With the new pensions freedoms less than six months away, the Association of Investment Companies (AIC) has collated comments from investment company fund management groups on the implications of the pension changes and why investors should consider investment companies.
The implications of pensions freedom for investment companies
James de Sausmarez, Director and Head of Investment Trusts, Henderson Global Investors, said:
"Many self-directed private investors have supplemented their pensions for many years by enjoying an attractive income from investments in investment trusts. It is good news that the Government's pensions changes will mean that a wider range of investors will benefit from what investment trusts have to offer.
"Investment trusts have long deserved a bigger slice of the pension pie offering. They do not only provide the potential for an excellent means of growing capital while you save for your pension, but can also offer the possibility of a stable and growing income stream in retirement which can survive the peaks and troughs of the market. Investment trust investors should always invest on a medium to long-term basis, which can help to lower the risk associated with equity investing, and the long-term basis of pension investing, particularly in retirement, fits perfectly with that objective and makes investment trusts ideally suited to pension portfolios."
Simon Cordery, Head of Investor Relations and Business Development, F&C Investments, said:
"Investment trusts are widely held in many personal pension plans. For a number of years the various shareholder registers of F&C managed investment trusts have seen a rise in the number of shares held via SIPPs or other pension "wrappers". There are several reasons for this.
"Evidence suggests that, over the long-term, the closed-ended structure can produce better investment returns than open-ended finds. This is because of a combination of gearing, long-term investment horizons and access to illiquid opportunities that open-ended funds have difficulty with (as a result of unpredictable inflows and outflows of investors' capital). It is also due to the ability to reserve a proportion of the annual dividend receipts that allows investment trusts to manage their own dividend payments over the investment cycle. Clearly all risks should be assessed and investment suitability needs to be addressed."
Simon Crinage, Head of Investment Trusts, JPMorgan, said:
"Investment companies are well poised to provide investment solutions for the challenges of retirement. The closed-ended structure offers investors a number of advantages including flexibility in how investment returns can be turned into regular income. Dividends can be paid out of income or capital gains, and revenue reserves used to dampen volatility of payouts such as to produce a more predictable income stream. For example, JPMorgan Claverhouse Investment Trust has used this flexibility to provide shareholders a steadily increasing total dividend for the past 41 years.
"We anticipate the budget pensions changes will result in more retirees seeking an investment-led solution. As investment companies have come further into mainstream awareness following the reforms of the Retail Distribution Review, we expect this trend to accelerate further as investors recognise the role that companies can play in delivering income in retirement."
Robin Stoakley, Managing Director, UK Intermediary, Schroder Investment Management, said:
"The changes to the rules on pensions announced in the 2014 budget which come into effect in April 2015 are a welcome development, increasing choice and flexibility for the generation approaching retirement. While we do not see this as the death knell for the annuity, which for many will remain an appropriate solution at some stage during retirement, we do expect to see large numbers of investors opt for income drawdown given the potential for enhanced income, continued growth and capital retention. The focus will be on outcome oriented investment solutions, and investment trusts have a strong suit to play with their ability to smooth income payments over time, as well as the potential for long-term capital growth."
View the new AIC guide to Self-Invested Personal Pensions here: