Financing Your Needs

Wave goodbye to 'golden hellos', UK pension funds urge

noreply@blogger.com (Anonymous) — Sun, 15 Dec 2013 03:09:00 +0000

Pensions body says executives should not receive a signing-on bonus that covers shares built up at previous employer.

Britain's pension funds have called for an end to "golden hellos" as part of a wider clampdown on company pay and governance. The National Association of Pension Funds (NAPF) said companies should not pay executives a signing-on bonus that covers shares built up at their previous employer because shares are often awarded to executives to secure their loyalty.

The pensions body, whose members oversee £900bn of investments, said shareholders should vote against such pay arrangements unless the company had a good justification for them.

From the start of last month shareholder votes against executive pay became binding – they had previously been advisory and often ignored.

But the practice of paying golden hellos caused uproar in 2011 when Trevor Matthews joined Aviva from Friends Life. He received a £2.2m package which included a £470,000 cash payment for forfeiting unvested shares and his 2011 bonus from his previous employer.

The arrangement inflicted a defeat on Aviva at its annual meeting, contributed to the departure of chief executive Andrew Moss and helped spark the so-called shareholder spring of investor rebellions last year.

Joanne Segars, NAPF's chief executive, said: "We are more strongly encouraging companies to identify and engage with their long-term investors, rather than those on their register who are more interested in short-term trading. We expect remuneration committees to set rewards which drive long-term strategic success and seek to reward performance over the longer-term."

In its new guidelines, NAPF called on companies to pay top management in line with the interests of long-term shareholders instead of investors looking to make a quick return.

The pension group said executives should hold shares worth at least twice their salary to make sure their interests corresponded with those of shareholders. It also called for simpler long-term share awards and an end to grafting new schemes on top of existing plans.

NAPF's other major intervention was on the independence of auditors from company management. Shareholder revolts against auditors at annual meetings have increased, either because auditors have been in place too long or because fees for more lucrative work such as management consultancy exceeded the cost of the audit.

NAPF said for the first time that shareholders should vote against the audit fees or the chair of the audit committee if the company paid its auditing firm more for other services, such as consultancy, than for its audit – or if it paid it more than £500,000 in non-audit fees two years running.

At Pennon's annual meeting in August, 49% of votes withheld support for the board to set fees for PwC. The water company paid PwC £721,000 in audit fees but more than double that for other services, including £880,000 for corporate finance work.

The pension investors' intervention came after a report showed executive pay rose 14% last year and accused companies of making ever-larger share-based awards to deflect public scrutiny.

While basic salaries rose 4.1% and annual bonuses fell by 8.8%, the total pay package for an average FTSE 100 director rose sharply through a 58% surge in the value of share-based long-term incentive plan (LTIP) awards being cashed in, from £764,462 to £1,208,940, according to Income Data Services

Source: http://www.theguardian.com/business/2013/nov/18/golden-hello-uk-pension-funds-executives

Workers aged under 47 hit by state pension age rise

noreply@blogger.com (Anonymous) — Fri, 13 Dec 2013 08:20:00 +0000

New life expectancy data suggests the state pension age will begin to rise to 68 in 2034, affecting all those born in 1966 or later

Faster rises in the state pension age are likely to hit anyone 47 or under, it emerged today.

The predictions were based on an update to official life expectancy figures – the data source that will be used to set the timetable for increasing the state pension age to 70 and beyond.Towers Watson, a pensions consultancy, said the latest expectations would push the state pension age to 68 between 2034 and 2036. This would force anyone born in 1966, or after, to wait longer than anticipated to collect an old age income. For reference, someone aged 45 today will turn 68 in 2036.

The move to 69 would occur between 2047 and 2049, Towers Watson said, with the state pension age potentially hitting 70 by 2063. This would mean that today's 20-year-olds will be the first to take their state pensions aged 70 or older.

This is a slower rate of increase than the Government appeared to signal last week. George Osborne, the Chancellor, said workers will have to wait longer to collect old age entitlements because of the rising of funding Britain's ageing population.State pension costs are currently predicted to balloon to £438bn by 2063. Mr Osborne said a state pension should be paid for no more than a third of adult life.

Today's life expectancy update, which covers the next 50 years, showed that one in three babies born in 2013 are expected to live to 100. Boys born this year have a life expectancy of 90.3 and girls will live to 94 on average. The average Briton born in 2062 is tipped to live to 100.

Towers Watson plugged these data into a government formula, which was unveiled last week, to make its predictions for state pension age rises. Tom McPhail, a pensions expert at Hargreaves Lansdown, said children born then can look at a state pension age of "around 74". An official timetable is yet to be announced.

Steve Webb, the pensions minister, said: “Based on the latest figures people will be living longer over the coming decades, and even with the planned increases in state pension age we will typically spend between 20 to 25 years in retirement.“The age we get our state pension has to reflect rises in longevity to make sure our pension system remains fair and affordable for future generations."

Towers Watson said that the Government's stated intention that a third of adult life should be spent in receipt of the state pension raises questions, as it would considerably reduce the rate of pension age increases.

Today's data update also showed that the improvements in life expectancy have slowed – potentially a sign that the state pension age will rise less dramatically. While there were sharp improvements in mortality in 2011, there was a lag in 2012 and early 2013. This suggested that "fast year-on-year improvements in mortality rates ... have come to a halt", Towers Watson said.

The census also showed that there were fewer people in their late 80s and older living in the UK than ONS had estimated, suggesting higher mortality rates between 2002 and 2010.

Matthew Fletcher, a senior consultant at Towers Watson, said: “People have become used to thinking that life expectancy can only go up. However, this measure of life expectancy anticipates that, due to improvements in medicine and more healthy behaviour (for example, less smoking), mortality rates will fall over time.

"If you are already taking the credit for that, you don’t need things to get worse for predicted life expectancy to fall – you just need them to improve less quickly than had been expected.” “Putting the new ONS life expectancy assumptions into the Government’s formula points to a slightly slower increase in the state pension age than was signalled in the Autumn Statement. This is not the final answer, though. All eyes should be on the next set of ONS assumptions, due in two years’ time, which are the first ones that could affect State Pension Ages."

Source:http://www.telegraph.co.uk/finance/personalfinance/pensions/10512192/Workers-aged-under-47-hit-by-state-pension-age-rise.html

Youth unemployment will lead to widespread poverty in old age – OECD

noreply@blogger.com (Anonymous) — Wed, 11 Dec 2013 02:44:00 +0000

Pensions built on monthly contributions will be undermined if workers are unemployed for long periods, says thinktank.

High levels of youth unemployment will lead to widespread poverty in old age as young people struggle to save for retirement, according to the Organisation for Economic Co-operation and Development.

A new breed of private pension schemes, which are built on monthly contributions, will be undermined if younger workers stay unemployed for long periods, said the Paris-based thinktank.

As it warned that babies born today will live until 100 years of age on average and retire at 70, the OECD said the weakness of the British state-funded system meant workers in the UK were among the most vulnerable.

Stefano Scarpetta, an employment specialist at the OECD, said: "It is of great concern that many countries are building contributory pension systems when they have large numbers of unemployed young people who cannot contribute and will have very low retirement incomes."

His comments came as the OECD said that on most measures, the UK ranks in the bottom half of the pensions league table. Public expenditure on pensioner benefits as a proportion of GDP is lower than the average. Pensioner living standards are also below the OECD average. Italy has the highest spending on pensions as a proportion of GDP whereas the Netherlands, which has a large private and workplace pensions top up, has the highest standard of living for retirees.

To tackle long-standing weaknesses in the UK retirement system, the thinktank said the government has one of the most comprehensive pension reform programmes in the developed world.

While other countries have focused on tackling the growing burden of future pension costs by raising the state pension age or improving incentives for older workers to stay in the jobs market, the UK has pursued every avenue to both improve the lives of older people and cut the cost of providing them with a decent income, said the OECD.

The Paris-based organisation said in its report Pensions at a Glance 2013 that the UK had raised the average incomes of people above the retirement age and introduced plans to expand coverage through the workplace pension savings scheme Nest, which is expected to automatically enrol 10 million workers over the next three years.

But it said the knock-on effect of policy reforms, many of which protect the benefits accrued by older workers at the expense of young employees, was that in many OECD member countries younger workers were now more at risk of poverty than retirees.

"Pension reforms made during the past two decades lowered the pension promise for workers who enter the labour market today. Working longer may help to make up part of the reductions, but every year of contribution toward future pensions generally results in lower benefits than before the reforms," it said.

"The reduction of old-age poverty has been one of the greatest social policy successes in OECD countries. In 2010, the average poverty rate among the elderly was 12.8%, down from 15.1% in 2007, despite the Great Recession. In many OECD countries, the risk of poverty is higher at younger ages."

The report says many countries have failed to construct adequate protection for low earners. In the UK, the voluntary Nest scheme, which has proved popular with employees in the small number of companies to use it so far, could leave many people without the top-up retirement provision experts believe will be needed to have a decent standard of living in 20 or 30 years time.

The OECD points out that personal pensions based on stock market returns favoured by British politicians have inherent risks and may fail to deliver adequate returns over the longer term. Young people who cannot contribute in their early working life will find their retirement incomes suffer badly.

It said Poland and Hungary had ditched schemes that rely on stock market returns while the UK, the Czech Republic and Israel have expanded them. In many countries older workers have come to see their homes as a potential source of income in retirement, whether following a sale or through equity release. The OECD said it was not clear how prevalent or effective housing would be to boost incomes and countries needed to "explore in greater detail how housing and financial wealth can contribute to the adequacy of retirement incomes".

The thinktank also highlighted the benefit of public services to retirees and especially lower income groups. It said governments needed to win public support for public service provision that allows older people to continue working and living a decent life.

"Public support is set to play an increasingly important role in preventing old-age poverty among people requiring health and long-term care services," it said.

A rise in the retirement age to 67 in the UK means state expenditure is only expected to increase by 0.5% over the next 40 years to 8.2% of GDP, well below the OECD average of 11.7%.

Source: http://www.theguardian.com/business/2013/nov/26/uk-pension-reforms-oecd

What will changes to pension age mean for me? Q&A

noreply@blogger.com (Anonymous) — Mon, 09 Dec 2013 02:37:00 +0000

State pension age is set to rise to 70 in the government's autumn statement. We look at the implications for anyone expecting to face changes

The government has announced changes to the state pension age which mean those entering

the workforce today will not be paid a retirement income by the state until they turn 70.

Wasn't it going up anyway?

The state pension age was set to rise to 68 by 2046 and there were already signs that this might happen more quickly, with the announcement it would be increased to 66 by 2020 and 67 by April 2028. However, the autumn statement says that is likely the increase to 68 will be brought forward to the mid-2030s, and that the state pension age will increase to 69 by the late 2040s.

Why the changes?

The big driver has been increased life expectancy which means people are now drawing a state pension for much longer than when it was first introduced. In the 1940s when it was set at 65 for men their average life expectancy was around age 67, now it is around 80.

The government said future changes in the pension age would be based on the principle that workers should expect to spend an average of about one-third of their adult lives in retirement.

The change will save money: over the next 50 years it will reduce the pensions bill by around £400bn on top of more than £100bn beings saved from existing rises.

When can I retire?

You can still finish working earlier if you choose – the changes announced by the government effect the date you will receive your state pension, not when you can finish work or draw from a private pension. However, for those relying on the state pension to fund their retirement, the two are inextricably linked. When you can finish depends on when you were born.

It breaks down like this:

• If you are in your 20s, you may not get the state pension until you are 70
• If you are in your 30s, you may have to wait until you are 69
• If you are in your 40s, you may have to wait until you are 68
• If you are in your 50s, you may have to wait until you are 67

"Most people will want to have more income, and a period of part-time work after full-time work can offer a much better lifestyle than stopping work altogether and trying to live for many more years on state and private pensions," says pensions expert, Ros Altmann. "By working longer, people will have more years over which they can earn money and save more, as well as being productive in the economy."

However, the trade union Unison says the change is "cruel and unnecessary". The union's general secretary, Dave Prentis, said: "It may be OK for the better off to work until they are 70 because they will have some years to enjoy their retirement. But for millions, they will never see their pension because they will die before that age."

Is this set in stone?

No. The government will set up a five-yearly review of the state pension age so there is a chance that things could change in future if there are changes in life expectancy. Also, governments have a habit of tinkering with pensions, so if and when a new party comes into power there are no guarantees that things won't change.

What impact will this have on my finances?

If you want to retire before the state pension age you will have to make some private provisions to fund your retirement – a personal or workplace pension and/or other savings or investments.

The change to longer working lives could mean that mortgage lenders are happier to offer home loans over longer terms, which would make monthly repayments more affordable. Over the term of the loan the cost would be higher though, as you are accruing interest for longer.

How much will I get from the state when I do retire?

People retiring today get up to £110.15 a week as a basic state pension, and may qualify for further payments through the second state pension. However, the system is set to be overhauled, and anyone retiring after April 2016 will qualify for a flat-rate pension worth £144 in today's money.

Source: http://www.theguardian.com/money/2013/dec/05/changes-pensions-70-autumn-statement-questions

Widows and widowers' pensions could be axed under new proposals

noreply@blogger.com (Anonymous) — Fri, 22 Nov 2013 08:22:00 +0000

Pension for surviving spouse and inflation linking threatened under plan to make final salary schemes affordable

Widow and widowers could lose their entitlement to payouts from their spouse's workplace pension under proposals outlined by the government to make final salary schemes more affordable for employers.

Firms have been closing final salary schemes, also known as defined benefit schemes, in recent years as increased life expectancy, high inflation and poor investment performance makes it increasingly expensive to offer a guaranteed payout based on earnings. They have been replaced with defined contribution schemes, where the eventual payout is based on the performance of the underlying investments. These are typically the schemes chosen by employers when auto-enrolling staff into pensions.

At present the government requires private sector employers offering final salary schemes to provide a spouses' pension on retirement, which amounts to at least half their full pension, along with inflation-linking to guard against the ravages of the rising cost of living.

However, these requirements could end if proposals from the Department for Work and Pensions come into force from April 2014. The DWP report says: "Of course employers could continue to offer schemes that include index-linked benefits and survivor rights if they so choose, but it would no longer be a statutory requirement."

Employers would also be given the opportunity to move the age at which a worker is allowed to retire on a full pension. Laith Khalaf, head of corporate research at Hargreaves Lansdown, says: "There's a big risk that members don't realise what they're losing. The proposed changes will make defined benefit schemes more affordable for employers, permitting them to limp along in a reduced form. But the impact of inflation-linking, which is a really valuable benefit, and the peace of mind of a spouses' pension could be lost."

He adds: "If a couple are the same age, for example, then statistically the woman will live for three years longer than the man so they will get the financial benefit for three more years. Meanwhile, inflation linking will provide a great financial benefit over the whole period the pension is taken."

A £10,000 annual pension adds up to £250,000 over 25 years without inflation increases, says Khalaf. It would add up to £351,000 if it rose in line with the current rate of inflation, at 2.7%. However, any pension built up under current final salary schemes is protected from the proposed changes, which are subject to a six-week consultation. To encourage businesses to offer pensions with more certainty about payouts, the government has proposed "defined ambition" schemes, which would split the savings risk between workers and their employers.

The costly defined benefit schemes have seen the number of employees in them sink from more than 5 million in 1995 to around 1.7 million today. A recent report from the Pension Protection Fund and the Pensions Regulator showed that a record 30% of defined benefit pension schemes have closed to existing workers: in 2008, the figure was 17%, rising to 19% in 2009, 21% in 2010, 24% in 2011 and 26% in 2012.

Source: http://www.theguardian.com/money/2013/nov/10/widow-pension-threat

Retirees with small pensions give away chunks of life savings to avoid pitiful annuity payouts

noreply@blogger.com (Anonymous) — Tue, 19 Nov 2013 07:49:00 +0000

Desperate retirees with small pensions are giving away chunks of their life savings in order to take their pot in cash.

Savers are allowing financial advisers to charge them hefty fees to reduce their nest eggs to a level where they don’t have to turn it into an income for life, known as an annuity.
Annuities from these tiny pension pots are so small they often barely cover the cost of a daily newspaper.

For example, one insurer would give a 65-year-old just £155 a year in exchange for their £5,000 savings —that’s £2.98 a week. Experts say that as a result retirees are turning to ever more desperate measures to avoid their hard-earned savings being turned into these pathetic payouts.

Billy Burrows, head of business development at broker Annuity Line, says: ‘I know of someone with a £20,000 pot who asked his adviser if he could transfer his pension and take a £2,000 fee.

‘This would bring his total pension pot down to less than £18,000 — at this point you are entitled to take your money as cash.
‘Alternatively, someone might put their savings into a high risk investment fund that would lose them money in order to achieve the same thing — though this is something we have not come across.’

According to the rules, people aged over 60 with pension pots totaling under £18,000 do not have to buy an annuity when they retire. In addition, since last year, savers with pots worth less than £2,000 have been allowed to convert them into a lump sum — even if their total pension funds are worth more than the £18,000 limit.

However, hundreds of thousands of retirees whose savings are just above this limit are lumbered with pitiful pension payouts.

This week, insurer Phoenix unveiled plans to allow customers to swap annuities that pay only a small amount for a cash lump sum. The firm will write to eligible customers, who must be aged between 70 and 85, from this week offering them a payout and explaining any tax implications.

The most that someone can receive is £2,000 and the amounts are decided by estimating the customer’s life expectancy. However, experts warn that pensioners should check the figures carefully to ensure they are being offered a good deal.

Source: http://www.thisismoney.co.uk/money/pensions/article-2504135/Retirees-small-pensions-reduce-life-savings-avoid-annuities.html

Hundreds of thousands 'unfairly hit' with high pension fees

noreply@blogger.com (Anonymous) — Tue, 01 Oct 2013 03:50:00 +0000

Hundreds of thousands of workers have been unfairly hit with high fees on their retirement pots for years, regulators are expected to rule on Thursday in the biggest crackdown on the pensions industry since the late Nineties.

The Office of Fair Trading will criticise pension providers for increasing management charges on retirement funds left dormant by employees who have moved jobs.

The higher charges for these “deferred members” can wipe almost a third off the value of the savings pot they build up by the time they reach retirement.Clive Maxwell, the OFT chief executive, is also expected to argue that the annual fee charged by fund managers on workplace pensions nationwide should be no more than 1 per cent – in line with suggestions made earlier this week by Steve Webb, the pensions minister .

This could put pressure on ministers to explain why Nest, a scheme established by the Government to provide pensions for staff of smaller companies, takes a 1.8 per cent cut on contributions.The OFT proposals, due to be released later today, will form the key part of a damning report ministers hope will encourage millions more people to take out workplace pensions over the coming years.

So far one million workers have signed up for so-called “auto-enrolement” pensions, where staff have to opt out of putting money aside for their retirement, since the Government launched the initiative earlier this year.

Experts last night warned that the OFT investigation, its biggest since 1997, may still not go far enough and that many savers could still face “rip-off” fees.

Ros Altmann, a former government adviser and pensions expert, said: “If this report finds that costs have been far too high and recommends a cap of 1 per cent, it will be very welcome.

“But it has been a long-time coming and over the years millions have lost significant sums in excessive charges, which have left them with much lower pensions as a result.”

She added: “It is vital that we understand exactly what charges will be included as part of any cap and also that the Government acts quickly to improve value for money for those struggling to set aside for their retirement.”

Previous research by the Telegraph found that hidden charges and fees meant British workers’ pension savings could be 50 per cent smaller than those of workers on the Continent who have saved the same amounts. Some fees can swallow three-quarters of all the money workers save.

Industry insiders said the proposals from the OFT could embarrass Ministers given Nest’s 1.8 per cent levy. A spokesman for the Department of Work and Pensions (DWP) insisted that Nest’s annual management fee was just 0.3 per cent, meaning an overall “combination charge” of 0.5 per cent - within the likely cap.The Government will launch its own consultation on proposals for a crackdown on hidden pensions fees and charges once the OFT report is published.

Gregg McClymont, Labour’s shadow pensions minister last night said the report had to mark the “start of real action” by Ministers.

He said: “The Government has dragged its feet on rip-off pensions for far too long.
“The OFT report must be the start of real action by the Government to tackle vested interests in the pensions industry and to create pensions people can trust.”

He added: “Labour has proposed amendments to the Pensions Bill which would tackle rip-off pensions. If the government is serious about doing the same, it needs to adopt Labour’s proposals.”

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/10319193/Hundreds-of-thousands-unfairly-hit-with-high-pension-fees.html

UK pensions gap is worse than thought

noreply@blogger.com (Anonymous) — Thu, 26 Sep 2013 03:33:00 +0000

Britain’s pensions gap is worse than was thought, the government has revealed, with up to 13m people heading for a drop in living standards when they retire.

In the most substantial study yet of UK saving rates, Steve Webb, pensions minister, has found that more people than previously thought are not saving enough to maintain their lifestyle once they retire. In an article for the Financial Times, Mr Webb says: “The result is a startling one . . . Tackling a problem on this scale will take many years and a range of measures.”

He is publishing his department’s report on pension incomes on Thursday and will discuss its findings when he speaks at the annual FT pension summit.

The report found that just over 13m would be headed for a fall in living standards without the government’s push to enrol employees automatically in work-based pensions. This is 2m more than ministers had originally thought, and accounts for a third of the workforce.

Government efforts to make every company in Britain enrol their employees in work-based schemes are likely to close the gap between work and retirement for many savers.

But Mr Webb said the department for work and pensions’ study had found that auto-enrolment may only give an extra 1m the living standards they currently enjoy, with 12m still facing a significant drop.

Ministers have long known that the UK’s falling savings rates, combined with an ageing population, pose a huge problem as record numbers of people reach retirement age. A study by Aviva, an insurer, and Deloitte, an accountancy firm, estimated that British workers are saving about £320bn too little into their pensions, a bigger gap than any other European country.

Mr Webb says the problem has multiple causes, including “poor state pension entitlements, the decline of private-sector defined-benefit pension provision, and low and declining levels of workplace pension scheme membership in the private sector”.

The minister commissioned the study in an effort to clarify the problem the government faces. Some in the coalition argue the previous government was more concerned with giving more people access to tax credits than fixing the savings gap.

The report also finds that the problem is worse among middle- and higher-income workers, with low earners largely catered for by the state pension and minimum workplace contribution levels.

Mr Webb believes the biggest obstacle to bridging the gap remains early retirement, which he has previously said should be all but phased out as British workers age.

Already the government has legislated to bring forward the increase in the state pension age to 68, and to link the SPA in future to average life expectancy, which could mean it reaches 77 for current school leavers.
In his article, Mr Webb says: “Those who drop out of the labour market in their 50s – perhaps due to long-term sickness, general poor health or caring responsibilities – can seriously damage their retirement income.

