Hello, and welcome to the Morningstar series, "Ask the Expert."
I'm Emma Wall and I'm joined today by JPMorgan's Annabel Tonry to discuss politics, pensions
and the general election.
Hello, Annabel.
Hi.
So, we've been hearing this week from the main parties about what their intentions are,
their political manifestos, and in particular, what their intentions are for pensions and
retirement?
What have they been saying?
So, this week we've seen a lot of different views from those three main parties.
Conservatives have promised that they will change the triple lock on the state pension
and make it a double lock.
We've seen the Liberal Democrats have said that they will retain the triple lock but
they want to look at tax relief for pensions.
And Labour have said they will also retain the triple lock but that they want to look
at freezing the retirement age for state pensions at 66 from 2020.
Let's assume that the polls are right and the Conservative Party does win on the election
on June the 8th.
This means a reduction of that triple lock to a double lock, the triple lock at the moment
being that state pension will either rise by 2.5% inflation or wages, whichever is the
lowest.
Potentially, that means a less of an uplift in the state pension for individuals.
Now, what can they do to counter that?
Well, the reality is that regardless of which party ultimately prevails, even if it's the
Conservatives in June in the general election, we are going to be in a lower-return environment
and that lower-return environment is going to last for a lot longer.
Our research into our long-term market assumptions would suggest that a regular balanced portfolio
would previously returned around 8% and is now going to look like 5.5%.
So, I think, there are probably three things that savers will need to bear in mind.
The first of those, unfortunately, is save more.
The reality is, if you haven't saved enough, no amount of investing will get you out of
that.
The second one is to think about diversification.
So, think about what different kinds of asset classes you could be invested in that could
also help drive additional sources of return.
And the third one really is to think about where you could use active management and
potentially see additional sources of return from active asset allocation.
For example, a 0.5% of additional return from, say, active asset allocation compounded over
time could make a big difference to somebody's ability to be able to retire comfortably.
I suppose also we should stress that it's important to take advantage of free cash sources.
I'm talking here about workplace pension schemes.
Absolutely.
If savers do have access to a workplace pension, which obviously a much greater number following
on from auto enrollment now do have access, it's really important to take advantage if
your employer is offering a contribution match.
And that is essentially free money.
To your point, there are a very few times in life when someone is willing to give you
free money.
So, it's well worth taking that up.
And that 5.5% for a balanced portfolio going forward, I suppose the other thing to mention
is, that may not be a smooth ride either with so much geopolitical change and flux at moment,
we should expect volatility to rise and so people should be willing to stomach a bit
more that?
I think they are potentially may be and obviously, to your point, there's a great amount uncertainty
at the moment, particularly in regard to Brexit, for example, just for the U.K.
I think the positive thing is though there are lots solutions out there that savers can
look to that can help mitigate some of that volatility.
And it's also a way of cost-effectively accessing some of those other asset classes to help
increase diversification.
So, for example, looking at a diversified growth fund or looking at a target-date fund
where you've got access to lots of different asset classes but in a more cost-effective
manner.
Annabel, thank you very much.
Thank you.
This is Emma Wall for Morningstar.
Thank you for watching.