Showing posts with label pensioners. Show all posts
Showing posts with label pensioners. Show all posts

Wednesday 15 August 2012

Don't panic more than you have to. Look at the return over years rather than days.

Don't panic more than you have to.  Decide measurable standards for what events are a concern, a worry and a big problem, and what you'll do when they happen.

If the value of your pension drops in a stock-market dip, for example, the best advice is often to do nothing, wait for a recovery and look at the return over years rather than days.

Saturday 4 February 2012

The investment fund that is guaranteed to lose you money


Pension savers who hold money in cash are being charged more in fees than their money earns in interest.

Image of coins and note going down a drain - The investment fund that is guaranteed to lose you money
Clerical Medical's Cash Pension fund pays interest at 0.5pc while charging a 1pc annual management fee Photo: chris brignell / Alamy
As a result, their investments are guaranteed to fall in value.
Savers often make use of cash funds within their pension plans to shelter from volatile markets or while they are deciding where to invest. But Clerical Medical's Cash Pension fund pays interest at 0.5pc while charging a 1pc annual management fee, resulting in a fall in value.
The practice came to light when a Telegraph reader wrote to our troubleshooter, Jessica Gorst-Williams, to complain about the fund.
The reader, HG from Surrey, wrote: "This fund can only result in investors losing money, as the cash fund is invested in Bank Rate securities producing 0.5pc but Clerical Medical makes a charge of 1pc.
"The fund is used to park funds when switching investments. I feel investors should be warned of this pitfall or better Clerical Medical should change its charges while the Bank Rate is so low."
Jessica replied: "This is a phenomenon that needs to be watched out for by anyone with money in a cash, or similar, fund. With interest rates as low as they are, skimming profits off such sums in the form of management charges or whatever has become much more transparent than it used to be.
"So, not only is such money being whittled away by inflation, but a higher percentage is being creamed off by some financial providers than the underlying sum is able to generate itself."
She said Clerical Medical – now under the umbrella of Scottish Widows, which is in turn owned by state-backed Lloyds Banking Group – had admitted that the returns on such cash investments had not been enough to fully offset the 1pc annual management fee. This has resulted in the unit price falling slightly.
"I cannot change things for you," Jessica said, "but at least I can fulfil your request to make others aware of this."
http://www.telegraph.co.uk/finance/personalfinance/investing/9059020/The-investment-fund-that-is-guaranteed-to-lose-you-money.html

Friday 9 December 2011

EU pension rules could hit millions of pensioners


Workplace pension schemes with over 12 million members could be forced to close if “destructive” new EU rules come into force, the Pensions Minister has warned.

Elderly couple wlaking on a bridge
Workplace pension schemes with over 12 million members could be forced to close if “destructive” new EU rules come into force, the Pensions Minister has warned. 
The European Commission is considering introducing rules that will make the UK's 6,850 companies with final salary pension schemes pump billions of pounds into the schemes to reduce their deficits. The rules are designed to make pension schemes in EU member states more financially robust.
However Steve Webb, the Pensions Minister, warned that the guidelines from Brussels will land British companies with a “huge bill” of £100 billion. He said the high cost would force many employers to close their pension schemes for good.
“What is being done in the name of protection could mean the destruction of some of the best British pensions,” he said.
The minister also said that if companies spent money plugging their pension deficits they would have less money to invest in growing their own businesses. The rules would therefore damage Britain’s economic recovery.
“These costs could force many employers to close their pension schemes and would have a massive negative impact on growth and our economic recovery. This is a £100bn tax on growth,” Mr Webb said at a meeting in Brussels, where he is building a coalition of European countries to oppose the plan.
In defined benefit retirement schemes, an employee receives an annual payment on retirement based on his or her final salary. Although most final salary – or defined benefit – schemes are now closed to new members, an estimated 12.5 million of current and former employees still benefit from them. Most large companies - from Tesco to Unilever to Alliance Boots - have some kind of defined benefit scheme.
The EU rules under discussion are known in the industry as Solvency II. Under the EU’s thinking, reduced pension deficits would mean that pension schemes are safer and savers’ money is better protected. The combined pension deficits of final salary pension schemes run by the UK’s 350 largest private companies are currently estimated to stand at £80 billion.
However Mr Webb said that the UK already has pension protection in place through the Pension Protection Fund and the Pensions Regulator, which would effectively act as safety nets if UK pension funds ran out of money. He therefore said that the new rules “are not necessary”.
“I am determined to do all I can to ensure that this does not happen,” said Mr Webb.
Joanne Segars, the chief executive of the National Association of Pension Funds (NAPF), which represents 1,200 pension schemes, said that the EU plans are the “last thing that pension funds need”.
“These plans would ramp up costs dramatically. Businesses struggling with a flatlining economy would suddenly have to pump billions more into their pension scheme. This would mean less money for jobs and investment, at a time when the economy desperately needs both,” she said.
Ms Segars said that firms would be so badly hit by the new rules that they would “simply shut these pensions down altogether”.
“It would be a crippling blow for what is left of final salary pensions in the private sector,” she said.
The EU’s plans are currently in the discussion phase. It will set out draft legislation next autumn.
Business group the CBI has also spoken out against the proposals, branding them a “terrible idea”.

