3 unmissable charts in the week: oil and inflation, US valuations and pensions

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

2. The UK may be chronically under saving in workplace pensions

The UK is a country of pension haves and have nots - and nothing shows that better than this chart, produced by the New Financial think-tank this week.

It shows the equivalent percentage of salary being contributed to workplace pensions for people in different part of the labour market. It then breaks down how much comes from individuals themselves, and how much from their employer.

The biggest contributions come in the public sector - for those in the NHS and Local Government Pensions Scheme (LGPS). These are, of course, ‘defined benefit’ (DB) schemes where retirement income is guaranteed and worked out as a proportion of earnings.

They look very generous indeed when compared to the average private sector scheme, most of which are ‘defined contribution’ (DC), where income depends on what’s paid in and what investment return is achieved.

Bottom of the pile is those contributing the minimum in auto-enrolment (AE) schemes, the default for workers if their employers doesn’t choose to offer them a more generous scheme.

This isn’t a story about overgenerosity to the public sector (who may well complain a big pension is scant compensation for lower regular pay). It’s a story of chronic under-saving elsewhere. 

Selected pension contribution rates in the UK

3. How cheap is the US stock market vs the rest of the world?

Timing the market - going in and coming out - is notoriously difficult and not to be recommended. Stay and invested and think long-term, is the much-repeated mantra.

However, for investors who like to tinker it is worth watching valuations, gauging which markets are regarded as cheap - and which are not.

This chart from asset manager Schroders shows how expensive the US stock market has become over the past decade versus the rest of the world. The data is based, now bear with me, on the cyclically-adjusted price-to-earnings ratio. It is a more sophisticated way of considering price to earnings ratio, which is a comparison of profits and share prices.

With “CAPE” the numbers are averaged over 15 years to smooth out distortions. As with the p/e ratio, a lower number represents better value.

As you can see, the US has become far more expensive than elsewhere, driven higher by the tech titans like Tesla and Google-owner Alphabet.

That may continue for some time but the very long timeline of history suggests that higher returns are more likely to follow times when CAPE is very low. Perhaps worthy of a conversation with your adviser. Our retirement calculators can help you plan, save and withdraw with more confidence. 

Relative valuations: US vs Rest of World