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ECJ Judgement and the effect on Discounted Gift Trusts

26 Nov

This article summaries the judgement provided by the Court of Justice of the European Union (ECJ) regarding gender discrimination in relation to insurance premiums and its effect on Discounted Gift Trusts (DGT).

The Decision

On 1 March 2011 the ECJ issued a judgement that stated that the insurance services sector will no longer be able to offer gender specific premiums or benefits from 21 December 2012.

How does this impact Pensions, Annuities and Insurance?

This ruling is expected to affect these areas of financial services and following the 21 December 2012, we will see how this will be embedded into our existing legal framework and processes.

How does this impact DGT valuations?

When calculating the open market value of an income stream to arrive at a discount, HMRC guidance provides the use of certain gender specific mortality tables. HMRC have indicated they will review their guidance to take account of the judgement. However, it is likely that any change would not happen until late 2012. For DGTs declared before any change to the HMRC guidance on valuations, this judgement should have no impact, as the basis of the discount calculated will be relevant as at the date the trust is declared not the date of death of the settlor(s).
 
It should be remembered that the discount is just one factor in deciding whether a DGT is a suitable arrangement as part of your Inheritance Tax planning strategy.

The Rationale for the Judgement


Directive 2004/113/EC prohibits all discrimination based on gender in the access to and supply of goods and services. 

This means that from 21 December 2007 the Directive prohibited the use of gender in the calculation of insurance premiums and benefits. However, the Directive allowed exemptions to Member States regarding the use of gender specific premiums and benefits so long as the Member State ensured that the underlying actuarial and statistical data of which the calculations are based are reliable, regularly updated and available to the public.

The judgement considered if the intention of this exemption was to allow gender specific premiums and benefits to continue indefinitely. The Court concluded this was not the case and that gender specific premiums and benefits works against the achievement of the objective of equal treatment between men and women and therefore it was appropriate to bring this practice to an end.

Concluding that gender specific premiums and benefits would be regarded as invalid with effect from 21 December 2012.

 

Retirement Planning and Retirement Income Options

1 Oct

This article focuses on Money Purchase Schemes – so, schemes where you save up a fund to buy your retirement income e.g. Personal Pensions, SIPPs, SSASs, Stakeholder Pensions, Defined Contribution Workplace Schemes

Key Points

  • You do not have to accept the pension income offered by your pension scheme. You have the right to take your retirement income from a different provider – this is called the open-market option (OMO).
  • Your scheme may not offer the best deal for your money when you retire, so check whether you can get more for your money by using the open-market option.
  • In difficult economic times, your pension fund may be worth less than you expected, so getting the best deal is even more important.
  • Choosing how to take your retirement income can be a complicated decision. I always recommend that you take professional advice from a suitably qualified Independent Financial Adviser authorised by the Financial Services Authority (FSA).

Making your retirement choices and always think before you choose 

Things you should know :-

  • Your pension scheme should send you, no later than 6 months before you are due to retire, details of the choices you have.
  • This information will discuss buying an annuity (an arrangement which provides you with a pension income for the rest of your life).
  • Your pension scheme must tell you that you have the right to shop around and about the different types of annuity that are available.
  • You do not have to accept the annuity quoted by your pension scheme and you can shop around to find the best deal – this is called the open-market option.

Your income in retirement will depend on 4 main things:

  • how much money you and your employer have paid into your scheme;
  • how this money has been invested;
  • how much of this money has been used to pay any charges; and
  • the decision you make now on how you take your retirement income.

If your pension fund rises and drops in value (for example, all or some of it is linked to stocks and shares), you may want to consider switching your fund into a lower risk investment to reduce uncertainty in the run up to retirement. Check with your scheme whether this option is available and whether there is a charge for switching your money.

Making your retirement choices
You may get better value for your money if you shop around using your open-market option.

Before you make any decision, you need to consider:-

  • your overall financial situation;
  • what you might need financially in the future; and
  • how much tax-free cash you want to take (i.e. a pension commencement lump sum).

There are limits on the amount of cash you can have as a lump sum – typically, up to 25% of your fund. The cash you take will affect how much money is left over to buy your pension income.

I would recommend that you take qualified financial advice

What is an annuity?
An annuity converts your pension savings into a series of payments – the pension scheme pays your pension savings to an insurance company who, in return, agrees to pay you a regular income for the rest of your life. This is often called a lifetime annuity.

What affects the cost of an annuity?

