First, we saw this so-called ethical institution launch a semantic attack on the word “permanent” by cancelling the coupon on £370 million-worth of PIBS, or permanent interest bearing shares; a form of investment previously favoured by people looking for a steady and, dare we say it, permanent source of income for their retirement planning needs.
Now, it’s the definition of “bond” – in the sense of “an obligation to pay a sum or to perform a contract” – that is being junked.
It has been reported that soon after the Co-op reassured a concerned pensioner that his £50,000 investment in its bonds was safe, the bank suspended interest payments to pensioners and told them they faced losses of 40 per cent on their holdings.
The reaction of the un-named pensioner summed up the predicament that thousands of elderly people who have seen their wealth devalued or destroyed since the great banking crash of 2008.
“My wife and I…are extremely fearful that we are about to lose all of this very important retirement savings nest egg, the income from which we rely upon. We are very, very worried.”
Another Co-op Bank investor said the bonds accounted for 50 per cent of her retirement income, and added: “I don’t know what I am going to do now.”
These are sad cases, but a paradox seems to be at work here. On the one hand the bonds were regarded as “low risk”, but many investors are now faced with the unenviable task of overhauling their retirement planning options.
On the other hand, it seems they came with a coupon that ranged from 5.55 per cent to 13 per cent, which put them squarely in the speculative class of investment.
As any competent financial adviser will tell you, the percentage yield on a bond, the market price of which rises or falls in line with the market for such instruments, is in inverse proportion to the sum you buy it for.
Very few, if any, investors would have been getting an effective 13 per cent return. And with inflation again nudging three per cent the lower end of that coupon range does not look so attractive.
The truly sad element of the Co-op bonds and PIBS defaults is that a lot of the victims are not rich speculators or gamblers lured in by the Flash Harrys of the financial services (should that be disservices?) industry but careful, thrifty people seeking to make their limited means work for them in their retirement.
The Co-op promises that in the event of its £1.5 billion refinancing exercise succeeding, its bondholders will be fully compensated. That remains to be seen.
In the meantime, a lot of people are enduring sleepless nights: people who, perhaps, were not given good financial advice. Advice such as: Never put your money into something you do not fully understand; always diversify your investments and never leave yourself in the predicament of having to rely on a single source of income in retirement.
Finally, they have been told that all investments carry an element of risk, and that attitude to live with risk should be the keystone of any investment strategy.
At The Whitehall Partnership we work hard to protect both our clients’ money and their peace of mind. We do this by closely analysing their financial needs and attitude to risk, and by clearly identifying the potential risks of any investment, including a fabulous range of retirement planning options.
For an initial consultation at no cost to yourself call The Whitehall Partnership today on 0845 43 49 250 or download our free financial guide.