“Action to keep people attached to the labour market for longer would do more for pension outcomes than details and technical changes to the rules and regulations surrounding pensions.”

Source: http://www.ft.com/intl/cms/s/0/fe724cc8-1af7-11e3-a605-00144feab7de.html#axzz2fmG5UyBo

Lifeline for expat pensioners as MPs try to change law

noreply@blogger.com (Anonymous) — Tue, 24 Sep 2013 03:28:00 +0000

Expat pensioners whose pensions are frozen at their initial level have been offered hope by MPs

A pair of MPs are to attempt to change the law to ensure that all expat pensioners receive inflation-linked increases to their state pensions.

Sir Roger Gale and Sir Peter Bottomley, two senior Conservative backbenchers, say they will table an amendment to the Pensions Bill currently going through Parliament in an attempt to ensure that all British pensioners living abroad receive index-linked increases in their state pension every year.

Currently expat pensioners in many countries get no annual increases – instead their state pensions are frozen at the level in force on their retirement date. This has led to some pensioners in their 90s receiving a weekly pension of about £20 a week, compared with £110 a week for their counterparts who still live in Britain. Hundreds of thousands of expat pensioners are affected.

Only in countries that have signed bilateral agreements with the UK do expat British pensioners get index-linked state pensions. These countries include Spain, France and America. But in other countries, such as Canada, New Zealand and Pakistan, pensioners' incomes are frozen at their initial level.

Sir Roger said: "Following a discussion with Peter Bottomley we are agreed that Peter will, with my support, table an amendment to the Pensions Bill. This may or may not prove effective but it is worth a shot.

"It's surely time that our overseas pensioners were given a fair deal on pension uprating in those countries where we do not have a reciprocal agreement."

Last month campaigners called for Britain to be suspended from the Commonwealth over the issue.

Sheila Telford, chairman of the International Consortium of British Pensioners, told The Telegraph: "The UK is now defaulting on the Commonwealth Equality Charter, which Her Majesty the Queen signed in March this year. How can it be equal when a British pensioner aged 90 living in Canada receives one third of the pension of a British pensioner living in the United States, just across the border?"

A spokesman for the Department for Work & Pensions said: "The UK state pension is payable worldwide but is only uprated abroad where we have a legal requirement or reciprocal agreement. This has always been the case and people who are considering emigrating abroad should always consider the impact the move could have on their future state pension entitlement.”

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/10285484/Lifeline-for-expat-pensioners-as-MPs-try-to-change-law.html

Lifeline for expat pensioners as MPs try to change law

noreply@blogger.com (Anonymous) — Thu, 05 Sep 2013 08:05:00 +0000

Expat pensioners whose pensions are frozen at their initial level have been offered hope by MPs.

A pair of MPs are to attempt to change the law to ensure that all expat pensioners receive the full state pension. Sir Roger Gale and Sir Peter Bottomley, two senior Conservative backbenchers, say they will table an amendment to the Pensions Bill currently going through Parliament in an attempt to ensure that all British pensioners living abroad receive index-linked increases in their state pension every year.

"It's surely time that our overseas pensioners were given a fair deal on pension uprating in those countries where we do not have a reciprocal agreement."

Last month campaigners called for Britain to be suspended from the Commonwealth over the issue.

Sheila Telford, chairman of the International Consortium of British Pensioners, told The Telegraph: "The UK is now defaulting on the Commonwealth Equality Charter, which Her Majesty the Queen signed in March this year. How can it be equal when a British pensioner aged 90 living in Canada receives one third of the pension of a British pensioner living in the United States, just across the border?"

A spokesman for the Department for Work & Pensions said: "The UK state pension is payable worldwide but is only uprated abroad where we have a legal requirement or reciprocal agreement. This has always been the case and people who are considering emigrating abroad should always consider the impact the move could have on their future state pension entitlement.”

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/10285484/Lifeline-for-expat-pensioners-as-MPs-try-to-change-law.html

Suspend Britain from Commonwealth over unfair expat pensions

noreply@blogger.com (Anonymous) — Thu, 22 Aug 2013 08:23:00 +0000

Campaigners who want all British pensioners who live overseas to receive the full state pension have called for the UK to be suspended from the Commonwealth until their grievances are met.

Currently, British pensioners who live in certain countries do not receive inflation-linked rises to their state pensions each year. Instead, their pensions are frozen at the level in force when they retired.

This had led to some pensioners in their 90s receiving as little as £17 a week, compared with a full basic state pension of £110 a week, reflecting the corrosive effects of inflation over several decades. One 102-year-old pensioner receives less than £7 a week, campaigners say.

Only in countries that have signed bilateral agreements with the UK do expat British pensioners get index-linked state pensions. These countries include Spain, France and America. But in other countries, such as Canada, New Zealand and Pakistan, pensioners' incomes are frozen at their initial level.

Figures released last year showed that there were more than half a million British pensioners abroad whose pensions were not inflation-proofed.

Sheila Telford, chairman of the International Consortium of British Pensioners, told The Telegraph: "The UK is now defaulting on the Commonwealth Equality Charter, which Her Majesty the Queen signed in March this year, calling for equality and an end to discrimination for all. We believe that until this issue of discrimination and inequality is dealt with, the Commonwealth should consider suspending the UK from membership.

"How can it be equal when a British pensioner living in Canada aged 90 receives one third of the pension of a British pensioner aged 65 living in Canada, or indeed a British pensioner living in the United States, just across the border? Many very elderly pensioners are suffering greatly."
She said almost 95pc of the pensioners affected lived in the Commonwealth. "It is a Commonwealth issue and yet the Commonwealth has refused to discuss it. Britain controls the agenda at the Commonwealth heads of government meetings and will not include frozen British pensions."

Source:http://www.telegraph.co.uk/finance/personalfinance/pensions/10251775/Suspend-Britain-from-Commonwealth-over-unfair-expat-pensions.html

How to plan for a richer retirement: A guide for savers in their 20s, 30s, 40s, 50s, or 60s

noreply@blogger.com (Anonymous) — Tue, 30 Jul 2013 03:56:00 +0000

Ever wondered if you're on track for a comfortable retirement? Whatever your age, there's a plan for you. Follow our decade-by-decade guide...

Fancy surviving ice-cold winters without heating? Or rummaging through value

ranges at the supermarket for cheap reconstituted meat every week? Didn't think so.Unfortunately, that's the prospect for millions of Britons who reach retirement and will have to make do on the measly £144-a-week single tier basic state pension having failed to plan effectively.

The stark reality is that putting something aside for old age has become an unavoidable necessity these days. As life expectancy rises, many of us can expect 45 years in employment followed by 30 years of retirement, possibly living on until we're in our nineties.

So, how can you make sure you're not left out of pocket for three whole decades? Simple answer: plan effectively.

How, exactly, to do this is a tricky question. After all, it varies greatly depending on how far you've journeyed through life.So to make things a little simpler, we've put together this easy-to-follow guide on making sure your golden years are rich and fulfilling. We've recruited the help of two highly-regarded pensions experts, to keep you on track. One is Mike Morrison, a man with a treasure trove of experience in the pensions industry and currently head of pensions development at Axa Wealth. The other is Martin Bamford, the managing director of award-winning IFA, Informed Choice.

Follow our decade-by-decade guide below...

IN YOUR 20s
Key points:

Focus on clearing your debts
But make sure you open an Isa.
Then save what you afford.

In your twenties you probably have your first proper job with a proper salary. But retirement will seem a long way in the future. At this stage, it's reasonable to allow other financial objectives to take priority.
According to Mike Morrison, those in their 20s should first look into repaying any student debt, especially more expensive bank and credit card debt, cover all living costs, and then see if there's enough left to squirrel some away.

Martin Bamford says that saving something, however small, is better than nothing: 'Starting a pension this early is a great way to build up a bigger retirement fund for later in life, as you add more contributions over your lifetime and they have longer to grow. Even if you can only afford a small amount, this is about forming a healthy savings habit.'
One of the best places for younger adults to put savings is a tax-free Isa.
'It might be better practice to save using an Isa where you are still building financial resources for the future but have greater flexibility in terms of access to the money,' says Bamford.

At this stage, a pension is by no means a necessity, but taking advantage of generous employer contributions means it's still worth starting if your budget allows.

IN YOUR 30s
Key points:

Reassess your debts and outgoings
Join your company pension scheme as soon as possible
Think long-term with your investments.

So you're in your 30s. This can be a busy decade from a financial perspective. All of us face new challenges, with the costs to go with them. You may be getting married, starting a family or buying your first house. Or a combination of the three.

First things first, then: re-establish what debt you have and find ways to address it. Once you've done this, says Mike Morrison, you should ask yourself a set of questions:

1. Do you now have your own family to consider?
2. Do you have sufficient 'rainy day' savings?
3. Have you bought / are you looking into buying a house?

This should help you establish a overview of your key financial outgoings. There is a fine balance to be struck between saving for the future and paying off debt, particularly expensive unsecured debt such as credit cards and personal loans.Once this is done, there's no time to waste. Explore your retirement saving options as soon as you can. Your first point of call should be to find out if your company offers a pension scheme. If so, they'll make contributions on your behalf. This is effectively a pay rise if you don't take it, you're turning down free money.

Martin Bamford says: 'Make sure you are a member of your company pension scheme if one is offered and take an interest in how this money is being invested. Too many pension scheme members select the default investment option rather than something tailored to your own financial objectives'
Take a long term view on your pension investments. You can afford to take on more risk in the form of shares - as there is a high chance this will pay off in 30 years' time. The old adage, 'shares outperform savings accounts in the long run', still rings true.

But remember, adds Bamford, that retirement planning is about more than just building a big pension fund - make sure your budget is under control and clear debts where possible.

IN YOUR 40s
Key points:

If you haven't started saving, do something about it!
Keep building your Isa
Your earnings should be peaking - dedicate more to a pension

Ideally, by the time you reach your 40s you'll already have built up some retirement savings, whether in the form of Isas or a company or personal scheme.

But if you haven't already started, it's not too late. It will just require more effort. This is a crucial time for your retirement planning, and it's imperative that you act now. Your earnings are likely to be approaching their highest during this decade, and you should now be on top of your debts. All in all, you should be in a good position to start dedicating some real money towards planning for the future.

'Make the most of pay rises and bonuses to boost your retirement savings, rather than simply increasing your expenditure each time,' says Martin Bamford. 'This is the time to take your retirement planning seriously, and that means having a target retirement age and understanding what your lifestyle will look like in retirement. You might not be able to paint an accurate picture of your retirement just yet, but you should be thinking about it in broad terms and making sure your financial plans are on track to deliver.'

The least you should have is an Isa, says Mike Morrison. Keep contributing to this over the years and try to build up your tax-free savings. Crucially you'll need to start planning the sort of income you expect to receive in retirement. If you plan to pack it all in early, then factor this into your thinking and make sure you increase your savings contributions.

IN YOUR 50s
Key points:

Maximise your contributions
Remove risk from your pension investment plan
Consider using a Sipp for greater control

Right, it's time to get serious. This decade is perhaps the most important of all when it comes to retirement planning.

Firstly, do you have a retirement date in mind? It might not be definitive, but it should serve as a guide. Then calculate the sort of income you want. 'Perhaps work out a minimum and a 'nice to have',' says Mike Morrison.
Next, take a detailed look at your pension and where it's invested. You'll need to be positioning your pension fund for your choice of retirement income option.

