As I am sure I have mentioned before, I enjoy travelling to see new cities.  In my late 40s I had challenged myself that every birthday I would celebrate by going somewhere that is on ‘the list’.  It started out as a rather informal list, but then firmed up a bit as I put my mind to it.

So a few months ago I decided to have a trip to Europe with my mate David, and a family holiday to somewhere my daughter Charlotte has long wanted to go to – New York.

The three nights in Europe were discussed, and David had a good idea (he occasionally has these!). He had been to the Alsace region of France before, in fact a few times, and was immensely impressed.

So we got on the internet, and before long sergeant major David had come up with the whole itinerary. As he lives in Ashford on the Euro train route, we decided to get the train to Paris, and then on the TGV to Strasbourg. We could have simply based ourselves there for the 3 nights, but on David’s recommendation we travelled on just 50 miles south to Colmar.

A very good choice!

The town is truly lovely, and like Strasbourg, had never suffered bombing, as this part of France is next door to Germany so their army simply walked in. Both Colmar and Strasbourg have significant medieval quarters and were simply stunning to walk around.

And then there was the weather!

It was absolutely amazing. It averaged 19c and we hardly saw a cloud. This was perfect for sightseeing, and the trains were comfortable and inexpensive.

In Colmar our modest hotel was fine and just a few minutes’ walk from the centre, which had plenty of good bars and restaurants.

We also decided to visit Germany (I had never been) by train, as Baden Baden is only 50 minutes away from Colmar.

Another beautiful place!

Altogether it was an excellent experience, and when back in the UK I met up with come long standing clients – perfect!.

Soon enough, Easter arrived and the trip to New York.

Charlotte was really looking forward to visiting the USA as she had seen a lot of it on TV but had never been. We had only been to Florida before, and had been told by those who knew NY that it was an incredible place.

Well that’s certainly true!

We arrived mid-afternoon on the Wednesday, and had our first experience of a NY taxi (one of those big yellow cabs) to Manhattan from JFK airport.

Apart from the erratic driving, iffy suspension and strong smell of petrol, all was well!

Essentially we had three and a half days to explore, and just like every other city, we went for the bus tour straight away. There are three tours; Downtown, which has Wall Street and the ferries; Uptown, which has Central Park & Harlem; and Brooklyn. We chose Downtown to start, and off we went.

And guess what? The weather was 19c and very sunny!

We were extremely lucky.

The tour was great and the open top bus enabled you to see the sights clearly, although the overhanging traffic lights threatened to take your head off if you stood up!

Over the next few days we saw most of the major sights that are recommended, including the revolving restaurant/bar on the roof of the Marriot in Times Square. It revolves six degrees a minute, and gave superb nightime views of NY, although the $100 bill for 4 drinks was interesting!

The girls visited Macy’s (which I believe is a shop), whilst I visited Grand Central Station and NY Library.

Very impressive.

The Statten Island Ferry was also very good, as well as the tour boat trips which give you a commentary on the history of the area.

The highlight though was undoubtedly going to the Music Box Theatre on Broadway on the Easter Friday night to see the show ‘One Man Two Governor’s’.

The background here was that I had been to see this show in London just a few weeks before. Starring James Cordon, it was an absolute hoot, and I came out with jaw and sides aching.

So you can imagine my surprise and delight when just two weeks before we flew to NY, I learned that this show was transferring to Broadway, and that the opening preview night was the Friday we were there!

I managed to get tickets, and thank goodness I did as we would not have got in if we had left it until we got there.

The show got a standing ovation, led by my wife, and it is now the hottest ticket in town with the critics loving it.

Wow, what a trip!

As I finish this edition of Financial Tips, Ray and I have just returned from another Educational Seminar in London, hosted by Dimensional.

We had been out in Bayswater the previous evening in a pub showing the Barcelona v Chelsea game.

What drama!

