With the Government confirming that we have indeed entered a double-dip recession, with UK Gross Domestic Product (GDP) falling by 0.2% in Q1 2012, following the 0.3% drop seen in Q4 2011 and the Organisation for Economic Co-operation and Development (OECD) pouring out more pessimistic missives about the UK economy, you might be forgiven for wanting to lie down in a dark room with a damp cloth over your furrowed brow.

However, let’s look a little deeper into these statistics. Yes, we all thought H2 2012 would be a rough ride, with the credit crunch and austerity measures forcing consumers to reign in their spending and the banks, recovering from their glut of profligate lending, having to massively deleverage their balance sheets over the past three/four years and as a result choke off the supply of lending needed for any chance of growth to occur.

Even the OECD themselves believe that H2 2012 will see the economy here rebound, forecasting growth of 0.125%, whilst the Chancellor, George Osborne, has told us that the Office for Budget Responsibility forecast an outcome for the whole of 2012 showing GDP growth of 0.8% and the public sectors borrowing estimate to be £7bn below their earlier forecast.

Given his modest largesse in the Budget, increasing personal tax allowances next year and further to £9,250 from April 2013, maybe this can be the catalyst to loosen the consumers purse strings and boost the spending needed to help revive domestic growth. Add to this the estimated £750bn of cash currently hoarded in corporate balance sheets.  Should these companies start to invest and spend some of this, surely we can see the UK economy finally moving in an upwards direction.

Our cousins across the pond can also help here, with their economy moving strongly up, we may catch the contagion over here.  As they say ‘When the USA sneezes the world catches a cold.’ but the counter-point may also apply.

So all is not lost and provided we do not see any further Eurozone crises and the oil price does not hyper inflate, surely we can see a blue horizon ahead moving into Q2, and the rest of 2012.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Approaching retirement? If you’ve spent your working life investing into your pension fund, you need to make sure you get the best possible deal when you retire. Make the wrong decision at this crucial point and you could spend years regretting it.

When you retire, if you have a money purchase (defined contribution) rather than a final salary (defined benefit) pension, you generate income by using your accumulated pension fund to buy an annuity, which is guaranteed to last until you die. If you wish, you can take up to 25 per cent of your fund as a tax-free cash lump sum, but the rest must eventually be used to provide an income in this way.

Many people, not unreasonably, assume that they need to buy their annuity from the same insurance company that has managed their pension investment over the years. But this isn’t the case. The Open Market Option (OMO) exists precisely to allow people to shop around at retirement to find the best annuity.

In the past, insurance companies have kept quiet about the OMO because they wanted to keep hold of the business. A common tactic was to send an annuity application form to people approaching retirement age in the hope they would simply roll their pension savings into an annuity with the same firm. But the industry’s trade body, the Association of British Insurers, is introducing a code of conduct that will prevent its members sending the application form and oblige them to tell clients about their right to shop around.

Time to get independent advice

It is at this point that you need to get independent advice. Different insurance companies offer different annuity rates, which can make a substantial difference to your income. What’s more, there are different types of annuity on offer, so you need help to ensure you get the best one for your circumstances and preferences.

Expert advice is crucial because the annuity rates currently on offer are at an all-time low. In 1990, a 65-year-old man could expect to get an annuity rate of 15 per cent, meaning every £10,000 of pension pot would generate £1,500 of income each year. Now the annuity rate is nearer 6 per cent which produces just £600 for every £10,000 of pension pot.

Various factors account for this fall: we’re enjoying increased life expectancy, which means the annuity providers have to pay out for longer, and providers are also suffering reduced income on the investments they have to put in place to underpin their annuity business, so there is less money available.
If you look at today’s annuity rates you might be tempted to hold fire and wait for things to improve – and you can indeed defer your annuity purchase. But this is a very delicate decision. After all, rates could fall even further. And what will you do for income in the interim?

It is not compulsory to purchase an annuity with accumulated pension plan savings at any age.
 