'If you are likely to purchase an annuity when you retire, you should be phasing out volatility from your pension fund so there is less risk of a big dip in value a short time before you take benefits,' says Bamford.

Take money out of risky equities and put it into safer cash investments. There could be nothing worse at this time than seeing a stock market lurch take a chunk out of your pot just as you're about to dig in.

Hopefully, you'll have accumulated a sizeable pension fund by this age. If this is the case for you, consider using a Self Invested Personal Pension (Sipp) to exercise greater control over the way in which it is invested.

Consider maximising your contributions, too. Particularly if you are a higher rate taxpayer (remember that pensions can be tax-efficient). You may have grown up children you wish to support financially, but try to strike the balance. As much as you can should go towards your pot - you won't have many other chances to maximise the size. If, and when you purchase an annuity, this can make a serious difference to your annual income.

IN YOUR 60s
Key points:

Check that all your debts, including mortgage, are in order
Decide on whether you'll buy an annuity immediately or take drawdown
Talk to an IFA before you take any action.

You're almost there. During this decade you will be making important decisions about how your pension fund produces cash and income in retirement.

'These are often lasting decisions that can have a major impact on your finances in later life, so it is the time to seek expert independent financial advice,' says Bamford.

This is particularly true in the case of annuities, where the options are varied. Essentially annuities are like insurance in reverse - you hand over a large lump sum (your pension pot) to an annuity provider, and they give you regular monthly payments in return for the rest of your life.

You may qualify for a higher annuity rate if you are a smoker or have an illness. This is called an enhanced annuity.

Martin Bamford says: 'Making choices at retirement is about so much more than simply choosing the most competitive annuity rate. It is becoming increasingly popular to use an Unsecured Pension to have greater control over income flexibility in retirement, often phasing the payment of tax-free cash over several years to reduce income tax bills. This is a more complicated strategy than buying an annuity but can really pay off over the longer term.'
Mike Morrison says that it's important to make sure all your debts are in order. Hopefully you will have been able, or are close, to paying off your mortgage, but what about children on your payroll? Are you still supporting them and their young families? These are important issues to discuss with an IFA before you sign up to an annuity.

Additionally, you may be fit and able and want to keep working. This is now possible because the government is set to prohibit employers from forcing their staff to retire at 65. It may be beneficial to keep working for a period and top up your pensions as much as you can.

'Don't forget,' says Morrison, 'pensions contributions get tax relief, so any immediate contribution gets an uplift from the taxman.'

Source: http://www.thisismoney.co.uk/money/pensions/article-1695630/How-plan-richer-retirement.html

Younger workers set to lose out under flat rate state pension system

noreply@blogger.com (Anonymous) — Thu, 25 Jul 2013 06:22:00 +0000

Workers currently in their twenties and thirties are the big losers under the new state pension system, but self-employed workers will benefit by up to £1,000
Anyone in their late twenties who is not self-employed for a large part of their career will be at least £1,000 a year worse off under the flat-rate state pension system, according to an in-depth study of the government's plans to simplify retirement benefits.

From 2016, the basic state pension and second state pension will be replaced by a flat rate payment worth about £144 a week. At the same time the number of years workers need to have made national insurance contributions will also change, and the couple's pension will be ditched in favour of individual payments.
Analysis of the changes by the Institute for Fiscal Studies shows that 43% of those reaching state pension age in the four years after 6 April 2016 will be better off a result of the reforms, and that retirees will typically see a £2.74 uplift in their weekly income.

Women stand to gain the most, with 61% receiving bigger pensions and the average increase standing at £5.23. A third of men will benefit from a bigger pension, typically an extra £1.62 a week. One in five people will see their pension fall, as currently a high earner who has made NI contributions for 49 years could draw £213 a week from the state. However, the IFS said most of these losses would be recouped later in retirement through a more generous annual increase in payments.

The story is very different among those who have much longer to go until retirement. The report said that for those born after 1986 "the reforms represent a reduction in state pension income for almost everyone".
It said someone born in 1986 who spends 35 years in low-income jobs would receive nearly £1,000 a year less from the single-tier scheme than they currently would, and that among higher earners benefits from the state could fall by as much as £2,300 a year. Only those who are self-employed look set to gain from the system, as they currently cannot benefit from the second state pension.

Soumaya Keynes, a research economist at the IFS and one of the authors of the report, said: "For most of those now in their twenties and thirties, although these reforms should make it easier to predict how much state pension income they will get, the reforms will also reduce the income they can expect to get.
"They will need to save more privately for their retirement to make up for this." The pensions minister, Steve Webb, said he was pleased the report showed that the majority of people approaching retirement would get a higher state pension.

"I'm pleased this report recognises that the single tier pension will provide clarity for people about what they will get from the state when they retire, and boost the state pension income of people who have been disadvantaged by the current system, such as women, carers and the self-employed," he said.
"Younger people will have the advantages of knowing they will get a simple, clear state pension, and when they are employed have the right to an occupational pension on top."

Source:http://www.guardian.co.uk/money/2013/jul/11/younger-workers-lose-flat-rate-state-pension

Expats call for fairer pension payouts

noreply@blogger.com (Anonymous) — Tue, 23 Jul 2013 08:43:00 +0000

Half of pensioners abroad have had their pension frozen. That’s not right, they say

Anger is growing among hundreds of thousands of British pensioners living abroad who are being denied their full state pension simply because of the country they live in.

Many have contacted us in recent weeks to complain about being treated like second-class citizens, only because of where they’ve chosen to live abroad. The problem is believed to affect around 565,000 UK pensioners who have had their pension frozen at the rate it was when they left the UK.

The state pension is guaranteed to rise each year, giving pensioners a small increase every 12 months. Of the 12 million people who receive the state pension, 1.2 million live abroad. It is among the latter group that a huge inequality has developed.

Those who have retired to the EU or more than 20 other countries – including the United States and Mauritius – see their state pension increased each year. But anyone who has moved to countries such as Australia, Canada, South Africa and a 100 more places has their pension frozen at the rate it was paid when they leave the country.

“A pensioner in one country is treated worse to one living in another country or in the UK,” points out Clive Walford who lives in Australia. “That clearly is discrimination.” It means that 650,000 pensioners living abroad enjoy an increase in their retirement every year while 565,000 have to cope with what they were paid when they moved abroad.

“Pensioners have been fighting for many years to get the frozen pension policy revoked,” points out Mr Walford. “The courts have in some cases agreed that frozen pensions were immoral or dishonourable but have had to finally judge that they are not illegal.

“MPs and others have also condemned it as illogical and unacceptable. Lord Goddard QC even called the state pension system a virtual contract – you get out pro-rata what you paid in. Therefore frozen pensions break that virtual contract.”

His argument – along with half a million other pensioners – is simple. All 1.2 million expat pensioners paid into the system, but more than half are getting a lot more out. That is simply unfair.

There was hope this week that the Canadian Prime Minister, Stephen Harper, would implore David Cameron to support the uprating of state pensions for the 1560,000 expat pensioners living in Canada when the two premiers met.

But the International Consortium of British Pensioners is increasing demands for parity for all. The Government says doing so would cost £650m which it can’t afford, but research shows that uprating pensions according to age tiers could be much more affordable. John Markham, of the Consortium said: “Age tiering is an affordable, workable and fair solution to this ongoing travesty.”

Source: http://www.independent.co.uk/money/pensions/expats-call-for-fairer-pension-payouts-8659717.html

Retirement income almost 40% less than working wage for new pensioners

noreply@blogger.com (Anonymous) — Wed, 17 Jul 2013 09:21:00 +0000

HMRC data show average UK income falls, from £19,000 in work to state and private pension pot worth just £11,600

UK workers can expect to see their incomes plummet by more than a third when they reach retirement, while in some areas of the country the fall is almost to a half, according to new analysis.

The research, based on figures from HM Revenue & Customs, found that while the average employment income across the UK is £19,000, the average pension income is £11,600 – a 39% fall.The analysis by the financial firm Partnership said people relying primarily on pension pay-outs to survive by, were "likely to suffer a nasty shock" when they retired.

The size of the reduction varied across the UK. London workers are expected to see the largest disparity between what they earn in work and what they receive after retirement. The average London income dropped by 48% after retirement, from £20,300 to £12,000.
Residents in the east of England experienced a drop of 40%, from £19,900 to £11,900, while in Dorset the change was much lower at 29%, reflecting the lower working income of £17,000.

The figures are based on HMRC's Survey of Personal Incomes 2010/11 and cover part-time and full-time employment, but not self-employed wages or earnings for people who get less than the personal tax allowance, which that year started at £9,490 for over-65s.
The pensions figures include state pension payments and income from other pensions, including payments from final salary and defined contribution pensions, but they exclude other investments.

New retirees reaching pension age are likely to find a bigger reduction in their income, as more are reliant on defined contribution schemes where their fund is used to buy an annuity that provides a regular payout; the rates on those contracts have been falling.
Recent figures from the Office for National Statistics show that the cost of buying a £5,000 inflation-linked annuity income have increased by 29% in the three years to March; an annuity at that level now requires a pension fund of £152,800.

Experts said that people might need to stay working longer to boost their income in retirement. Andrew Megson, managing director of retirement at Partnership, said: "While people in retirement are likely to have fewer outgoings, it is still hard to imagine that anyone would not feel the pinch if they lost a third of their income overnight. Even if their pension is topped up by income from savings and investments, or part-time work, it is still likely to be quite a shock."

Tom McPhail, a pensions expert at IFA Hargreaves Lansdown, said most people significantly underestimated how long they would live in retirement and how much money they would need to live on.He said: "Typically, they start too late, save too little and expect too much. Linking projected post-retirement income to current earnings makes sense as it helps to plan that transition from work to retirement.

"Everyone should take the time to find out how much is bring paid into their retirement savings, what kind of income it might produce and when they can expect to retire. A comfortable retirement won't happen by accident."

Separate research has suggested that more people are reaching retirement age in debt, meaning that what income they do have is stretched.

According to the pension provider Prudential almost one in five people planning to retire this year will have outstanding debts, averaging £31,200.

Source: http://www.guardian.co.uk/money/2013/jun/05/retirement-income-less-working-wage

Is the state pension age set to rise faster?

noreply@blogger.com (Anonymous) — Tue, 16 Jul 2013 04:11:00 +0000

You might have thought that you were already going to wait long enough for your state

pension. The basic state pension is set to rise to 66 by 2020 and to 67 by 2028 - before being linked to longevity and reviewed every five years.

But the government isn't finished yet - according to hints from one minister.

Faster

Danny Alexander, the Chief Secretary to the Treasury, was taking part in a Treasury Select Committee discussion about the rising cost of the state pension. It's a major issue for a cash-strapped government as pensioner benefits cost around £90 billion at the moment. With increasing longevity, this figure is only going to go higher, so the government has been trying to find a way to keep a lid on costs.
Alexander hinted that this solution may mean increasing the state pension age even faster. He said that rather than reduce the sum of money pensioners receive, raising the pension age was the "fairest mechanism by which we control expenditure this area", he said. He added: "I could well imagine that further decisions in that space will have to be made."

