It can be no surprise that UK consumers are feeling the pressure. However, the Financial Conduct Authority (FCA) has commissioned a survey to determine the extent to which consumers are feeling the pressure.
The answer: a lot. A whopping 14% of respondents (equivalent to 7.4 million people) had had difficulty paying bills or repaying loans in January.
Of course, it is better than the situation in January 2023, when some 10.9 million people reported similar difficulties, but it is still much higher than in February 2020, before the current cost of living crisis began.
Beyond that, the FCA press release doesn't say much. So all credit to him Financial times for delving into the details of the numbers and reporting a finding that is both pleasing and surprising.
Cut pension contributions in the end
What do people usually do when they experience serious financial pressures? In addition to seeking to reduce household costs, they tend to cut back in terms of savings and investment, generally. I have done it myself, in times past.
But the FCA survey highlighted quite different behaviour.
Yes, consumers were indeed cutting back on non-essential expenses and reducing their energy bills. But almost no one (in fact, only 3% of those surveyed) had suspended or reduced their pension contributions.
In other words, reality may finally be setting in: In retirement, we are increasingly responsible for our own standard of living. You can't retire to a champagne lifestyle if you've only made contributions to your pension in beer money.
One size may not fit all
Now, it is certainly dangerous to read too much into general statements about “pension contributions.” But taking the survey result at face value, it is certainly good news.
However, how many of those pension contributions actually gave people the investment options they wanted, at an acceptable cost?
Because the British pensions industry still has – at least in my opinion – too many fat, cushy companies offering anemic returns and charging high fees. Rates that in many cases have no limit: the percentage charged could decrease as pension funds increase, but the increase is, however, inexorable.
And all this while providing pension savers with very little information – or control – in terms of what their retirement savings are invested in.
In short, it's great news that people are keeping their pension contributions, but not so good news that they may be cutting them in terms of other investment decisions (regarding ISAs and brokerage accounts) that could actually achieve the financial goals they have in mind.
Is a SIPP the answer?
The obvious question: is there a way to combine the two approaches, creating personalized, profitable and tailored investment decisions, all within a pension package that people will want to continue contributing to, even in times of scarcity?
The answer: yes.
There is an alternative, an alternative that should be attractive to many motley fool readers. But, unfortunately, very few people know about this alternative.
SIPPs (self-invested personal pensions) are not new. They have been around for decades.
And the basic idea is simple: they are a pension “wrapper”, into which savers can place all types of investments: funds, certainly, as they would invest when using “traditional” pension products, but also shares of individual companies. , REITs, bonds, gilts and investment trusts.
As the “self-invested” part of the name indicates, you're in complete control: you're not paying expensive advisors, you're not paying the high overhead of the City's historic fund management firms, and you're earning your own investment options.
Investment in pensions his shape
The key advantage, apart from the chance to get lower fees, is that a SIPP gives you the flexibility and ability to devise and execute your own investment strategies.
Does a certain stock look cheap? You can buy it. Does a dividend stalwart have an advantageous yield? You can buy it. Do you want to increase your exposure to US stocks? Can. Captivity? First timers? Again, you can.
You're not tied to an investment strategy, or the opinions of a fund manager, or the funds of a single pension provider – you can literally do almost anything you want.
And you generally pay less in terms of fees. I would suggest that this is certainly the case, as your pension pot becomes sizeable.
The best of both worlds
In short, it is a way of buying shares (and other asset classes) in a way that is as flexible as a normal brokerage account or ISA, but which confers retirement benefits, as well as benefiting from tax relief on contributions. What's not to like?
In tough times you may have to reduce your ISA payments, but you can have the same freedom of choice in the SIPP.
I certainly greatly appreciate that freedom within my own SIPP, opened many years ago.
Where to buy a SIPP? There is no shortage of suppliers, but I would start with the big fund and share supermarkets and low-cost brokers. There are More expensive luxury options, but the main ones on the market are certainly a good place to start.
