“The month of August has been a month of contrasts and conflicting messages with markets showing greater volatility but on the back of fairly thin trading as would be expected over the summer months. Companies have been reporting strong and greatly improved results and suggesting, with some caution, a more optimistic outlook, whilst recent economic statistics, predominantly US data, have indicated that the recovery may be stalling for the moment and leading to a strong demand for Bonds leaving many equities potentially attractively priced.”

 

 

Click here to see the full Investment View for August 2010

Article:  Advisers say transfer ban will be disaster | Publication: MoneyMarketing | Date: 19 August 2010 | Author: Helen Pow | Quoted: David Trenner

Advisers have hit out at Government plans to stop the majority of people from transferring out of final-salary pensions into defined-contribution schemes from April 2012.

Money Marketing last week revealed the Department for Work and Pensions’ proposals to end transfers, included in a consultation setting out the draft legislation for the abolition of contracting out.

The consultation says: “In addition to contracting-out terms, references to transfers between contracted-out def-ined-benefit and contracted-out DC schemes have been removed as this will no longer be possible post-abolition.”

Some pre-1997 benefits, called excess benefits, will be exempt from the change as well as non-contracted-out defined-benefit schemes but the bulk of transfers will be blocked in a move that advisers say will be disastrous.

A DWP spokesman says: “If the final-salary scheme is a contracted-out scheme, an individual would not be able to transfer to a personal pension. If not contracted out, you could transfer your final-salary scheme to a personal pension.”

Richard Jacobs Pension & Trustee Services managing director Richard Jacobs says the Government could be in the firing line on the grounds of contravening human rights.

He says: “There are so many reasons the Government cannot go ahead with this. It is ridiculous. You are going to have human rights issues here bec-ause people will be able to transfer from one type of pension scheme but not from another. It beggars belief. The recent spate of pension consultations have in the main been logical but this seems to be someone riding on a wave without thinking of the consequences.”

Intelligent Pensions technical director David Trenner (pictured) says the plans would kickstart a fire sale between now and April 2012, with some people switching for the wrong reasons.

He says: “If this goes through, it will undoubtedly result in a fire sale in terms of transfers out of DB schemes and people who are not sure whether they want to transfer could well sign up because it is their last chance. Some advisers would be saying buy now while stocks last.

“I know we are talking about politicians and civil servants but it is hard to believe that will be allowed to happen. If it does, you can bet there will be people who establish schemes with the sole purpose of getting around it.”

Informed Choice chief executive Nick Bamford says: “It just does not make sense. Not many people transfer but, for those people where it is sensible to do so, the Government is set to deny them the opportunity of potentially improving their position.”

Contact David to discuss any of his comments from this article

Article: IoD makes plea for auto-enrol exemption for small companies | Publication: MoneyMarketing | Date: 19 August 2010 | Author: Nicole Higgs | Quoted: David Trenner

The Institute of Directors has warned that the current plans for implementing auto-enrolment are too tough and is calling for firms with fewer than five employees to be exempt.

It says it supports the principle of auto-enrolment but the design of the proposals is “complex and impractical in a number of respects and will be extremely onerous on employers”.

It says firms with under five staff should not be required to auto-enrol and where an employee requests enrolment, they should have the right to an employer contribution regardless of the size of their company.

The IoD proposes a three-month delay before auto-enrolment takes place rather than enrolling employees from day one in order for firms to educate staff on the benefits of pension saving and reduce opt-out rates.

It wants auto-enrolment to apply only to those with a minimum salary of between £10,000 and £15,000 rather than the £5,035 currently proposed to ensure saving is worthwhile for people on the lowest incomes.

Senior adviser on pension policy Malcolm Small says: “Without some significant redesign, there is a danger that auto-enrolment will not deliver the best results in terms of pension savings but will impose an onerous administrative burden on employers, particularly small firms.”

Intelligent Pensions technical manager David Trenner says: “Although I can see the reasons for excluding low-earners and small employers, we need to look at this from the angle of employees who could end up with no pension at retirement if they are not included in auto-enrolment.