What it means for you

The government has already said it will link future increases to longevity. Aviva has crunched the numbers from what we know so far. It says that life expectancy for men at age 65 is improving at a rate of one year every 3.92 years. For women it is increasing at one year every 5.2 years. When those figures are blended, it means an average of one year every 4.55 years.
Given that the government expects to review the state pension age every five years, it's not hard to see them increasing it by one year every time. This would mean that those aged 60 and over will retire by the age of 65, those aged 53-59 will retire at 66, those aged 49-52 will retire at 67, those aged 45-48 will retire at 68, those who are 41-44 will retire at 69, those aged 37-40 will retire at 70. If you extrapolate the figures to those who are currently under a year old, they can expect a retirement age of 80.
The question is whether this is going to be enough for the government: and Alexander's comments would seem to show that it may not be.
We have already had a sign that there may be more rises, more quickly, before the state pension age is linked to longevity. This came when George Osborne announced plans to cap welfare spending. At that stage state pensions were excluded, but the experts are predicting that its only a matter of time before they are included.
Hargreaves Lansdown's head of pensions research, Tom McPhail highlights that this is the only wiggle room the government has for cutting welfare spending further, and has predicted that the rise to the age of 67 by 2028 could get moved forwards. This could push those in their 40s into retirement at 70, and leaves those under the age of one facing the odd prospect of retiring well into their eighties.

What can you do?

John Lawson, Head of Policy for Corporate Benefits at Aviva, says: "The message from government is clear 'this is what we are going to provide for you and after that you are on your own'."
He says your first port of call ought to be joining your employer's pension scheme and saving as much as you can afford. However, it's well worth taking a holistic view, to understand exactly what you will need, and the combination of savings, pension, property and work that will provide you with the income you require in retirement.

Source: http://money.aol.co.uk/2013/07/10/is-the-state-pension-set-to-rise-faster/

Pension funds take more risk with your money

noreply@blogger.com (Anonymous) — Fri, 12 Jul 2013 02:29:00 +0000

More final salary schemes could close if aggressive investment strategies do not deliver expected returns.

Pension funds are being forced to take more risk with investors’ money to cover funding black holes. But while the managers running these funds are having to use more aggressive investment strategies, this could backfire if they do not deliver higher returns, potentially forcing more schemes to close.

A report SunGard - which provides technology services to pension companies - said pension fund managers needed to generate higher returns as people were living longer, so will collect their pension for longer.

Most pension funds invest heavily in gilts – government-backed debt. But since the financial crisis the yields on these investments have fallen, which has made it harder for pension fund managers to meet their funding liabilities.

In its report, “Pension funds at risk – the new approach to long-term investment”, SunGard said: “Pension funds are at an inflection point. The dilemma of trying to secure high yields from a lower base while maintaining growth in the fund is forcing pension fund managers and trustees to pursue more creative and arguably more aggressive investment strategies in order to meet their funding challenges.”

Aside from addition funding problems created by increased longevity, the report said pension fund had also been hit be a “series of capital market shocks over the past decade” which have hit pension valuations. The global economic environment since the 2008 financial crisis has also been one of low inflation and low growth, which has hampered pension funds' ability to produce sufficient returns to meet their liabilities.

This problem affects final salary pension schemes, where the pension received in retirement is based on earnings, rather than on stock market returns. Although these schemes are now far less common in the private sector, many people still have an entitlement to these pensions from previous employers.

Deborah Cooper, from the Institute and Faculty of Actuaries said: "Many of these pension funds will be backed by a strong and solvent employer. This may enable them to manage this additional risk."

Ros Altmann, a pensions expert added: "This analysis actually reflects what many large UK pension funds are already doing. I have been working with trustees helping them to modernise their investment and risk approach for the past several years.

"It is absolutely essential that trustees are not encouraged merely to switch to bonds, if their scheme has a large deficit (as most do). Buying bonds, especially gilts, will mean locking in the deficit rather than accessing better return potential in other assets too.

"deally trustees should be looking for assets which can generate potential higher returns and help match liabilities. This is not necessarily 'increasing' risk, it is actually diversifying risk. For example, infrastructure investing, can offer the opportunity to make capital gains on successful construction projects coupled with an inflation-linked long-term income stream. This is an ideal investment to help match inflation-linked pension liabilities."

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/10166461/Pension-funds-take-more-risk-with-your-money.html

The pensions doctor will see you now

noreply@blogger.com (Anonymous) — Wed, 10 Jul 2013 07:49:00 +0000

The world of pensions can seem dull and boring. Scratch beneath the surface and it becomes a confusing

place, with governments forever tinkering with the minute detail of our retirement plans.

In a previous life I worked as a pensions journalist so I know first-hand how complicated it can be.

However, there was always one person who could be depended on to help struggling pensions journalists and in turn their baffled readers. Someone who had the knack of simplifying the complex pensions web and who wasn’t afraid of highlighting how a government proposal would affect different people, revealing the good, the bad and the ugly of UK pensions policy.

Step forward Dr Ros Altmann. Despite frequently being in touch with her and shamelessly using all her analysis notes to get to grips with various pension issues, I had never had the chance to sit down with her properly and put the world of pensions to rights.

So one cold, rainy day in May we meet up in central London for coffee. Although she left her job as director-general of Saga in February, she is still busy with other part-time senior roles (she has a meeting with the London School of Economics, where she holds three different positions, after our coffee meeting) and as a media commentator.

While Altmann is great at explaining pensions and campaigning for pensioners’ rights, behind the warm and friendly exterior she is also a top economist and investment banker. With her economist hat on, I ask her about the UK economy and when we might start seeing some good news. ‘I don’t think the UK is still a basket case,’ she says. ‘We’re not in recession, or depression. The economy is growing, but slowly.’

Altmann has not been shy of airing her criticism about the Bank of England’s quantitative easing (QE) programme, believing it has had a devastating effect on annuity rates and pension liabilities while also increasing inflation. ‘QE has helped and damaged different parts of the economy,’ she reasons. ‘It is not clear to me that the net effect of QE has been a stimulus.’

Her main worry is that incoming BoE governor Mark Carney will be too ‘gung-ho’ and could extend the QE programme. ‘Although we have headwinds from Europe, there’s a good chance of 2 to 3 per cent growth in the UK over the next year. We’ve already got £375 billion of QE, which is a third of GDP. If we create more QE it will be like good money after bad.’

Altmann’s view is that the economy must be rebalanced with interest rates rising slowly. ‘Either you make groups poorer [such as pensioners] or you work out how to cope with slightly higher interest rates.’

It is the subject of pensions, though, that Altmann focused on during her academic days and that she still feels most passionate about. It is also where she spies the most challenges: long-term care funding, the pensioner rate of inflation (‘about five percentage points higher than the national rate of inflation!’ she exclaims), annuities and the political perspective, to name a few.

Talking on the latter, she says: ‘There is this political view that pensioners are well off and have pots of money they don’t deserve. Actually only 2 per cent of pensioners pay the higher rate of income tax. Pensioners need the money they have saved – they are going to have a long retirement. Taking money off them sends a bad message to younger generations.’

She is also cross with the government at the way it has sped up the rise in the state pension age. It will increase to 66 by 2020, and while it was originally due to rise to 67 between 2034 and 2036 it will now do so eight years earlier, between 2026 and 2028.

‘You’ve got to give people a chance to plan,’ says Altmann. ‘Many women in their 50s are already retired and are caring for others, and to be told you have to wait longer to receive the state pension is unacceptable.’

On a brighter note, she is pleased that a simpler flat-rate pension will come into effect in 2016, and agrees with the decision to raise the state pension age. ‘It should have risen years ago, we’re way behind the demographic curve,’ she notes.

But holding the government to account over looming scandals in the pensions industry is what Altmann does best, and at the moment, she is most worried about annuities. ‘The process of buying an annuity is better than it was before, but it’s still not good enough,’ she warns.

According to Altmann, the first issue is that most people don’t know what an annuity is, the second is that the product is completely inflexible and the third is the charges or commission people have to pay to purchase an annuity. ‘It’s a scandal,’ she declares.

While pension holders need to become more informed about their rights to buy an annuity from any company they want, websites that have set up to help consumers do this pose a problem, says Altmann. ‘Websites claim to offer a free service. At the last minute they say they will deduct 3-3.5 per cent, so consumers do pay and it could be the wrong annuity,’ she explains. ‘There is a duty on regulators to look after consumers who are looking for an annuity. Consumers are at the mercy of these annuity websites and salesmen.’ The Financial Conduct Authority is examining annuity rates and whether insurers help consumers to shop around for the best rates. It is expected to report its findings later this year.

In addition to ensuring consumers are protected, Altmann thinks pensions and annuities should be overhauled and become more flexible to aid pension saving in the UK. ‘Where do I start? I’d get rid of the word “pension”, apart from the state pension. The word pension is associated with so many scandals and mis-selling. I would keep it simple – you would get your state pension from the government at age x. If you need more you would have personal “life savings” or “later-life savings” to give you a better lifestyle in retirement.’

In Altmann’s world savers would be able to withdraw from their pensions before they retired, perhaps to buy a house, fund long-term care or because they had ‘fallen on hard times’. She suggests only the employer’s pension contribution should be locked away until retirement. Another idea she thinks should be adopted more widely across the UK is the practice of putting some or all of any pay rise into your pension. ‘You shouldn’t miss the money, as you never saw it in your pay packet. The US does it a lot. But unfortunately it’s not part of the official policy on auto-enrolment in the UK.’

I ask whether she would make pension saving compulsory. ‘Not with our current system of pensions,’ she retorts.

For all of Altmann’s opinions on how pensions should change in our country and how pensioners can help themselves (see the box above), I wonder what she has lined up for her own retirement. She frowns at the idea. ‘I don’t intend to retire. I would definitely continue part-time work. I’ve seen so many people who have become depressed, debilitated or bored. They had so looked forward to retiring, with this “golden pot” of money. But once they are out of work, it’s hard to get back in.’

In terms of finances, Altmann says she’s lucky to have a defined benefit pension from her days working for the government. She also has defined contribution pensions, a self-invested personal pension and an Isa. ‘I have lately been contributing to my Isa the most, just because it’s more flexible than a pension.’

I ask whether she’s thought about flying the flag for savers and pensioners more seriously – by running for parliament. ‘Oh I wouldn’t know which party to go for,’ she says. ‘The House of Lords maybe? I would love to have some direct influence. I want to be part of the debate, because I don’t have all the answers.’

For now of course, Altmann seems to have her hands full. She has three children and does charity work. ‘I get involved with youth activities. I like to swim, I do a bit of walking. I live in Finchley and my favourite spot in London is Hampstead Heath looking out from Parliament Hill.’

But you never know, maybe one day we will see Altmann pop up again in the government, putting lords and ministers through their paces and helping to shape a simpler and fairer pensions landscape once and for all.

How to have a comfortable retirement

Make a plan. Think about two or three scenarios: what might happen in the future in terms of financial and human capital?

Don’t rule out part-time work. This can benefit both your finances and your health.

Think carefully about annuity rates. Even if you can get an impaired rate now because you smoke, you may become more seriously ill later when you could benefit from a much higher rate.

Don’t make a decision alone. Talk to your partner, and to a retirement specialist if you can afford to.

Diversify. Consider using other types of product such as fixed term annuities or investment-linked products, as well as conventional annuities, to improve flexibility of income and help protect against inflation.

Think laterally. If you have a small defined contribution pension you can manage without, it will pass to your partner tax-free when you die, which might be a better option.

