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Confidence trick

In the latter half of September, markets were yo-yoing and the FTSE 100 saw a 6 per cent fall of 300-plus points. This was also a fraught time for the eurozone as Greece, Italy and Spain were flailing and EU and UK leaders made warning noises about the unsustainability of the euro.

It was against this backdrop that the IMA conducted its latest Investor Perspectives Survey looking at investor confidence and asking how confident investors feel about markets and whether or not they plan to invest any more money over the next 12 months. Preliminary results show that although confidence might be down, this has not been accompanied by a desire to stay out of the markets. It seems that the appetite to invest is higher than confidence levels suggest and relatively few investors are thinking about withdrawing money.

This is an encouraging sign of sophistication among existing investors who recognise the long-term nature of investing in funds and the need to hold on to them where possible to allow them to recover from the inevitable drops in value caused by recent and ongoing market volatility.

But what of the novice investor or those yet to enter the market for the first time? They will not have experienced the good times and the benefits that accrue from stable or rising markets.

In the current economic climate, it would be hard to persuade this group to put their money and faith in the markets. Yet this is what many of them will be automatically signed up for next year with the beginning of the Government’s ambitious programme to auto-enrol millions of non-savers into a pension.

The IMA is a firm supporter of the concept of auto-enrolment as a way of tackling the huge pension gap faced by millions. The timing is unfortunate and highlights the communication challenges we face, one of which is overcoming the general malaise surrounding all things financial.

In the same way that people lack confidence in the markets, there is a lack of confidence about what pensions can deliver. This leads to those in the target market for auto-enrolment being highly sceptical about the point of saving into a pension despite the low level of contribution they are required to make.

Together with the UK’s economic situation and uncertainties persisting in other European markets, this view will only get stronger. One of the ways round it might be to find a way of playing up the matching of employer and Government contributions that make it a no-brainer for most people to remain auto-enrolled.

It is too early to tell what will happen but one thing is certain the economic outlook will remain bleak. The question is, can we persuade the sceptics to see past that and believe in what the good times can deliver?

Mona Patel is head of communications at the Investment Management Association

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