Jeremy Gates looks at the nation’s money issues and reports on savers’ hopes after National Savings & Investments pulled its index-linked certificates

SAVERS have had such a rough time in the wake of the global financial crisis in 2008 that many will shrug off the latest blow: the decision by National Savings & Investments (NS&I) to scrap its index-linked savings certificates.

Jane Platt, NS&I chief executive, says: “During almost four months when they were on sale, there were nearly 500,000 transactions into the latest issue of index-linked savings certificates.

“Forecasts showed we were at risk of exceeding the top end of the net financing range set by government, so we needed to take action to reduce sales.”

Savers who have already jumped aboard the NS&I bandwagon can draw some consolation from the decision.

On maturity, existing savings certificate customers can keep their investment for another term of the same length.

Alternatively, they can reinvest into any other savings certificate terms and issues on offer to existing customers – either the three or five-year issue of index-linked savings certificates, or the two or five-year issue of fixed-interest savings certificates – regardless of which savings certificate they currently hold.

However, savers generally are up in arms about their treatment by the Government and savings institutions in recent years.

Simon Rose, at the lobby group Save Our Savers, says: “Living within your means and saving for the future has always been seen as a good and responsible course of action by the older generation.

“Unfortunately, these attitudes have not been mirrored by responsible long-term policies from the Government, which has instead put the needs of borrowers before those of savers.

“The loss of the NS&I certificates is yet one more disappointment in a series of setbacks for bruised, battered and exasperated savers.”

As everybody agrees, Britain has to be a nation of savers – there is simply not enough money in circulation to guarantee everybody a hale and hearty old age from public funds when they stop working.

Yet an analysis by the BBC claims savers have lost £43bn in interest since the Bank of England drove base rates to historic low levels in March, 2009 – in a period which has seen mortgage borrowers benefit by £51bn.

These figures suggest a massive transfer of wealth is under way: from over-60s with capital, to under-40s struggling to buy a home and to pay down debts.

Wretched returns on savings may have persuaded many to stop saving altogether.

Figures from The Office of National Statistics show 1.2m workers stopped paying into their personal pensions in 2008/09, bringing the total down to 6.4m, against 7.m in 2007/08.

In a total private sector workforce of 23.1m, only 3.2m, or 14%, have a company pension, the lowest level since the 1950s.

Darren Philip, director of policy at the National Association of Pension Funds, says: “The UK population is on a collision course with its own retirement.

“People are not saving enough, and millions risk facing poverty in old age.”

Simon Rose, at Save Our Savers, adds: “Everybody feels poorer and savers – who far outnumber borrowers – are losing more than £50bn a year to inflation.

“We can’t have a balanced, growing economy without savers.

“They provide much- needed capital which is lent on and invested, yet current policies are squeezing savers to the brink of extinction.”

Financial advisors are equally concerned by the NS&I decision.

Patrick Connolly, at AWD Chase de Vere, says: “This news is a real body blow for the savers fearful of inflation eroding their savings.

“Only NS&I index-linked savings certificates could guarantee a tax-free return greater than the rate of inflation, a promise underwritten by the Government.

“Now, savers face the prospect of high inflation and low savings rates, so this double whammy will hit their spending power and standard of living.

“Taking more risk with their money in the stock market is not a welcome prospect for many people.

“For those who accept additional risk, the best approach is a balanced portfolio containing cash, shares, property and fixed interest.

“For novice investors, a sensible fund choice is Cazenove Multi Manager Diversity, which invests a third in shares, a third in fixed interest and a third in other investments such as property, hedge funds, structured products and gold.

“These certificates have been withdrawn because NS&I is limited in the amount it can raise. There are complaints that tax-free savings products give NS&I an unfair advantage over the banks and building societies.

“If income tax on savings interest was temporarily suspended, as our e-petition is demanding, all savings providers would compete on a level playing field.”

So, where can savers go now?

Oliver Roylance-Smith, at financial advisor Fair Investment Company, agrees that savers are in a tight corner.

“Low interest rates, increased inflation and anaemic growth is a toxic combination for savers and investors alike. With the retail price index at 5%, the outlook is bleak,” he says.

If we have entered a period when interest rates have to be kept at rock bottom for several years, some element of exposure to equities has probably become essential for anybody trying to build a sizeable savings pot as protection against unexpected problems such as unemployment or ill-health.

Many companies are paying dividends of 5%-plus, among them are some blue chip companies in the FTSE 100 which will not disappear overnight. I hold a few shares in insurance giant Aviva which are currently paying 8%, but the price of the shares is yo-yoing wildly.

At Fidelity, a leading fund manager, the message is that dividend yield, rather than capital growth, is the essential justification of holding equities.

Dominic Rossi, chief investment officer for equities at Fidelity International, comments: “Savers needing income should look at equity markets.

“Since the global financial crisis, many good-quality companies have been rebuilding their balance sheets and generating strong cash flows and good profits.

“Even if equity markets show volatility, equity funds can provide a good alternative source of income. For the last 20 years, investors bought equity markets for capital growth, but buy equities now for income.”

To meet new demand for income, Fidelity has enhanced its MoneyBuilder range with the addition of its Fidelity Income Plus Fund, to be renamed the Fidelity MoneyBuilder Dividend Fund from September 28.

There is no initial charge, so savers can go direct, and annual management fees are pegged at 1%.

The £444m Fidelity fund is invested 92% in UK firms and open to savers investing a minimum £500 lump sum or £50 per month. Income payments, if required, are paid quarterly, or added to the fund to boost long-term growth.

Fidelity is also widening the choice for savers with its Fidelity Enhanced Income Fund, open to lump sum deposits of at least £1,000 plus monthly savings of £50.

This fund indicates annual income around 7%, so risks are higher as it intends to use covered call options to boost income, but the focus is on blue chips such as BG, GlaxoSmithKline, AstraZeneca, National Grid and Vodafone.

At The Share Centre, which also promises value-for-money share services for private investors, spokesman Andy Parsons says a favoured fund for savers is Standard Life UK Equity Income Unconstrained.

Investors with these funds and others, however, must accept that the value of their holding rises and falls in line with global markets currently impossible to predict.

Never hold money in them which you might want at short notice, or in a sudden emergency.

FIDELITY (0800 414 161 and www.fidelity.co.uk); The Share Centre (www.share.com and 01296 414 141); Fair Investment Company (0845 308 2525 and www.fairinvestment.co.uk); For more information on Save Our Savers, visit www.saveoursavers.co.uk