The pub was packed with fans from both sides (very cosmopolitan area) as well as a few neutrals including us and a mad Greek! We found ourselves crammed in beside this guy who shall we say was a bit of a character!

As we started to watch the game we noticed that he was already on the brandy chasers, and then he managed to spill a pint over someone’s jacket. Great start!

However, on getting to know him a bit more, he was great fun and we had one of those evenings which life throws up now and then. An example being that I found myself being very sure at half time that Torres would come on and score in the last few minutes. I promptly announced my prediction to several doubting faces.

The second half started and Barca went at 10 man Chelsea at will. However, the London club battled on and, sure enough, late on Drogba went off and Torres came on.

A cleared punt from a Chelsea defender found Torres with no marker and he sprinted from just within his own half to round the keeper and score!

That put the game beyond doubt – well done Chelsea.

On leaving the Seminar the following day, the rain and wind meant walking to find a taxi wasn’t an attractive option. But my predictive powers held as I looked up the street, and hailed a cab with his light on!

Ray looked at me, and I found myself saying…

Torres & A Taxi!

Q. I seem to remember a few years ago that investing in fine wines via savings type schemes was touted to be a lucrative option to the usual type of investments.

Has this proved to be the case?

A. From what we can gather, an awful lot of these schemes seem to have gone bust!

One report shows that savers using this route are estimated to have lost £100m in just four years.

Around 50 companies have gone out of business, with millions of pounds of their investors’ cash disappearing with them.

Also, these firms were not regulated, meaning that investors’ money was not protected by a Financial Services Compensation Scheme.

As ever, make sure you do your due diligence before parting with your cash!

As part of the continual research that we do on the subject of investing, we have noticed a rising trend in financial advisers and the general public becoming more aware of passive and tracker funds.

We have been involved with this style of investing for many years now, and although it is very plain to us that it (in our opinion) is the most robust and academically proven route to investing one’s capital (as opposed to investing in  alternatives, such as ‘active’ funds), it has taken some time to become more mainstream.

Now, however, there is much more coverage in the press about this way of investing,  and Richard Saunders, Chief Executive of the Investment Managers Association commented recently that passive funds had experienced a 12% rise in the value of the amount of money being invested in them in 2011 as compared to 2010.

Some of the media coverage included ‘This is Money:

“Investors ditch expensive fund managers for trackers. Despite the vast amounts of money still being thrown at active fund managers, the average UK fund has been beaten over five years by ones which blindly follow the FTSE All Share.”

IFP

Then there was the meeting of the North East branch of the Institute of Financial Planning (IFP) Ray & I attended.

There were some good speakers, including Tim Hale, author of ‘Smarter Investing’, whom we have met many times before.

Tim is excellent at pointing out the merits of passive funds and presented to us an example of how hard it is for an active fund to beat a passive fund on average, over time and after costs.

Remember, an active fund aims to beat the market by holding the right shares (and will often trade shares on a regular basis to try and achieve its objective).

A passive fund simply buys the market, and trades very little as it is based on a ‘buy & hold’ strategy.

Tim put a slide up that had 353 dots on it, with a 40 year time period. Each dot was an active fund, and he then clicked the button to see how many of these funds either survived this period (you don’t close a successful fund) or gave a return which could be proved to be performing above average.

Out of 353 dots, only 3 remained!

This IFP day was the day after Ray and I had attended our bi annual trip to London to attend the Dimensional Educational Seminar. This is always well attended and has a high quality of guest speakers from around the world.

One of the speakers was Amit Goyal, a Professor of the Swiss Finance Institute at the University of Lausanne.

Amit is an unusual guy, as he is soaked in data but manages to make it interesting!

He is passionate about making known the truths he finds, and this particular talk was on the performance of pension funds using active fund managers.

He used thousands of data sets to show his findings, but the easiest thing to remember was simple. He said imagine there are a hundred active fund managers, and they flip a coin with, say, heads being a performance above average.

