Private pension firms have also been accused of hiding some of the costs they levy on customers' investment funds. The RSA recommended that the UK copy the example of Denmark where people taking out a personal pension are given annual statements, like a bank account, revealing the full impact each year on their investments of all charges and costs.
About six million people contribute to personal pension plans, according to recent figures from the Office for National Statistics (ONS). Ros Altmann, the director general of Saga, said: "Pension charges are too high and too complex. If your car is serviced in a garage you get an itemised bill explaining what each charge is for, which part was replaced and what the labour charges are, all in pounds and pence. No one would quote the fee as a percentage of the value of your car, which would be meaningless. But this is what happens with pensions, drawdown plans and annuities."
But the Investment Management Association criticised the report, describing it as "sensationalist headline-seeking". "It does itself no favours by quoting discredited research which exaggerates the cost of managing pension investments many times over," said Richard Saunders, chief executive of the IMA.
"For retail funds there is already a gold standard of charges disclosure, mandated under EU rules put together after extensive consultation and consumer research. "We need that standard rolled out across the whole pensions and long-term savings market," he added. Our experienced IFA’s at Enable agree.
Monday, 30 July 2012
What is the real cost of a pension?
Since a report by the Royal Society for Arts (RSA) said 21 out of a sample of 23 firms failed to disclose the full investment costs of pensions when asked there has been much debate about pension charges. The Association of British Insurers responded that its members revealed all costs, as required by the regulator." All employees who have contract-based defined contribution pensions have their charges disclosed in their key facts information when they purchase a pension," said Otto Thoresen of the ABI. "This is required by FSA rules," he added.
When the RSA questioned the 23 pension firms, all of them said that customers' accounts had to pay an annual charge, and other normal overhead costs for administration, legal and accountancy services. But only two firms acknowledged that there would be other one-off or variable fees, such as the costs of stamp duty on share purchases, or the stockbroking fees associated with share and bond trading.
The RSA said its report uncovered, "how those selling pensions fail to reveal what is charged for such items as audit and custodial costs, and other hidden costs including taxes, stock lending fees and broking commissions".
"Furthermore, even when costs are declared, it is not done in a way in which typical pension savers are likely to understand. "The enormous impact of fees, where an extra 2% annual charge can, over the lifetime of a pension, result in a halving of pension benefit, is not understood by individual consumers or by small employers," the RSA added. IFA’s from Enable can help you understand the cost of your pension.
When the RSA questioned the 23 pension firms, all of them said that customers' accounts had to pay an annual charge, and other normal overhead costs for administration, legal and accountancy services. But only two firms acknowledged that there would be other one-off or variable fees, such as the costs of stamp duty on share purchases, or the stockbroking fees associated with share and bond trading.
The RSA said its report uncovered, "how those selling pensions fail to reveal what is charged for such items as audit and custodial costs, and other hidden costs including taxes, stock lending fees and broking commissions".
"Furthermore, even when costs are declared, it is not done in a way in which typical pension savers are likely to understand. "The enormous impact of fees, where an extra 2% annual charge can, over the lifetime of a pension, result in a halving of pension benefit, is not understood by individual consumers or by small employers," the RSA added. IFA’s from Enable can help you understand the cost of your pension.
Bond bubble hits pension savers...
About four million employees are members of DC defined contribution pensions such schemes, and 86% of them are paying their money into so-called "default" funds. These tend to be partly invested in UK government bonds, in some cases heavily so if an individual is close to retirement.
In recent years the price of UK government bonds has had its very own bubble.
"There has been a big inflation of government bond prices, which may not be over, and it may be some considerable time until they deflate, but at some point they will have to come back down to earth," says Laith Khalaf, pension investment manager at fund supermarket Hargreaves Lansdown.
"Gilts are seen as a very safe asset, but actually at their current prices there is a potential for capital losses."
There are three related reasons bond prices have risen. Both here and abroad, governments have cut interest rates to try to stave off recession. This has had a knock-on effect on UK government bonds, known as gilts. As the Bank of England base rate has fallen to 0.5%, the fixed rate of interest paid by the gilts has become correspondingly more valuable and their prices have risen.
Gilts have also been seen as a "safe haven" by foreign investors who have been buying them during the turmoil in the finances of the Eurozone.
If you are trying to make sense of your pension our experienced Independent Financial Advisors at Enable would be able to talk you through your options.
In recent years the price of UK government bonds has had its very own bubble.
"There has been a big inflation of government bond prices, which may not be over, and it may be some considerable time until they deflate, but at some point they will have to come back down to earth," says Laith Khalaf, pension investment manager at fund supermarket Hargreaves Lansdown.