  • Type of annuity
  • Age – annuity rates tend to get higher the older you are
  • Sex – annuities for women currently cost more. This is due to a change which will apply from December 2012.
  • Health and lifestyle
  • Prices vary from provider to provider just like any other goods or services you buy, which is why it is so important to consider shopping around.

How does the open-market option work?

You have a choice of who provides your retirement income when you retire. Your pension scheme will normally offer you an annuity but you can also shop around so you can choose the annuity that best suits your needs. Shopping around using your open-market option helps you to:

  • find out how the cost might vary between providers;
  • identify different features which may help you find the annuity which best suits your circumstances and how these features can affect the cost of the annuity or how much pension you get; and
  • decide if you want to choose another option instead of buying an annuity if your scheme allows this.
  • to find out if the annuity offered by your scheme is competitive;
  • if you are in poor health as this may mean you can get a higher annuity; and
  • if your lifestyle may qualify you for a higher annuity, for example, if you smoke or do a particular type of job.

Even if you have been very happy with your pension scheme up to now, consider the open-market option to check that it is offering the best deal for you when you come to retire.

What types of annuity are there?
There are 2 basic types of annuity – a single-life annuity and a joint-life annuity. There are other features that you could choose to include in the basic types, to suit your needs and circumstances. Check which features are included in the annuity offered by your scheme.

Single life – This pays an income to you for the rest of your life.
Joint life – This pays an income to you for the rest of your life. And then, when you die, it continues to be paid (possibly at a reduced rate) to your spouse or partner until they die.

Options you may be able to include:

Level – the pension income you receive stays the same throughout your life.

Yearly increases (escalation) – the pension income you receive increases each year, in line with inflation (the Retail Prices Index (RPI) or the Consumer Prices Index (CPI)), or at a fixed rate, for example, 3% or 5% each year.

Guarantee period – your pension income can be guaranteed for a set period, usually 5 or 10 years, so that it continues to be paid (usually to your widow, widower, civil partner, or to your estate) for the rest of the guarantee period if you die before the period ends. If you include a guarantee period, it may involve a small reduction in the amount of your annuity.

Lump sum on death – if you die, the annuity will pay out a taxable lump sum, equal to the cost of your annuity less any income you have already been paid.

Investment-linked annuities (including with-profit annuities) – these annuities offer the potential for you to receive a higher income but rely on stock-market performance. As a result, your income could go down as well as up.

Impaired life annuities – these annuities can pay a significantly higher income if you have a health problem that threatens to shorten your life. In cases of serious ill-health, where a registered medical practitioner confirms that your life expectancy is less than a year, the law may allow you to take the whole of your pension fund as a lump sum.

Enhanced life annuities – these annuities can pay a significantly higher income if your lifestyle may shorten your life.

What alternatives are there to an annuity?
When you retire, you may decide you do not want to buy an annuity.

Some of the alternatives we describe below may only be suitable if you have a large amount in pension savings or other sources of income and are comfortable taking some risk with your pension. Not every pension scheme offers all or any of these alternatives.

Again, before making a decision you should take qualified financial advice.

Make sure you are comfortable with the risks of choosing one of the alternatives to an annuity.

Cash lump sum – for smaller funds (this is sometimes called trivial commutation). 
If you are at least 60, you may be able to take all your pension savings as a lump sum. You can usually only do this if the total value of all your savings in all pension schemes is less than £18,000. If your fund value in an occupational fund is less than £2,000 then you can take it as a cash lump sum if your scheme rules allow, even if all your pension savings are more than the minimum amount of £18,000.

You usually pay tax on part of these lump sums.

Phased retirement – you can use your pension savings to buy annuities at different ages in the future.

Drawdown pension (sometimes also called income withdrawal or drawdown) – you take an income directly from your pension fund.

Short-term annuities – you can buy a series of annuities each lasting for a fixed term (usually up to 5 years). You can then leave the rest of your savings invested or use them to buy a lifetime annuity.

Putting off buying an annuity
Your scheme rules may allow you to put off (postpone) buying an annuity, whether or not you stop working. By postponing buying an annuity (either for a limited time or indefinitely), you may get a higher annuity because your pension savings will have been invested for longer and you will be older. However, annuity rates and investments can go down as well as up. Check whether you may lose any guarantees or have to pay any charges by putting off taking your pension income. It may also be possible for you to be paid your tax-free lump sum but delay taking any income.