We would expect 50% of them being right. So let’s take 50 managers doing the same the next year. If we use the 50% figure, we now have 25 who have performed above average.

I think you get the drift here and what would typically happen year three and four years etc.!

Cutting to the chase, he summarised by saying that “active money management fails to fulfil its promise”.

Others would disagree we hasten to point out, but we feel that the evidence is conclusive in favour of passive and index funds to give you the best chance of investment success.

Key Considerations

Be careful where you decide where to invest your money. 

It’s vital that you do (or have someone do on your behalf) comprehensive research so that you know you are investing in the right types of funds, assets and tax structures.

Action Point

How often do you review your investments?

Have some of these been sold to you a while ago and not reviewed since?

Are your funds active funds? If so, how are they performing?

If you’d like a second opinion, contact us.

I can’t believe Easter is just around the corner!

It’s been a bit of a strange winter with the lack of snow(certainly in the North East). I can’t say I’ve missed it too much though. It’s great for kids but they’re not the ones that have to try and drive in it…

Let’s just call this a year off and then we can enjoy the white stuff next year, assuming it returns.

On the business front, it’s been a busy start to the year.

At the end of January we kicked off with a course at Cumberland Infirmary, organised by the Northern Deanery.

Needless to say, the topic of pensions was of concern to the delegates (with some forthright opinions as well).

Now that the government’s Proposed Final Agreement is here we should have some clarity on what lies ahead for the NHS pension scheme very soon.

The next courses we are involved with are in North Wales on 16 – 18 May. We have been invited to speak to dentists at Gwynedd Hospital, Bangor (16 May) and Glan Clwyd Hospital, Rhyl (17 – 18 May).

If you are located in this area, you can read all the details and access the booking forms at:

• Bangor

• Rhyl, 17 May

• Rhyl, 18 May

It’s also been enjoyable dealing with clients in 2012, especially those that will be retiring this summer.

Two sets of clients have really interesting plans for life after work, including extensive travel and charity work.

I’m sure they’ll be making the most of not having to work anymore  

Oh, and if you haven’t seen it yet, you can download your copy of the ‘Year End Mini Tax Guide’ here (opens as a pdf). We hope it helps you save some tax!

On the personal front, I’m glad it’s starting to get a little warmer as I can’t say I really enjoy running when it’s freezing. We’re also preparing to move out of our house so the builders can get in to start on our extension.

It looks like we’ll be out for 4 – 5 months, but we’re really looking forward to seeing the end result!

As if this isn’t enough, my wife is 20 weeks pregnant (not the best timing!) so hopefully the stress levels won’t be too high this summer

Q. I have heard from a colleague that it’s possible to allocate part of my pension to my spouse when I retire. As she is a basic rate taxpayer will this mean we can pay a lower rate of tax on the money I allocate to her?

A. It is possible to allocate up to 1/3 of your NHS pension to your spouse, however the crucial point is that she would only receive the money on your death. Therefore, it’s not possible to do it for tax planning purposes whilst you are alive.

I’ve copied the wording from the NHS factsheet below:

Allocation is giving up a part of your pension to provide a pension for somebody else when you die, for example a member of your family or a close friend (your beneficiary). This means your pension will be reduced at your retirement. If you die before your beneficiary they will then get that part of your pension you have allocated to them for life.

You can allocate to anyone you choose as long as they are at least partially dependent on you. If you allocate to your spouse, civil partner or nominated qualifying partner they will get the allocated pension as well as their survivor’s pension from the Scheme.

If you’ve got a question you’d like to ask us just send us an email (if we publish it we’ll keep your ame anonymous).

On March 9th the Department of Health released a Proposed Final Agreement document for the NHS Pension Scheme following many months of debate.

Basically, it’s the governments final offer on what the NHS pension scheme will look like after 1 April 2015. The headline contents haven’t changed at all since the previous iteration of December 2011 (which the government referred to as the ’Heads of Agreement’).

