The World In A Week - The price is right?

Written by Cormac Nevin.

Last week markets had a placid start, until Friday, when fears about the discovery of what was dubbed the “Omicron variant” of COVID-19 descended upon markets like a flock of thanksgiving turkeys.  The MSCI All Country World Index of global equities dropped -2.4% in GBP terms on Friday, to end the week down -1.9%.  Global Bonds, as measured by the Blomberg Global Aggregate Index, were up +0.1% GBP Hedged.

Omicron is the 15th letter of the Greek alphabet and, in a delicious irony, the sharp market selloff on Friday was exacerbated by the third letter of the Greek alphabet; Gamma. This is used to describe the phenomenon resulting from the widespread use of options to make highly leveraged bets on single stock names, particularly by retail traders on platforms like Robinhood.  This causes a feedback loop whereby selling begets more selling by dealers and can result in sharp plunges like that which we have witnessed. The US Equity market is currently dominated by this activity, which explains much of the parabolic upside moves in names like Tesla and gives us slight cause for concern about having too much exposure to US Equities.

Events such as last Friday reinforce our conviction in our neutral equity positioning and diversified approach.  MSCI Japan was down only -0.2% on Friday, as European and US markets sank – illustrating the opportunities various markets provide.  While it is likely too early to say for sure, the Omicron selloff appears to be reversing.  Countries are much better equipped to deal with new variants of COVID-19 than they were in the first wave, illustrated by the UK’s quick closure of travel from Southern Africa.  In addition, companies like Moderna are already using their mRNA technology to synthesise Omicron-specific vaccines.

Given stretched valuations and the implicit leverage in certain markets, we think events like Friday may become more frequent.  It will also likely be even more challenging for markets once central banks stop providing liquidity to an arguably overheating economy.  A flexible and diversified approach will remain critical.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 29th November 2021.
© 2021 YOU Asset Management. All rights reserved.

The World In A Week - Will Markets Catch A Cold?

Cases of the Covid-19, otherwise known as the Coronavirus, spiked last week, although we note that this is due to the inclusion of reclassified cases. On a positive note, laboratory confirmed cases were lower, which suggests that the disease is spreading at a slower rate, although the death toll has now exceeded that of SARS. The economic impact of the virus has been mixed thus far, but we believe it will have long-reaching, knock-on effects to the greater Asian region. It is thought that the People's Bank of China (PBoC) are likely to provide liquidity, to ease funding conditions in Chinese money markets in an effort to tackle downside risk posed by the virus and that further measures to support the economy could follow.

Leading into a long weekend for US citizens, who will be celebrating President's Day, US economic data remained robust. Labour market indicators, especially workers who are quitting for new jobs and small business optimism, were particularly positive. January retail sales rose in line with expectations of 0.3%, this was mostly driven by online and other non-store sales. Earnings also continue to be strong; of 80% of S&P 500 companies that reported in December 2019, 76% beat earnings expectations, which is in line with the long-term trend, suggesting the economy is in rude health.

In the UK, the 'Boris Effect' continues to be felt; Chancellor Sajid Javid resigned from the Cabinet following Boris' request to sack all of his advisors, a request that Javid felt was a move too far. It has been widely publicised that there have been tensions between Javid, and Boris's top adviser, Cummings, who wanted more control over economic policy and spending in the last few months. Javid's departure made way for the appointment of Rishi Sunak who has a tall task ahead; with the Budget due to take place on 11th March, it is questionable if this will go ahead.

The World In A Week

The World In A Week - Policy Preferences

Last week saw a reversal of fortune regarding market performance as global equities shrugged off concerns with MSCI AWCI rising +4.6% in GBP terms. This was primarily driven by the Chinese and US stock markets (up +6.5% and +5.1% respectively) and rests on the assumption that the Coronavirus outbreak can be contained. A secondary-order assumption stemming from the Coronavirus outbreak is that any economic slowdown will be countered with easier monetary policy from the world's central banks, namely the People's Bank of China and the Federal Reserve in the US.

This reversal in sentiment was also observed in the fixed income markets; high yield bonds rallied +0.60% while high quality bonds lost -0.12% - both in GBP hedged terms.

While the assumption that central banks will provide ever-increasing degrees of monetary stimulus to calm nervous markets has worked well as an investment strategy since the financial crisis, signs are appearing that this relationship could come to an end. Negative interest rates are being used in an attempt to stimulate growth in the Eurozone, Japan, Denmark, Switzerland and Hungary. Thus far the success of this experiment has left much to be desired, and the efficacy of negative rates is now being called into question by many. In December 2019, the Swedish central bank, the Riksbank, decided to abandon the negative interest rate experiment and raised rates to 0%.