Thursday 8 December 2011

You're never too young to start saving

Today's twentysomethings can expect to retire in their 70s. A good reason to postpone saving for the prospect? Quite the opposite.

Cartoon of young couples with expensive goods, old couple looking on - You're never too young to start saving
If you don't start saving for retirement until you're middle aged, you have left it too late Photo: Howard McWilliam
Younger people probably didn't pay much attention to George Osborne's announcement last week to raise the state pension age from 66 to 67 from 2026, eight years earlier than planned.
But they should. Based on the principle the Government had previously set out of increasing state pension age in line with improvements in longevity, accountants at PwC calculate that the state pension age could be set to rise to 70 by 2050.
It means that anyone under the age of 30 will have a long wait before they can get their hands on the state pension.
If you've just finished university and are about to start your first job, you're probably not thinking too much about how you will fund your retirement.
To be fair, dealing with student debts, buying your first home and thinking of starting a family are likely to be foremost in your minds. But ignoring any thought of pension provision suffers from a fatal flaw: if you don't start saving for retirement until you're middle aged, you have left it too late. You will never be able to catch up with where you would have been if you'd started earlier.
Here we explain why this is so, and suggest how those in their twenties can go about preparing for later life without sacrificing their more immediate goals.

I'M ONLY 20. SURELY I DON'T HAVE TO THINK ABOUT PENSIONS FOR AGES?

Starting to build those savings now will make the process a lot less painful.
You may have to rely on your savings for the last 20 years of your life – even if, as expected, we are retiring in our seventies by then. If you don't start saving for retirement until your fifties, you have just two decades to save enough money to last another two decades.
You don't need to be a financial expert to see that that's a very tall order. Something would have to give – either those last years of your working life would see a drastic fall in your living standards, or you would fail to save enough and face an impoverished retirement if you stopped working at the normal age. Many people would simply be forced to work longer.
If makes far more sense to use all five decades of your likely working life to save up the money to fund your final 20 or 30 years.
If you start saving at the age of 20 and put away £75 a month for your entire working life, your savings should produce an income for life of about £17,000 at retirement. Delay until 50 and the same monthly savings will produce an income of about £2,000. Even putting it off until the age of 30 would cut your likely income to £8,850.
Starting early doesn't just mean that you will save for longer. It also gives your investments longer to grow, and you earn interest on the interest. Experts call this "the miracle of compound interest" because it makes a huge difference to total investment returns.
"Saving for retirement is like a diet: what you do day in, day out over a long period is more important than action in fits and starts," said Steve Bee of Paradigm Pensions, a consultancy.

BUT SURELY THE STATE PENSION AND OTHER BENEFITS WILL GIVE ME AT LEAST A GOOD START?

Don't count on it. For one thing, the Government plans to sweep away means-tested benefits for pensioners and replace them with a flat-rate weekly pension of £140 for all. The state's top-up pensions, which paid an income linked to your earnings, are being abolished.
"Given the demographics, there is no reason to think support from the state in retirement will be anything other than at subsistence level," Mr Bee said.

SOUNDS SCARY. SHOULD I START A PENSION RIGHT NOW?