“I think someone with two part-time jobs giving them, say, £1,000 per month combined needs to be included in Nest and someone who works for small employers throughout their careers still needs a pension. Small employers are not exempt from paying NI, so why should they be exempt from providing pensions for their employees?

“Providing pensions for staff may well be onerous for employers but so is health and safety and even the smallest employer should expect to look after their staff.”

The TUC warns the Government should not risk destroying consensus on workplace savings. It wants a review of Nest put off until 2017 so the scheme can be tested before making a decision.

TUC assistant general Kay Carberry says: “Major changes now risk undermining the whole package before it has even started. No group is 100 per cent happy with Nest but a careful cross-party consensus has been forged over the last five years.

“A failure to introduce Nest now will condemn another generation of low and median-earners to poverty in retirement and complete reliance on the state in old age.”

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Article: Axa piloting new variable annuity range | Publication: MoneyMarketing | Date: 29 July 2010 | Author: Nicole Blackmore | Quoted: David Trenner

Axa has unveiled a new range of variable annuity products it is piloting with a small group of specialist IFAs.

Money Marketing revealed in February that Axa had revived plans to develop a variable annuity and this month revealed that a pilot scheme was being launched.

Aegon last week launched a new guaranteed income opt-ion which secures an income of 5 per cent of the original investment for 20 years.

Aegon’s previous five for life product was replaced in June 2009 with the Aegon secure lifetime income product, which provides age-related income guarantees, starting at 3.5 per cent at age 60 and rising to 5 per cent from age 75.

Axa will not disclose the charges while the products are still on pilot as it says these may change before the full roll-out, expected for Q3 or Q4.

The Secure Advantage range guarantees either the return of invested capital at the end of 10 years or lifetime income on an immediate or deferred basis.

Both of these guarantee features offer annual lock-ins, where investment growth can be secured for the purposes of calculating benefits.

Maximum equity exposure is 50 per cent for protected capital plans and 60 per cent for lifetime income plans.

Axa Wealth managing director of wealth, investments and distribution David Thompson says: “In the past, these products have been available in the UK but some of the main players have been Metlife, Lincoln and The Hartford, which are big organisations but perhaps do not have the same brand presence as Axa in the UK.”

Intelligent Pensions technical director David Trenner says: “These types of products have two problems – the cost of guarantees and limited equity exposure. We have not seen details of the Axa charges but if you are going to pay up to 2.5 per cent as a guarantee charge, you really need a pre-tty aggressive portfolio to have any chance of covering this charge together with the other product charges but then they limit equity exposure to stop you doing this.”

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Article:  Defined benefit pension plans: reform funds rules, says OECD | Publication: FT Adviser | Date: 29 July 2010 | Author: Marc Shoffman | Quoted: David Trenner

A 30-page working paper released by the OECD has suggested methods of securing funding for the under fire pension schemes.

It proposed avoiding “excessive reliance” on current market values when determining contributions by setting minimum funding levels to protect scheme assets and members from company insolvency.

Another suggestion was incorporating appropriate levels of over-funding in good economic times through more flexible tax ceilings, such as allowing for maximum contribution or funding ceilings to span a multi-year period, rather than be set on an annual basis to allow greater management of cash-flows by the plan sponsor.

The plight of the UK defined benefit landscape was highlighted. The report said: “The UK has probably experienced the sharpest decline in the importance of DB plans, with more than 73 per cent closed to new entrants. With few exceptions, the future of private pensions is looking increasingly of the defined contribution type, where individuals bear the main pension-related risks during at least their working life. The recent crisis, however, has highlighted the risks of a DC world where individuals are fully exposed to the vagaries of the market.”

James Walsh, senior policy adviser for the National Association of Pension Funds, said: “The OECD’s report is a timely and insightful contribution to the debate about the future of defined benefit pensions.

“The authors have homed in on some important but challenging issues. For example, it is good to see the OECD acknowledging that mark-to-market accounting standards have become a key factor in boardroom decision-making on workplace pensions. The NAPF has already launched a review of this issue and we will be taking careful account of the OECD’s perspective.”

