A PREFERENCE for the familiar characterises the current trend in investing.
For many people, the lure of what they know is stronger than the need for a decent return on their investments, or even the safety of their money.
The most extreme example of the flight to the familiar is the rage among novice speculators for spread-betting on house prices. The property market is a sector in which most Britons see themselves as experts, simply by virtue of having seen their own homes increase in value. Some of these newcomers are now betting on a sharp downturn in house prices — let us hope that they can take their losses on the chin if there is a slump, rather than a full-blown crash, or if the market stagnates.
By contrast, Premium Bonds are the one form of gambling where you do not lose your stake. This guarantee is one of the reasons why £7.49 billion of Premium Bonds were sold in the year to March. Next month, the tax-free prize fund rate rises to 3 per cent and then to 3.2 per cent in December, equivalent to a pre-tax return of 5.3 per cent for a higher-rate taxpayer. But there will still be no guarantee that holders will win any prizes, let alone the £1 million jackpot.
This willingness to invest, hoping that Lady Luck will smile upon you, should be noted by all insurance companies selling personal pensions. The amount contributed to personal pensions was just twice the Premium Bond sales figure, a woeful result and yet another indication of our lack of trust in this form of saving.
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It is, perhaps, the appeal of the familiar that keeps us faithful to underachieving investments, seemingly blind to better opportunities elsewhere. As we reveal on page 3, mammoth funds such as Abbey National UK Growth and Scottish Amicable UK Equity continue to retain customers, despite serving them poorly and charging them royally. In these cases, familiarity should, long ago, have bred contempt and the desire for a fresh approach. Instead, investor and fund seem locked in a dysfunctional relationship.
NEW tax concessions on savings are an unfamiliar experience: we have become far more used to their removal. The shock of the new venture capital trust (VCT) tax breaks will be considerable, with some investors losing their critical faculties at the idea of wiping out their income tax bills. This pitiable state of gratitude will leave them vulnerable to the “buy now while stocks last” pitches being made by the VCT managers.
The best cure for this syndrome is to read our VCT report on pages 6 and 7, the first of the many bits of reading required before venturing into this high-risk area. Here is one of many sobering statistics: 49 out of the 73 existing trusts have lost money. Suddenly the tax breaks do not seem so wonderful, after all.
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ALMOST every day, there is new and compelling evidence that the Government should rethink the tax credit system which seeks to help working families and the elderly.
Figures released this week show that two million eligible pensioners are failing to claim the pension credit, the complex means-tested state pension top-up. So much for the Government’s pledge to tackle pensioner poverty.
For some time, a consensus in the pension industry has held that the expensive-to-administer credit should be replaced by a higher basic state pension for all. The Government seems, at last, to be heeding this thinking, but this should not be seen as an indication that action is imminent, or even formulated.
Meanwhile, families that have claimed the child tax credit, making an honest declaration of their circumstances, have been overpaid in some cases. This shows an unacceptable level of chaos within the system, but there is more. The Revenue is now asking for the return of the money, although “official overpayments” cannot be claimed back. As we report below, this is causing financial hardship to the families involved, people entitled to rely on the Revenue’s calculations.
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This is a mess that ministers can no longer overlook.
CUSTOMERS of BT who have fallen victim to internet phone scams operated by international fraudsters are now being chased by debt collectors for their bills (see page 5). These cases have been brought to the attention of the watchdogs, but it seems that neither Icstis, the regulator for premium rate telephone lines, nor Ofcom, with its handsomely remunerated directors, has the power to intervene.
These customers might justifiably ask what these watchdogs are for, if not to be involved in cases where consumers have been duped and are now living in fear of bailiffs.
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THE introductory bonus is the savings industry’s answer to Botox: it gives a temporarily flattering boost to a savings account rate. Some of our readers entirely approve of this cosmetic procedure; others think it highly misleading. Whatever your view, we have nipped and tucked our savings table on page 11 to show these accounts separately.