Start saving now, most experts suggest – but not automatically in a pension. In many cases, saving in Isas instead is just as good to start with – and Isas have the extra benefit that you have access to the money if you need it.
John Lawson, a pensions expert at Standard Life, said: "If you're young, saving into anything is good – Isa or pension.
"Pensions are a wonderful discipline but for a basic-rate taxpayer who has no problem maintaining the savings habit, an Isa is fine. You can always transfer to a pension later – in fact if you delay doing this until you're a higher-rate taxpayer, you will actually benefit."
But if you are offered a workplace pension, take it. Within the next few years, every company in the country will have to offer a pension – and enrol employees automatically. The total contribution from you, the company and government tax relief will be at least 8pc.
"You'd be daft to opt out of this auto-enrolment scheme," said Mr Lawson. "You will get a minimum 3pc contribution from your employer."
Ros Altmann, the director general of Saga, agreed that changes to state pensions and the death of final salary schemes meant that the new generation of workers would be "thrown back on private sources of income".
But she added: "Pensions are not the only answer. You could work longer, use your house to fund retirement, run a business and sell it, or take out a range of Isas. The 'pensions or nothing' idea has to change."

WOULDN'T I BE BETTER OFF PAYING BACK MY DEBTS FIRST?

It may seem crazy to save for retirement when you could use the money to cut your debts. But it's not a clear-cut decision – look at the interest rates you pay before deciding.
"If your debts are expensive, such as on credit cards, pay them off first," Mr Lawson said. "But if it's a mortgage or cheap personal loan, there's no reason not to save at the same time. If I'd waited until I was completely debt free before I started saving, I still wouldn't have a pension. You'd be crazy to make 'don't save before paying off debts' your mantra."
Mr Bee said: "Should you save at the same time as paying off debt? Yes if you get a workplace pension. If you opt out, you are adding to your burden in later life – effectively increasing your debts."

HOW MUCH SHOULD I SAVE?

Young people who want to retire on half their final salary will need total pension contributions of 10pc-15pc of earnings throughout their working lives, Mr Lawson said.
So top up your auto-enrolment contributions to about 9pc to get the total to that level. Ms Altmann said conventional wisdom put contributions at 20pc of your salary.

Tuesday 6 December 2011

More than half (56 per cent) admitted to having no idea what level of income they would need to lead a comfortable retirement.


Money is biggest source of rows for middle aged

Money is the biggest cause of rows for most middle-aged couple, ahead of staying out late and a partner's choice of friends, a survey has suggested.

Money is biggest source of rows for middle aged
When couples were asked if they knew what level of income they would need to lead a comfortable retirement, more than half admitted to having no idea Photo: ALAMY
New research found that money is the biggest cause of arguments for 27 per cent of couples over the age of 40.
The figures suggest that the state of their finances is more likely to cause couples to fall out than disagreements over housework, staying out late or their partner's choice of friends.
The study, which looks at how co-habiting couples over the age of 40 are planning for their retirement, also found that nearly one in five (17 per cent) say that they don't feel comfortable talking about finances with their other halves.
Twenty per cent of the 2,000 people surveyed by finance giant Prudential have never had a conversation with their partner about the income they think they will need in retirement.
And while the majority of couples have discussed their pension incomes in the last year, a third (34 per cent) of them only talked about it for half an hour or less.
When couples were asked if they knew what level of income they would need to lead a comfortable retirement, more than half (56 per cent) admitted to having no idea.
Vince Smith-Hughes, head of business development at Prudential, said: "There is no hiding from the fact that sometimes our finances are a tough topic to talk about. It is all too tempting to put off conversations about the money we'll need in the future."

The hard financial facts of retirement today in UK.