"Gilts are seen as a very safe asset, but actually at their current prices there is a potential for capital losses."
There are three related reasons bond prices have risen. Both here and abroad, governments have cut interest rates to try to stave off recession. This has had a knock-on effect on UK government bonds, known as gilts. As the Bank of England base rate has fallen to 0.5%, the fixed rate of interest paid by the gilts has become correspondingly more valuable and their prices have risen.
Gilts have also been seen as a "safe haven" by foreign investors who have been buying them during the turmoil in the finances of the Eurozone.
If you are trying to make sense of your pension our experienced Independent Financial Advisors at Enable would be able to talk you through your options.
Thursday, 19 July 2012
Up, close and personal - Paull Hazzell
Profession:
Chartered Financial Planner
Location:
Bishops Stortford
Previous types of jobs?
Estate Agent / not very good golfer
Years in business?
IFA since 1996
What made you decide to become a mortgage broker?
Having missed the chance to become a commercial pilot (dodgy eyesight) and a professional golfer
(lack of any discernible talent), I rather fell into the financial advice world and have been an
Independent Financial Adviser since 1996. I’ve always believed that it is best to work in the interest
of my clients, not in the interest of hitting sales targets for a faceless corporate entity and being
acutely aware of the general reputation that ill-informed financial advisers sometimes had, I decided
that the best differentiator was knowledge and took steps to qualify as a Chartered Financial
Planner. There is a real move in the industry to improve the benchmark qualification that individuals
need before being let loose on clients and Chartered is the highest possible. The number of
Chartered practitioners is slowly increasing but I understand that there are still only around 3000 of
us in the UK (as at April 2012).
Family info. wife? Kids? Pets...
Married to Helen. Children – Archie and Evie
Hobbies
Golf still. Very dusty private pilots licence.
Other interests
Try to spend as much time with the family as possible.
Do you have any burning desires?
More Golf, more flying. Take the family to Jordan to let them experience Petra.
Something no one knows about you?
Had I been born a girl, my Dad was going to call me Chloe!
I won a junior golf tournament 3 years on the spin – but they didn’t let me keep the cup.
My Great Grandfather was George G Harrap – he was very well known a publisher in the early 1900’s
The key to your success as an adviser?
Try and keep it simple.
Keep in touch even when things are not going so well
Treat clients in the same way you’d like to be treated.
Holding the faith... LIBOR
Along with the rest of the financial world Enables Independent Financial Advisors have been shocked but the revelations of attempts to manipulate LIBOR and other rates is truly shocking. The deeper reason for concern is not just because for it’s effect on financial contracts ranging from mortgages to derivatives but the capital markets require trust if they are to work well. If you cannot trust the intermediaries who make up those markets to operate with integrity, that has a corrosive effect on the whole system.
Investment managers need well-functioning markets if they are to be able to invest their clients' money to deliver the best possible returns and that requires high standards from the intermediaries, in particular the investment banks. This episode - and no doubt the revelations that will continue to unravel as the enquiries proceed – suggest that those standards have not been met. Investment managers, who are key users of the markets, have reacted to these events with concern and anger. Many are asking whether their clients have lost out as a result, but at this stage it is very hard to say.
Until there is a fuller picture of what other banks were doing it is impossible to say whether the result was a LIBOR rate that was different from what it should have been. And even then tracking through to establish what, if any, the effect on individual portfolios would have been - via the closing of derivative positions, for example - would be mind-bendingly complex.
Investment managers need well-functioning markets if they are to be able to invest their clients' money to deliver the best possible returns and that requires high standards from the intermediaries, in particular the investment banks. This episode - and no doubt the revelations that will continue to unravel as the enquiries proceed – suggest that those standards have not been met. Investment managers, who are key users of the markets, have reacted to these events with concern and anger. Many are asking whether their clients have lost out as a result, but at this stage it is very hard to say.
Until there is a fuller picture of what other banks were doing it is impossible to say whether the result was a LIBOR rate that was different from what it should have been. And even then tracking through to establish what, if any, the effect on individual portfolios would have been - via the closing of derivative positions, for example - would be mind-bendingly complex.
Making the most of your tax
As experienced Independent Financial Advisors at Enable we have long advised that pension contributions provide a useful and efficient way of reducing income tax liability, with individuals benefiting from income tax relief at their highest marginal rate for pension contributions made.