Other ways
There are new options now available which pay a regular income and offer protection and/or guarantees of either investment growth or the amount of pension fund you will have left to buy an annuity later on. They vary in:

  • what they’re called;
  • the guarantee/protection they offer; and
  • the charges they make to cover the cost of the guarantee/protection.

You generally have to give up some investment growth potential to pay for the guarantee/protection.

What things should I keep in mind if I shop around?

  • If you use your open-market option and decide to buy your annuity from another insurance company, your pension scheme might take charges from your fund. You need to get an estimate of the value of your fund (less any charges) before you can ask insurance companies for a quote for an annuity.
  • Make sure you compare like with like. For example, don’t compare a level annuity with one that increases.
  • Make sure any annuity you choose fits with your circumstances. (For example, do you need an escalating annuity or do you qualify for an enhanced annuity?)
  • Check whether you will lose any benefits (for example, the option to buy an annuity at a guaranteed rate) or pay any charges if you don’t take up your pension scheme’s offer.
  • Quotes for annuity rates are often available only for a limited time, usually seven to 28 days. Also find out if there is a ‘cooling-off’ period during which time you can cancel any choice you make.
  • You may find it difficult to shop around if you have a small pension fund (less than £30,000) as some firms will not provide an annuity.
  • Not all companies will deal with you direct and only offer products through financial advisers.
  • If you use the open-market option, the adviser can be remunerated through a commission paid by the insurance company (you may prefer to pay via an agreed fee amount).

If you are comparing annuities under the open-market option, remember to compare like with like.

Frequently asked questions
What if I have a defined contribution fund in more than one pension scheme?
You may want to get financial advice. For example, you may be able to combine the money from all your schemes and use it to buy one annuity rather than buy a different annuity for each scheme. This may give you better buying power.

Do I have to pay tax on my pension income?
Yes, your pension income counts as earned income for tax purposes. Remember that most schemes will allow you to take a part of your fund, normally up to 25%, as a tax-free lump sum, as well as receiving an income.

What if I am contracted out of the additional State Pension (the State Second Pension)?
Your employer’s money purchase scheme will be able to tell you if it is contracted out of the State Second Pension (S2P). (This used to be called the State Earnings Related Pension Scheme (SERPS).) If so, you must currently use part of your pension fund to buy a ‘protected rights annuity’.

How will I know how much I have available to buy an annuity?
You can get an estimate of the value of your pension fund (less any charges for using the open-market option) from your pension scheme. Your pension scheme should send this to you before your retirement date, so you can start to shop around. You should then take off any amount you plan to take as a tax-free lump sum when you retire.

Will the stock market affect the value of my pension fund?
If you are invested in a fund which rises and falls in value (for example, it is invested in the stock market), the value can change. You may want to investigate whether you have the option to switch into a lower risk fund to reduce uncertainty in the run-up to retirement.

Who regulates annuities?
The Pensions Regulator, regulate workplace pension schemes. However, you will usually buy your annuity from an insurance company and these are regulated by the Financial Services Authority (FSA).

If an insurance company cannot pay all amounts due, the Financial Services Compensation Scheme (FSCS) may be able to help you.

Important Points to Consider

  • Once you have bought an annuity, you cannot normally change your mind. So, it’s worth making sure you get the right one.
  • In difficult economic times, your pension fund may be worth less than you expected.
  • Take qualified advice as the implications can last a lifetime.
  • If you want to delay taking your pension income, check for charges or penalties which might apply.
  • Do you want to change funds before you retire?
  • Do you want to take tax-free cash from your fund before you take an income? (Remember the Pension Commencement Lump Sum is only available at the date you take pension benefits and not afterwards – “a use it or lose it” benefit)
  • What annuity options are available from your scheme?
  • Compare what your scheme offers with the open-market option.
  • Do you qualify for an impaired life or enhanced annuity?
  • Would one of the alternatives to an annuity be suitable for you?

Where to get more information
You can get more information from the following organisations.

