During the latter part of August, our Managing Director Rod Thomas FCA found an article indicating that millions of pension savers are simply not getting enough guidance. Whether it is clarifying how savers can access their pension funds to figuring out if your pension fund is growing enough, millions are finding themselves at a disadvantage.
It is completely understandable that people are getting lost. Automatic enrolment may mean that an extra 7 to 8 million individuals saving into a pension in comparison to five years ago, but it does not ensure that all those saving are informed. Pension freedoms may have granted liberty but it does not guarantee that they will be used well. Savers are still trying to find the best way forward.
This article is simply a reflection of how careful you have to be of the figures and information that is being thrown at you and millions of others on a daily basis. Whilst we do not offer advice, we do hope to assist you in taking control of your financial future, seeking the best way forward and avoiding unnecessary panic when you see unfortunate headlines.
Let us take recent reports about growth during the second quarter of the year.
The Office for National Statistics (ONS) has estimated that Q2 GDP sat around 0.3% – a miserly increase of 0.1% from the previous quarter. This might be a surprise considering that other statistics paint a more positive picture – employment statistics are on the rise and there was an increase in employment of 0.4% in Q1 and by a similar amount in Q2. Official vacancies data and independent recruitments surveys suggest demand for labour is strong and is on the rise.
Yet the level of production remains the same?
This is a point that is hammered by Richard Jeffrey of Cazenova Capital. The stark contrast of growth numbers and the labour market seems to conflict. It is not simply a case of these patterns being a one-off occurrence – a similar set of data and correlations emerged in 1999 and 2011, where ONS reported poor growth numbers for the economy despite good employment gains, only to go back on the initial estimates and paint a different picture altogether. In 1999 the initial GDP estimate for the first quarter indicated that growth had slumped to just 0.7% year-on-year. Now, figures show growth was around the 3% mark. 2011 saw a similar tale – the double dip recession that dominated headlines seemingly did not happen!
To play devil’s advocate, the unemployment figures Jeffrey used in his scrutiny of ONS statstics should be thoroughly looked at also. Whilst unemployment numbers fell by 11,000 in July, the was a rise in underemployment – individuals who are in part-time, perhaps contractual work but are seeking full-time permanent roles – by 14,000.
This only reinforces my point. Research into the figures that are strewn throughout articles needs to be done and careful consideration should be given.
Let’s take another example – there are claims that the ‘savings ratio’ has fallen for six successive quarters.
But did you know that the savings ratio is heavily affected by how much is being saved into pensions, including that contributed by employers? As Steve Webb points out, we are all adjusting to the shifts in the pension world. This applies to does the savings ratio. Many paid off lump sum tax bills which were due in January. Employers are no longer pumping money into DB pension schemes. Millions more are putting money away in their pensions now. Whilst the numbers state that less is being put away, further research is needed to establish why the figures seem to say that people are simply not saving as much.
Why is this so crucial?
You have to bear in mind how circumstances stand to affect individuals. As we enter Brexit negotiations, it is difficult to imagine anything but negative headlines. Whilst Richard Jeffrey is not inclined to state that statisticians would be influenced in this way, the figures have previously understated the true level of activity. Further to this, even as UK inflation and the public finances displays signs of stability, doubt and pessimism plague the nation. The news is in the drama of a headline rather than the careful consideration of the data.
Another perhaps more overlooked aspect of statistics is how a question is met – what criteria will be covered? Are there factors that previous algorithmic patterns could miss? What could be assumed and what could be overlooked? Jeffrey alludes to the parts of the economy that fall under the radar and lay on the fringes such as technology. Mathematician and data scientist Cathy O’Neil pointed out in a recent TED talk that you have to be wary of algorithms that are helping to collect, collate, and supply the information. What could be being overlooked? Are there mitigating factors that explain a change or lack thereof?
At Avantis Wealth, we try to obtain all the information needed when we consider adding an investment to our portfolio. Our clients are self-directed, astute investors seeking out worthwhile investments and the best ways to invest their time and money. If you’d like to find out more about how Avantis Wealth and the F.R.E.S.H. investment strategy could be of value to you, please call 01273 447 299 and speak to a member of our investment broker team today!