Pension deficits soar by 33pc as Nick Clegg proposes to punish savers

Nick Clegg (right) and David Cameron
Nick Clegg (right) and David Cameron
Pension fund deficits – or the difference between the promises they have issued to members and the assets they have available to pay for them – ballooned by a third last month as the shortfall soared from £60bn to £80bn.
That is the daunting conclusion of new calculations by actuaries atMercer, which demonstrate the difficulty of saving to fund old age. It’s a timely warning, coming as it does just as Deputy Prime Minister Nick Clegg proposes new ways to punish people who save for their old age.
He wants to means test benefits that pensioners currently receive on the basis of their age alone and says this is necessary to balance the books. Free bus passes and TV licences are among the targets of Mr Clegg’s cost-cutting brain wave. Such dismal cheese-paring suggests this callow Cabinet Minister must really be running out of ideas.
But the inevitable unintended consequence if Mr Clegg’s weekend wheeze staggers any further toward fruition will be to discourage saving, encouraging more people to live for the moment and forget about the future. That’s not a plan to dig our way out of a debt crisis; it’s a description of how we got here.
Just how hard it is to build up sufficient capital to provide an income for retirement is set out by Mercer’s latest survey of defined contribution or money purchase schemes run by FTSE 350 companies; a broader measure of British industry than the FTSE 100 giants. Unlike unfunded or underfunded defined benefit or final salary public sector schemes, these pensions attempt to match assets and liabilities. But deficits soared to their highest level in 2011 last month.
Bad economic data were to blame. Corporate bond yields, which are used to discount liabilities – or put a present value on funding future promises -  fell during November and long-term inflation expectations increased. Ali Tayyebi, a partner at Mercer, said: “We are beginning to see the bad economic news catch up on the accounting numbers which had so far been relatively protected in the midst of the general economic turmoil.
“The relentless fall in gilt yields, due to the eurozone debt crisis and quantitative easing the UK, is now also pushing down the real yield on high quality corporate bonds. If November 30 conditions are mirrored at December 31, then many companies will be seeing an increased deficit on their balance sheet at the year end.”
Those are the hard financial facts of retirement today. People saving to pay for their old age need all the encouragement they can get; not means-tested deterrents from doing so. Mr Clegg’s mean-minded proposals merely demonstrate that there is no problem so bad that politicians’ intervention cannot make it worse.

HSBC fined £10m for mis-selling to pensioners


HSBC has been hit with a record £10.5m fine for mis-selling investment products to elderly customers needing long term care.





Pensioner counting change - Pensioners' inflation '10 times national rate'
HSBC has been hit with a record £10.5m fine for mis-selling investment products to elderly customers needing long term care. Photo: IAN JONES
HSBC has been hit with a record £10.5m fine for mis-selling investment products to elderly customers needing long term care.
This is the biggest ever fine issued by the Financial Services Authority to a retail financial services company. It has ordered HSBC to pay almost £30m compensation to those affected.
The FSA said that between 2005 and 2010, a subsidiary of the bank, NHFA (previously known as the Nursing Home Fees Agency) advised 2,485 customers to invest in investment bonds, and other asset-based products, to fund long-term care costs. The average age of these customers was 83 – and a sample review suggested that almost 90pc of these cases were mis-sold.
In total the amount invested in these products was close to £285m – meaning the average amount invested per customer was about £115,000.
The FSA ruled that this advice was unsuitable, because these products were designed to be held for a minimum of five years; but many of these customers were not expected to live this long. A combination of capital withdraw, and high product charges meant that people's money was reduced far faster than if they had been recommended alternatives – such as a high-interest fixed-rate account, or an Isa.
In addition the FSA said it was also apparent that the banks advisers had failed to consider the tax status of customers before making these recommendations.
Tracey McDermott, acting director of enforcement and financial crime said: "NHFA was trusted by its vulnerable and elderly customers, It breached that trust to sell the unsuitable products. This type of behaviour undermines confidence in the financial services sector.
"This penalty should serve as a warning to firms that they must have the right systems and controls in place to manage and identify risks when they acquire new businesses. A failure to do so can lead not only to detriment to their customers but to significant reputational and regulatory cost."
She added that the FSA viewed the as particularly significant because NHFA's customers were very vulnerable, due to their age and health. NHFA was also the leading supplier in the UK of independent advice on long-term care products with a market share in recent years approaching 60pc.
Separately, HSBC announced that it would cut 330 jobs in the UK due to "the very challenging economic environment".
"HSBC is today announcing some proposed changes to various areas of our business that will result in the loss of approximately 330 roles in the UK ... in response to the very challenging economic environment and the bank's need to ensure it is working as efficiently as possible," a statement said.