rayner and Graham O¹Neill from RSM explain why they rate the fund, its investment process and how it can be used in a portfolio The Artemis US Select Fund became a RSM ‘rated’ fund earlier this year. In this video, Ken Rayner and Graham O’Neill explain the fund’s investment approach, why they rate it, […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm