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THE MONEY WATCH TEAM TACKLE SAVINGS, INVESTMENT AND PENSIONS
In the third of this three-part series on our family finances, the Money Watch team tackles savings, investments and pensions.
During the boom, we lost our savings habit. But now, as we enter a new age of austerity, we’ve rediscovered our appetite for putting money away in the hope it will grow. Yet, as financial reporter Libby Potter discovers, although we are once again a nation of savers, it’s almost impossible to find a decent return on our money. Is that simply because interest rates are so low – or could the banks do more to reward their customers? And could customers do more to get a better return?
With returns from savings so poor, why not put our money in a nice, safe investment fund? That’s what one high street bank told 83 year old Heather Spicer. The result? She lost half her life savings – and paid a whopping fee for the privelige.
Her nest egg meant everything to her, says Heather. “It was money that my husband had left me when he died.”
And she’s not alone. BBC Business Correspondent Andy Verity reveals that banks have been giving some small investors disastrous advice. As a result, their customers have been fighting to get their money back.
With prices creeping back up after the recession crash, property may seem to be the best investment again – especially with interest rates so low. But, when we plough our money into bricks and mortar, do we act with our heads – or our hearts? And with the economic outlook so gloomy, is now really the right time to buy? Andy Verity meets a couple from Sheffield convinced that a new home is the best place to put their money. But investor Henry Pryor says property’s only a proper investment if you view it with the cold eye of the professional. Will the Bridgers’ choice produce the returns they hope for? Or are they, like most us, actually just buying a home?
What about saving and investing for the long-term, through pensions? Rajan Datar visits York, to find out how the economic downturn has affected occupational pensions, which millions of us once relied on to provide a comfortable old age. He discovers that, in these tough times, fewer employers can afford the generous schemes they once offered. And he meets hard-pressed employees who know they should be contributing more to their retirement, but simply can’t afford to either.
“The recession has really aggrevated the our pensions crisis” says former Government pensions adviser Ros Altmann. “One of the reasons is that the credit crisis has prevented people from being able to put much money into pensions. They have little spare money to put aside. “
So if savings, investments, property and pensions look uncertain in the current climate – where on earth can we put our money? Justin Rowlatt goes on a treasure hunt to find the best investment of all. He starts at a new goldmine being dug in Scotland, and meets stockbrokers, wealth managers, wine buffs and property experts on his travels. At the end of his journey he finds the answer – but it’s not what he expected.
Finally, Martin Lewis offers some down to earth advice on how to maximise our chances of seeing our savings grow. -
WILL WE GET RICHER OR POORER? BY MONEY WATCH'S IMRAN JINA
Having looked at the impact of the recession on different areas of personal finance: from pay and jobs to credit and spending, from bankruptcy to investments and mortgages, you would be forgiven for losing sight of the overall picture. All things considered, should we expect to get richer or poorer in the next year or so?
Following the coalition government’s emergency budget in June, economic forecasting consultancy Oxford Economics has looked at the prospects for our net income – that is our salary and benefits after paying income tax and National Insurance.
They predict that our net income will be down 0.5% by the end of this year compared to 2009. However next year, they forecast that it will grow by 1% and maintain this level in 2012.
But what about the value of our personal assets? Our houses, bank balances and shares? The National Institute of Economics and Social Research (NIESR) has analysed a range of assets held by households, including property, money in banks and building societies, shares and bonds, loans and net equity in pension funds.
Taking these into account, they predict that UK household wealth will have grown by about £400bn by the end of 2010 compared with a year before. That is in the region of £16000 per household.
In 2011, they forecast household wealth will grow by about the same amount again, with growth in the value of other asset classes offsetting negative housing wealth growth.
There are of course some important caveats to this analysis.
The effect of net income growth on our standard of living must be set against the cost of living. Most experts agree that the historically low interest rates that we have seen over the past few years, which have kept down tracker mortgage repayments, are unsustainable. Volatility in the cost of fuel too could impact household budgets.
But even if we don’t consider these specific items of expenditure, if general price inflation is above net income growth, this would mean that we would be able to buy fewer goods and services with our income. In effect, even if the pounds and pence number on our payslip goes up, we could still be getting an effective pay cut in terms of what this can buy.
One should also be careful when looking at the applicability of asset growth figures. The ownership of these assets is far from evenly distributed among households in the UK. The type of assets held will also greatly affect how this average figure relates to you.
And it goes without saying that there are a range of views among economists about the legacy of recession. Only in the coming months and years will we see get a better idea of its effect on our long term personal finances. -
ALSO ON THIS WEEK'S MONEY WATCH
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SAVINGS
When the credit crunch hit our financial authorities moved quickly to keep the banking system going. Interest rates were slashed to their lowest point in The Bank of England's history.
Read: Savers join forces to fight the interest rate plunge, BBC News
The fall in rates meant that in 2009 savers were £18 billion pounds worse off so it was only a matter of time before savers as a group started to get organised.
Enter Reverend John Strain. As well as being the vicar for five parishes in the village of Compton he is also one of the founders of the group Save Our Savers an alliance fighting for a better deal for Britain’s savers.
Reverend John has been inspired by the experience of people in his parish and life long friends like Mike and Patricia Ellis. They had hoped to be living comfortably after saving for more than two decades but since 2007 the returns on their savings have fallen dramatically, one typical account has fallen from four and a half percent to one point three percent.
It’s meant that Mike has to be paid for his voluntary work with a Cancer research charity and Patricia is looking for a part-time job.