The ineffectiveness of monetary policy to bolster further economic growth has led many market participants advocating a pivot to fiscal policy to pick up the slack. Governments in the UK and Europe seem to be gradually moving to take advantage of low interest rates for infrastructure spending. In addition, left wing economic policy is coming more into fashion around the globe, Bernie Sanders is leading the polls in the democratic primaries and over the weekend the Irish electorate returned Sinn Fein as the largest party in a general election. We continue closely to monitor policy makers preferences for economic stimulus and how markets will react.

The World In A Week

The World In A Week - Love Changes Everything?

Today we could have written about the United Kingdom no longer being part of the European Union, as Friday saw us exit, but without any clarity around the trade relationship for the future. This is the start of the long journey towards clarity around how we will interact with Europe going forward.

We could have written about Mark Carney's last Monetary Policy Committee as governor of the Bank of England. The expectation for an interest rate cut had surged during January, however the committee voted 7:2 to keep UK interest rates at 0.75%. Mr. Carney officially stands down on 15th March after extending his governorship twice in order to see the UK leave the EU in an orderly manner.

What we are writing about is the Coronavirus and the concerns that this raises with short-term sentiment in the financial markets. Fear is the biggest economic threat and fear spreads more quickly when carried on the wings of social media; Google searches for 'Coronavirus' have risen sharply over the past week. It seems fear changes everything.

Fear changes consumers' economic behaviour and in turn changes policy makers' responses. In response to help contain the spread of the virus, China extended the Lunar New Year holiday to three days, with financial markets opening today. This has knock on effects for global supply chains and even a short disruption to global manufacturing should not be ignored. Companies should have enough inventory, but if Chinese companies are closed long enough, European and US production may suffer a lack of parts. We would expect sentiment surveys to worsen on the back of this.

The World Health Organisation has now declared the Coronavirus outbreak a Public Health Emergency of International Concern. We believe that international measures to stop the spread of the virus will ultimately prove effective and there are early signs that the rate of increase in the number of new cases is slowing. It would appear the world was much more prepared for this type of outbreak than it was in 2003, with the Chinese government being pre-emptive and transparent, especially in quarantining major cities.

As we wrote last week, action will be compared to the SARS outbreak in 2003 and the blueprint is this current crisis could last between three and six months. We must keep in mind that this period of apprehension will eventually end, but in the meantime, we will probably face more bad news as media sources continue to use more emotive headlines, which will likely impact markets in the short-term.

The World In A Week

The World In A Week - The Year Of The Rat

An eventful week that saw the continued spread of the Coronavirus in China, the opening arguments of Trump's impeachment trial and the 51st World Economic Forum in Davos.

The World Health Organisation have called for emergency action in China following 830 confirmed cases with 41 deaths reported so far. The Chinese city of Wuhan, home to some 11 million people has been inundated with new patients seeking treatment. A completely new hospital is set to be completed in the next 6 days and will house 1000 beds. This follows similar action taken in 2003 following the SARS virus outbreak. The timing is far from ideal as China celebrated its New Year on the 25th January and is in a period of stagnated growth. Economic activity is expected to drop significantly with reduced worker mobility and spending power, following the travel ban that encompasses 12 cities, affecting 35 million people. There has been a large-scale demand for surgical masks and gloves with more than 80 million masks sold. China's Tencent has also cancelled the firm's annual bonus release which gives employees the chance to meet chief executive Ma Huateng amid enhanced virus concerns.

The most recent chapter in the impeachment trial sees President Trump's legal team present their case against his removal from power. The session was very brief with the main statements set for this upcoming week. However, it was clear that further evidence is needed to support any case for the removal of Trump, and this would certainly undermine the US political vote as the presidential election race gathers speed. Two-thirds vote of the Senate are required to remove the President from office, an event that has never happened in US Politics.

Climate crisis was once again the topic of discussion at the World Economic Forum in the ski resort of Davos, Switzerland. President Trump's comments again sparked debate as he compared Tesla CEO, Elon Musk, to the great Thomas Edison. This follows the significant up-surge of Tesla shares which have increased by just over $300 in the last 3 months. Trump was also quick to boast his role in accelerating economic growth, with unemployment at its lowest rate for 50 years. Most notably, Greta Thunberg echoed her climate crisis call by encouraging global leaders to act immediately, further emphasised by US Vice President Al Gore, who compared the global crisis to the 9/11 event.

