When a magician performs, people struggle to spot the actual trick. They know there is one and they are desperately trying to avoid being misdirected by the magician into looking in the wrong place while he completes the manoeuvre to produce the illusion.
Looking at the way financial journalists are currently focusing on charges for pensions almost to the exclusion of anything else, you can’t help feeling that governments worldwide deserve automatic admission to the Magic Circle.
By focusing the attention of the media on product and adviser charges, they make it seem that personal pension savings can be sufficient for a comfortable retirement once we can manage to stop the nasty pension providers and advisers robbing us.
While the government and their regulators flog the private sector advisers and providers publicly, they manage to distract us from the primary reason that we are not getting good returns from our pension funds, which is the fundamental performance of the investments themselves. So whether your charging is at 0.7% or 1.2% is a trivial sideshow if your entire fund plunges by 5.1%, as has just happened to the average default fund in the Australian Superannuation system.
Since 2008, the average fund has collapsed to the point that they would now need to grow by 11% to return to their pre-global financial crisis levels. The initial drop was caused by the collapse of Lehman brothers and the current drop is driven by the crisis in the Eurozone. And as we watch the governments flounder in their attempts to resolve these crises, we can see that the market trends aren’t going to be upward bound for some time yet.
Realistically, the charge levels are irrelevant, if the returns are high enough; after all it is value that is important, not price. We would all happily pay double our charges to any fund manager who could triple the returns from our funds. But this requires the global economy to be moving on an upward trend, which it patently isn’t.
Governments are afraid to let the people focus on the investment returns, because that would leave them facing questions on their own success or failure in growing the economy. It’s much easier to produce traditional pantomime villains for everyone to hiss at.
As a result, financial planners and pension providers are carrying all the blame for the current woes of pensioners, while those who are a large part of the reason for the current poor values are getting off scot-free. Truly an amazing trick!