In this tax year contributions can be made up to 100% of earnings, subject to an annual allowance of £50,000 each tax year (and within lifetime limits) and since April 2011, there has also been a three year carry forward rule that allows individuals to carry forward unused annual allowances from the last three tax years. The initial workings of the Finance Bill 2011 have recently been amended and the revised guidance was published at the end of last year on 25 November 2011, allowing any payments over £50,000 in the last three years to be ignored in the carry forward calculation.
For tax planning for those with earnings over £114,950 currently (£116,210 in 2012/13) a pension contribution in the tax year will allow them to recover some of the personal allowance otherwise lost and provide significant tax relief. Whatever your age or your income in the current economic climate, with increasing income tax bills and with the state pension age set to increase from 2018, our Independent Financial Advisors at Enable can help you work out your personal pension contributions and help you build up additional pension funds for retirement. Pension are offering more value than ever to many individuals who are making the most of their income tax situation.
In this tax year contributions can be made up to 100% of earnings, subject to an annual allowance of £50,000 each tax year (and within lifetime limits) and since April 2011, there has also been a three year carry forward rule that allows individuals to carry forward unused annual allowances from the last three tax years. The initial workings of the Finance Bill 2011 have recently been amended and the revised guidance was published at the end of last year on 25 November 2011, allowing any payments over £50,000 in the last three years to be ignored in the carry forward calculation.
For tax planning for those with earnings over £114,950 currently (£116,210 in 2012/13) a pension contribution in the tax year will allow them to recover some of the personal allowance otherwise lost and provide significant tax relief. Whatever your age or your income in the current economic climate, with increasing income tax bills and with the state pension age set to increase from 2018, our Independent Financial Advisors at Enable can help you work out your personal pension contributions and help you build up additional pension funds for retirement. Pension are offering more value than ever to many individuals who are making the most of their income tax situation.
Getting IFA on your pensions works...
A recent report from Unbiased and Standard Life shows that taking independent financial advice could provide a retirement income boost of more than £2,780 a year on average as much as £232 a month. Consumers who have taken pension advice contribute over one third more to their pension pots than those who have not and those who have received independent financial advice are financially better protected than consumers who have not. Enable’s IFAs know that they can help people make the most of their pension.
The report also demonstrates that the current average pension pot for consumers who have been advised on their retirement planning is £74,554.30, double that of those not seeking advice (£37,277.10) -those who have taken advice put nearly a third more a month (£167 v £108) into their pension plan. On average those who had not taken advice put, 9% of their total salary away, compared to the advised group who think people should be aiming for 11.4%.
Karen Barrett, chief executive of unbiased, stressed the importance of relaying the value of advice to customers: "It's vital to that they know that when people are planning their finances, they should consider taking independent financial advice. Our joint report shows that those who have taken advice are far better positioned for retirement than those who haven't. Consumers are currently faced with delayed retirement ages and rising life expectancies - we are an ageing population and we need to be putting the right preparations in place for this."
The report also demonstrates that the current average pension pot for consumers who have been advised on their retirement planning is £74,554.30, double that of those not seeking advice (£37,277.10) -those who have taken advice put nearly a third more a month (£167 v £108) into their pension plan. On average those who had not taken advice put, 9% of their total salary away, compared to the advised group who think people should be aiming for 11.4%.
Karen Barrett, chief executive of unbiased, stressed the importance of relaying the value of advice to customers: "It's vital to that they know that when people are planning their finances, they should consider taking independent financial advice. Our joint report shows that those who have taken advice are far better positioned for retirement than those who haven't. Consumers are currently faced with delayed retirement ages and rising life expectancies - we are an ageing population and we need to be putting the right preparations in place for this."
Thursday, 12 July 2012
Good news on the jobs front...
The Office for National Statistics (ONS) announced in mid-June that UK unemployment had dropped by 51,000 to 2.61 million in the three months to April. This leaves the jobless rate at 8.2%.
Of this 51,000 the majority were male, as female unemployment only dropped by 1,000, but there were decreases of unemployment across all age groups (other than the over-65’s), with youth unemployment finally falling by 29,000. However, this group still represent just over 1 million people.
Employment in the private sector increased by 205,000 to 23.38 million, whilst employment in the public sector fell by 39,000 to 5.9 million. This last figure represents the lowest number since March 2003. In total there were 29.28 million in employment, which is an increase of 166,000 on the last quarter.
Their accompanying report stated that overall the UK unemployment level was “showing some improvement.” This is despite the fact that the number of those claiming Jobseeker’s
Allowance increased in May by 8,100, which makes a total of 1.6 million people.
They went on to say that whilst in previous months any increase in employment was due to part-time workers, this month’s figures saw an averaging out across part-time and full-time workers.