The Money Advice Service – also produce a range of free guides, available from its website.
Helpline: 0300 500 5000
Typetalk line: 18001 0300 500 5000
Website: http://www.moneyadviceservice.org.uk

Department for Work and Pensions (DWP)
Phone: 0845 606 0265
Textphone: 0800 731 7339
Website: http://www.direct.gov.uk

Financial Services Compensation Scheme (FSCS)
The FSCS helps protect consumers against financial loss when firms authorised by the FSA cannot or are unlikely to pay claims against them.
Phone: 0207 741 4100 or 0800 678 1100
Website: http://www.fscs.org.uk

The Pensions Advisory Service (TPAS)
TPAS is an independent organisation which can help with questions about your pension and annuities. You should also consider using the annuity planner on the TPAS website homepage.
Phone: 0845 601 2923
Email: enquiries@pensionsadvisoryservice.org.uk
Website: http://www.pensionsadvisoryservice.org.uk

The Pension Tracing Service
The Pension Tracing Service can help you track down pension schemes you have been a member of in the past. Their tracing service is free – you can either phone them and ask them for a tracing request form or you can use their online form.
Phone: 0845 600 2537
Textphone: 0845 300 0169
Website: http://www.direct.gov.uk

Your trustees or your scheme administrator
You’ll find their contact details in your scheme literature.

A suitably qualified independent financial adviser

So What is Secured Income?

This is the traditional route of Pension Annuities – there are more options available from permanent and temporary annuities but this is fund and age dependent.

Retirement Planning Needs To Be Taught In Schools

30 Aug
Retirement planning needs to be taught in secondary schools and given the same priority as careers advice, according to de Vere Group’s chief executive Nigel Green, who says this is the only sustainable way to solve the pensions crisis. 
His comments follow a study by Barings Asset Management that found 44% of those close to retirement age were unable to say when they would be able to retire. 
Get the Most from Retirement Planning
It’s terrifying to think a large proportion of the population who are nearing retirement age do not know when they will be able to afford to retire. As a nation, it seems we’re ill-informed. In order to ensure people are, in the future, more likely to be able to retire when they choose (and not have to work on past their selected retirement age because they can’t afford to give up work), it’s of vital importance we teach from a young age – how to plan finances.
 
The earlier people start to make informed decisions, the easier it is to enjoy the lifestyle you deserve when you retire. Many are disillusioned with retirement planning and especially pensions but the truth is more likely – people are dissatisfied with the investment returns generated – this is where professional financial advice is paramount (but make sure the person giving the advice has the ability and enthusiasm to provide suitable advice both now and in the future).
M341
In a poll back in April, more than 80% of users said their pension pot had failed to grow in-line with promises and projections made when they first began contributing (information provided by Barings Asset Management). Unless students are informed about the massive risks of ignoring retirement planning, many could find themselves worse off in later life.
Annuity Rates are at historic lows, age-related benefits is being scrapped, soaring living costs and taxes, and people living longer – meaning money has to go further – it’s clear that the world has changed irrevocably in the last few years; things are not the same today as they were a generation ago. Should we fail to plan for retirement, an increasing number could find themselves unable to enjoy the retirement that previous generations have taken for granted.
In secondary schools, students are taught about finding a suitable career, which is right and proper, but it is madness that we stop without equipping them with the life skills of how they are more likely to be financially independent once they are ready to leave the world of work. 
Personally, I am a great believer in both pensions and alternative investment vehicles, such as ISAs, certain structured products/deposits, simple fixed term deposits and collective investments. I have been and will carry on saving through these investments and as an IFA (Independent Financial Adviser) specialising in investments and tax planning – I know that if I do not provide for my future – no one else will. I plan that we will have the retirement we deserve and yes, I expect and have planned to financially assist our daughters through their path to adulthood.

HMRC Crack Down on Tax Avoidance Schemes

22 Aug

HMRC has won, subject to appeal three court decisions against tax avoidance schemes. These cases are expected to provide the Exchequer with £200 Million.

The message is clear – when planning to minimise tax, ensure you use the rules that exist, take advantage of government backed schemes (eg personal pensions, ISAs, VCTs, EISs, AGR & BPR related schemes) and use accepted approaches within the flavour of the law – take professional advice. The cases in question are high value high – profile and are out of the remit of the general investor but the ethos of HMRC is clear.

HMRC Letter 480

HMRC have stated that this sends “a very clear message” that it will tackle efforts to avoid paying tax.

The first case, against ‘Schofield’ and heard in the Court of Appeal on 11 July, involved a business owner using a tax avoidance scheme to create an artificial loss on his sold business, even though it had actually made him a £10m profit. HMRC said he paid £200,000 to be involved in the scheme.

Another case against Sloane Robinson Investment Services, heard in the First Tier Tribunal on 16 July, saw the company’s directors attempt to avoid a combined £13m worth of tax on their bonuses. The First Tier Tribunal ruled the scheme, even once it had been modified to counter recently introduced anti-tax avoidance legislation, did not work.

