Brexit backers looking to cash in get a little help from the BBC

9 July, 2016. Fort Worth, Texas.

In my last post about the EU referendum I argued that the financial backers of Brexit hadn’t really lost £400 million due to the result of the EU referendum, and that it was poor journalism on the part of the Financial Times, Guardian, Independent and Times to suggest that they had.

To recap, they reported that Peter Hargreaves and Peter Crudas, two of the largest donors to the Leave campaigns, had lost £400 million due to the share prices of Hargreaves Landsown (Peter Hargreaves) and CMC Markets (Peter Crudas) plummeting after the Brexit vote. I argued this was nonsense, because:

• they were paper losses, no real gain or loss occurs until the shares are sold and they were unlikely to have been forced into a sale immediately post-Brexit;
• both Peter Hargreaves and Peter Crudas are likely to have wider asset portfolios than just shares in Hargreaves Lansdown and CMC Markets respectively, so we don’t know what impact Brexit has had on their finances overall; and
• we don’t know what other positions they had taken in preparation for the EU referendum, including any positions in currency markets in the event that the pound should tank.

Even judged through the narrow prism of their companies’ share prices, the £400 million figure was complete nonsense. Shares are long-term investments and these short-term movements are basically just noise. I thought it likely the share prices would be back at pre-Brexit levels within a week. In the interest of accountability, here’s how I did on that prediction.

I was right about CMC Markets but wrong about Hargreaves Lansdown, although I remain confident that the share price for the latter will recover to pre-Brexit levels soon enough. Double or quits on within the month?

The BBC seem keen to give them a leg up through free publicity. I was annoyed last week by this article on the financial market impacts of Brexit by the BBC. They quote three analysts in the piece, two of whom were from Hargreaves Lansdown and CMC Markets. I was surprised that in the whole City of London the BBC couldn’t find commentators from firms whose owners hadn’t paid to make this mess happen. Surely they can’t all have packed up and moved to Frankfurt already?

Today the BBC surpassed themselves with this piece on pension annuities. The entire story is based on a single source from (drum roll please…) Mr McPhail of Hargreaves Lansdown. It reads like a re-packaged company press release, the sort of dangerous churnalism Nick Davies warned us about back in 2008 in his book Flat Earth News. In summary the “article” states that annuity rates have tumbled post Brexit, so if you’re thinking of buying an annuity, do so now because it could get worse. No alternative options are offered and no alternative viewpoints reported. It is, quite simply, shocking journalism. Here’s the conclusion of this 246-word “article” that could influence people to make a major financial decision in haste, at a time of great economic uncertainty, and at potential long-term cost to themselves:

Nevertheless, Mr McPhail advised anyone thinking about buying an annuity not to wait for any upturn in rates.

“So if the question is, ‘should I buy an annuity today?’, then the answer is don’t delay doing so just because today’s rates are lower than in the past.”

In case you’re wondering where to go for your annuity…

I’m not a financial adviser. I would not advise anybody on how to manage their pension savings, other than to suggest taking advice from more than one source. But it seems to me the Hargreaves Lansdown / BBC advice is this: spend all of your pension savings now to lock yourself into a fixed income for the rest of your lifetime at exactly the point in time at which that income is at its lowest level for ten years. Here’s what has happened to annuity rates over the past ten years, courtesy of sharingpensions.co.uk. This is pre-Brexit. The annuity rate today would be below the axis that starts at £5,000.

Mr McPhail may of course be right — annuity rates may fall further, and there might not be a better time in the near future to buy an annuity — but the BBC could at least present alternative views and options. The BBC have offered no alternative views, but they need not have looked far for an alternative view — here’s one from the same Mr McPhail two weeks’ ago:

“The key message is to do nothing unless you have to,” said Tom McPhail, head of retirement policy at Hargreaves Lansdown, the investment manager.

“We are likely to experience a period of volatility in the markets and uncertainty in the wider economy. In these conditions, acting in haste is unlikely to serve well.”

The BBC were not alone in reporting the annuities story and carrying quotes from Mr McPhail, but they were the least balanced of the reports I have found. Partial credit goes to The Guardian and Financial Times, who at least managed to print Mr McPhail’s line about what to consider if you want to delay buying an annuity — an option the BBC neglected to report. Full credit goes to the International Business Times who managed to pick up the phone and speak to a second person, Richard Parkin at Fidelity International. His advice appears to differ from the Hargreaves Lansdown line that the BBC have pushed.

Richard Parkin, head of pensions at Fidelity International, agrees: “Many don’t realise that most pensions allow you to leave the money invested until you need it,” he said. “If you do need cash now, taking smaller withdrawals over a longer time period will often be less risky than taking a large withdrawal all at once.”

Parkin, who urged retirees to avoid taking unnecessary risks given the uncertainty surrounding the pension landscape post-Brexit, stressed the importance of carefully selecting the right deal before purchasing an annuity.

Finally, back to the BBC article to engage in a little childish schadenfreude.

Annuity rates — which determine the value of pension incomes — have been ‘in freefall’ since the UK’s vote to leave the EU, according to an expert… Experts had predicted just such a development before the referendum, yet a majority of people over the age of 60 voted to leave the European Union.

This is what happens when you have had enough of listening to experts.