Download For immediate distribution 4 August 2009 HFM Columbus warns on

For immediate distribution
4 August 2009
HFM Columbus warns on ‘unrealistic’ equity release
expectations and recommends radical change in
private pension planning - £500k retirement fund
achievable, says HNW broker

Dramatic shift in investment strategy required to achieve significantly higher
retirement fund

Commercial property, gold and commodities should be staples of an
aggressive, longer term scheme

Use volatility as a friend, not an enemy, says director Marcus Carlton
HIGH net worth wealth manager HFM Columbus has sounded the alarm bell over
‘unrealistic’ expectations that equity in a homeowner’s property will nullify the need for a well
thought out retirement strategy.
Millions of people potentially face a ruinous retirement because they are increasingly opting
to put all their eggs in their property basket and have chosen to shun a structured investment
plan which would help to secure a good standard of living in the retirement years.
“Recent data from the Office for National Statistics shows how rapid the decline in private
pensions’ savings has been,” said HFM Columbus director Marcus Carlton.
“The figures speak for themselves: back in 1996/97, 54% of men and 43% of women
between the age of 16 and 64 were paying into a private pension. Yet by 2005/06 the total
had dropped to 43 and 37% respectively.
“The reduction has accelerated dramatically as more and more companies close their final
salary schemes to new applicants. Less than a third are still open to new workers, compared
to 83% six years ago,” he said.
“Rather than save less into a pension, we think people should be saving much, much more,
which is why we are recommending a £500,000 pension fund as a ‘realistic’ target to aim for.
The typical UK saver’s private pension fund is currently valued at around £50,000 – nowhere
near enough,” warns Carlton.
“Given the mounting fears of significantly higher inflation in years to come, we think that with
a long enough time to accumulate, the £0.5m pension pot, paying out around £25,000 a year
in an annuity or a drawdown, is achievable with a well thought out, long term investment
strategy.
“Far too many people are still counting on the equity in their property to see them through
the increasingly long retirement years. But all the indications are that this will be dramatically
insufficient for most,” he said.
“Even modest rates of equity release will exhaust capital accumulated in a home pretty
quickly and with increasing longevity meaning people will be in a post-work scenario for a lot
longer in the future – so poverty in retirement is a real threat.”
Carlton advocates a radically different approach to retirement planning, and urges
consumers to take a more hands-on role in planning for their futures:
“It is clear that for the majority, attitudes and approaches to investment need to change.
Insurance company managed funds - in which most people have the lion’s share of their
investment capital - have been pretty mediocre generators of investment returns,” he said.
“While we have seen intense volatility in the markets, we firmly believe that during the crucial
capital appreciation period investors who are setting aside regular amounts of investment
each month can afford to take a more punchy approach to their investment strategy.
“This means greater allocations to emerging markets or commodity funds for at least part of
their investment strategy for investors who are a good way off retirement. Lower risk funds
investing in mature economies have demonstrated that several years worth of returns can be
wiped out in a significant market fall and with lower trend rates of return in the future will take
a lot longer to recover the losses and then move into profit,” he added.
Carlton argues that while more volatile funds may suffer more in a downturn, the ability of
these markets to pick themselves up off the floor and start generating returns again can be
remarkable.
.
“The trick is to use volatility as your friend, not your enemy,” he said.
“Investing regularly each month – in other words, adopting a pound cost averaging strategy means that some months the investor will buy cheaper shares, and other months more
expensive shares. Overall, however, the cost of the investment is averaged, and timing –
which has caught out so many shorter term investors – becomes less of an issue.”
HFM Columbus currently recommends commercial property, gold and commodities as core
inclusions in an aggressive monthly savings portfolio.
“Income generating funds such as equity income are useful as they provide more steady
returns. These days there are equity income funds covering Asian markets, Europe as well
as the traditional suppliers covering the UK market,” added Carlton.
Neither should people be abandoning investment markets altogether once they have
reached retirement.
“An investment linked pension such as Prudential's With Profits pension annuity has a built
in guarantee that the income will never fall below a certain level. Over time, if investment
returns deliver then the accumulation of bonuses will provide pay rises.
“As we have seen, in times of inflation real assets such as equities and property (which
make up a large part of the Prudential with profits fund) are capable of delivering returns that
could keep pace with inflation,” he said.
“We also feel that a drawdown strategy has a place despite volatile markets. By keeping
assets invested longer then greater inflation protection is provided and the strategy can be
altered to meet changing circumstances. Annuities have been poor value recently but they
do at least provide guaranteed returns – and for many people enhanced annuity rates are
available as a result of medical conditions or because they smoke.”
- Ends -
General enquiries:
www.hfmcolumbus.co.uk
Press enquiries:
01932 870000
Marcus Carlton
Director, HFM Columbus
[email protected]
Editorial Consultants
David Andrews Media Ltd
[email protected]
Cathy Tully, Consultant
David Andrews Media Ltd
[email protected]
David Andrews, Senior Consultant - Director
David Andrews Media Ltd
[email protected]
01892 500450 / 07850 553691
01273 737352
01273 737352 / 07747 196854
01273 737352 / 07941 255855
Editor's notes
HFM Columbus is a joint wealth management operation utilising the expertise of IFA firms
Hoyland Financial Management and Columbus. The company targets the higher net worth end
of the market and offers in-depth solutions ranging from mortgages and investments to
employee benefits, retirement and IHT.
Hoyland Financial Management was established in 1986 by Jeremy Hoyland to provide indepth, independent financial advice primarily to high net worth individuals and business
owners. It has dedicated departments for high net worth financial planning, including
investment, pensions and tax advice, mortgages and employee benefits. The team of financial
advisers is led by Jeremy Hoyland whose previous career background was in International
Banking. All advisers are professionally qualified and continue to pursue an ongoing
programme of specialist technical development. HFM maintains an in-house department
dedicated to product and fund research.
Columbus, based in Tunbridge Wells, Kent, was founded in 1990. Today, directors Marcus
Carlton and Charlie Walker head up a team of four other consultants each with many years of
experience advising wealthy individuals and their families. Columbus has forged an enviable
reputation for its tax structure work through a combination of leading edge thinking and
careful due diligence. Columbus is proud to have been awarded chartered status in 2008, a
reflection of their dedication to advancing the knowledge base of their consultants and
support staff. Columbus maintains an in-house department dedicated to product and fund
research.