Perilous Times For Pension Pots… Not Necessarily

Author

Date

23rd August 2016

A choir formed of politicians, journalists and disgruntled employees continue to call for Sir Phillip Green to get his cheque book out to plug the £700m pension deficit at BHS. The once well regarded retail magnate sold the now bust British department store for £1, but not before he and his shareholders paid themselves more than £400m in dividends. It is unlikely that Green – worth an estimated US$5.7 Billion – will sort out this mess; and so blameless pensioners who can ill afford to lose a pound will be left out of pocket. Sadly, this tragic story is no anomaly; 130,000 Tata Steel employees stand to lose a quarter of their retirement income. The devastation that this will inflict on families, from Tyneside to Port Talbot, is huge and will last at least a generation.

Corporate irresponsibility can cripple pension funds, however it is the Bank of England’s latest move – cutting interest rates and beginning a new £70bn quantitative easing programme – that will cause pensioners considerable pain. By buying gilts – instruments pension schemes use to value their liabilities – the BoE is forcing yields down. “The UK’s benchmark 10-year borrowing rates touched a new low of 0.51% last week; while short-dated gilts due in March 2019 and March 2020 briefly traded below zero” (The Financial Times, 2016). As a result, we are now running a £1.3trn deficit on private pension funding, with 56 FTSE-100 firms in arrears with their defined-benefit pension schemes (MoneyWeek, 2016).

(Source: The Financial Times, Aug-10, 2016)

According to David Blake from London’s Cass Business School, “The Bank of England clearly believes that the effect [of low interest rates] on our pension system is acceptable long-term collateral damage”. Indeed, until monetary conditions normalise, the outlook for retirees will remain gruesome. There is, however, a faint glimmer of hope. A beacon around which pensioners and savers alike can rally to make impressive returns. P2P.

Thanks to the ‘freedom and choice’ introduced to Britain’s pension systems, you can invest in P2P through a Self-Invested Personal Pension (SIPP) and soon via ISAs. If you’d like to take control of your pension pot, earn above average interest, and enjoy substantial tax benefits – all the while helping great British businesses grow – investing through a SIPP one of the P2P platforms could be for you. Rates of interest vary as do levels of security, careful research will indicate which platform and it could easily be more than one best suits your needs. Next week ArchOver will release a step-by-step guide, detailing how SIPPs work, who can set one up (anyone), and how you can use this flexible investment product to invest in P2P.

New Ideas, Polar Bears and Praise for the FCA’s Approach to P2P Lending

Author

Angus Dent

Date

9th August 2016

Thought provoking piece in CAPX by Jamie Whyte challenging the new “intellectual protectionists” who, unless we are careful will stifle change and growth, make everything cuddly and bankrupt us in the process. If we accept only the perceived wisdom of today and make it an offence to suggest anything else, yes some supposedly clever people really have suggested that we’ll stagnate.

Contrast the approach of making denial of climate change a criminal offence, with the active approach taken by the FCA to P2P lending as reported in Business Insider. The ingenuity of a lot of people is being encouraged and a sector carved out of the banking industry, which is and will continue, there’s an awfully long way to go yet, to provide better service to consumers. Of course the real contrast for the FinTech sector is not with the polar bear, but between the US and the UK. The UK has the white heat of the revolution, echoes of Coalbrookdale from an earlier industrial revolution, and with continued acceptance of new ideas by regulators and financiers will keep it.

I’m not suggesting that everything is perfect, rightly there is concern that lenders (or investors in FCA speak) fully understand the risks they are taking. A recent survey suggests that the message is being heard. As a sector we need to continue to reinforce the message heard by those in the dark blue sectors and work, with the FCA, on the lighter blue. What we need is continued consultation, a continuation of the active approach to regulation and a fuller analysis of the security provided by P2P lenders. A move away from a concentration on the nebulous and usually unquantifiable concept of risk to security provided.

For the record I don’t deny climate change, it is real, although I suspect it and its effects have been overstated. As for Germaine Greer, see the CAPX article, I agree with little she says and she has an absolute right to say it and to be heard. Only by hearing can we be challenged to change and develop and yes this may at times be very uncomfortable and much less than cuddly. C’est la vie.

Product or Service?

Author

Angus Dent

Date

29th July 2016

The CEO of the FCA, Andrew Bailey’s, comments to the House of Commons’ Treasury Committee when questioned by Chris Philp MP, have given rise to some comment and a very good open letter from Christine Farnish, Independent Chair of the Peer-to-Peer Finance Association. The discussion so far is one of detail. It seems to me that before we get to the detail we should consider the principles involved.

Usually banks, correctly in my opinion, describe what they provide as products. We as consumers buy a product, say a deposit account paying 0.5% interest pa. We have no idea what the bank does with the money, that’s not our concern; we have our 0.5% return. Which given the doctrine of ‘too big to fail’ is correctly almost the risk free rate of return……a few Italian readers may disagree. No further information is required.

On the other hand P2P lenders provide a service to their lenders (and borrowers). We bring the opportunity for lenders to earn a on their money than is available with a bank product. We should make it clear how much security the lender will have and leave it to the lender to make a judgement on whether or not the trade off between security and return suits them.

Of course this begs the question how much is sufficient service; another judgement call. Most of the platforms will, correctly in my view, provide credit analysis on the potential borrower. It is for the lender to assess whether the platform’s systems of credit analysis are sufficient for their purposes. The platforms must, and do, publish their systems of credit analysis. Too few, again my judgement, of the platforms provide a sufficient monitoring service after the loans have been made (perhaps this is driven by the upfront fee model, as Chris Philp suggests). The platforms should provide sufficient information on the potential borrower, or class of borrower, to allow the lender to make a judgement on whether to lend. To my knowledge all of the platforms work hard at this provision and are regularly increasing the amount and scope of the information provided. Regretfully, as with all markets, there will never be a perfect provision of information.

It is for the potential lender to judge whether the information provided is sufficient. If they don’t find it sufficient then they’ll leave their money with the banks product. The decision is always with the lender. After all it is the lenders capital that is at risk, this must always be made clear.

Accepting the principal that the banks provide a product and the P2P lenders a service is the first step in accepting that the P2P lenders need only a small amount of capital, when compared to a bank. The capital required by the P2P is sufficient to allow the P2P, in a calamitous financial position, to transfer information under its living will to another nominated party to monitor all loans facilitated to repayment. This is, of course, exactly what the FCA require of us.

BUSINESS AS USUAL AT ARCHOVER

Author

Alex Taylor

Date

11th July 2016

It took less than two hours yesterday (June 27) for lenders to snap up a £150,000 business loan on ArchOver’s ‘Secured and Insured’ crowdlending platform. The 12 month facility, offered on behalf of rapidly-expanding accountancy firm Spain Brothers, was the first new transaction to appear on the platform since the EU Referendum result was announced last Friday. Lenders will receive a return of 8% per annum.

Commenting on the loan, ArchOver CEO Angus Dent said: “We don’t yet know exactly what the future holds, but, far from retreating, we see this as a period of opportunity. We can demonstrate that the ArchOver platform remains in good working order for the benefit of ambitious SMEs and discerning lenders. Successful companies have clearly not lost the confidence to raise the finance they need to develop and grow their businesses, while lenders have equally not lost their appetite for keeping their investment returns as high as possible in this uncertain world.”

“It speaks volumes for the loyalty of our lenders who clearly appreciate our easy-to-access systems and trust our ‘Secured and Insured’ model to safeguard their interests as well as deliver attractive returns.”