Source:http://www.moneyobserver.com/issue/features/pensions-doctor-will-see-you-now

Where next for gold?

noreply@blogger.com (Anonymous) — Mon, 08 Jul 2013 07:21:00 +0000

Nouriel Roubini, the US economist nicknamed Dr Doom for his frequent predictions of impending financial misery, is used to a bit of hostility. His warnings early in the credit crunch that the crisis would intensify and cause a global recession prompted scorn from his critics (often accompanied with mocking references to his reputation for throwing lavish parties at his trendy New York home, where the walls were adorned with modern art – including plaster of Paris vaginas).

Still, the anger directed at Roubini following his latest warning of another impending crash is on another level, with internet bloggers accusing Dr Doom of being part of a global conspiracy to rig the market. This is what can happen to those who dare suggest, as Roubini has, that the gold price is heading for a serious fall.

Investors in gold are passionate about their chosen asset class. Bearish analysts are frequently dismissed as naive fools who don’t understand the allure of a real asset (as opposed to paper money). But the animosity directed at Roubini for his prediction that the gold price, currently at around $1,400 an ounce, will fall to $1,000 by 2015, also reflects nervousness about recent market events.

Warning signs

After all, a three-year bull run in gold came to an end in the autumn of 2011, when prices peaked at around $1,900. Over the subsequent 18 months, gold traded in a relatively narrow range between $1,600 and $1,800, only to take a precipitous plunge in April to close to $1,300, 30 per cent down on the high point. There has since been a bounce – but only a modest one.

Cyprus rarely has much of an impact on world markets, but the country’s gold sell-off appeared to trigger April’s crash. The 12-tonne sale – Cyprus needed the cash to address its fiscal crisis – was tiny in the context of a market where hundreds of tonnes of gold are traded every day, but it crystallised many of the fears Roubini – and others – articulate.

The bears’ case is that the gold price was driven up by two factors in particular: a fear of mounting financial and geopolitical risk on a global level – the sort of worry that tends to push investors towards real assets such as gold – and nervousness about the inflationary impact of policymakers’ responses to that risk, especially the huge quantitative easing programmes pursued by central banks around the world. This unprecedented increase in the money supply would, in normal times at least, be associated with spiking inflation, and gold is the classic defence against rising prices.

However, the gold bears point out that these risks have not materialised. The worst of the financial crisis seems to be behind us and there are even some green shoots to be seen in Western economies – particularly in the US. Moreover, inflation has stayed low in most parts of the world by historical standards. On this basis, higher gold prices are not sustainable. ‘The gold rush is over,’ is how Roubini puts it.

He is not alone in this view. ‘The gold price is, in our view, in bubble territory,’ argues Michael Haigh, head of commodities research at Société Générale. ‘Now we are beginning to see the economic conditions that would justify an end to the US Federal Reserve’s QE, fiscal stabilisation that has passed its inflection point and a US dollar that has begun trending higher, it seems unlikely investors would want to add much to their long gold positions.’

SocGen’s forecast is for a 2013 year-end gold price of $1,375, but analysts at the bank also think there is a small but significant risk of a much more dramatic collapse if economic news surprises on the upside.

Conflicting views

Russ Koesterich, chief investment strategist at BlackRock, is also wary about the prospects for gold – even without an end to QE. ‘Low and falling inflation means there is little pressure for the Fed to take its foot off the monetary accelerator,’ he argues. ‘All else being equal, declining inflation is likely to result in lower prices for gold, since investors will be less inclined to seek out inflation hedges.’

But is all else equal? The consensus forecast among gold analysts, says Bloomberg, is for gold to end the year at $1,752, well above the current price. That suggests many in the market think other factors will come into play – and that hope for sustained low inflation and economic recovery may prove premature.

One such factor, says Frank Holmes, chief investment officer at US Global Investors, is the continued low level of interest rates in so many markets, which means investors in many assets are earning negative returns. ‘The maths indicates that the metal will not stay at these lows,’ Holmes argues. ‘In this negative real interest rate environment, we believe gold will return to more normal levels.’

Another reason to be positive is that demand remains robust. Cyprus may be a seller but the World Gold Council’s statistics show central banks continue to add to their gold reserves. They bought 109 tonnes of gold during the first three months of the year, with Russia and South Korea among the biggest purchasers.

These purchases were stepped up in April and May. ‘The price drop in April, fuelled by non-physical moves in the market, proved to be the catalyst for a surge of buying that has left many retailers short of stock and refineries introducing waiting lists for deliveries,’ says Marcus Grubb, managing director at the World Gold Council.

Then there is the low rating of the US dollar to consider. With gold priced in dollars, any weakness in the US currency should provide a lift for the metal because it becomes cheaper for investors everywhere else in the world to buy. The dollar has actually strengthened in recent months, following more encouraging economic news in the US. However, the appreciation has been modest and from a low base. Moreover, with economists doubtful the US Federal Reserve will tighten monetary policy any time soon, there is no immediate prospect for a sustained recovery in the dollar.

Conspiracy theory

Its also worth considering whether the claims made by gold bulls that policymakers strive to keep a lid on the gold price (with tactics such as selective leaks of limited information) have substance, as Thomas Paterson, chief economist at Goldmadesimple, suggests.

‘Many gold-watchers are highly suspicious that the market in gold is deliberately manipulated to keep the price in check,’ he says. ‘These views are often met with almost laughing disdain, which is odd given that the whole Libor manipulation of interest rates really proved to the world that manipulation in markets is common and can happen on a massive scale.’

Manipulation is hard to prove, but if the recent volatility in the market is partly explained by attempts to manage the price down, there is scope for appreciation as the fundamentals reassert themselves.

It’s not credible to suggest Roubini is a manipulator, and he concedes that the gold price may rise further before heading down. And therein lies an irony: while gold is considered a safe investment, we are seeing the sort of volatility associated with asset classes such as equities. With powerful and conflicting forces at play, that volatility looks set to continue.

Investing in gold: speculation versus insurance

Some investors focus on gold as portfolio insurance, attracted by its ability to store value and protect against inflation. Others invest more speculatively. Different types of investment suit each approach

For insurance, buy…

Physical gold

Buying real gold is the purest type of investment in the metal. Specialist gold dealers sell physical gold in the form of coins such as Krugerrands and gold bars. However, the minimum investments may be quite high and storage costs must be considered too. Online dealer Realbullion.com offers real gold to investors with modest sums. It charges dealing commissions of 0.5 per cent plus annual storage costs of 0.12 per cent.

Jewellery

This is an alternative way to invest in real gold, but be clear about exactly what you’re buying. The widely quoted gold price is for 24-carat gold, but most jewellery is a mixture of gold and other alloys – a nine-carat gold necklace contains just 38 per cent pure gold, for example. You’ll also pay for manufacturing costs and the retailer’s profit margin.

Exchange traded funds

Stock market-quoted exchange traded funds are passive investments that aim to follow the price of gold up and down. London Stock Exchange-listed ETFs are easy to buy and sell, and dealing costs should be low. But it’s important to discriminate between real ETFs, which invest in gold itself, and synthetic ETFs, which use assets such as derivatives to replicate gold price moves. The latter may prove less secure.

For speculation, buy…

Gold funds

Funds such as BlackRock Gold & General typically invest in the shares of gold-mining companies rather than gold itself, so this is an indirect way to bet on gold. Be aware that you are relying on mining shares moving in line with the gold price, which isn’t always certain.

Futures and options

Gold futures and options quoted on markets such as Liffe, the London exchange, allow investors to speculate on the future price of gold – the cost in a number of months’ time. Futures and options are available through brokers and traded on margin, which exposes you to geared gains or losses.

Spreadbetting

Spreadbetting firms offer markets in gold over short terms (a few hours) as well as longer periods (several months). Crucially, they allow you to bet on the gold price rising or falling, and profits are tax-free. But spreadbetting is another geared investment. Your gains may be magnified by trading on margin, but so may your losses.

Source:http://www.moneyobserver.com/issue/features/where-next-gold

Two million pensioners poorer than a child

noreply@blogger.com (Anonymous) — Thu, 04 Jul 2013 08:31:00 +0000

Nearly two million retirees have less disposable income than an 11-year-old child, according to research from insurer LV=.

The annual State of Retirement Report from the retirement specialist shows that 15 per cent of British retirees currently have an income of £154 or less per week. Average weekly essential living costs are estimated to be £146.90 according to data from the Office for National Statistics, which leaves these pensioners with less spare change than the average weekly £8 pocket money that an 11-year-old receives.

Worryingly, the next generation of retirees may fare even worse. According to the LV= report, some 27 per cent of over-50s have saved nothing towards their retirement and will have only the basic state pension to fund them once they stop work. When the new flat-rate pension comes into force in 2016 this will amount to £144 per week, which is less than today’s estimated living costs.

Ray Chinn, head of pensions at LV=, says the next generation of retirees will be in a ‘precarious financial position’ and that it is vital they start planning for this phase of their life. ‘Putting away enough for a comfortable life after work is not easy, but we would urge people to plan ahead in order to avoid a future where they might be less wealthy than an 11-year-old. It’s never too late to make a difference,’ he adds.

Georgina Smith, managing director at equity release specialist Stonehaven, says the problem is that ‘annuities no longer provide the extra income that everyone expected’. She says many retirees and pre-retirees may have to look at other ways of generating income in retirement, including use of some of the equity in their homes.

Source: http://www.moneyobserver.com/news/13-06-26/two-million-pensioners-poorer-child

How to get by on a £100,000 pension pot

noreply@blogger.com (Anonymous) — Mon, 01 Jul 2013 08:26:00 +0000

It may sound a large pension pot but could it produce enough retirement income to make ends meet?

Could you have a decent standard of living in retirement with a £100,000 pension pot and

the state pension? And, just as importantly, could those financial resources achieve a standard of living that didn't get eroded by inflation if your retirement lasted two or three decades?

Until recently, almost everyone in this position would have used the pension savings to buy an annuity. The only decision to make was choosing the exact type of annuity – either fixed or escalating, and either for you alone or for you and your spouse. But annuity rates have fallen so far that many people are desperate for an alternative.

Following changes to the rules about seven years ago, there is another way to take an income from your pension savings that could give some retired people more money each year while taking care of their family after death and protecting against inflation. We'll look at how the income you get from this alternative compares with what you can get from an annuity – and whether, when added to the state pension, it would be enough to cover most people's normal expenditure in retirement.

So how much do we need to live on when we're retired? According to research from LV=, the insurer, a single person typically spends £9,900 a year in retirement (a couple need £17,900). The figure covers more than essentials, including such expenditure as drinks, restaurants, recreation and hotels.

If you buy an annuity, you can fairly comfortably exceed this figure. The best-buy annuity will currently give you an annual income of £5,760, according to the Annuity Bureau. Add this to the basic state pension of £5,730 a year and the total comes to £11,490.

The problem is inflation. While the state pension will rise in line, this particular annuity will not – the income remains fixed for life. An index-linked annuity currently pays £3,395 a year, making a total income of £9,125, or £775 below what is needed.

Now let's look at what the alternative could do. This other means of taking a regular income from your pension savings is called "income drawdown". Here, rather than handing over your capital to an insurer in return for an income, you keep hold of it, normally within a self-invested personal pension or Sipp, and take an income from the interest or dividends it produces.

A relatively conservative investment portfolio might produce an income of between 4.3pc and 4.7pc, equivalent to £4,300-£4,700 from a £100,000 pension pot. When added to the state pension, this means your total income is £10,030-£10,430.

These sums are above the target we set and, crucially, able to grow if the investments perform well. And, because you retain ownership of the capital, unlike with an annuity, you can leave the investments in your pension to your family when you die. Which investments should you choose? Most people will want a relatively secure income, avoiding the raciest assets, but with the possibility of increases to keep pace with the cost of living.