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Perhaps the older generation should have worried the moment the Chancellor said his Budget would ‘reward work’, but they could not have known this excluded past work. That bombshell exploded later in his speech, when he revealed that age-related income tax allowances would be phased out – frozen at 2012-13 levels until the basic personal allowance overtook them, from which point allowances would be standardised.

It seems the Chancellor was expecting a benign attitude from the over-65s on this, because of the 5.2% inflation-linked rise in the State Pension. In fact, there were howls of protest at the impending loss of higher tax allowances for those above a certain age. As for future pensioners, they were hardly delighted by confirmation that State Pension Age will automatically link to life expectancy after reaching 67 for men and women under existing plans.

These measures are pieces in a larger pensions jigsaw. A population bulge and improved longevity that are already swelling the ranks of pensioners, increasing their numbers compared to the working population, meant that Government had to act. The imperatives were to contain the cost to the Exchequer and at the same time avoid pensioner poverty. The process started over a decade ago with the introduction of low-cost stakeholder pensions, which were never going to be a complete solution.

That £140 carrot

Another element in the Osborne Budget was a fundamental change, described as simplification, to the structure of the State Pension. There will be a reformed single-tier State Pension and, to aid its appeal, the Chancellor repeated the estimate of ‘around £140 per week’ already bandied about Westminster long before Budget Day. This new pension will apparently be contributions-based at an annual cost no greater then the present system. It was unclear how this would all link with the plan to merge income tax and National Insurance, which he said would be progressed.

So, considerable upheaval in prospect for the State Pension; what about personal pensions and the like? Much change there too, driven not just by Government but also by corporate decisions to abandon final salary schemes that can require huge amounts of cash – like the £2 billion that BT has just shovelled into its scheme to halve the deficit. Now, more and more employees in blue-chip companies have access only to money purchase (defined contribution) schemes that place investment risk on the employee. Meanwhile, in the public sector, pension changes are generating both anxiety and anger.

Things will also kick-off this year on yet another aspect of pensions reform; you could call it ‘son of stakeholder’. Starting in October with the largest companies first, the Government is phasing-in auto-enrolment, an arrangement that means virtually every employee in the land must be enrolled into a pension plan, or alternatively the National Employment Savings Trust scheme (NEST), albeit with the right to opt out. Employers will have to contribute alongside their employees.

No wonder many individuals and employers are now seeking professional advice on pension issues. 
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

It is something to discuss with your adviser, because any such strategy must be balanced with your overall investment objectives and attitude to risk. 

There are a number of interesting sectors to consider, but high risk does not guarantee high reward; it just offers the possibility. 

Africa provides a new frontier 

Fund managers may look at areas of the world where there is some political stability. Such areas, often with untapped natural resources and energetic local workforces, can create opportunities for growth. This is very much the case in parts of Africa. 

This vast and varied continent could be worth consideration for those who already have exposure to the emerging economies of China and India or simply want to tap into a relatively untested market. Nigeria, a significant oil producer, and Kenya are among the countries in specialist fund managers’ sights. South Africa has a well-established track record thanks to valuable deposits of gold, diamonds and industrial minerals. 

Latin America is also interesting – Brazilian President Dilma Rousseff has claimed her country’s burgeoning economy could grow by 4 per cent in 2012. Likewise, for investors wanting to keep closer to home, Eastern Europe has a number of exciting emerging economies and it has been mooted that Turkey may beat its 4 per cent economic growth target. 

Except when disasters occur, the oil and gas majors are usually solid earnings generators. But, it can have some big swings, such as the impact on power generator Tepco of the 2011 Japanese tsunami. There is also always interest in the renewables market. 

Recovering companies present opportunity 

For some investors, there’s enough excitement available within the UK and one option is to buy into a ‘recovery’ fund, where the companies in the portfolio will have been selected because they were once troubled but are now thought to be on the up again. 

Property is one example that can be highly cyclical, as can the commodities markets, but both of these sectors could be worth closer examination. Likewise, there are funds specialising in very small firms, such as in the biotech sector – some will fail and some will make it big. As investment in the technology sector has shown in the past, having lots of investors pile in does not provide any guarantees; the greater the risk of individual failure, the greater the benefit of a well-chosen selection. 

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

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Stephen posted on March 8 2012 07.28

Final salary pensions are heading for extinction, with further proof this January when it was announced that Shell would stop its scheme for new joiners. From 2013, they will be offered a new defined contribution scheme.

Shell was the last FTSE 100 company to stop its final salary pension scheme and said it was taking the step to “reflect market trends in the UK”. Some employers, including non-UK-listed firms such as BMW, do offer final salary plans, but they are now the exception, which has resulted in many people having concerns that their retirements are not going to be as comfortable as they had hoped.

With these pensions, workers accrue a chunk of pension entitlement for every year they work at a particular company. This is typically the equivalent of 1/60th of their salary when they leave the company or retire. Someone in such a scheme who worked for 40 years would get a pension entitlement of 40/60ths, two-thirds, of their final salary.

But, longer life expectancy, low inflation, weaker stock markets and increased regulation, mean these schemes are becoming too expensive to run and to fund.

Some private sector firms have even been threatened with industrial unrest if a final salary scheme is withdrawn. This also happened in the public sector, when workers took strike action last June over planned pensions changes.

As alternatives in the run-up to pension auto-enrolment, most organisations are moving to a defined contribution scheme, to which employees pay in part of their salary each month and the employer makes a contribution on top.

This places a greater burden on employees to save for their retirement. Another option is to offer a defined benefit pension scheme based on their “career average” salary rather than salary at the time of retirement – an option mooted for the public sector.

Career average revalued earnings offer retirees an average salary income in retirement as opposed to a final salary. This can be better than a money purchase scheme as the income is guaranteed, but less rewarding than a final salary pension scheme.

Those few firms who still offer final salary pensions may find it is worth doing so as it helps them recruit and retain their best people. Experts say a pension is unlikely to be the main reason someone chooses a job, but if they have two offers on the table it could be a key reason to select one over the other.

While pension planning is complex, your financial adviser can help you identify and adopt the most appropriate strategy for your retirement.  

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

For selected investors, Sipps offer a solution

Self Invested Personal Pensions (Sipps) have become increasingly popular in recent years, offering far more investment flexibility than standard pension plans, but while they offer advantages, there needs to be a clear understanding as to whether they provide the most suitable retirement solution for a specific individual.

Sipps are a tax wrapper, and can hold a range of investments, including commercial property, corporate bonds, the AIM market and other UK and overseas equities.

They have been subject to regulation by the Financial Services Authority since 2007 and the regulator is also currently looking at whether there should be further increased disclosure requirements. This would entail providers supplying illustrations and projections for certain investments held within a Sipp.

Taking advice matters
With the final salary sector in terminal decline, many higher net worth individuals are looking for greater flexibility and the potential for higher returns – but taking guidance from an experienced pensions adviser is essential. 

For those who have worked for a number of employers and have pension pots tied up in other schemes, a Sipp can allow consolidation, leading to reduced fees, and give access to enhanced investment performance potential.

Those with final salary schemes may feel that forgoing defined pension benefits in favour of a Sipp adds unnecessary risk. But, a money purchase pot of less certain future value could be a likely transfer candidate. And, before any transfer of an existing pension, checks should be made as to what may be given up from an existing pension arrangement – such as a guaranteed income at retirement, contributions from your employer and salary-linked pension income.

Transfer penalties from your current pension provider must also be considered. Meanwhile, a Sipp can also be used to house any accumulated additional voluntary contributions (AVCs). ‘Protected Rights’, held by those who contracted out of the state second pension (S2P) and accumulated in a separate fund, may also possibly do better in a Sipp.

Choosing the right Sipp
Charges can vary considerably, depending on the type of Sipp held, the investments selected and the level of trading. Usually, the bigger the amount to be invested, the more affordable the fees, and these should also incorporate set up, fund, trustee, administrative and consultancy charges. A big pension pot will also be better able to absorb the transaction fees of an active investor.
Pension planning is a long-term and complex process. And, unless you are comfortable handling investment decisions, you will find it easier if your financial adviser takes on much of the work.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Greek debt swap agreed at 11th hour

 
It went right up to the wire, but Greece has managed to agree with their creditors the sovereign debt swap needed to stave off default and receive the Troika’s (The EU, ECB, and IMF) €130bn bail-out fund.
Today (Friday, March 9, 2012) holders of 85% of debt subject to Greek law and 65% of international debt holders agreed to swap their sovereign bond debt holdings.  Reflecting this positive response the Greek Government said it would extend its deadline for bond holders not governed by Greek law (international debt holders) to March 23rd.

 The Finance Minister of Greece, Evangelos Venizelos, was quoted as saying: “We have achieved an exceptional success… and I believe everyone will soon realise that this is the only way to keep the country on its feet, and give it the second historic chance that it needs.”

Given that these holders of debt have suffered a total loss of 74%, that may be considered an understatement.

Following on from his statement, Jean-Claude Juncker, President of the 17-nation Eurogroup of nations, responded thus: “the necessary conditions are in place to launch the relevant national procedures required for the final approval” of the bail-out.

Whilst Greece needed an acceptance rate of 75% of creditors to receive the Troika’s bail-out funds, the International Swaps and Derivatives Association has yet to determine if this represents a technical default.  If it found that this was the case, it would trigger the payment of existing Debt Default Swaps and other insurance to the value of $3.2bn.

The long-term goal of the bail-out remains to reduce Greece’s debt from 160% of GDP to 120% by 2020.

To achieve this, the austerity measures already agreed by the Greek Government – including spending cuts of 1.5% of GDP, civil service job cuts, a reduction in the National minimum wage, the abolition of restrictive employment laws, and cuts in public sector pension payments – will need to be strictly adhered to, and with an economy already recording a 7.5% annual decline in GDP for the final quarter of 2011 this will be a tall order.
Some economists believe that these additional and punitive austerity measures may well further damage the already very weak Greek economy, which may result in additional bail-outs being required or further debt write-offs in the near future.

Civil unrest has been continuing in the country, with national strikes and protest rallies now a regular occurrence across the country, but particularly in the capital Athens.

Global markets took a sanguine view of events with the equity markets little changed.   This was partly due to a strong rally seen on the previous Thursday, with most European markets seeing gains on the hopes of this optimistic outcome.  Athens saw its stock market gain 3% on the day, with the German and French markets following suit.

Joseph Ackerman, the Chairman of the International Institute of Finance (IIF), who have been representing the private lenders to Greece, was quoted as saying: “The very strong and positive result provides a major opportunity now for Greece to move ahead with its economic reform program, while strengthening the euro area’s ability to create an economic environment of stability and growth.”
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.
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Retirement age goalposts …. View Blog Entry
Stephen posted on November 23, 2011 08.15
Multiple sources of retirement income ….  View Blog Entry
Stephen posted on March 8 2012 07.28

What a difference a decade makes. Ten years ago, interest rates were substantially higher than now and this was reflected in the income available on the purchase of a retirement annuity. Pensioners were, in general, content with the annuity rates offered by the insurance company in charge of their fund. Shopping around seemed to be the exception rather than the rule.

Even back then, it would have made sense to review the market. Some employers that retained pensions consultants or other financial advisers to oversee pension plans did enable defined contribution members to find better rates. However, people without guidance available often took the straightforward option and stuck with the same insurer.

Since annuity rates slumped three years ago, affected by increased life expectancy as well as interest rates, finding the best terms has been perceived as much more important. Financial journalists and advisers have been educating the public about their ‘open market option’. So, the bad news of rates plummeting is tempered by better news of a clear right to choice.

ABI ‘shop around’ code for insurers

Earlier this month, the process of ensuring breadth of choice was strengthened by the announcement from the Association of British Insurers (ABI) that a new ‘annuity sales code’ would be adopted by its members no later than March 2013. ABI insurers will be required to advise customers on shopping around and point them to the external advice and support also available.

