Safety first for UK savers
SAVERS desperately seeking a decent income in retirement are being urged to play safe after the latest wave of mis-sold products left tens of thousands fighting for their money.
Last week, City regulator the Financial Conduct Authority (FCA) introduced a permanent ban on the marketing of high-risk mini bonds.
This followed the collapse of mini-bond provider London Capital & Finance (LCF), which went bust last year owing around 12,000 people £236 million. LCF tempted yieldhungry savers with rates of up to 8.95 per cent, tax-free inside the Innovative Finance Isa.
Mini-bond providers Blackmore Bond and Asset Life also went under and in April this year West Ham United sponsor Basset & Gold collapsed. Basset & Gold promoted mini-bonds to pensioners looking for low-risk income, only to invest their cash in payday loan firm Uncle Buck, which went bust in March.
The FCA introduced a temporary ban on marketing mini-bonds in January, and has since made it permanent.
Tim Fassam, director of policy at wealth management trade association PIMFA, said mini-bonds were typically “marketed to those on lower incomes or inexperienced savers”, who can least afford to lose money.
While savers are protected up to £85,000 under the Financial Services Compensation Scheme, mini-bond mis-selling victims are not and must make a legal claim.
AJ Bell personal finance analyst Laura Suter welcomed the permanent ban after a flood of advertising for these unregulated products and warned savers to stay alert.
The Government launched the Innovative Finance Isa to promote higher return savings alternatives but Suter said its days look numbered: “We would urge the FCA and Government to scrap the Innovative Finance Isa for the safety of savers.”
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said the word bond suggested these investments were secure: “They are fiendishly complicated, so investors struggle to understand them and risk losing all their money.”
Some mini-bonds may still be marketed but only to sophisticated or high net worth investors, with specific risk warnings and cost disclosures.
Savers are struggling to find a decent income in retirement as yields tumble on annuities and bonds.
Aegon pensions director Steven Cameron said annuity rates have fallen by a third over the last decade, due to low interest rates and quantitative easing: “In 2010 someone exchanging a £100,000 pension for a joint-life annuity could expect £6,000 a year. Today it is under £4,000.”
Rachel Springall, Moneyfacts finance expert, said easy access savings rates have halved since the start of the year, but notice accounts offer better value: “ICICI Bank UK pays 1.39 per cent with 95-day notice.”
Chelsea financial Services managing director Darius McDermott recommended bond funds GAM Star Credit Opportunities and Royal London Corporate Bond, which yield 4.30 per cent and 3.08 per cent respectively, before charges.