In the final case, against ‘Barnes’ in the Upper Tribunal on 30 July, a scheme aimed at exploiting a mismatch between two tax regimes on behalf of more than 100 individuals failed to work. HMRC said some £100m was at stake as a result of this scheme.

HMRC director general of business tax, Jim Harra, said: “These wins in the courts are a victory for the vast majority of taxpayers who do not try to dodge their taxes. They send a clear message to tax avoiders – HMRC will challenge tax avoidance relentlessly and we will beat you.

“We have now had three major court successes in avoidance cases in the last month alone and I hope this sends a very clear message: These schemes don’t come cheap, you carry a serious risk that you’ll end up paying the tax and interest on top of a set-up charge which can run into the hundreds of thousands of pounds.

“These were complex cases which show HMRC’s experts doing what they do best, delivering great results for the UK.”

Millions Of Pounds Lost In Pension Pots

29 Jul
As an IFA (Independent Financial Adviser) and industry professionsal, I am constantly reminded that the majority of consumers are unaware of the collective value of their pension funds. If this is true, it could potentially result in millions of pounds of unclaimed investments. 
 
Pensions alarm clock

 
 
Friends Life Pension Survey (information available on 23 July 2012 through Friends Life Media Services)
 
Friends Life is the latest of many product providers who have produced a survey detailing that 10% of those who responded had no record of their corporate pensions held with previous employers, and 32% were unsure where was the relevant paperwork.
 
Friends Life confirmed they believed the trend could get even worse in the coming years; their research suggests that there will be more than a seven-fold increase in the number of small pension pots in the system by 2017, with 370,000 worth less than £2,000 created each year. This could equate to an extra £74m in pension savings being lost on an annual basis. 
 
This astounding research shows that people are not paying enough attention to their pensions. Friends Life have suggested that, every year, individuals are losing out on significant savings held within pension funds that they are unaware they have.
 
The survey also indicated that more than 30% of people have pension pots with two or more employers, with a further 5% unsure of how many pots they have. 
 
More than 40% of people responding said they believed they were not paying any charges on their pensions, while a further 26% thought their pension didn’t cost them anything as “their company pays”. 
 
Women were shown to be more apathetic when it comes to pensions and are less likely to know how much their pot is worth, with 72% unaware of the collective value, compared with 64% of men. Also, the study stated women are less likely to keep track of their pension’s documentation, with over 11% having no record of their pensions, compared with 9% of men. 
 
saving up cartoons, saving up cartoon, saving up picture, saving up pictures, saving up image, saving up images, saving up illustration, saving up illustrations   

Conclusion
 
The fear and worry about these pension surveys is, if they are correct we could be facing a whole generation of people who are unprepared for their retirement. 
 
Personally, I believe it is imperative that people are aware of where their money is and what it is doing for them. Too often pensions are deserted and not considered properly before it’s too late.
 
Please make sure you are aware of the pensions you have, the amount you and your employer are paying, what charges there are and how much each pension plan is worth is essential for retirement planning.
 
If you want help, just ask a professional. I am an IFA (Independent Financial Adviser) and would always recommend independent advice. Always make sure that the adice you recieve is independent – sometimes companies will dress-up their advice as wealth management, exclusive or other such terms to hide the fact the the advice is NOT independent – be aware.
 
You should keep up-to-date on your pensions and make sure you track down all investments made via pensions either through previous employers and personal arrangements. I suggest that you maintain a list of all policy details from previous pensions, and keep providers up to date with contact details. 
 
I urge you to think about these factors long before approach retirement – is the quality of your retirement will be linked to your financial security – earlier the planning the better as we would have time to grow the funds and hopefully target any shortfalls

Pension Pots Crippled by Falling Gilt Yields ?

25 Jul
 
It seems that on a regular basis there are articles and information provided suggesting how awful our pension income system is – I am an investment IFA specialising in tax planning. My opinion is different.
 
 private pension scheme cartoons, private pension scheme cartoon, private pension scheme picture, private pension scheme pictures, private pension scheme image, private pension scheme images, private pension scheme illustration, private pension scheme illustrations
 
My opinion – changes in legislation and regulations have made the arrange more flexible. (This is to an extent never seen before). Yes, Gilt Yields are low and this is a major factor in determining annuity rates and yes, compared to the past the returns achieved are low – but so are the factors creating the environment for higher rates.
 