In addition to cutting interest rates to keep money pumping around the economy, hundreds of billions of pounds was made available to the banks by the Bank of England and the Government including the bailing out of some of the biggest brands on the High Street.
With that amount of taxpayer aid some savers had hoped that returns would improve but they’ve been disappointed.
Eric Leenders of The British Bankers Association told Revered Strain that the investment in the Banks shouldn’t be seen as a fund to help savers but to maintain the integrity of the banking system which he believes is in the long term interest of all of us.
Leenders says that Banks will only make more attractive deals available when the Bank of England’s Monetary Policy Committee raises its base rate. -
PROPERTY
For many of us in Britain, our most significant savings are tied up in our homes. And with periods of spectacular price rises over the last thirty years, bricks and mortar has looked as safe as houses.
But after the deepest slump for decades the question is will housing continue to seem such a reliable asset? And when we say we’re investing in property, are we approaching it as a real investment – or a bit of a gamble?
Someone who firmly believes you can’t go wrong with property is Sheffield estate agent Linda Crapper. Over the last three decades she has amassed a property portfolio worth over two million pounds and thinks as long as you’ve done your homework, property will always work for you.
Linda is helping Sheffield couple Alan and Radha Bridger find a new house. Alan, like Linda, is of the opinion that long-term property will always be a smart investment. But to buy smart you need to know the market and follow your head rather than your heart. Or enlist the help of someone like Henry Pryor, a professional property finder.
Henry thinks that because we can’t be certain what house prices are doing at the moment and what the future holds for prices there is a high degree of uncertainly…and it is this that can give the property investor an opportunity to negotiate and to negotiate hard.
What is certain is that to some cold-hearted investors, houses look overpriced - a risky investment. But for determined buyers that hasn’t yet shaken their faith in bricks and mortar. -
INVESTMENT FEES
Interest rates for savers are at their lowest levels in history so many people are turning to investment funds to get their money to work harder, the problem is they’re taking advice from their High Street banks and in some instances they’re not getting advice which is suitable for them.
Read: The dangers of taking investment advice from your bank, BBC News
Sue Murton is among hundreds of customers who have complained to the financial services ombudsman after receiving poor advice from in-branch advisers which led them to lose large chunks of their life savings.
Sue wanted to boost returns from her savings because, like millions of others, she was receiving poor interest rates that meant her money was shrinking against inflation. She was looking for a "cautious to medium" risk investment and was advised by her bank to put £50,000 into a so-called "Balanced Fund", believing it to be matched to her relative unwillingness to take big risks - a key requirement for correct financial advice.
However within months, she had lost £17,000. It was only thanks the help of financial advisor Richard Davis, who has seen dozens of similar cases, that she eventually got her money back.
The consumer group Which? has highlighted inadequacies in the financial advice given at high street bank branches. In a recent mystery shopping exercise to test whether the banks were giving good or bad financial advice, it conducted visits to 37 branches. It was given the correct advice in only four of them. Which? believes that the standard of investment advice in banks and building societies on the High Street is not up to scratch and customers should keep clear of them. -
BEST INVESTMENTS
In times of turmoil people always look for a secure place to put their money. But what is the best investment? For thousands of years gold has always been seen as one of the safest havens for our money, which is why Money Watch’s Justin Rowlatt started his quest to find the best investment in the Scottish Highlands.
It’s here that plans are underway to open the country’s newest commercial Goldmine. Chris Sangster, Chief Executive of Scotgold, the company behind the operation, says because the price of gold is at an all time high there’s a potential fortune lying under Scottish hills, with people clamouring to buy it.
If gold’s not for you what about other investments? Justin also looked at the more traditional ones, property and stocks and shares and found out that both have recoded positive returns in the past year. However according to Scott Fraser, a professional property investor, the recent capital gains rises will definitely have a negative effect on property as an investment.
And what about the more exotic investments? Fine wines have put in vintage performances over the past year out performing both gold and property. Wine investor David Scott says that unlike most other investments there is a finite supply of fine wine. Every time someone opens a bottle there is one less in the world. And with massive interest for this asset class coming from the Asian market he thinks prices can only go upwards.
So what is the best investment?
When Justin he put this question to investment advisor Jonathan Davis the answer was quite surprising? Over one year it’s been stocks and shares, over ten it’s been gold and over twenty fine wines!
In short, as Jonathan Davis says, there isn’t a single best investment; everything has its time and it all about buying low and selling high. And of course, there’s always that old catch that if you think you’ve found the perfect investment chances are someone else probably got there first. -
PENSIONS
Just a few years ago, Britain’s occupational pensions system was the envy of the world. People could expect handsome pensions, linked to the salaries they were earning when they retired, and index-linked for life.
Those generous “final salary” schemes now seem to be a thing of the past in the private sector, with company after company phasing them out or closing them to new members.
The schemes that are replacing them – so called “money purchase pensions” – give no guarantees about what pensioners can expect, and are typically far less generous at maturity.
And to make matters worse, the economic downturn means that neither employers nor employees can afford to top up contributions, and has depressed prospects for final payouts still further.
So is it worth having a modern occupational pension at all? Rajan Datar investigates.
Credits
- Presenter
- Sophie Raworth
- Participant
- Martin Lewis
- Reporter
- Justin Rowlatt
- Reporter
- Libby Potter
- Reporter
- Rajan Datar
- Reporter
- Andrew Verity
- Director
- Chris Alcock
- Director
- Ben Steele
- Producer
- Ian Rose
- Producer
- Martin Small
- Producer
- Lucie Hass
- Executive Producer
- Lucy Hetherington
