Average savings returns comparisons

bigadaj

IronWolf wrote: »

The rates on bank accounts is irrelevant. Pension funds dont put cash into bank accounts it is too high risk that the financial institution will fail. Cash will be invested in money market funds which invest in short term government securities. The interest rates on these are very low currently.

I think this is the point, and the difference between a money market fund and a cash savings account that is not understood by the average punter and the financial industry could do much more to highlight this. The guarantee to capital that is guaranteed on limited cash deposits to individuals mean that they assume this is the same as the money market fund, whereas the latter retains risk to capital.

Telegraph_Sam

Thanks for all the time you must have put into compiling such a detailed answer. If that is not "complicated" - as far as the layman investor / policyholder is concerned - then ..

The point at issue is very simple: What "safeguards / returns" a policyholder, after having consulted the company advisor, is entitled to expect from switching his funds into a "deposit" account. And whether this should bear at least some comparison to what over a similar time period (3 years not 1) would have been obtainable from a savings account without the "strings" that you refer to. How the insurer does this and to what extent he is different from the high street is really not my concern, otherwise I'd be on the CEO's salary package (and would not have to worry about uncompetitive returns on my savings).

I have no doubt that the insurance company if it is so minded can come up with effective loop-holes and escape clauses to justify their action. I will continue my claim for misrepresentation (and use the stats kindly provided yesterday by Innovate) and see where it gets me.

bowlhead99

Telegraph_Sam wrote: »

The point at issue is very simple: What "safeguards / returns" a policyholder, after having consulted the company advisor, is entitled to expect from switching his funds into a "deposit" account.

Basically they should expect whatever returns can be obtained by institutions depositing large amounts of money in instant access zero risk cash, with no loss of principal that would have been possible in equities or bonds. Less management fees.

It is not the company's money to go and lend out to other people like a bank would, and try to support a high interest rate for you with risk to their own profits if they fail. The company have to keep it in a segregated account away from their own assets and merely invest it in the
fund you selected for yourself that matched your risk profile.

I don't want to sound like a broken record, but what percent net return did you actually achieve over the three years?

And whether this should bear at least some comparison to what over a similar time period (3 years not 1) would have been obtainable from a savings account without the "strings" that you refer to.

As explained, it's not a comparable product, so what the high street offers for cash savings is not really relevant. Certainly there are banks offering 0.1% or 0.01%, should you expect any more than that if you haven't been promised it? And you know that after that gross return, you have to pay management fees on all your funds with the insurer/pension company, right?

How the insurer does this and to what extent he is different from the high street is really not my concern

It seems to be exactly your concern, but you just don't want to hear the answer from us, because it explains why your complaint is unfounded, and you would rather have the company give you the explanations and maybe take pity on your naivety.

I have no doubt that the insurance company if it is so minded can come up with effective loop-holes and escape clauses to justify their action. I will continue my claim for misrepresentation (and use the stats kindly provided yesterday by Innovate) and see where it gets me.

I'm a bit torn on this, to be honest. On a compassionate level, I hope you win because its not nice to make a worse return than you were hoping for as you approach retirement.

However, if you look at the paperwork you would have received on what the fund does, I suspect it's more your misunderstanding rather than their misrepresentation. Certainly there are people on this board who have easily spotted why you misunderstood, but it doesn't make the company wrong.

My problem with this is that I hate compensation culture and seeing people getting paid out money because the company can't be bothered fighting it, or is forced by the regulator to treat all consumers like idiots when they are evidently quite able to read, write and comprehend basic concepts and go around telling everyone that they understand investments.

So, if you were to win, you generally push the cost of investing up for everyone else -myself included - and I have no desire to have all my investments made more expensive so you can get a nice bit of extra undeserved cash for yourself.

Tell us, if you had known the return was going to be 0% ish each year, instead of 1-2%, would you have instead invested in an equity fund risking 40%+ loss per year or a gilt fund risking 10-20%?

Telegraph_Sam

I don't want to go on belabouring the point out of consideration for other readers. If I entrust my savings to a financial institution to provide for imminent retirement, switch this on their advice to a deposit fund - only to see it worth less now in nominal (let alone real!) terms than 3 years ago, then I feel that I have been not well served. They could at least have stuck it under the corporate mattress. And to boot if they haven't otherwise got the financial expertise to recoup their management expenses, then I can see someone by the name of McKinsey being rapidly summoned over the horizon.
[needless to say, if there had ever been the prospect of achieving anything remotely approaching 40%, or even 10 - 20% p.a., I wouldn't now be upset about actually losing money "on deposit"]
Apologies if it looks like I am repeating myself ..

jem16

Telegraph_Sam wrote: »

[needless to say, if there had ever been the prospect of achieving anything remotely approaching 40%, or even 10 - 20% p.a., I wouldn't now be upset about actually losing money "on deposit"]
Apologies if it looks like I am repeating myself ..

You don't seem to be reading the replies.