We asked some financial advisers how they would construct a portfolio to achieve these goals. We also asked for some expert share tips for people who are happy to invest in companies directly, so avoiding fund managers' fees. John Roberts of Gilmour Hamilton, the wealth manager, said: "When constructing a suitable drawdown portfolio there are a number of important issues to consider, such as capital preservation, income and longer-term growth potential."

Mr Roberts said a typical portfolio might start with shares in British companies via two funds, one an index tracker and the other actively managed. "Blending the HSBC FTSE 250 Index fund with the Royal London UK Equity Income fund should provide a well diversified exposure to UK equities," he said. The Royal London fund, which yields 4.9pc, seeks companies with strong business models and attractive cash flow characteristics, "which is important when seeking dividend growth". The tracker yields 2.5pc.

Next came global shares. "As various economies progress through the economic cycle at different times it is important to have a diversified approach," Mr Roberts said, tipping the Threadneedle Global Equity Income fund for its focus on high dividend yields that are comfortably supported by profits. The fund yields 4.2pc. He would also include a US tracker, the BlackRock North American Equity Tracker, yielding 1.2pc. For the world's other main stock markets he tipped Threadneedle's European Select fund (0.4pc), which has little in banks or peripheral European economies, the HSBC Japan Index fund (1.5pc) and HSBC Pacific Index fund (2.5pc).

Mr Roberts said that to provide balance to a drawdown portfolio, fixed-interest investments such as Fidelity's MoneyBuilder Income fund (3.6pc) and M & G Global Macro Bond fund (1.3pc) should be considered. "With the intention of providing some protection against inflation, I would also consider the Standard Life Global Index Linked Bond fund [0.2pc]," he added. He would also include the Ignis UK Property fund (3.5pc) for diversification purposes and consider a gold fund for inflation protection.

Adrian Smith of Adrian Smith & Partners, the chartered financial planners, also recommended a diversified portfolio. Bond fund choices included Kames High Yield Bond fund, which yields 5.8pc, Standard Life Global Index-linked Bond, yielding 0.7pc, Threadneedle Emerging Market Bond (5.5pc), SWIP Absolute Return Bond (2.2pc) and Threadneedle Credit Opportunities (2.2pc).

His share-based fund choices included Vanguard FTSE UK Equity Income Index – a low-cost tracker, currently yielding 4.3pc, whose holdings are expected to pay above-average dividends. "We believe in investing in strong, income-paying companies that may also provide capital appreciation over the course of your retirement," Mr Smith said. He also tipped a cheap US tracker, the HSBC American Index fund, yielding 1.1pc. A final choice is almost a hedge fund. The giant Standard Life Global Absolute Return Strategies fund is well diversified in both geography and underlying investments and has produced higher returns, often with less volatility than its peers. This fund also has low "correlation" – it doesn't always rise and fall in line with the broader market – and therefore provides further diversification.

He said higher percentages of the portfolio would be allocated to the higher yielding funds in order to meet a client's income requirement within their tolerance to risk. "This is a moderately cautious portfolio for income, whose yield would range from 4.3pc to 4.7pc," he added. If a client really needed a yield boost he would "sparingly" add the Schroder Income Maximiser fund, which yields 6.9pc.

If you'd rather hold shares, Jamie Forbes-Wilson, who manages Axa Framlington's Blue Chip Equity Income fund, recommended ITV, HSBC, Marstons, Legal & General and Vodafone. All yield about 4.5pc to 5pc.

He said: "Shares that mimic bonds, such as tobacco stocks and drug makers, are looking expensive. Investors have to take some risk. Don't go for the biggest yielders as they are unlikely to grow; instead you want dynamic companies that have scope to raise dividends and the share price."

Several companies, such as Hargreaves Lansdown, Sippdeal and Alliance Trust Savings, offer low-cost Sipps that give access to the funds and shares mentioned.

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/10148057/How-to-get-by-on-a-100000-pension-pot.html

There's still life in the bond market

noreply@blogger.com (Anonymous) — Wed, 26 Jun 2013 03:25:00 +0000

Many experts are keeping faith with this kind of investment, despite worries that the party is nearly over, says Emma Dunkley

It's been a 30-year party for bond investors, but there are fears the hangover is about to

kick in. Even bond fund managers admit that perhaps it's time for investors to grab their coats.

But before rushing for the exit, it is worth considering whether there is still some value left in bonds. "Clearly we've had a three-decade bull market in bonds," says Tom Stevenson at Fidelity. "However, over the last few weeks the level of nervousness has gone up over bonds, due to the perceived early ending of 'quantitative easing' in the US."

The fear is, Mr Stevenson explains, the US government will cut its buying of bonds sooner rather than later, which will see the value of bonds plummet. "But it is probable the market has become too worried about this, because the process of stopping quantitative easing will take some time."

Problems plaguing other economies also suggest there is some life left in certain types of bonds. If things take a turn for the worse, investors could opt for fixed income as a seemingly safer alternative to the more volatile equity markets. "The global economy is too fragile to say it's the end of all bonds," says Nick Hayes, a bond fund manager at Axa Investment Managers. "Until the issues with Europe are sorted, no one is brave enough to go full-charge into equities."

Yet, even if these actions in the US and the troubled global economy support bond prices, this might not necessarily mean you should go and buy now. "Is there any value left in bonds? You have to search far and wide to find it, because the patient is in its death throes," says Chris Bowie, a bond fund manager at Ignis. "There is no life in bank bonds at the moment. If you invest in the wrong bank and they go bust, you could lose a lot."

As investors have been incredibly cautious since the crisis, a vast amount of fixed income has been bought, making it now look expensive.

"This is particularly the case with what are perceived to be the safest investments such as gilts and good-quality corporate bonds," says Patrick Connolly of Chase de Vere. "Rather than protecting investors' capital, there is a real danger that these 'safe' investments could fall significantly in value."

So much so, Mr Connolly believes it is an incredibly dangerous strategy to rely on bonds to protect your money and that they could even provide you with heavy losses.

In this regard, having some of your portfolio in bonds can still offer value, although you have to remember why you're investing as well as what types of fixed income you're getting.

"Most people should aim to hold a balanced and diversified investment portfolio which would usually include a combination of equities, fixed interest, property and cash," says Mr Connolly. "There is still life in the bond market," says Darius McDermott, managing director of Chelsea Financial Services. "The problem is that bonds are coming to the end of a 30-year bull market and our concerns are more around capital returns than their ability to pay an income."

Mr McDermott recommends the strategic bond fund sector. "We definitely think that strategic bonds are the best choice right now as the managers of these funds have the flexibility to invest across all types of bond," he says. "Some fund managers are also using the extra tools they have in their box to limit the risks out there. Our favoured funds are Jupiter Strategic Bond and Artemis Strategic Bond."

"With inflation stubborn and above the Bank of England's 2 per cent target, bond markets are largely offering sub-inflation returns for UK investors," says Rathbones' David Coombs. "I like the Ignis Absolute Return government bond fund, for example. It can still potentially get returns but the bond market doesn't necessarily have to go up."

Mr Stevenson also prefers strategic bond funds, due to the level of uncertainty over which parts of the fixed-income market will fare better or worse. He says the Legal & General Dynamic Bond Trust and the M&G Optimal Income are two of a range of relevant funds that feature on the Fidelity Select list.

Yet, as always it is worth doing your homework, because as Mr Connolly points out, there can be large differences in how funds are constructed and run, even in the strategic bond sector alone. He said in this fund category, yields range from 1.2 per cent to 7.1 per cent, while performance over the past year was -0.6 per cent at one end, but 23.2 per cent at the other.

"While funds such as Legg Mason Income Optimiser, yielding 7.1 per cent, will focus on achieving the highest possible level of income and will invest in lower-grade and international bonds to do this, others, such as Fidelity Strategic Bond, yielding 3.1 per cent, will invest far more in better-quality bonds as it aims to preserve capital," says Mr Connolly. "We recommend Fidelity Strategic Bond, Henderson Strategic Bond, Kames Strategic Bond and M&G Optimal Income in client portfolios."

Although the bond party will no doubt end at some point, there could still be time to drink a little more from the punch bowl, if done with caution. Otherwise, you will end up with a nasty hangover.

Source: http://www.independent.co.uk/money/spend-save/theres-still-life-in-the-bond-market-8660091.html

Expats call for fairer pension payouts

noreply@blogger.com (Anonymous) — Mon, 24 Jun 2013 03:13:00 +0000

Half of pensioners abroad have had their pension frozen. That’s not right, they say

Anger is growing among hundreds of thousands of British pensioners living abroad who are being denied their full state pension simply because of the country they live in.

Many have contacted us in recent weeks to complain about being treated like second-class

citizens, only because of where they’ve chosen to live abroad. The problem is believed to affect around 565,000 UK pensioners who have had their pension frozen at the rate it was when they left the UK. The state pension is guaranteed to rise each year, giving pensioners a small increase every 12 months. Of the 12 million people who receive the state pension, 1.2 million live abroad. It is among the latter group that a huge inequality has developed.

“A pensioner in one country is treated worse to one living in another country or in the UK,” points out Clive Walford who lives in Australia. “That clearly is discrimination.”

It means that 650,000 pensioners living abroad enjoy an increase in their retirement every year while 565,000 have to cope with what they were paid when they moved abroad.

For example, a man retiring at 65 in 1986 would have received a state pension of £38.70. If he had then moved to Canada he would still be getting the same £38.70. But if he had moved just across the border to the US he would today be getting £110.15, the same amount as UK-based pensioners get. “Pensioners have been fighting for many years to get the frozen pension policy revoked,” points out Mr Walford. “The courts have in some cases agreed that frozen pensions were immoral or dishonourable but have had to finally judge that they are not illegal.

His argument – along with half a million other pensioners – is simple. All 1.2 million expat pensioners paid into the system, but more than half are getting a lot more out. That is simply unfair. There was hope this week that the Canadian Prime Minister, Stephen Harper, would implore David Cameron to support the uprating of state pensions for the 1560,000 expat pensioners living in Canada when the two premiers met.

Source: http://www.independent.co.uk/money/pensions/expats-call-for-fairer-pension-payouts-8659717.html

How to build up your own pension

noreply@blogger.com (Anonymous) — Mon, 17 Jun 2013 03:58:00 +0000

Thousands of savers have started a self-managed pension in recent months. Here's how to join them

Britain’s workers are waking up to the pension’s crisis and taking matters into their own hands by setting up and managing long-term savings plans.

The number of people with self-managed pensions rose by 43pc in under two years at Hargreaves Lansdown, one of the biggest providers. Two years ago 102,000 of its customers had a self-invested pension but by March this year the number had reached 146,000.

These savers have been forced to take action to secure a comfortable future by a variety of big changes made by employers and the Government – and by the inexorable rise in life expectancy.

One of these changes is the demise of final salary pensions and careers for life, which gave many workers a guaranteed, index-linked and often generous pension without them having to lift a finger.

We are also starting to realise that we may be retired for 20 or 30 years, that the state pension is far from generous and that the new “automatic enrolment” workplace pension scheme involves such small sums, at least for now, that it is unlikely to make much difference to our income after we retire.

Finally, people have decided to manage their own savings because many can no longer afford financial advice, now that advisers charge upfront fees instead of taking a commission from the products they sell.

