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Published on April 18th, 2014 | by Pete

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The Implications Of Budget Savings Changes

The recent Budget has generated quite a stir – particularly regarding the shake-up in the savings regime, most notably for pension investors.

The Chancellor’s planned changes to pension arrangements seem to have gained widespread support and there has been much talk about the new freedoms open to those who wish to access their pension savings.

Images of a new breed of Ferrari-driving pensioners are wide of the mark, but freedom does bring responsibility and it is not yet clear how the advice safety net will work for pension investors. Good advice will be an integral part to getting it right and ultimately a sound strategy for investing pension (and other savings) capital will be critical.

Quilter Cheviot is a major manager of Self Invested Personal Pensions (SIPPs) in the UK. Our expertise is built on a solid foundation of understanding risk, interpreting investors’ needs and then shaping an appropriate investment solution to best meet those needs.

Too many investment strategies are driven by a singular focus on historic returns. Driving a car with only the use of the rear view mirror and accelerator is unlikely to yield a good result over the longer term and likewise a purely return-oriented investment strategy, based on what has worked in the past, will probably not navigate the inevitable chinks in the road.

So the starting point for most investors needs to be the dry subject of risk – which has many manifestations. We need to understand the investor’s capacity to accept losses as well as the tolerance and appetite for risk. These considerations will then determine what sort of strategy will be suitable and, by default, what likely investment return will result.

From here, the skill of the investment manager is to optimise the result within the context of the risk constraints. For most investors with pensions and savings, the sustainability of good returns will be important and it can be difficult to determine which investment managers are capable of delivering those results.

There are independent sources of such intelligence – such as Asset Risk Consultants (ARC) – which compare like-for-like investment results. Investment management company Quilter Cheviot has consistently shown above average results across a range of strategies on this measure, and our performance has also been recognised by a series of industry awards.

We welcome the on-going liberalisation of the pension and savings environment, and strongly advocate the need for investors to seek sound advice and guidance to ensure they take best advantage of the opportunity the changes present. Investors should remember that the value of investments, and the income from them, can go down as well as up. Investors may not recover what they invest. Past performance is not a reliable indicator of future results.

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