Bowlhead asked if you would have been willing to risk a 40% loss from equities or a 10-20% loss on gilts.

What return did you make in those 3 years?

Telegraph_Sam

False dichotomy: Faced with the either-or choice I would obviously have opted for gilts. In the event I wanted to exclude the loss (in return for sacrificing the gains you mention) but ended up with an approx 4% loss (nominal!!) over 3 years despite being on deposit. If that's what you pa y management charges for then I rest my case.

marathonic

Telegraph_Sam wrote: »

If that's what you pa y management charges for then I rest my case.

It's been explained to you many times by a number of posters why funds such as these lost money. Yet you seem to now be saying that you 'rest your case' - as if you've proved some sort of point :question:

Your lack of financial knowledge is evident when you say, they could have "at least have stuck it under the corporate mattress". If the company done nothing with the money and avoided investing in the money markets with their, currently pitiful, interest rates of below 0.5%. Your loses would have been bigger as you would have lost this, paid their management charge and paid their charges for storing cash in a safe.

What you have lost is the difference between the interest rate achieved and the management charges over the three years.

What you don't seem to get is that dealing with multi-million pound funds of cash is a very different thing to dealing with the money left in your wallet at the end of the month.

marathonic

Telegraph_Sam wrote: »

ended up with an approx 4% loss (nominal!!) over 3 years despite being on deposit. If that's what you pa y management charges for then I rest my case.

Regarding this point, many people paid a management fee of 1%+ for equities funds and suffered losses of 40%+.

The management fee is in no way a reflection on the performance of the underlying fund - it's more closely related to the effort involved in managing the underlying fund.

bowlhead99

Telegraph_Sam wrote: »

False dichotomy: Faced with the either-or choice I would obviously have opted for gilts.

What? You were desperate to avoid loss of capital. Why would you have taken investment risk in gilts which can lose capital or equities that can lose capital, over a cash fund where the only exposure is fees?

As it happened, gilts rose in value from early 2010 but could easily have lost. The Bank of England had just completed a 200bn asset buying program in early 2010; looking at charts, the 10-year gilt was more expensive and lower yielding in March 2010 than it had been in nearly all months in the preceding 50 years.

As it turned out, they continued to go up in value later in 2010 as more QE was used and as confidence that the UK would be able to reduce its deficit improved. However, that was not something that could have been reliably predicted at the time. How are you able to say you would 'obviously have opted for gilts'?

You lost around 1.3% per year in the fund you were in. You are right, this is largely attributed to management fees and administration charges. Whether in a cash fund or an equities fund or a bond fund or a gilt fund you can't expect the management charges to be free or the administration of the wrapper to be free. Some cash funds would have performed better over the period and some wrappers would no doubt have been cheaper. That in itself is not cause for complaint.

The point remains that the potential losses from investment risk on equities or bonds or gilts (after fees) could have been mutiples of the 1-ish percent annual negative return you experienced. If you truly wished to avoid such losses, cash was the only way to go, accepting the inflation risk and the shortfall risk. Of course, a lot of people wouldn't spend as long as 3 years sitting purely in cash when they are trying to build a pot for their imminent retirement; they would often still take some sort of investment risk (whether gilts or bonds or equities), just lower than they had been doing in the 'building' phase.

But I don't think you have been wronged here, because you asked to be put in cash, which they did. You presumed that despite them not giving you a guaranteed interest rate or a projected interest rate for the cash/ money market deposit fund, the rate was bound to be the same as whatever the best-buy rates were that were being advertised for you to go and pick up on the high street as a savings customer if you had not chosen to lock it away inside a wrapper with an insurance company.

That is your misunderstanding, but hopefully with you having posted here, others will not make the same mistake. Let us know in due course how you get on with the complaint.

Telegraph_Sam

marathonic wrote: »

It's been explained to you many times by a number of posters why funds such as these lost money. Yet you seem to now be saying that you 'rest your case' - as if you've proved some sort of point :question:

Your lack of financial knowledge is evident when you say, they could have "at least have stuck it under the corporate mattress". If the company done nothing with the money and avoided investing in the money markets with their, currently pitiful, interest rates of below 0.5%. Your loses would have been bigger as you would have lost this, paid their management charge and paid their charges for storing cash in a safe.

What you have lost is the difference between the interest rate achieved and the management charges over the three years.

What you don't seem to get is that dealing with multi-million pound funds of cash is a very different thing to dealing with the money left in your wallet at the end of the month.

We are obviously never going to agree on this. I accept what you say had it been any other fund but I don't agree with your comments as far as a deposit fund is concerned. If to appreciate the subtleties you have to be a financial expert then as far as Joe Public is concerned heaven help corporate communications. I have yet to calculate what the combined "market interest rate" was over the 3 years - obviously higher than at present - but if against this they can't at least preserve the nominal value of my capital on deposit then I wonder what I am paying them for. You will reject this line of argument and I will pursue my case for misrepresentation ... Who knows, they might even agree!