Private investors hit out at pensions

Private investors remain deeply unconvinced of the benefits of pensions investing, a new study from Trustnet has revealed.

The vast majority of investors do not start their pension until they are well into their thirties, and the latest survey shows many investors believe the financial services industry is pushing the product for its own benefit, rather than for the benefit of investors.

"Pensions are not the attractive financial options that IFAs pretend they are," said Maurice Lawson, a private investor from Sonning-on-Thames.

"To call pensions 'an investment with massive tax advantages' is a serious distortion of the truth, as a lot of the money that one saves is lost to an insurance company in return for the annuity."
 
Lawson says that financial advisers and government officials only promote pensions to serve their own interests, and believes that there are more efficient ways of saving for the future.

He said: "One simple alternative open to investors is saving through an ISA. These products have considerable tax advantages, and remain fully owned by the investor at all times. Though your money goes in without any initial advantages, unlike a pension there are no penalties when taking it out."

"They are also far more flexible, as they allow investors to take out their money at any time, while still offering the same range of investment platforms."

Lawson agrees that young people need to be properly educated about saving for later life, but does not think that pensions under the current parameters should be encouraged.

"People in general find the notion of pensions credible because they are frightened about generating income in retirement," he added.

"Instead of telling young people that pensions are the only option, we need to teach them the difference between good and bad investments."

Mark Maynard, a private investor from St Albans, says that he has been forced to look for returns elsewhere because he is unsatisfied with his pension.

"For those that have a cast iron final salary scheme, pensions are an attractive proposition," he said.

"But if you don't have one of these and can’t afford to set aside a hefty chunk of your pay cheque every month, I don't think they are enough to set you up for retirement. For that reason, I have alternative investments in ISAs and shares to bulk up my savings."

Jonathan Mark Dawson from Chesham said he believes the inflexibility of pensions is a problem for many investors.

He said: "If your employer has a well defined benefits pension, then it may be worth contributing, providing you don't expect to change jobs much. ISAs are more flexible and don't tie up your money until retirement if you need access to your money in an emergency."

Ian Merricks, director at Kent-based IFA Sancto Merricks, said investors who did not have long to save for a pension could be right to avoid doing so through a pension scheme, but said there was a strong case for pensions over the longer term because they allow investors to reinvest returns tax free.

"There are definitely benefits to pensions investing given the tax relief these vehicles come with, and the growth that can come about as a result of that. The tax advantages of a pension definitely outweigh those available on an ISA in the long term. If you've only got ten years, then yes you may as well put your money into an ISA, but if you're looking at 20 years or so the gross roll up begins to take effect, and would definitely show a significant performance benefit against an ISA."

Merricks sympathised with investors' feelings of disenchantment, but criticised the way in which pensions stories are reported, adding: "Half the problem at the moment is that commentators outside the industry tend to quote average growth rates – the performance of the average fund in a sector – when they're talking about the potential returns from a pension.

"If you're using an IFA you should not be sitting in a fund like this. It's all about quality funds, so if the majority of your investment is in the average fund in a sector, you should really be looking for another IFA."