In a nutshell, we are still looking at a CARE (Career Average Revalued Earnings) scheme with an accrual rate of 1/54 of pensionable pay, the linking of the Normal Pension Age with the State Pension Age, and increases to employee contributions of 6% over the next three years.

Let’s take a look at the main proposals.

• A pension scheme design based on career average (keep in mind that General Practitioners and General Dental Practitioners currently accrue NHS pension benefits on a CARE basis)

• An accrual rate of 1/54th of pensionable earnings each year

• Revaluation of active members’ benefits in line with CPI plus 1.5% per annum

• A Normal Pension Age equal to the State Pension Age, which applies both to active members and deferred members (new scheme service only). If a member’s SPA rises, then NPA will do so too for all post 2015 service. Pre-2015 accrued rights will continue to be related to existing NPAs as will any benefits accruing post 2015 to protected members

• Pensions in payment to increase in line with inflation (currently CPI)

• Benefits to increase in any period of deferment in line with inflation (currently CPI)

• Average member contributions of 9.8%, with tiered contributions 

• Optional lump sum commutation at a rate of £12 of lump sum for every £1 per annum of pension foregone in accordance with HMRC limits and regulations

• The current flexibilities in the 2008 section: early/late retirement on an actuarially neutral basis, draw down of pension on partial retirement and ability to retire and return to the pension scheme will be included in the 2015 scheme

• Ill-health retirement pensions to be based on the current ill-health retirement arrangements but with enhancement for higher tier awards to be at the rate of 50% of prospective service to normal pension age

• Spouse and partner pensions to continue to be based on an accrual rate of 1/160th. For deaths in retirement, spouse and partner pensions will remain based on pre-commuted pension

• The current arrangements for abatement (for service accrued prior to and post 2015) will be retained

• Lump-sum on death in service will remain at two times actual pensionable salary

• For members wishing to retire before their state pension age there will be an opportunity to pay additional contributions to fund earlier retirement of up to 3 years early without an actuarial reduction

• Added Years contracts in the 1995 section will continue on compulsory transfer to the 2015 scheme

• Additional pension arrangements will continue

• The operation of the Public Sector Transfer Club will be subject to further consideration and discussion between schemes

Some of the transitional protection includes:

• All accrued rights are protected and those past benefits will be linked to final salary when members leave the scheme. Existing arrangements with respect to the Uniform Accrual Formula for Medical Health Officers (MHOs) will continue to apply for staff who move to the new arrangements

• All active NHS Pension Scheme members in the 1995 arrangements with a pension age of 60 or 55 who, as of 1 April 2012, have 10 years or less to their current pension age, including MHOs and members of the special classes, will see no change in when they can retire, nor any decrease in the amount of pension they receive at their current Normal Pension Age. This will be achieved by allowing such members to remain in their current arrangements until they retire

• The current rules requiring staff in the 1995 scheme to retire, take all benefits and be prohibited from further pension scheme membership will be retained but with the following changes. Staff on taking their 1995 benefits after the age of 55, will be able to defer their 2015 benefits but without the possibility of further accrual 

Indicative Contribution Rate Structure (before tax relief)

Earnings                    11/12          12/13          13/14          14/15

£48,983 to £69,931      6.5%           8.9             11.3            12.5

£69,932 to £110,273     7.5%          9.9             12.3            13.5 

Over £110,273             8.5%          10.9            13.3            14.5

Key Considerations

From April 2015 the NHS pension scheme will be changing for all members. We’re certain the government will stick to their guns with the Proposed Final Agreement, but it will also be interesting to see whether doctors do vote for industrial action.

Action Point

The BMA in particular have been quite vociferous about the proposed changes. Starting on Monday 19 March they are running a series of roadshows where doctors can find out more details about the proposed changes and how they will be affected.

To find out more click here.

You can also see how much you stand to lose by visiting the modeller on the BMA’s website.

You can download the full Proposed Final Agreement document here.

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