A key factor is inflation – we recently saw rates hit 3.6% only a few months ago but they have fallen back in more recent times. On a historical basis these rates are very low. Annuity rates were much higher, at a time when inflation was also much higher. So we have been a victim of the success of monetary policy controlling the rate of inflation. The figures around annuities and inflation have moved maybe no quite in tandem but there has been a very strong correlation.
 
There again part of what determines the value of Gilts is inflation, especially level Gilts where inflation (and future expected inflation) is clearly an important factor affecting the pricing i.e. if everything is going up in price and the rate of this increase both known and expected has an effect on the value of assets with known returns.
 
So let’s have a look at the actuals:-
 
Gender Age Escalation Guarantee Purchase Price Expected Annual Payment
Male 55 Level None £100,000 £4,750
Male 60 Level None £100,000 £5,250
Male 65 Level None £100,000 £5,950
Male 70 Level None £100,000 £6,700
Male 75 Level None £100,000 £7,900
Gender Age Escalation Guarantee Purchase Price Expected Annual Payment
Female 55 Level None £100,000 £4,650
Female 60 Level None £100,000 £5,050
Female 65 Level None £100,000 £5,700
Female 70 Level None £100,000 £6,300
Female 75 Level None £100,000 £7,350
 
The above figures were provided through find.co.uk and have been rounded down to provide a guide estimated price rather than actual terms. The basis was a simple level lifetime annuity with no additional benefits.
 

So the question is – in an environment where interest rates offered, say a 5 year fixed rate bond typically pays arround 4.0% AER and the rate of inflation for June 2012, according to the Office of National Statistics, was 2.4% (Consumer Price Index) or 2.8% (Retail Price Index). Are these rates so unrealistic?

For investments, where I advise – my opinion for the future – if I could consistently achieve net returns of 5% per annum plus a bit to neutralise inflation – I would feel job well done.

The concern with pensions are twofold – rates available once at retirement but also the returns achieved during the term getting to your retirement date.

So the investment environment and your success is paramount – effective management is essential and this is where my expertise can help. The current speculation about the Eurozone, amongst other international and national issues, and focus on Spain will have an effect. If you think, circa £29 Billion was wiped off the value of the FTSE 100 yesterday – while Spanish government borrowing costs soared to a new euro-era high of 7.5%. 

As a result, gilt yields have approached all-time lows. This could be disastrous for many pension pots as the vast majority of all pensions and savings are linked, at least in part, to shares. The crisis in Europe is and has driven many investors into gilts (seen as a “safe haven”. The downside effect is this has pushed up the price of gilts, so reducing their effective yield and forcing annuity providers to cut rates to historic lows.
 
This means those on the cusp of retirement are destined to have a permanently lower level of retirement income. Remember, there are choices as to how to draw your retirement income and some of those facilities are flexible and can change. For example there are temporary annuities, income drawdown, and some halfway products available. With pension planning and retirement income – every situation is unique, so I can only comment on options available on a case by case scenario.
 
Issues to be aware of – personally I am uncomfortable as a general with the following – buying an annuity when you do not have a need for the income (I have heard of sales people presenting that you might as well take it – income you could have and why not….beware of sales approaches); moving pensions offshore to circumvent UK legislation (tax planning is all about using the rules as they exist any time you try something else, you run the risk of future legislative changes and the wrath of HMRC).

Mark Lyttleton Is Taking A Leave of Absence From BlackRoch & Fund Management

1 Jun

Mark Lyttleton is taking a leave of absence for the summer (18 June and end on 17 September 2012). So what does this mean for the funds he manages at BlackRock?

Mark Lyttleton to run absolute return fund for St James's Place

In most cases where personal family issues are given as the reason for the break, one can’t speculate on the issues why. Although, it is more common that if they return to work the vast majority of fund managers that take time out do not return to the role they previously held.

For investors the crucial aspect of this latest twist in the Mark Lyttleton tale is – what to do if their money is in one of his funds?

Since the start of this year, Mark Lyttleton has been removed from managing the BlackRock UK Fund. The reason given at the time so that he could focus on the higher alpha strategies he runs – the BlackRock UK Absolute Alpha and BlackRock UK Dynamic funds.

This makes the timing of his three-month break even more extraordinary.

 

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Independent vs Restricted Advice – What’s In A Name?