There is a lot to think about when choosing an annuity, quite apart from which provider appears to offer the best rate. This is why professional advice can be so useful. An annuity may be payable for the life of the main annuitant, or there may also be an income for the remaining life of a surviving spouse or partner. A rising income may also be available, to help counteract future inflation.

Inevitably, annuities with added benefits such as surviving spouse income or rising payments provide a lower initial income than a flat-rate, single-life annuity purchased with a similar pension ‘pot’. The pros and cons need weighing up, given individual circumstances. Another possibility for those whose life expectancy is impaired by a medical condition: an enhanced annuity offering a better rate than normal.

There are wider pension choices than a decade ago in other respects, too. Another method called income drawdown is the main alternative to a lifetime annuity. It commits someone to more active monitoring and decision-making in retirement, but has potential advantages for those with a relatively generous pension ‘pot’. It’s an option worth exploring but it isn’t ideal for everyone.
Under ‘capped drawdown’, there is a ceiling on the income level that may be taken. ‘Flexible drawdown’, introduced last year, is very similar but more versatile because the pension income drawn is unlimited, so long as other retirement income meets a £20,000 ‘minimum income requirement’. So, there are plenty of annuity and drawdown options to discuss with your professional adviser. Why wait for that ABI insurer’s letter?
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.
  
Related Posts
Retirement age goalposts …. View Blog Entry
Stephen posted on November 23, 2011 08.15
Multiple sources of retirement income ….  View Blog Entry
Stephen posted on March 8 2012 07.28

Pension choices best viewed early

Anyone within a few years of retirement would be well advised to start looking at the way their money-purchase pension ‘pot’ will provide income. There will be no obligation to start drawing pension income straight away, but those who choose to do so have two alternatives: either purchase a ‘lifetime annuity’ or deploy the ‘income drawdown’ option.

With a lifetime annuity purchased from an insurance company, a guaranteed level of taxable income is paid out for however long someone lives. Low interest rates have impacted on annuity rates, a fact that makes it even more important to maximise the value of a pension pot, perhaps protecting it some while before retirement from the risk of an untimely stock market downturn.  

Income drawdown is a less straightforward concept and professional advice should be taken before choosing this method, as the income level is not guaranteed. It is a method that permits a pension pot to remain invested after retirement. Under ‘capped drawdown’, there is a limit on the amount of pension income taken, whilst ‘flexible drawdown’ has no limit, subject to provisos. Drawdown also permits the purchase of a short-term annuity with part of the pot.

Someone taking their pension entitlement may usually draw up to 25% of their accumulated pot as a tax-free lump sum. This is generally regarded as a useful benefit, especially as pension contributions have gained from tax relief. The lump sum may be spent on a big-ticket purchase or repayment of borrowings, set aside for emergencies or invested.

Retirement planning needs to take account of all retirement income, so it is vital to establish the likely level of State Pension entitlement and when this will be due for payment, especially as qualifying ages are on the way up, making more likely a gap between stopping work and receiving the State Pension. The Future Pension Centre at the DWP can provide a personalised forecast.

Looking in more detail at the annuity option, the lifetime income purchased will depend upon age as well as prevailing interest rates. Under the ‘open market option’ it is possible to seek out the best annuity income available rather than simply accepting that of the insurer that has been managing the fund. A professional adviser can greatly assist the search.

Some annuitants prefer an increasing level of income to help meet the impact of future inflation, but they must accept a lower initial level. A lower initial income also applies to joint life annuities, which can continue to provide an income to a surviving spouse or partner. Yet another variant is the enhanced annuity that may pay a higher income to someone with a medical condition expected to shorten their life.
Professional advice about the annuity options available, both as regards provider and annuity type. Similar guidance is also important for anyone thinking about income drawdown, which – although generally less suitable for those with smaller pension pots – can provide a useful lump sum for a surviving partner.
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.