Archive | February, 2012

Pensions are Becoming More Flexible

23 Feb

Income Drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and continues to benefit from any fund growth.  You generally need a substantial fund value to take income drawdown. The amount of fund varies according the rules of the pension provider, but is around £100,000 as a minimum.

Changes From 6 April 2011

New Income Drawdown rules were introduced from 6 April 2011.  This page contains information relating to those new rules.

Income Drawdown Plans In Place Before 6 April 2011

If you started an Income Drawdown plan before 6 April 2011, you will have to convert to the new rules, or purchase an annuity.  There are transitional rules in place, giving you a deadline to do this.What are the new income drawdown rules?

The new income drawdown rules are as follows:

  • There is no minimum amount of income that must be drawn, irrespective of age. This means that individuals may be able to leave their pension fund untouched for as long as they like, without the necesity to drawing any income.
  • The maximum amount of income that may be drawn is reducing. The new maximum amount of income that may be drawn is 100% of the single life annuity that somebody of the same-sex and age could purchase based on Government Actuary’s Department rates. An individual’s pension provider calculates the maximum income, using standard tables prepared by the Government Actuary’s Department (GAD).
  • The maximum income will generally be reviewed every three years until age 75 and annually from age 75, based on the Government Actuary’s Department rates for an individual of the same age at the time of each review.
  • Tax-free cash lump sums may now be paid after age 75 where an individual has elected to set aside or ‘designate’ funds for income drawdown at the same time, even if they decide to take no income.

If you are considering using income drawdown or delaying taking your tax-free cash lump sum and starting your pension after age 75, please check whether your pension provider is offering these options. If you are considering income drawdown, you should seek expert independent financial advice. The Pensions Advisory Service is unable to give financial advice.

Flexible Drawdown

Flexible drawdown will allow some individuals the opportunity to withdraw as little or as much income from their pension fund, as they choose, as and when they need it. You have to declare that you are already receiving a secure pension income of at least £20,000 a year and have finished saving into pensions.

  • A company pension being paid to you either from the UK or from Overseas; or
  • An annuity being paid to you (from a personal pension or company pension) either from the UK or from Overseas; or
  • A state pension being paid to you either from the UK or from Overseas.

Our understanding is that secured pension income is taken as the gross annual amount of pension (i.e. before any income tax is deducted). The requirement to have a secure pension income of £20,000 might change in the future to increase the level of income required.

Tags: , , , , ,

Court’s U-Turn Changes 35 Years of Trust Law

23 Feb
A recent Court of Appeal ruling on the ability of trustees to ‘turn back the clock’ has drastically changed the law on trusts, and could have far reaching implications for the beneficiaries of the UK’s 190,000 trusts.

The rule known as ‘Hastings Bass’ allows trustees to reverse poor investment decisions after they have been made. The rule, established in 1975, protects trustees from liability when things go wrong and it protects beneficiaries from bad investments decreasing the value of their trust.

Trusts are set up to protect and manage assets for a beneficiary. The trustee is in charge of managing the trust in accordance with the trust document. Trusts can be set up for a number of different reasons and many people benefit, from charities and students, to accident victims who have received substantial personal injury or medical negligence compensation. The Court of Appeal’s ruling will significantly impact trustees, beneficiaries, and those professionals whose job is to advise trustees in running the trust.

The judgement says that Hastings Bass won’t apply where the trustee has made an investment decision after taking advice from their professional advisors. If the investment decision turns out to be bad, the only recourse the trustee has to recover the losses will be to sue the professionals for professional negligence.

Trustees and advisors alike will no doubt be very concerned after the Court’s judgement.

The judgement will see the costs of running a trust rise dramatically. In order to protect themselves from law suits if an investment decision turns out to be damaging, lawyers and other professionals will increase their professional indemnity insurance. The cost of this increase will be levied on the trust assets.

In addition, trustees will seek a higher level of legal advice to ensure they make the right decision in the first place, so again increasing the costs levied upon the trust assets.

Commentators predict many more professional negligence claims will be started as a result of the Court’s judgement. It will be painfully clear to trustees that litigation does not guarantee full or any compensation.

A trustee’s bad investment decision will now only be void if they act outside the scope of their powers. If a trustee acts within their powers, the investment decision will only be void if they have breached their fiduciary duty whilst making the decision.

The lawyers for the losing side in the Court of Appeal’s judgement have applied for leave to appeal to the Supreme Court. So this may not be the final outcome but currently, leaves a grave area of concern.

If you are a trustee or are associated with trust assets and you require professional investment advice. I can assist in this area.

Tags: , , , ,

Wills Explained

23 Feb
Why it’s important to make a Will?
 
Making a Will and making sure it’s kept up-to-date is one of the most important actions you will ever take. A Will details who receives what assets, when and how.
 
It enables you to make decisions as to how you want to dispose of your possessions. This includes property, either directly or under the protective structure of a trust and for the benefit of your family, friends, carers, neighbours, etc. You can also include any organisations and/or charities you wish to financially support. Without a Will, you leave everything to the Rules of Intestacy, chance and quite possibly the taxman.
 
A Will ensures your wishes will be carried out. For example, you can ensure that your wife/husband receives everything you intend them to. A Will can ensure an unmarried partner inherits. It can be used to appoint a guardian for your child(ren) under 18. Children and grandchildren can be included to ensure they receive particular gifts you intend them to receive.

Including a Trust in your Will can ensure that you protect the benefit entitlement of your family member, and thereby guarantee continuity and security of care. It can also ensure that you make provision for “extras” that you want your family members to have. These can include things like maintenance, up-keep, holidays, and particular equipment to enhance someone’s quality of life.

When is it the right time to make a will?

Making your Will is best done sooner rather than later. A suitable time to make your Will is when you are well, happy and free from any pressure or influence.

 

How do I write a Will?

The law has strict rules as to how a Will must be written and administered. If a Will fails to meet any of the legal requirements it may be declared invalid and therefore fail.

To make a valid Will you must be over 18 and be of “sound mind”, which means you are legally capable of understanding the effects of drawing up a Will.

It is extremely important that your Will is drawn up to accurately reflect your intentions, signed and witnessed.

 

DIY, Will Writer or Solicitors?

You can draft a Will yourself or have a Will Writer provide this service. Personally, as a professional Independent Financial Adviser specialising in Investments and Tax Planning, I recommend you take appropriate legal advice and speak to a suitably qualified solicitor. There are several solicitors in Wales, who I can personally recommend.

Consulting with a solicitor who specialises in drawing up Wills, gives peace of mind. Contrary to opinion, fees for making general family Wills are not exorbitant and often can be fixed at a pre-agreed price.

The administration required to deal with your estate after your death also needs consideration as there will probably be some costs involved. Some solicitors will negotiate a fixed percentage fee from the estate in order to pay for the execution of the Will and deal with all matters of Probate after your death. This can be written into the Will. Remember you have a choice and do not have to agree to any ‘fixed’ costs. It’s a good idea to ask about these costs before going ahead with any Will.

 

What about Inheritance tax?

Inheritance Tax (IHT) is the tax payable on the estate you leave. IHT is only payable if the total value of your estate is higher than £325,000 (frozen until 2015) or £650,000 for married couples or civil partnerships. This is generally referred to as the threshold.

This total includes gifts made over the previous seven years although there are exceptions to these gifts. Exceptions, such as, those to your spouse and charities; and Chargeble Lifetime Transfers where asociated gifts in the last 14 years may need to be considered.

If your estate is less than £325,000 (or £650,000 for a married couple or civil partnership) you pay no Inheritance Tax. The tax is payable only on the amount over the threshold. The current rate is 40%.

For those who have an estate over the IHT threshold it certainly pays to think carefully about planning your estate to maximise your beneficiaries legacy.

Strategies to minimise IHT may include, changing some of the assets held to those qualifying for Inheritance Tax Relief, gifts out of the estate either directly or via Trusts, by making eligible gifts. We can discuss these options on a personal basis. Taking specialist advice now could save your estate thousands later.