29 May

Have you worked out if you will be receiving independent financial advice after 1 January 2013? Or has it just dawned on you that in the new financial services landscape post-RDR this might not be the case.

Speaking personally, I will always be an IFA (Independent Financial Adviser) otherwise I cannot see how you can give the very best advice.

Advice For Buying Life Insurance

Restricted Advice, in my opinion, the adviser will have a restricted product range or worse company specific products only – I had hoped the day of sales reps pretending to give advice was behind us, I guess not – at least you will be able to differentiate. I assume this is where the Restricted Adviser will say he gave the best available product. This may be okay but is it good enough?

The current debate is far from resolving itself, the independent vs. restricted argument seems to be gathering pace, and as financial services firms spend the next six months truly focusing on business models and how they might have to change ahead of RDR’s implementation date, it will continue to hold court.

The irony is, the process I have used for many years is the standard now being introduced.

The question you must ask is – Does the classification of advice as independent or restricted really matter to you?

 

Connotations

Some believe the term “restricted” has a naturally negative connotation and so advisers and advising companies are expected to dress this up in alternative language. The most common being used where advice is restricted is “Wealth Management”, “Holistic Planner”, “Life Planner” – this is not to say these are the only terms or that these terms are not used by those who are independent. Rather, these are unregulated titles and can be used to dress-up and/or hide the true facts.

Companies offering restricted advice, the most publicised in recent years is St James’s Place Partnership, who offer their products through a direct salesforce. They have argued for the name specialist rather than restricted – what occurred to me is, the advice and products that may be provided does not guarantee specialist advice will be provided.

The point is, whatever you choose, independent will just sound and in my opinion is better.

 

A Professional Advisers’ Opinion

There are varying estimates from a whole range of sources when it comes to putting a figure on the amount of advisers that will remain independent after RDR is implemented on 1 January 2013.

A common theory seems to be that many advisers will make the transition to restricted to save time, costs, effort and to reflect their qualifications and the services they provide.

The excuse given, due to the level of professionalism, qualifications and expertise needed to maintain independence  many will see  this as just becoming too hard, particularly given the resources it will require.

Is it better to be a professional independent adviser, or a restricted adviser hiding behind titles, such as, ‘specialist’ to camouflage the truth? Well, I can see the benefit to the adviser of “restricted advice” as it offers a more limited service, easier to administer and with fewer choices to the client.

I know which I will be offering, but let me know what you think…

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

What’s The Scenario if Greece Exits The Euro & Eurozone?

26 May

Greek Flag

If Greece left the Eurozone, I expect this would be bad for Greece with a hike in inflation, unemployment, panic and social unrest likely.

There are some powerful factions within the Greek political system who are clearly anti the austerity measures imposed. I, as we all, can sympathise to some extent with the plight but there is a limitation as the problem is partly home-grown – where other countries made cut backs and tough decisions in the last decade these where not in Greece.

If Greece can’t satisfy the demands of the European Union and the IMF, then they will cut off Greece’s last remaining lines of credit. Without this, Greece will not be able to pay its bills and could drop out of the euro altogether.

Who should pay for these mistakes? Is there an answer? We can’t change the past and can only deal with the current and plan for the future.

 

So what is opinion on this :-

 

Carsten Brzeski, senior economist, ING Belgium

  • Chaos.
  • Greek banks vulnerable from collapse (lack of support if problems arise)
  • Greek companies vulnerable from collapse (lack of support if problems arise)
  • Unemployment would spike
  • Expect the new drachma would drop drastically in value
  • Food and energy prices would leap (poor exchange rates worsen the situation)
  • The turmoil would undermine any opportunity for growth
  • The outlook for the Eurozone would worsen.

 

Michael Arghyrou, senior economics lecturer, Cardiff Business School

  • The drachma would be devalued (at least 50%), causing inflation
  • Interest rates will double and all mortgages, business loans and other borrowing will become much more expensive.
  • There will be no credit for Greek banks or the Greek state.
  • Expected shortage of basic commodities, like oil or medicine or even foodstuffs.
  • A lot of Greek firms rely on foreign suppliers, who may cut off Greek customers.
  • Greek companies could be driven out of business.
  • Greece will lose its only reference point of stability, which was its euro status.
  • The country would end up in a volatile period.
  • There would be institutional weakness.
  • The worst case scenario would be a social and economic breakdown, perhaps even leading to a totalitarian regime.