Chris Grayling, the Employment Minister commenting on these
figures stated: “This time we are seeing a very healthy increase in full-time jobs and that’s clearly very welcome...”Any fall in unemployment is very welcome, but I remain cautious over the next few months, given the continuing economic challenges we face.”
At the same time Brendan Barber, the TUC’s General Secretary said: “some long overdue good news.” But he went on to add that he still had “real concerns” over the sustainability of the recovery
shown.
QE3 - Will the Bank of England strike again?
With the very fragile economy continuing to show signs of further weakness and the eurozone debt crisis continuing unabated, the Bank of England’s Monetary Policy Committee (MPC) very nearly voted in favour of adding an additional £50billion of Quantitative Easing (QE) to the already committed £325 billion. The minutes of their June meeting showed that 4 members voted in favour of this (with one member voting for a smaller £25billion), which is only one short of the majority
needed to approve the action.
Their prognosis was that the risks to the UK economy had risen since their last month’s meeting, particularly from the Eurozone. The minutes stated: “The likelihood of a disorderly outcome looked to have increased, and that could, if it crystalised, have a significant effect on global demand and the stability of the banking system, including in the United Kingdom.”
QE is a method of electronically ‘printing money’ which is a technical device used to boost the money supply and, hopefully, drive economic activity. The Bank of England buys UK Gilts and other categories of assets with this ‘new’ money. This increase in the money supply has several effects, namely to reduce the value of currency (sterling), increase the value of the assets purchased and lower long-term interest rates, thus encouraging additional borrowing and investment.
It is therefore incumbent on the banks to lend these additional funds to businesses in need of working capital, but this has not always proved to be the case.
A counterpoint to these effects is that many economists believe the QE process leads to an increase in inflationary pressure. However, with the UK inflation rate dropping to 2.8% (its lowest level for 30 months) in May the Bank of England may be minded to go ahead with additional QE.
The minutes endorsed this possibility by stating: “On balance, most members judged that some further economic stimulus was either warranted immediately or would probably become warranted in order to meet the inflation target.”
We shall have to wait and see for their further deliberations.
Chancellor Merkel blinks...
At last the Eurozone managed to agree positive steps to help safeguard the common currency, with agreement at the Brussels summit to directly recapitalise Spanish banks, without these funds being counted as sovereign debt . The official statement coming out of the summit stated: “It is imperative to break the vicious circle between banks and sovereigns.”
Whilst politically difficult for German Chancellor, Angela Merkel, she did manage to agree that the European Central Bank (ECB) will have new powers to regulate eurozone banks. These powers represent a first step towards the banking union that Germany had been calling for. At the same time the summit agreed a €120bn growth fund and the start of negotiations for long-term economic and fiscal co-operation.
Under this agreement Spanish banks will be offered €100bn (£80.7bn) in additional funding. These funds will initially be drawn from the European Financial Stability Fund (EFSF) and then from the European Stability Mechanism (ESM), the successor to the EFSF.
Importantly for the global markets, Italian banks will also be eligible for similar support, if needed. The technocratic Prime Minister of Italy, Mario Monti, was quoted as saying: “Italy does not plan to activate the mechanism for now, but I do not exclude anything for the future.”
Again pleasing the bond markets in particular, these bail-out funds will not subordinate existing debt. This had become a major worry to investors in European sovereign debt, and should result in yields dropping from their current unsustainable level. The immediate reaction in the bond markets was to see the yield on the benchmark 10-year Spanish bonds drop to 6.5%. Whilst welcome at below the previous 7% level, this is still an unsustainable rate in the medium term.
Tuesday, 3 July 2012
Keeping track of forgotten savings and pensions
At Enable we are always reminding people to pay attention to their pensions and savings. According to research commissioned by National Savings & Investments (NS&I) 7.6 million Britons have lost track of savings, while around £1.4 billion is stranded in small pension pots. Twenty-eight per cent have lost their account details while 27 per cent have opened several accounts and forgotten about some of them over time. Some have lost their account details following a house move, or know they have childhood accounts but do not have the full details.
Sixty per cent of those who believe they have lost track of savings accounts have tried to recover their money, with 72 per cent of them being successful. NS&I, in association with The British Bankers’ Association and the Building Societies Association, offers a free ‘MyLostAccount’ service to help savers track down their accounts. NS&I has helped customers to trace £450 million of savings through the service.
Many people have also lost track of their pension funds, according to the Pensions Advisory Service, which estimates that £1.4 billion is waiting to be claimed. The funds are in accounts worth less than £5,000 which workers have left behind when they move jobs.
