JUST when it seemed it couldn’t get any worse for flood-hit homeowners, the Prime Minister has claimed to be personally involved in crucial negotiations over a fund to subsidise flood insurance.
This is as good as the kiss of death, if the energy market reforms debacle is anything to go by. David Cameron’s remarkably dim pledge to make suppliers offer households their lowest tariff forced the Department of Energy and Climate Change to cobble together ill-conceived measures that will only make matters worse.
Now Cameron has his sights on the Flood Re agreement. This is the bid by the Association of British Insurers (ABI) to ensure homeowners in flood-risk properties aren’t left high and dry (sorry) on the expiry next summer of an agreement that guarantees them cover.
Under that deal, insurers must offer cover to households who have made a claim related to flooding, provided the UK government invests in flood defences.
The ABI’s proposed scheme to replace that agreement would feature a cap on annual home insurance premiums. Properties with a risk priced above that level cap would still be insured, through funds raised by a levy on all home insurance policies. Insurers claim a new deal has to be in place by the end of the year.
Talks over the proposals between the ABI and the government have seemingly broken down, hence Cameron’s intervention. Who knows where it will end? The government is seemingly very reluctant to go for a compromise that would increase premiums across the board (albeit by no more than £20 a year per policyholder).
The stakes are high: several hundred thousand homes will be without insurance if the existing agreement isn’t replaced or extended, including some 5,000 in Scotland. Remember too that homes without buildings insurance would also struggle to secure a new mortgage.
The ABI’s plan is a reasonable one. The government’s objection seems to be one of cost; typically, it can’t see how investing now may save more money over the long term.
The alternative to reaching an agreement is leaving thousands of homeowners without cover, pitching them into potentially huge debt. Is that an acceptable price to pay just to win a hollow victory? Clearly not, but Cameron’s involvement offers little reassurance.
Fund managers fail to justify fees
FEW of us know how much we really pay fund managers for investing our retirement savings, but that doesn’t prevent us from suspecting that it’s too much.
The fact is that some pension contracts cost far too much, particularly those taken out over a decade ago. Others are relatively cheap. Where they do charge excessively and performance is poor, the impact on the pension pot can be enormous.
But the debate over charges has obscured other issues: namely the continued poor performance of some of the UK’s biggest pension funds.
New Hargreaves Lansdown research shows that 14 of the 20 biggest UK pension funds have underperformed their benchmark over the past decade. The underperforming funds hold more than £62 billion of retirement savings, and investors are paying them good money for their failure to deliver.
These funds have failed for far too long to justify the fees they charge, yet our apathy lets them get away with it. Charges are a major factor in total returns, but what you actually get for your money is more important.