The World In A Week

The World In A Week - Waiting For The Turn

Although the year is still young, thus far into January markets have seen a broad continuation of the trends we observed in Q4 of 2019, and indeed for many of the last few years. US Equity outpaced other global markets by quite some margin, with the S&P 500 retuning +2.21% in Sterling terms; although this was aided by a mild weakening in the British Pound against the US Dollar. The Price/Earnings ratio for the S&P 500 now stands at 26x on a trailing 12-month basis, as calculated by the Wall Street Journal, that is very expensive indeed on this measure.

Global growth equities have continued to outperform value equities (+5.8% vs +2.6% for the month to date), as they have done in the aggregate since the financial crisis. Again, valuations are stretched to extremes - although we generally view stretched valuations as opportunities to add value rather than risks to be avoided. As a result, we maintain our overweight to Global Emerging Market Equity into the New Year as it offers considerably better value than other equity markets.

On the Fixed Income side, we saw the rally in junk (or high yield) bonds extend from December into January as Global High Yield Debt rallied +0.9% in GBP Hedged terms last week. We are deeply sceptical that there is any opportunity to be had in high yield at current prices and maintain our underweight in favour of Investment Grade Credit. Emerging Market Local Currency Debt, which was one of our most successful positions last year, has pulled back marginally this month (-0.30%) but we remain bullish on the asset class in general and our Fund manager in particular.

On the macro side, we track the Composite Leading Indicators produced for each major economy by the OECD on a monthly basis. The latest data was released this morning and showed a moderate stabilisation in economic data across a range of developed and emerging economies. One among these was the UK, which is interesting in the context of a potential rate cut by the Bank of England. This would be highly premature in our opinion. Employment data is still robust, and while retail sales have been poor in aggregate, most of this is due to business models on the high street being disrupted rather than an underlying economic malaise.

We continue to remain focused on only taking risks for which we are adequately compensated, monitoring market developments for when trends might begin to turn and looking for tactical opportunities to add value to the portfolios.

6 Things The Mini-Bond Scandal Can Teach Investors

The Financial Conduct Authority has banned mass marketing for mini-bonds following a scandal last year, but investors should still keep some key lessons in mind.

Thousands of investors have been sucked into putting their money into unsuitable mini-bond products following extensive advertising, particularly on social media. The Financial Conduct Authority (FCA) has now clamped down on the marketing of such products following a scandal. But many are likely to lose their money.

What is a mini-bond?

A mini-bond is effectively an IOU where you lend money directly to businesses, receiving regular interest payments over the term of the bond. However, the money you make back is based entirely on the firms issuing them and not going bust. As a result, they aren't suitable for most investors. If the business collapses, you're not guaranteed to receive your money back. Mini-bonds are not normally protected under the Financial Service Compensation Scheme (FSCS) either.

The London Capital & Finance scandal highlighted this.

Around 11,500 bondholders poured £237 million into London Capital & Finance after being promised returns of 6.5% to 8%. The investment opportunity was advertised extensively, including on social media platforms. This meant it reached a wide range of investors, including those it may not be suitable for. The firm collapsed in January 2019 and investors could lose all their money tied up in the mini-bonds. For some investors, it could mean losing their life savings or having to adjust plans significantly.

Coming into force on 1 January 2020 and lasting for 12 months, the FCA has banned mass marketing of speculative mini-bonds to retail customers. Over the course of the year, the regulator will consult on making the ban permanent.

Andrew Bailey, Chief Executive of the FCA, said: We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risk involved. The risk is heightened by the arrival of the ISA season at the end of the tax year, since it's quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.

As a result, speculative mini-bonds can only be promoted to investors that firms know are sophisticated or high net worth.

Learning from the mini-bond scandal

The FCA ban aims to protect investors, but some lessons can be learnt from the mini-bond scandal too.

  1. Make sure you understand your investments

Investments can be confusing, but you should ensure you understand where your money is going before parting with your cash. Taking some time to do your research can give you more confidence in your decision and reduce the risk of choosing products that aren't right for you. If you'd like to discuss an investment opportunity and how it fits into your plans, you can contact us.

  1. Ensure investments are authorised and regulated

Investments that are regulated and authorised by the FCA can provide you with protection. The regulation around mini-bonds is much less stringent than for listed bonds. What's more, a business does not have to be regulated by the FCA to issue mini-bonds. As a result, they aren't suitable for most retail investors. Even when a business claims to have regulations, it's worth checking this is true and understanding what protection this offers you, if any.

