Better value for my pension cash

Every time a new study comes out showing how large the gender pay gap is, it’s shocking and irritating in equal measure. Shocking for all the obvious reasons – particularly in the City, where the pay gap is still huge, but where it should be perfectly easy to judge performance and pay accordingly. But irritating because it often isn’t necessary.

When I was writing my book on women and money a few years ago, I read another by Linda Babcock and Sara Laschever: Women don’t ask: Negotiation and the Gender Divide . It pointed to research showing that
men initiate negotiations four times as often as women – they don’t just accept the salary or raise they are offered, they
ask for more. And, over time, that’s a very big
deal.

Imagine a man and a women are offered a job
on £25,000 at the same time. The woman takes it. The man demands £28,000. He gets it. Then they both get 5 per cent pay rises every year for the next 30-odd years. Over each
of their careers, he’ll
earn £285,000 more than her.

That’s before you even take into account the fact that the men will argue the toss on their 5 per cent every year whereas the women (with exceptions, of course) will probably just accept it.

One study quoted in Women Don’t Ask suggested that women who “consistently negotiate” their salary increases earn at least $1m more during their career than women who do not.

I mention this simply as a reminder of how a difference of 1 or 2 per cent here and there can turn into a very big number – something I’m currently thinking about in terms of my self-invested personal pension (Sipp).

Thanks to my utter lack of faith in the current stock market rally, it has quite a lot of cash in it. So my provider has just offered me a Fixed-Rate Cash Option: lock my money up for six months and I can get 1 per cent, or go for a year and I can get 2 per cent.

Tempted? No, me neither. It’s a definite improvement on the rate I’m getting paid on the cash while it just sits in the account (0.25 per cent – which, insanely, is quite generous by Sipp provider standards). But it really isn’t enough to see me retiring in any style (or at all).

Clearly, action is needed. So I am planning to move some of the money in the Sipp into the equity market.

This is not a bear capitulation – more of a hedge. I don’t know how much longer the rally will go on (though I suspect not much longer) but I do know that good income-
producing stocks and classic defensive stocks have lagged the market. Buying these value-style stocks (as discussed in last week’s column) should provide good upside if the rally is to continue, some capital protection if it is not, and a reasonable income either way.

Regular readers won’t be surprised to find that the first fund I’m considering
is the Edinburgh Investment Trust, now run by Invesco Perpetual and the much-admired Neil Woodford.

Woodford is well known for his performance running Invesco’s unit trusts, but the Edinburgh Investment Trust offers a slightly cheaper way to get access to his exceptional value-orientated record – the total expense ratio (TER) on Woodford’s Invesco Perpetual High Income Fund is 1.69 per cent; on the investment trust, it is under 1 per cent. The latter also yields 5.75 per cent, which is nice.

One thing to note, however, is that while it looks like the fund is trading at a 9 per cent discount to its net asset value (ie you can buy each share for 9 per cent less than the market value of the assets backing up that share), the trust has expensive debt that would cost roughly the equivalent of the discount to redeem.

So, while the yield makes the fund look good, don’t think you are getting a major discount on the shares – you aren’t.

The second fund I’m thinking of is rather less well known. It’s the Munro Fund. Robert Davies, the fund’s manager, refers
to it as a “fundamental tracker” – the point being that it tracks the market but not in quite the same way as your average tracker.

Instead of weighting stocks (in the FTSE 350 in this case) by market capitalisation, it invests only in the shares that pay dividends and weights them by yield.

You can see more on the details of how this works at www.themunrofund.com but the upshot is simple: instead of ending up with more of a company the more expensive it gets (as you would with a normal tracker fund), you end up holding more of it as its yield goes up.

If you are after value, that’s got to be better. Like most income-orientated funds, the Munro Fund hasn’t exactly been a top performer recently. But if you think that the so-called “dash for trash” has nearly had its day, but you still want to be in equities, it’s an interesting way in.

The fund currently yields just under 3 per cent – 12 times what I am getting on the cash in my Sipp at the moment. That should make a difference over the next 20 years.

Merryn Somerset Webb is editor of Money Week and previously worked as a stockbroker. The views expressed are personal. merryn@ft.com