 

Have In Mind Your Financial and Life Plan Before Drafting Your Will

Before you begin the process of actually making your Will or seeing a solicitor it’s a useful exercise to write down answers to a few simple questions:

  • Who do I want as my executors (these are the people you appoint to carry out the terms of your Will)?
  • Who do I want to leave my estate to and in what proportions?
  • Will I leave a gift to any charities?
  • Do I need assets protected for my husband/wife, Estate Planning, Children, vulnerable persons?
  • If I become incapacitated as a result of illness or accident who do I want to look after my affairs (appointing a person who has power of attorney)?
  • What are my assets (write a list of all that you own ie: shares, property, jewellery, household items, insurance policies) and liabilities?

 

Jargon Busting

  • Testator: this is the person making the Will. You
  • Beneficiaries (Legatees): all those people, organisations and charities you wish to benefit under the terms of your Will.
  • Executor(s): the people you appoint to ensure that the terms of your Will are carried out.
  • Witnesses: two people who must be present when you sign your Will. They may not benefit under the terms of the Will and neither can their spouses.
  • Solicitor: professional person who meets the standards set by the Law Society and is qualified to undertake legal work including Wills and Probate. Solicitors are regulated by the Law Society.
  • Trustee(s):people you appoint to administer and manage any trust you set up.
  • Guardian: person(s) appointed under the terms of a Will to have custody of any minor child(ren).
  • Codicil: legal document adding to, or altering, an existing Will. A codicil is used where only a minor change is needed and there is no need to make a new will.
  • Court of Protection: division of the Supreme Court which exists to manage the affairs of those who are incapable of managing or administering their own financial affairs.
  • Estate: total value of all the assets you leave when you die, after all debts, taxes and costs have been paid.
  • Inheritance Tax: payable if your estate exceeds the current tax threshold (£285,000 from April 2006). It can be avoided or reduced by leaving a legacy to a charity.
  • Intestate: if you die without a Will, the law declares intestacy and decides how your assets will be distributed, regardless of your wishes.
  • Legacy: gift, or bequest in your Will.
  • Conditional: a gift conditional upon a certain event taking place.
  • Discretionary: where you allow your Executors or Trustees to choose who will benefit under your Will.
  • Pecuniary: gift of money; if it is index-linked it will help retain its value.
  • Residuary: what is left of the estate after all other legacies, tax debts and costs have been paid.
  • Reversionary: gift to someone for their lifetime and after their death to someone else, organisation or charity.
  • Specific: gift which is identified i.e. house, car, jewellery etc.

Tags: , , , ,

Chinese Growth will Miss Estimates this Year

22 Feb

I have grave concerns on this reliance that China’s growth will not be effected by the global events. I personally cannot see how there would not be an effect :-

  • With all developing economies, there are changes as the associated working population becomes wealthier;
  • local demands for goods, services and types of food changes
  • change to the structure in relation to imports and exports
  • Who is buying China’s exports? If these economies are growing at a slower or even shrinking, is China not effected?

An adviser to the Chinese government has warned that the world’s second largest economy could still fall to a ‘hard landing’ this year, in a worrying signal that contrasts with growing optimism among other economists that such a damaging scenario will be averted. The message from Chines is growth will slow in a controlled way ahead of a leadership transition later this year. A hard landing would show that the Chinese authorities have not managed to gradually slow growth, and would have a huge impact on the global economy.

In addition, Fidelity’s Anthony Bolton has warned Chinese GDP growth will come in at around 7.5% this year, undershooting consensus forecasts for growth of between 8% and 8.5%. Anthony Bolton, manager of the £558m Fidelity China Special Situations Investment Trust is one of the most successful fund managers over the last 3 decades. I am a great believer that when Anthony Bolton speaks I listen and he was warned emerging markets are not immune from headwinds facing Western economies.

He has stated that he expects the Chinese authorities will put the brakes on growth, bringing in further tightening mechanisms this year which will lead to a reduction in GDP growth.

“China will continue tightening to slow down its economy as the policymakers know the country is not immune from the troubles which are facing developed economies,” said Bolton.

Regional data has shown a slowdown is taking place, with China’s economy growing at 8.9% in Q4 2011, which shows the slowest pace of growth in more than two years.