  1. Make sure investments fit your risk profile

Mini-bonds are considered a high-risk investment. That means there's a greater chance your returns could be less than your initial investment or that you lose all your money. Your risk profile should consider a range of different areas, such as your capacity for loss, investment goals and other assets. In many cases, the risk associated with mini-bonds would be too high for typical investors.

  1. Be mindful of scams

Financial scams are rife, and the mini-bond scandal highlighted why it's important to carry out due diligence. Some mini-bonds falsely claimed to have ISA status, making them more tax efficient. This could mean some investors face unexpected tax charges. However, this claim could also lead investors into making a decision that's wrong for them. ISAs are commonly used products and considered 'safe', in contrast to mini-bonds.

  1. Don't rush into making decisions

When you see an ad with an enticing offer, it's easy to react straight away. However, carefully considered decisions are far more appropriate than impulse ones when it comes to investing. Don't rush into making investment decisions. Instead, take some time to think about what your options are, and which is most appropriate for you.

  1. Be realistic about investment performance

With some money bonds claiming to be low risk whilst offering returns of 8%, it's easy to see why retail investors were tempted. But investments with higher potential returns will carry higher levels of risk too. When assessing investment opportunities, be realistic. Here, the old saying rings true: if it sounds too good to be true, it probably is.

Please contact us if you have any questions or concerns about your investment portfolio. Our goal is to ensure each of our clients is comfortable with their investments, and wider financial plan, including the level of risk involved.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

DIY Money Management Could Cost You In The Long Run

People taking a DIY approach to their finances could find they end up losing money. Research has found that despite shunning financial advice, many aren't confident when it comes to making complex decisions.

Whilst it can be tempting to save and manage money by taking a DIY approach to finances, it could end up costing you money. Research suggests that eight in ten people overestimate their own financial capability and could be making decisions that aren't right for them as a result.

Failing to seek financial advice when it could prove valuable may not be an issue for you. But it could be a mistake that your children and grandchildren are making. Knowing when financial advice could be beneficial can be difficult to understand, especially if you haven't received advice in the past. Understanding how financial advice works and when it's useful is important.

According to Aegon, taking a DIY approach to money matters costs savers in the long run. The research found that the most common reason for people not asking for expert help is self-belief in their own ability. However, whilst many were confident when dealing with savings and general insurance products, just one in ten were sure of their ability to make more complex decisions about pensions and investments. When you consider that both these areas are long term and can have a significant impact on future lifestyle, it's crucial that savers feel confident in the decisions they're making.

For example, just 29% of those that haven't sought financial advice are confident in making a decision about when they will retire. This compares to 54% of advised individuals.

Steve Cameron, Pensions Director at Aegon, commented: Managing your own finances can be rewarding, but there's a lot to consider and it's worth remembering that the financial decisions you make can have lasting implications for the rest of your life. That's why working with a financial adviser often makes huge sense.

Financial planning isn't a one-size-fits-all approach. It's designed around the individual to meet their personal needs and circumstances and can be invaluable in providing peace of mind, helping individuals make the right choices for their future wealth. There's a real danger that poor decisions can mean plans unravel, putting people's financial future in jeopardy. Having a professional by your side helps make sense of your options, many of which you might not know you even had.

The financial benefit of advice

Whilst the above focuses on how confident people are about their financial decisions, past research has highlighted the monetary impact of not seeking advice too.

The International Longevity Centre has tracked how asset values have changed for individuals receiving advice and those opting for a DIY approach. The findings highlight how financial advice can help wealth grow:

  • Whilst not having enough wealth is often a common reason for not seeking financial advice, the research indicates it can have an even greater impact. The individuals defined as 'just getting by' saw a 24% boost to their pension wealth compared to the 11% experienced by 'affluent' individuals
  • Building an ongoing relationship with a financial adviser was also found to be beneficial; those that received advice at both points in the analysis had nearly 50% higher average pension wealth than those only advised at the start

When can financial advice help you?

So, when should you seek financial advice? The International Longevity Centre report indicates that there is a benefit for working with a financial adviser on an ongoing basis. However, there are points in your life when one-off financial advice can be invaluable. This will, of course, depend on your personal circumstance, but could include:

  • At retirement, you may have many financial decisions to make that will affect the rest of your life. Working with a financial adviser can help you understand what your options are and the income you can expect throughout retirement.
  • Estate planning can be complex. Part of this will include understanding your current wealth, how it will change, and how this can be distributed among loved ones. It may also include taking steps to reduce Inheritance Tax if this is a concern.
  • Following children, you may want to take steps to ensure you can provide financial support in the future. This may include supporting them through university or a deposit to get on the property ladder. Laying out plans and choosing the right products soon rather than later can help.
  • After a divorce, your priorities and goals may have shifted significantly. Taking financial advice at this point gives you a chance to reassess your current situation and whether you're on track to achieve the future you want.

If you'd like to understand how financial advice could help your loved ones, whether on an ongoing basis or as a one-off, please contact us. We'd be happy to discuss your circumstances and where we can add value to your life.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

5 Things To Keep In Mind When You Review Your Investments In 2020

2019 is over, how has your investment portfolio performed over the last 12 months? We take a look at some of the things to keep in mind as you review investments and plan for 2020.

2019 was a year marked by uncertainty and volatility in the investment markets. So, when it comes to reviewing your portfolio's performance, it's important to keep some things in mind.

There were numerous factors influencing markets last year, many of which would have been impossible to predict. In the UK, Brexit continued to be uncertain, with a new Prime Minister and a General Election taking place over the course of the year. Trade tensions between the US and China have a far-reaching impact, highlighting how events taking place across the Atlantic can still affect European businesses and prospects.

But those that stuck to their investment plans, could still have come out on top, despite the highs and lows.

Take the FTSE 100, for example.

On Wednesday 2nd January 2019, the FTSE 100 price was 6,734.23. A year later, on Thursday 2nd January it had reached 7,704.3. Whilst volatile periods where values fell may have made some investors nervous, those that stuck to investment plans would have benefited overall. The figures demonstrate why it's important to look at overall trends rather than the day-to-day ups and downs investors experience.

So, whether you're pleased with your portfolio's performance in 2020 or disappointed, there are some things to keep in mind as you review it.

  1. Your long-term goals should remain centre stage

Investment volatility can make it easy to focus on the short term and those temporary peaks and troughs. But you shouldn't invest with a short-term goal. As a result, your long-term plans (those that are at least five years away) should be the focus of your investment portfolio. Whether your goal is to create a nest egg for early retirement or to leave something behind for grandchildren, reviewing what they are and whether you're on track is important.

  1. Volatility is to be expected

Volatility is a part of investing. Over the course of a year the value of your portfolio will rise and fall, sometimes dramatically. It can be daunting to see the value of your investments plummet, but it's not something that can be avoided. You may be tempted to sell investments when values fall, as you don't want them to fall any further. However, it's important to remember that values falling is a paper loss only until you decide to sell, when the reduced value is locked in.

  1. Look at the bigger picture

Rather than looking at short-term volatility, it pays to look at the bigger picture. Over the long term, investments will usually deliver returns that allow you to grow your wealth. Looking at a twelve-month snapshot of your investment portfolio may show investments have underperformed but look back over the last five or ten years, and you'll hopefully be on track.

  1. Review your risk profile

All investments come with some level of risk, but you can choose how much risk you take. This should be tied to your overall financial position and attitude. When reviewing your portfolio's performance, you should review your investment portfolio too. Differing circumstances and goals may mean that what was once appropriate, no longer is. It's important that you feel comfortable with the level of risk you're taking with investments. As a general rule, the greater the risk, the higher the potential returns. But you're also more likely to see a fall in investment values too.

  1. Ensure your portfolio is appropriately diversified

When it comes to investing, diversifying is important. It's a strategy that allows you to spread your money and, therefore, the risk. By investing in a range of assets and businesses, you stand a better chance of smoothing out the highs and lows. This is because whilst one particular sector may be affected by tariffs, another could be thriving. How your portfolio is diversified should reflect your goals and risk profile.

Looking ahead to 2020

Many of the geopolitical tensions that had an impact in 2019 continue into the new year too. But there are things for investors to be enthusiastic about too.

According to fund managers Schroders: After a strong 2019, we expect market returns to be more muted in 2020. Under the surface, however, there are opportunities.

2019 saw a strong performance from the most expensive assets, be it defensive 'quality' stocks or European bonds. This means that an anaemic economic environment is reflected in market valuation.

As data stabilises and the risk of recession is reduced by central bank action, a general theme across our investment teams is that we are seeking to exploit some of the extremes in valuations that this flight to perceived 'safety' has created. This means focusing on areas of relative value, be it favouring US bonds over negative-yielding European bonds, international stocks over US equities or cyclical stocks over defensive stocks.