The number of small pension pots is expected to soar after auto-enrolment starts in October. It is estimated that there will be 4.7 million additional small pension pots by 2050. However small your saving or pension pot may be experience IFA’s at Enable know it can be a useful contribution to your portfolio.
Why not ethical investment?
In our daily lives many of us as are happy to buy ethically in many areas of our lives, whether it be for health or feel-good reasons,” and the head of investments at Ecclesiastical Investment Management Jenny Round, a UK-based insurance and financial services company, also came to this conclusion after her company recently conducted a study among traditional investors.
The market research found that 24 per cent of the surveyed would buy ethical products, because they are healthier than conventional products. In addition, nearly one third of investors, 29 per cent, said the main motivation behind choosing ethical products is the feel-good factor.
But as our IFA’s at Enable too have found in the past when it comes to actually investing capital in ethical investments, traditional investors have shown less interest, and did not display nearly as much enthusiasm. As Round points out, “Many are still dismissing the option of ethical investing, or are simply not fully aware of the options that are available.” Jeremy Newbegin of Ethical Partnership advisory group echoes Round’s opinion: “Many people think to invest ethically you have to be prepared to make less profit,” which is not necessarily the case. Ethical and green investment has never been more popular. There is now around £11.3 billion invested in UK green and ethical retail funds - up from £1.5 billion 10 years ago. If you want to do more than just buy fair trade coffee in the local shop Enable’s experienced IFA’s might be able to help.
The market research found that 24 per cent of the surveyed would buy ethical products, because they are healthier than conventional products. In addition, nearly one third of investors, 29 per cent, said the main motivation behind choosing ethical products is the feel-good factor.
But as our IFA’s at Enable too have found in the past when it comes to actually investing capital in ethical investments, traditional investors have shown less interest, and did not display nearly as much enthusiasm. As Round points out, “Many are still dismissing the option of ethical investing, or are simply not fully aware of the options that are available.” Jeremy Newbegin of Ethical Partnership advisory group echoes Round’s opinion: “Many people think to invest ethically you have to be prepared to make less profit,” which is not necessarily the case. Ethical and green investment has never been more popular. There is now around £11.3 billion invested in UK green and ethical retail funds - up from £1.5 billion 10 years ago. If you want to do more than just buy fair trade coffee in the local shop Enable’s experienced IFA’s might be able to help.
Ethical investments?
In the continuing wake of the banking debacle not to mention the changes in the weather more and more investors are considering their own ethical options. And it would seem ethical investment portfolios are beginning to perform at least as well as other investments. New research suggests nine out of ten wealth managers said ethical funds had performed on a par with, or better than, standard investments.
The research was conducted by EIRIS (Experts in Responsible Investment Solutions) to debunk the myth that ethical investments are poor financial performers.
Their study found a growing awareness of social and environmental issues among wealth managers. They also discovered that the financial crisis has improved the perception of ethical funds.
Penny Shepherd, chief executive of the UK Social Investment Forum (UKSIF), said the results of the research should encourage investors to reflect on how they invest their money. “What is clear is that green and ethical investments can perform at least as well as other investments,” she said. “Therefore, if performance is not the issue, the question is: ‘Do investors also want to make a difference with their money?’
“It’s extremely positive that high net worth investors are increasingly considering green and ethical options.”
Victoria Woodbridge, EIRIS senior client relationship manager, added: “Wealth managers can improve retention rates and gain a competitive advantage by responding to the increasing numbers of high net worth individuals who are expressing an interest in responsible investment.”
Independent Financial Advisor's Enable of Bishops Stortford can help you look at all the options for managing your wealth.
The research was conducted by EIRIS (Experts in Responsible Investment Solutions) to debunk the myth that ethical investments are poor financial performers.
Their study found a growing awareness of social and environmental issues among wealth managers. They also discovered that the financial crisis has improved the perception of ethical funds.
Penny Shepherd, chief executive of the UK Social Investment Forum (UKSIF), said the results of the research should encourage investors to reflect on how they invest their money. “What is clear is that green and ethical investments can perform at least as well as other investments,” she said. “Therefore, if performance is not the issue, the question is: ‘Do investors also want to make a difference with their money?’
“It’s extremely positive that high net worth investors are increasingly considering green and ethical options.”
Victoria Woodbridge, EIRIS senior client relationship manager, added: “Wealth managers can improve retention rates and gain a competitive advantage by responding to the increasing numbers of high net worth individuals who are expressing an interest in responsible investment.”
Independent Financial Advisor's Enable of Bishops Stortford can help you look at all the options for managing your wealth.