Ian Sayers blog: Why Mark Dampier’s comments were a week too early

No-one knows the source of the phrase ‘straw man argument’. You know, when someone changes a statement into something easier to argue with but which you didn’t actually say.  So, if you suggest that 16 year olds should be allowed to drink alcohol in a pub if accompanied by an adult, your opponent says ‘I don’t agree that young children should be encouraged to binge drink’.

But though the origins of the term are obscure, the practice seems to be alive and kicking, judging by some of the responses to our research on the performance of the UK Equity Income sector over 20 years.

‘UK equities should replace annuities – says AIC chief’ read one headline last week. Before any commentators sharpen their pencils, you might want to read what I actually said and, to be fair, most of this is reflected in the article itself.

Mark Dampier of Hargreaves Lansdown also weighed into the discussion by saying ‘this idea that they can replace funds and be used instead of them on a wide scale in pensions and so on doesn’t make any sense’.

But who has ever said this?  We certainly haven’t.  Even with the might of Google behind me, I could find only one comment suggesting this, and that was Mark’s.

Admittedly, our research into recommendations of investment companies by advisers through platforms shows that annual demand has more than doubled since RDR, from around £200m to £420m.  An extra £220m of annual demand is great, of course, as it helps to keep discounts tight and increases liquidity, but it’s something that can easily be absorbed by a sector of some £117bn of assets.

Mark also fails to point out that investment companies don’t just have the option to meet increased demand through new launches. Existing investment companies can issue new shares, and have been doing so significantly in the last few years.  In fact, in a record fundraising year last year, £3bn was raised in IPOs, but existing investment companies raised an additional £4bn.

So there is plenty of capacity, but the idea of investment companies ‘replacing’ annuities and open-ended funds is not going to happen and no-one has said it should.

So, by all means, let’s have a healthy debate on the pension reforms, guys (I choose my words carefully), and the relative attractions of investment companies versus annuities and open-ended funds, but let’s leave the straw men for November 5th.

The AIC’s series ‘Freedom in pensions’ looks at how investment companies can be used to build a long-term pension portfolio, as well as their unique advantages in delivering a higher or growing income in retirement.     View the new AIC guide to income