 

Sony Kapoor, managing director of the Re-Define think tank

  • Greeks or European policy makers talking about an exit in a casual blase way are being highly, highly irresponsible.
  • Total cost versus the total benefit remains overwhelmingly negative, both for the Eurozone and Greece.
  • A Greek exit could undo a large part of good work in Ireland and Portugal.
  • If you are a Portuguese saver with money in the bank, even if there is a small likelihood of losing that money, it would make perfect sense to move euro deposits while you can to a safer haven, like the Netherlands and Germany.
  • There would be a significant deposit flight in peripheral countries.
  • It would immediately weigh on investment in the real economy, because corporations would be very reluctant to invest anything at all.

 

Megan Greene, director of European economics at Roubini Global Economics

  • Cascading bank defaults in Greece would be expected
  • Everybody would take money out of Portuguese and Spanish banks.
  • A big part could be plugged by the European Central Bank (ECB) through a liquidity operation that would backstop the banks. The ECB has already done that several times and it would step up to the plate again.
  • Political contagion or unrest.
  • Greece is a small country and the rest of the Eurozone has been making provision for this for a long time now.
  • The Eurozone could survive a Greek exit.
  • The exit could be better for everyone involved if managed in a co-ordinated orderly way. 
  • If a unilateral default, an exit would be a worse option for Greece.

 

Jan Randolph, head of sovereign risk, IHS Global Insight

  • If credit is withdrawn by the EU and IMF, then Greece becomes a cash economy. It means the government can only pay what it collects.
  • The government starts shutting down, 10-15% of state employees don’t get paid and unemployment surges from 20% to 30%.
  • But Greece can still use the euro.
  • It would be difficult for the ECB to keep banks afloat.
  • The Greek banking sector would collapse.
  • More unemployment, as credit for companies would dry up.
  • What happens next is a political question.
  • European nations would probably not accept another Western European country descending into chaos and collapse.
  • The EU and IMF would probably negotiate some kind of aid.
  • Greece could continue with the euro.

 

 My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

 

Greece and a Change to the Eurozone?

24 May
So with the Greek election (take 2) looming only weeks away, the questions is – will Greece remain in the Eurozone? Personally, I believe if they left it would be both political and financial suicide but that is just an opinion. For the Eurozone such an option is unthinkable and hugely damaging – let alone the fear of the domino effect (so who would be next) and I guess that would/could lead to the end of the Eurozone.
 
Drachma may become legal tender in Greece again
 
It seems clear that there is growing support for the opinion that the current strategies for resolving the Eurozone Debt Crisis are doomed to failure. The most likely scenarios are :-
  • a Greek exit, or 
  • a rapid shift to a fiscal union.
If Greece is anything to go by, the current approach of forcing austerity on crisis economies and preserving their membership of the euro leads to dissent by the voting population. If we look at the voters behavioural changes, this seems to have led sentiment towards more extreme parties, both on the left and on the right.
 
In recent opinion polls, the majority of Greek voters (in excess of 75%) want to remain in the Eurozone (but also reject the austerity programme). The issue being, if there is a change/relaxation of the agreed commitments would send a destructive message to all other member states who are part of austerity programmes. This could lead to financial markets losing confidence, outflows of funds from Greece and other associated economies would accelerate, yields on financial instruments would sore. If this was the case it would be realistic to see the Euro could unravel and collapse.
 
A Greek Exit
A Greek default and exit from the Euro could have dire knock-on effects possibly leading to similar financial disasters in Spain and Italy. To prevent this contagion would require the ECB to lend several trillion euros to banks, and the available funds in this scenario are unlikely to be sufficient to cope with the fallout.
 
A Rapid Shift to Fiscal Union
This is expected to avoid the risk of contagion and financial collapse in at least some of the peripheral nations. This would require a substantial move towards a more centralised or federal style control of Eurozone government revenues and expenditures. This includes the concept currently being negotiated of Eurozone government issued bonds on behalf of all member states collectively.
 
If Brussels were to take over the debts of Greece and other struggling peripherals the immediate credit crisis would recede and the Eurozone credit would establish itself alongside US Treasury debt as one of the foremost debt markets in the world.
 
The outcome is stability but the unknown – is at what cost, both short and long-term?
 
This is in direct comparison of the current situation, where the current approach has led to  the Eurozone capitulation to the need to bail out Greece, Ireland and Portugal has undermined the monetary union, and the risk of contagion to Spain and Italy now threatens its very existence.
 
My contact details are :- rel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan