Two friends and their kids came to stay with us this bank holiday weekend. Amid the laughter, good food and even better wine, my friends let drop that they have several tens of thousands of pounds’ worth of modern art lying under their bed.
Why under the bed, I asked? Is art not something that you want to have on show, something to be enjoyed? Not really, came the reply, this art is an investment, it is part of our long-term pension planning.
My friends are not rich: Andy is a personal trainer, while Maya works as an assistant in a special school. They live in a shared ownership property and their housing association still owns 75 per cent of the equity in their home, although they recently paid off their 25 per cent share of the mortgage and are considering taking on another 10 per cent.
Both believe in retirement planning and providing the best education for their two young daughters. They simply do not see the UK pensions system as meeting that planning need.
In one sense, they are lucky: over the years Andy has picked up a lot of knowledge and insight into the emerging art market. He has shrewdly identified a number of up-and-coming young artists, buying their works at bargain-basement prices and selling them on for much larger sums.
He has enough experience to be able to cut through the hype and select works that, he hopes, will stand the test of time. So far, things seem to be working: in the past five years his portfolio has bettered both the FTSE All Share and, if he is to be believed, several highly-regarded fund managers I compared his performance against for the purpose of this column.
When it comes to selling up, he and his wife have already discussed reducing their potential capital gains tax bill as much as possible by disposing of their work in annual slices and making use of their combined allowances.
Andy and Maya are unusual in the precise nature of their investment strategy. But in another sense their approach tells us something about the state of the UK pensions market and the growing sense of among many consumers that saving into a personal pension is more and more a waste of time.
Figures from HM Revenue & Customs at the end of February showed while the numbers of individuals contributing to a personal pension reached a high point of 7.6 million in 2007/08, it dropped to 5.3 million by 2011/12.
In 2013/14, the number of individuals contributing to personal pensions increased again by almost one million. But this reflected the initial effects of automatic enrolment rather than conscious decisions to save more: the share of individual contributions by self-employed individuals rather than employees continues to fall.
Andy and Maya’s behaviour reflects, in its own way, the comments recently quoted by Money Marketing editor Natalie Holt in an article about research by Citizens Advice in respect of pensions freedom and the process of accessing a pension.
Natalie quotes one interview in which savers who had just taken a slice of equity out of their pensions had decided to hold off making further decisions in relation to staying fully invested in relation to their rest of their money: “I’m not going to look at anything for a year. I’m sick of pensions now and I don’t want to start worrying about every change in the market.”
There are a variety of reasons why pensions no longer feel like havens for savers’ money. One of them is the sheer hassle of trying to deal with providers: the comments above came after policyholders had spent weeks, sometimes months trying to liberate a chunk of their pension funds, as they had been told they could by the Government.
The second is the ridiculously low annuity levels we have seen in the past few years: one of pensions campaigner Ros Altmann’s most powerful interventions has been over the effect of the Bank of England’s long-term policy of quantitative easing, which lowered gilt yields and helped force down annuity levels. Post-Brexit cuts in interest rates have made matters worse.
In such circumstances, even cars can seem a better bet than stocks: the FT reported that according to the latest price index compiled by Historic Automobile Group International (HAGI), vintage Mercedes-Benz cars increased in value by just over 85 per cent over the past three years. Classic Ferraris rose 65 per cent, while Porsche grew almost 60 per cent in value.
By comparison, the FTSE 100 fell by just under 3 per cent over the period.
Then there is the well-documented problem of actually trying to understand personal pensions. Bank of England chief economist Andy Haldane recently told a dinner audience that he was unable to understand how pensions worked. And only last week, he told the Sunday Times that he feels property is a better investment for many than a pension.
What he, my friends Andy and Maya, and many tens of thousands of others are doing is investing in something they understand and feel they have some control over, regardless of the risks.
Until advisers and providers start to offer safer, easy-to-understand products with low charges, the consumer boycott of personal pensions will continue.
Nic Cicutti can be contacted at email@example.com