Tags: , , , , , , , , , ,

Payment Protection Insurance Mis-selling Claims Paid Over £2bn in 2011

22 Feb

 Be aware of the difference between financial product sales and financial advice.

The claims paid in 2011 for Payment Protection Insurance (PPI) mis-selling almost reached £2bn in December 2011 (figures provided by the Financial Services Authority (FSA)).

If you are a victim of this mis-selling, complain and ask for compensation; it is your legal right if you suffered at the hands of this horrendous treatment. Although, please do not take advantage of the system if you are not a victim of this crime. The concern being, there is growing support for the mentality to accuse, sue and/or exaggerate to make a financial gain, no matter that you didn’t suffer the crime. Please utilise your Rights but don’t abuse your Rights.

In this case there is no smoke without fire as the final cost of payments for actual mis-selling is expected to reach possibly over £8bn

 

Tags: , , ,

Market Outlook

22 Feb

Greece bailed out and the world is safe again.

Except it isn’t and the general reteric from the market clearly is saying so outright. The situation for Greece is dire and the latest bail out programme is likely to create short-term relief and unlikely be enough to a avert further crises in the not too distant future. The markets have so far but in a very subdued manner factored in the saving of Greece non-defaulting for now but tomorrow is another day.

It is unclear if the recent uptrend will yet come to an end. Although, many indices are looking very stretched indeed right now and are prime for a market correction based on historic data and previous events.

This isn’t a bad time to invest, rather care and suitable asset combinations must be made to make the best of the situation.

Good Luck investing and remember be careful but not too careful.

Tags: , , , , , ,

Budget 2012: Ed Balls Demands Tax Cuts to Boost Growth (Article by IFAonline.co.uk on 19.02.2012)

21 Feb

Shadow Chancellor Ed Balls has called for a series of tax cuts in next month’s Budget which he says are needed to boost the UK economy.

Balls said he favoured a VAT cut but, if that isn’t approved, he also suggested a 3p income tax cut for a year, bringing forward the planned personal allowance rise to £10,000 and higher tax credits.

No tax cut could mean “a permanent dent in our nation’s prosperity”, he said.

He told BBC One’s The Andrew Marr Show the current austerity measures were “self defeating” and had left Chancellor George Osborne claiming he was “trapped by the credit rating agencies”.

“We’ve got to get growth back in the economy,” he told the programme.

Writing in the Sunday Times, Balls said: “Some people may be surprised to see Labour prioritising tax cuts. But in a crisis there is a premium on what works effectively and quickly to get our economy moving.”

He said that such a cut should be funded by borrowing, not more spending cuts.

However, Conservative deputy chairman Michael Fallon told BBC One’s Sunday Politics that Balls had not learned “from his time as Gordon Brown’s right-hand man”.

He said Labour was responsible for the country’s debt pile and all tax cuts had to be funded or there would be “billions of pounds of more borrowing and more debt”.

Tags: ,

Lyttleton Dropped from BlackRock’s Core UK Fund (Article by Portfolio Adviser on 21.02.2012)

21 Feb
BlackRock's Mark LyttletonBlackRock’s Mark Lyttleton

Mark Lyttleton is to stand down as the long-time manager of the BlackRock UK Fund, culminating what has been a tough few years for Lyttleton and his investment management reputation.

The change comes as BlackRock tries to reposition the fund as more of a core UK fund, with Nick Little stepping up as sole manager from 1 March.

He was initially appointed co-manager of the fund back in September and has managed core UK equity portfolios for institutional clients of BlackRock for the past seven years.

Tony Stenning, head of UK retail at BlackRock, said: “Nick will enhance the core strategy of the UK Fund as he has a long history of managing this type of portfolio.”

He added that the process of bedding in the joint management structure had happened more smoothly than BlackRock could have hoped for, allowing for this subsequent transition to Little as sole manager, although he stressed this was not the intention from the start. 

Since the second half of 2004 Little’s composite figures show he has outperformed the FTSE All Share Index in each discrete year across multiple mandates. Over three years to 31 December he has posted returns of 14.9%, compared to 12.5% from the FTSE All Share and over five years his track record shows returns pf 4.1% per annum, versus 1% from the index.

Little favours a reduction of the portfolio’s exposure to smaller, less liquid stocks which have traditionally served Lyttleton well, but have hurt his performance in recent times and are considered too alpha for a core product.

Poor performance

Launched in 1993, and managed by Lyttleton for over 12 years, the £448m BlackRock UK Fund has underperformed the IMA UK All Companies Sector over six months, one year, three years and five years and has ranked in the third or fourth quartile over all those timeframes. Its annualised performance over five years is -1.6% compared to an average of -0.2% from its peers.

The performance of the fund was really hurt in the 12 months to 31 December 2008 when it posted negative returns of 36.7%, compared to -29.93% from the FTSE All Share. In 2009 and 2010 performance picked up again, but last year the fund was down 10.2%, versus -3.46% from the benchmark.

BlackRock said Little’s original appointment as co-manager followed similar existing co-manager structures, such as the Nick Osborne and Mark Lyttleton combination at the helm of the UK Absolute Alpha Fund and Nick McLeod-Clarke and Adam Avigdori’s co-running of the UK Income Fund.

But there are those who questioned the rationale and wondered if it signalled Lyttleton’s fall from grace.

Early signs

At the time, Adrian Lowcock, senior investment adviser at Bestinvest, said: “Historically Lyttleton has been a very popular manager in the UK core equity fund space, so this is a big step change.

“In our view it shows Mark needs some support in managing money and running the funds, performance has been very disappointing and in such a competitive area we want stronger performance.”

Bestinvest had recently downgraded Lyttleton’s UK Dynamic Fund, while OBSR downgraded the UK Fund at around the same time, citing “a track record undermined by a very weak 2008” and “weaker stock selection than anticipated”.

The earliest signs Lyttleton’s time as most favoured manager was running out came in June last year, however, when BlackRock opted to wind down the closed-end Absolute Return Strategies fund of hedge funds which mirrored Lyttleton’s open-ended proposition – the UK Absolute Alpha Fund – because of a persistently wide discount to NAV. The fund was £130m in size at the time.

Flagship fund

Stenning said: “There will ne no change to Mark’s other responsibilities and he will retain his positions on the UK Absolute Alpha Fund and the UK Dynamic Fund, both of which have exceptional long-term track records. This will allow him to focus on those higher alpha strategies. It is very important that within the team we manage our resources sensibly. These are three key funds for us and it’s important to get it right.”

The UK Absolute Alpha Fund was one of the original funds in the absolute return space, launched in 2005, and had very strong performance in its first few years, with Lyttleton at the helm. In 2008 Nick Osborne was added as co-manager, although he had worked with Lyttleton since launch.

To 31 December 2007 the fund returned 9.8%, it then faltered in 2008 with a 1.5% return, which was brought back up to 7.9% in 2009.

Of late, the flagship fund has failed Lyttleton again though, and he was forced last month to write a letter to investors explaining its poor performance in 2011, which he admitted “with no shortage of contrition” was due to “picking the wrong shares”.

Up to £2.8bn AUM by the end of 2009, the fund ended 2011 at £1.22bn and in the year to 31 December 2011 it returned -6.8%, although it has an annualised return over five years of 2.9%. 

BlackRock said to the best of its knowledge Mark Lyttleton will not be departing the firm in the near future, stating there is “nothing Machiavellian about this move”.

Tags: , , , , , , , ,

Finally, a Greek Deal: What Next for Markets? (Article by catherine Boyle in CNBC on 21.02.2012)

21 Feb

The second Greek bailout deal was finally clinched in the early hours of Tuesday morning.

LdF | Vetta | Getty Images
 

European markets and the euro were initially expected to rally after the market open – but a troika report leaked to the Financial Times could exacerbate fears in the market that Greece may not be able to hit its bailout targets and drive markets down again.

“Short term you’re still in the vagaries of what politicians do day-to-day. This is still a sentiment-driven market,” Ian Harnett, European Strategist, Absolute Strategy Research, told CNBC.“The big message has got to be that the European governments want to keep the euro together and that will lead to a weaker euro.”

