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."
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