Remember, your investment plan should be tailored to you and your goals. As a result, investments should be looked at in the context of your wider financial plan, rather than something separate. If you'd like to discuss your investments in 2020 and beyond, please get in touch with us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

How Do UK Pensions Compare To The Rest Of The World?

A report has ranked different pension schemes from around the world. So, how does the UK measure up and what could it learn from the top performers?

Pensions are a crucial part of planning for retirement. But how do pensions in the UK compare to the rest of the world and how can you make the most of your savings?

Australian research has compared the pension systems of 37 different countries. It assessed a range of different indicators, from savings though to operating costs. It looked at both social security systems and private sectors. The report aims to inform pension decisions. It notes that ageing populations are placing pressure on governments around the world.

So, how did the UK do?

After all the indicators are considered, the UK ranks 14th, earning a C+ grade. Whilst that's not bad, it certainly suggested that there's room for improvement. In fact, the research suggested that there are major risks and shortcomings that should be addressed to improve efficacy and long-term sustainability.

At the top of the table were the Netherlands and Denmark, both earning an A grade, followed by Australia with a B.

How can the UK pension system improve?

The good news is that the UK is already taking steps to improve its pension score. The UK's overall score increased from 62.5 to 64.4 in the last year. This boost was partly due to auto enrolment and increased minimum contribution levels. But, whilst a step in the right direction, the report identifies areas that could be improved. These include:

  • Increasing the coverage of auto enrolment: The majority of employees are now covered by auto enrolment, it misses out some key groups. This includes the self-employed and some part-time workers.
  • Raising minimum contribution levels: The current minimum contribution level is 8% of pensionable earnings. This is made up of employee and employer contributions. Whilst better than not saving into a pension, this falls below recommended saving levels to maintain lifestyles.
  • Require retirees to take some of their pension as an income stream: Since 2015 retirees have had more freedom in how they access their pension. Should they choose to, they can withdraw it as a single lump sum, for example. However, the report recommends restoring the requirement to take part of retirement savings as an income stream.
  • Raising household saving: The report also highlighted saving levels compared to household debt. Having debt in retirement can have a significant impact on lifestyle and income.

How do pensions in the Netherlands and Denmark differ?

Looking at the overall results of the research, the UK falls within the middle. But how does it compare to those that claim the A ranking?

  • The Netherlands: Most employees in the Netherlands belong to occupational schemes that are Defined Benefit plans. Defined Benefit (DB) pension schemes offer a guaranteed income in retirement. This is often linked to years of service and working salary. This gives retirees certainty and means they take less responsibility for their pension income. There are DB schemes available in the UK but the number of these is falling. This is due to the cost of administering them rising as life expectancy rises. As a result, Defined Contribution (DC) schemes are more common in the UK. The income delivered from a DC pension depends on contribution levels and investment performance. Therefore, they offer less security in retirement.
  • Denmark: Like the UK, most pensions in Denmark are DC schemes. However, there are some key differences. Everyone that works more than nine hours in Demark between the ages of 16 and 67 must contribute to the supplementary pension fund. This means coverage is larger than auto enrolment in the UK. Employees can also not opt-out of ATP. Another crucial difference is that after saving through ATP, a pension is then paid in instalments once you reach retirement age. This provides a stable income throughout retirement. In contrast, UK pensioners can choose how and when they make pension withdrawals once they reach the age of 55.

Taking control of your pension

The UK might not come out top of the research. But that doesn't mean that you can't take steps to ensure you have the retirement you want. Setting out your goals and careful planning can help you secure the retirement you want. If you're worried, you'll face a pension shortfall, among the steps to take are:

  • Assess how far your current saving habits will go: Hopefully, you're already paying into a pension or making other provisions for retirement. Assessing how this will add up between now and retirement is crucial. You should also look at the level of income it will deliver annually.
  • Increasing contributions: If you've been auto enrolled into a Workplace Pension, it's likely you're paying the minimum contribution levels. However, this often isn't enough to achieve retirement dreams and you can increase contributions. In some cases, your employer will increase their contributions in line with yours.
  • Understand your investments: If you have a DC pension scheme, your contributions will usually be invested. This helps your savings to grow. But how much risk should you take and what performance can you expect over the long term? Getting to grips with how your pension is invested can help you make decisions that are right for you.

Please get in touch if you'd like to discuss your current pension and retirement plans. We'd be happy to help you understand whether you're on track and the lifestyle you can look forward to in retirement.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.