If you do want to start investing to build up your retirement savings, there are a number of ways to go about it. You could put money into Isas or increase contributions to a company pension, for example. But more than a million people have started a self-invested personal pension or Sipp since their introduction in 1989, although many run their Sipp with help from a financial adviser.

These plans offer a simple and tax-efficient means to save in a wide variety of investments, from shares and bonds to cash and even, for more sophisticated investors, assets such as commercial property.

Here we aim to guide you through the process of starting and running your own Sipp.

What are the advantages?

A Sipp is just a special type of pension, so you get a pension’s tax breaks. For basic-rate taxpayers the advantage of a pension over an Isa is the 25pc tax-free lump sum that you can take from the age of 55. Higher-rate taxpayers gain even more.

Choosing a Sipp offers the additional advantage of giving you control of your pension investments. You can buy and sell a wide range of assets within your pension at low cost whenever you like, normally over the internet.

How should I start?

If you are a first-time investor you’ll probably want the simplest variety of Sipp rather than the type that offers complete investment choice. But the basic ones, which are normally web-based and low-cost, still offer a huge choice of funds and shares, so you can build a balanced portfolio that suits your needs.

Who offers Sipps?

There are broadly two types of Sipp. One, more suitable for first-time investors, avoids offering esoteric investments, concentrating on funds and shares. These Sipps are normally, although not always, managed online; providers include Hargreaves Lansdown, Charles Stanley, Alliance Trust, Bestinvest, TD Direct and Sippdeal.

How can I choose the right Sipp company?

Consider the following factors: cost; how much help you will need from the company (most offer assistance by phone or email); how much research you want the company to provide to help you choose investments; and finding a website that you are comfortable using.

How much will it cost?

Unfortunately, comparing the costs of different Sipp providers is not straightforward. Some charge fixed yearly fees; others take a percentage of the value of your investments, while some charge when you switch assets. Think about the investments you will hold, how much they will be worth and how often you will change them before working out which provider will be cheapest for you.

“Don’t just look at the headline costs. Watch also for hidden costs such as charges for moving your Sipp to another provider,” said John Moret, the principal of More to Sipps, a consultancy.

If you have a large portfolio, say more than £50,000, you will probably be better off at a company that charges a fixed annual fee or for each trade rather than one that makes its money by taking a slice of fund managers’ annual charges. Alliance Trust and Sipp deal are in the first category; Hargreaves Lansdown in the latter.

What investments should I choose?

This depends on your age, as well as your attitude to risk. The younger you are, the more risk it’s worth taking – over the long term shares tend to do better than bonds and cash, but be prepared for plenty of short-term swings.

“Long-term equity investment remains the most effective way to provide an income in retirement,” said Dominic Grinstead, the managing director of MetLife UK, the insurer.

First-time investors are always advised to buy share-based funds rather than individual shares, as this reduces this risk that you will be hit hard by the failure of one company. Experts recommend further reducing risk by buying a range of funds.

As you get older and approach retirement, it’s often a good idea to choose less risky assets. The last thing you want is to be exposed to a huge stock market crash just before you use your accumulated savings to buy an income for life via an annuity, for example.

Cash is safe, up to the £85,000 limit of the compensation scheme, but interest rates are so low that it’s hard to keep pace with inflation. Bonds are normally seen as lower risk, but many experts say prices are currently too high, thanks to distortions in the market caused by low official interest rates and quantitative easing.

Shares in stable blue-chip companies that pay decent dividends offer a good mix of resilience, income and potential for growth.

They may be especially suitable for investors who don’t want to buy an annuity when they need an income – annuity rates are currently very poor – but plan to live off the income produced by their investments instead. This option is called “income drawdown”.

What do I have to do once the Sipp is up and running?

In most cases the only thing you need to do once the Sipp is set up is monitor your investments and change them if necessary.

However, higher-rate taxpayers will need to declare any contributions to the Sipp on their self-assessment form in order to claim full tax relief, while those who make very large contributions or who have big pension pots should check that they don’t exceed annual and lifetime limits. These limits apply to aggregate totals across all your pensions, so take any others into account.

Monitoring investments is very important. “A pension is for life, it’s not a case of 'buy and forget’,” said Mr Moret, who has earned the nickname “Mr Sipp” for helping to shape the industry since its launch.

“Try to do what a professional investment manager would do, but don’t underestimate the time commitment this involves.”

Most online Sipp providers will give you a real-time valuation of your holdings.

At some stage you may want to transfer any other pensions you have, such as workplace schemes, to your Sipp – perhaps when you leave a particular employer and its contributions cease.

What about these more sophisticated options you mentioned?

“Full” Sipps allow “every investment that does not breach HMRC guidelines”, said Ian Hammond of Rowanmoor, one such company. Similar providers include Hornbuckle Mitchell and AJ Bell.

These firms generally require you to invest through a financial adviser rather than independently. As a result, you won’t need to manage them yourself over the internet.

Some of the more unusual investments you can hold in these Sipps include commercial property, as well as truly esoteric assets such as copyrights and other intellectual property, said Mr Hammond. Full Sipps cost more than the basic variety.

There is a list of all Sipp providers on the website of their umbrella group, the Association of Member-Directed Pension Schemes

I don’t want to use the internet. What are my options?

Some providers of “basic” Sipps will allow you to manage your Sipp by phone, although they may not advertise the fact. Hargreaves Lansdown, for example, lets you do everything over the phone or by post.

What are the drawbacks of Sipps?

Costs can be higher than for personal pensions, especially if you choose the wrong firm for your needs. The ease of trading can encourage Sipp owners to switch investments too often, potentially frittering away their savings in dealing charges.

What are the alternatives?

It’s worth asking if you really need a Sipp. A personal pension could be better if you are happy to leaves things to an insurer that will invest your money in a fund that simply tracks the stock market, or one that owns a range of assets to reduce volatility.

But Tom McPhail of Hargreaves Lansdown said: “Eventually all non-final-salary pensions will look like Sipps, as they offer all the advantages of other pensions with none of the drawbacks.

“The crucial magic ingredients are to present information regarding investment choices cleanly and effectively and to support the investor with easy to use administration systems.

“Provided that you have these two elements, a Sipp knocks spots off any other kind of pension.”

Source:http://www.telegraph.co.uk/finance/personalfinance/pensions/10121401/How-to-build-up-your-own-pension.html

Retirement income falls by 30 per cent

noreply@blogger.com (Anonymous) — Fri, 14 Jun 2013 10:00:00 +0000

Annuity rates have plummeted by almost 30 per cent since the Bank of England began a program of quantitative easing (QE) four years ago that was designed to kickstart the ailing British economy.

An unintended effect of the QE scheme – that saw the Bank of England issue £375 billion worth of new cash to purchase government bonds and boos the economy – is that pensioners' retirement income has been decimated, a report has indicated.

Axa Life Europe says annuity rates fell by a third since March 2009, to hit the record lows in the second quarter of 2013.

Simon Smallcombe of Axa's UK arm said: 'QE has been blamed as one of the main factors in pushing down annuity rates and when you look at the timing of the Bank of England's programme and look at the annuity rates over that time, there is a clear trend of decreasing rates.'

Annuity rates are mainly driven by the interest paid by the Treasury on government bonds, also known as gilts. Quantitative easing boosted the price of bonds, which, in turn, drove down the interest paid on them, known as the yield.

Axa said this means a pension saver who converted a £100,000 pension pot into an annuity would have obtained an annual income of £5,040 in the second quarter of 2009. But this fell to £3,580 in the second quarter of 2013 – a drop of 29 per cent. Over 25 years, the difference between the annual incomes reaches £36,500.

At the peak of annuity rates in the second quarter if 2007, the same pensioner would have realised £5,1010 from his pension pot.

Axa's Smallcombe added: 'The most useful step people between five and 10 years from retirement can take is to seek advice as early as possible. This allows the adviser to research all options available, such as unit-linked guarantees for people who want to protect their pension pot from falling annuity rates and negative market movements but stay invested to capture any growth at the same time.

'The ability to secure a guaranteed future retirement income and stay invested in the markets with the potential for growth can be a real alternative and does not rule out any option at the chosen retirement date in the future. Unlike annuities, unit-linked guarantees offer flexibility as policy holders can access and move their money if they choose to do so.'

Source: http://www.moneyobserver.com/news/13-06-11/retirement-income-falls-30-cent

Financing Your Needs

Wave goodbye to 'golden hellos', UK pension funds urge

Workers aged under 47 hit by state pension age rise

New life expectancy data suggests the state pension age will begin to rise to 68 in 2034, affecting all those born in 1966 or later

Faster rises in the state pension age are likely to hit anyone 47 or under, it emerged today.

Youth unemployment will lead to widespread poverty in old age – OECD

What will changes to pension age mean for me? Q&A

Wasn't it going up anyway?

Why the changes?

When can I retire?

Is this set in stone?

What impact will this have on my finances?

How much will I get from the state when I do retire?

Widows and widowers' pensions could be axed under new proposals

Retirees with small pensions give away chunks of life savings to avoid pitiful annuity payouts

Hundreds of thousands 'unfairly hit' with high pension fees

Hundreds of thousands of workers have been unfairly hit with high fees on their retirement pots for years, regulators are expected to rule on Thursday in the biggest crackdown on the pensions industry since the late Nineties.

The Office of Fair Trading will criticise pension providers for increasing management charges on retirement funds left dormant by employees who have moved jobs.

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/10319193/Hundreds-of-thousands-unfairly-hit-with-high-pension-fees.html

UK pensions gap is worse than thought

Lifeline for expat pensioners as MPs try to change law

Expat pensioners whose pensions are frozen at their initial level have been offered hope by MPs

A pair of MPs are to attempt to change the law to ensure that all expat pensioners receive inflation-linked increases to their state pensions.

Lifeline for expat pensioners as MPs try to change law

Suspend Britain from Commonwealth over unfair expat pensions

Campaigners who want all British pensioners who live overseas to receive the full state pension have called for the UK to be suspended from the Commonwealth until their grievances are met.

Currently, British pensioners who live in certain countries do not receive inflation-linked rises to their state pensions each year. Instead, their pensions are frozen at the level in force when they retired.

How to plan for a richer retirement: A guide for savers in their 20s, 30s, 40s, 50s, or 60s

Younger workers set to lose out under flat rate state pension system

Expats call for fairer pension payouts

Half of pensioners abroad have had their pension frozen. That’s not right, they say

Anger is growing among hundreds of thousands of British pensioners living abroad who are being denied their full state pension simply because of the country they live in.

Retirement income almost 40% less than working wage for new pensioners

Is the state pension age set to rise faster?

Faster

What it means for you

What can you do?

Pension funds take more risk with your money

More final salary schemes could close if aggressive investment strategies do not deliver expected returns.

The pensions doctor will see you now

Where next for gold?

Two million pensioners poorer than a child

How to get by on a £100,000 pension pot

It may sound a large pension pot but could it produce enough retirement income to make ends meet?

Could you have a decent standard of living in retirement with a £100,000 pension pot and the state pension? And, just as importantly, could those financial resources achieve a standard of living that didn't get eroded by inflation if your retirement lasted two or three decades?

There's still life in the bond market

Expats call for fairer pension payouts

Half of pensioners abroad have had their pension frozen. That’s not right, they say

How to build up your own pension

Retirement income falls by 30 per cent

Could you have a decent standard of living in retirement with a £100,000 pension pot and

the state pension? And, just as importantly, could those financial resources achieve a standard of living that didn't get eroded by inflation if your retirement lasted two or three decades?