Money: what lies ahead in 2009?
06/01/2009
Mark Dampier, head of investment research
2009 is going to be a very hard year economically. Unemployment will go on rising, probably hitting about three million, while house prices will continue downward by around 20% with the trough in the housing market coming around late 2010. Unfortunately by this time their may be seven million in negative equity. However at some stage in 2009 some light at the end of the tunnel may appear, enough for corporate bonds and then equities to rally but whether the markets fall a further 20% first is just impossible to answer.
Tom McPhail, head of pensions research
I expect annuity rates to continue to fall this year with the benchmark return for a male aged 65 with £100,000 to invest falling from a high point of around £7,800 in 2008 to below £7,000.
We will continue to monitor this market going into 2009 to look for opportunities for our clients.
Elsewhere investment grade corporate bond funds look to me to be a strong investment theme in the first half of the year for pension investors looking to buy on at least a five-year time frame. I am very keen to encourage investors to keep on with their regular contribution pensions through 2009 as the investments they buy today could produce some fantastic value in 20 years’ time. Emerging markets and UK equity income have their merits over this kind of time frame.
Pension scheme defaults may increase through 2009 with the possibility that the Pension Protection Fund will come under pressure – it is already running a deficit of around £500 million, which isn’t a problem in the short term but a couple of major defaults could cause problems in the longer term.
Indeed 2009 may be the year when we read the last rites for private sector final salary schemes.
Ben Yearsley, investment manager
The level of interest rates will probably have a number 1 on the front in the first half of next year, but I don’t think they will go below that. Meanwhile I expect the pound to stay pretty much where it is now. I don’t see it weakening substantially from this level against either yen, euro or dollar as those economies have massive problems of their own
I think unemployment will continue to rise causing further pressure on the government’s precarious spending plans – retail/financial services and construction will feel the brunt.
Tax will rise – regardless of what anyone says – because the government is spending too much money and this has to be recouped somewhere
Danny Cox, head of advice
House prices are likely to fall further throughout 2009 the trough being in the second half of the year. Expect peak to trough falls of between 25% and 50% (bearing in mind that housing was probably overpriced by up to 30%).
Average house price peak £199,770 August 2007, less 30% takes us to £139,839 (the average in November 2003). Unless moving up the ladder, house sales should only be for death, divorce or debt and all of these will be at a big discount.
The last crisis in the housing market led to sharp falls in 1991 followed by flattish prices for four years afterwards. We expect housing to recover more quickly than four years on the basis that buy-to-let investors will increase transactions mainly from forced sellers. The cost of borrowing for housebuyers will remain at a significant margin above Bank of England base rate and we are already seeing the best deals only available to buyers with a 40% deposit.
This will continue until the banks recapitalise themselves. It means that those coming off fixed rates hoping for a great deal will, in the main, be disappointed and many will be trapped on the standard variable rate as they will have insufficient equity in their homes to meet the maximum 60% Loan to Value criteria. Repossessions will increase and not start to recover until late 2009 at the earliest.
Laith Khalaf, pensions analyst
There were some landmark events in the world of UK pensions last year – in particular
the Pension Act 2008. This will give an estimated seven million people, many on low and middle incomes, access to a workplace pension to enable them to save more. From 2012 all eligible workers, who are not already in a good quality workplace scheme, will be automatically enrolled into either their employers’ pension scheme or a new savings vehicle, which is currently known as a personal account scheme.
The broad thrust is welcome, however problems abound in the form of means testing, the qualifying scheme test and costs. We can’t help but wonder at the further damage that will be done to the already tarnished image of pensions if the government mucks this up.
In the meantime, UK final salary pension schemes slipped from an aggregate surplus of £53 billion in May to an aggregate deficit of £136 billion in November. This is ultimately going to mean more contributions are required from employers to make good that shortfall. Those companies that survive the recession are likely to look back at the additional burden they faced because of their final salary schemes and seriously consider their options.
Hargreaves Lansdown’s advisory helpdesk can be contacted on 0117 317 1690 or you can e-mail asktheexpert@hargreaveslansdown.co.uk