A weaker euro (EUR=X 1.32   -0.0045 (-0.34%)) could help countries in the single currency bloc in the medium term.

“The key for us is fundamental monetary policy. The exchange rate has to do the work,” Harnett said.

The euro is expected to move upwards on the news in the short term. “A break of 1.3350 in EUR/USD looks necessary to trigger the next round of stops, which could then see a move into the high 1.30s,” currency strategists at Lloyds wrote in a research note.

The lack of the opportunity for devaluation, which was used to help solve the Asian crisis of late 1990s, will limit opportunities for growth, Jonathan Tepper, Partner at Variant Perception, told CNBC.

The “internal devaluation” provided by austerity measures such as wage cuts will not provide the necessary medicine, he believes. While Latvia and Ireland have achieved some relative success using these methods, he argues that their rising emigration levels shows that they have not been entirely successful.

“The idea that somehow Greece and Portugal will be able to restore competitiveness or that the imbalances between the core and periphery will be able to solve themselves is slightly ridiculous,” he said.

Concerns about the other peripheral economies still remain, and bond yields are set to rise again, Harnett believes, as “governments will have to pay for this in some way.” Rising bond yields led to Portugal, Ireland and Greece seeking bailouts earlier in the crisis.

“Portugal is next in line. You don’t need to have anything more than fourth grade math to understand that the wedge becomes further out when you’re borrowing at 14 percent and you’re contracting,” said Tepper.

“Greece will have to restructure their debt, Portugal will have to, Ireland will if they’re smart.”

And Greece’s own problems are far from solved. Large-scale privatizations of state-backed assets still haven’t begun.

“The best-case scenario for Greece put forward is still a 120 percent debt to GDP (gross domestic product) ratio. Clearly getting the private sector involved will get Greece an enormous debt burden that it can’t service,” he said.

Its economic problems include soaring unemployment, a current account deficit of around 10 percent and exports which are still not at pre-crisis levels.

“Greece still doesn’t have a proper growth model, and that’s really the main source of worry,” Guntram Wolff, Deputy Director, Bruegel, told CNBC.

Tags: , , , , , , , , ,

Second Greek Bailout Worth €130 Billion

21 Feb

Euro zone finance ministers have agreed and approved a second bailout for Greece. This will resolve the immediate repayment needs but there are still grave concerns over growth or the potential of future growth in the Greek economy, to reverse their current recessionary cycle.

The talks through last night, have lead to Eurozone officials to agreed measures to cut Greece’s debt to around 120.5 % of GDP (Gross Domestic Product) by 2020. This is close to their original target of 120%, after private bondholders accepted a bigger loss, so meeting the shortfall in the funding gap.

Cristian Baitg | Photographer’s Choice | Getty Images
 

This euro rescue package will help avoid imminent bankruptcy for Greece, with the hope that it will passify the fear of uncertainty in the markets, at least in the short term. I am negative on the outcome as this deal was needed as Greece failed to meet the terms of the first bail out package and personally, I do not see where growth will occur to avoid the need for a third bail out package.

The euro jumped almost half a cent, reversing earlier losses, after Reuters reported a deal had been struck.

European Union, European Central Bank and IMF experts, obtained exclusively by Reuters, said Greece would need extra relief to cut its debts near to the official debt target 2020 given the ever-worsening state of its economy. This highlights the fact that Greece’s problems are far from over.

 

“Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.” 

The accord will enable Greece to launch a bond swap with private investors to help reduce and restructure huge amounts od debt. This will allow it a more stable financial base and keep it inside the Eurozone.

Greece will have around 100 billion euros of debt written off, as banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon.

Private sector holders of Greek debt are expected to take losses of 53.5% on the nominal value of their bonds as part of a debt exchange.

There is the fear and expectation by many economists, who believe this package may only delay a deeper default by a few months. Skeptics question whether a new Greek government will stick to the deeply unpopular program after elections due in April, and believe Athens could again fall behind in implementation.

The private creditor bond exchange is expected to launch on March 8 and complete three days later. This means a 14.5 billion euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

Tags: , , , , ,

← Older Entries
Newer Entries →