David Trenner, technical director of Glasgow-based IFA Intelligent Pensions, said: “This is common sense. The problem is when times are bad and you have a deficit the pensions regulator requires you to have a recovery plan. This does not allow you to say I will put money in later. The pensions regulator says if you can afford a dividend you can afford to top-up the pension scheme.”

He added: “If you are filling a bath, it does not matter how much water is in it at the beginning, but at the end. Pension funds are like that. If there were a simple solution, someone would have found it.”

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Article:  Pensions Regulator must tackle unfair incentives with new rules | Publication: Citywire | Date: 28 July 2010 | Author: William Robins | Quoted: David Trenner

Updated guidance from The Pensions Regulator (TPR) on incentives given to transfer people out of final salary schemes will affect advisers as much as trustees and employers.

The guidance now specifically requires members to be provided with impartial and independent advice, throwing up opportunities for IFAs to advise employers about switching members out of defined benefit (DB) schemes.

However, pension experts say if the regulator is to achieve its aim, it will need to act on the tension in the relationship between adviser and employer, poor communication by scheme advisers, and employers’ practice of short-changing scheme members with incentives to leave.

Transfer exercises

David Norgrove (pictured), TPR chairman, said he was concerned that a ‘box ticking’ approach was leading to transfer exercises being run without ‘due consideration’ to scheme members.

Param Basi, technical pensions director at AWD Chase de Vere, said the scale of DB schemes made it difficult to provide comprehensive advice for each member.

‘In our experience, employers have become aware of the need to seek independent advice,’ said Basi. ‘However, even though advice has been introduced, the process has become streamlined. They are dealing with significant numbers of people where members had to be advised in a short period of time. So they are being dealt with on a process basis.’

He added that if TPR was to enforce impartial and independent advice in the sector, it would need to address the problems between the adviser and the employer. ‘There is definitely a conflict between the employer’s interest and the role of the adviser to be impartial,’ said Basi. ‘The regulator will judge us on our transparency. Our role is to help deliver a reduction that the employer is comfortable with but that ensures the critical yield offered to members is one they are individually comfortable with, according to their risk aversion and where they are in life.’

Basi said AWD had dealt with this by refusing to advise anyone who would need a critical yield above 7% to leave a scheme.

Critical yield

The critical yield is the amount of investment return a client would need to achieve from a private pension scheme to be able to buy the same level of pension guaranteed by their DB pension. Where the critical yield hits high levels, the employers may need to top up the pension.

However, some employers are offering cash as an immediate, alternative benefit instead of extra pension funds.

This cash may be readily available but comes at a price as national insurance contributions and income tax will be deducted from the payment.

Basi said corporate advisers needed to find out exactly what members plan to do with that cash and what their pension needs are before deciding whether it is suitable.

David Trenner, technical director at Intelligent Pensions, said members would receive less money if they accepted the incentive. He argued it is cheaper to pay members off with an incentive than let underfunding eat into shareholder dividends.

‘What really annoys me is where I have seen corporate advisers and employee benefits consultants communicating to employees using long and complicated documents, often offering a cash incentive, telling them they are strongly recommended not to rely on the information provided and to take independent financial advice,’ said Trenner. ‘At the end of the ay, money talks.’

Risks for advisers

For advisers dealing with individual scheme members rather than the employer, there are significant risks.

Neil Gore, a financial planner at Exeter-based Cathedral Financial Management, is routinely asked by his clients whether they should take the incentive or hold out for the guarantee.

‘Clients often come to us with preserved final-salary benefits or who are active members, asking whether they should keep their benefits within the existing final salary scheme or move to a private arena,’ said Gore.

‘The liability is very high for us if we get it wrong. We have to decide whether we advise people to stay, knowing the scheme might collapse, or give up a guaranteed benefit and take on a personal risk.’

Gore said clients think they will get peace of mind from transferring out because they are worried that if the scheme does fold, there may not be enough to pay their pensions.

‘What we tend to find is that if schemes know they will be in trouble, they will be offering high rates. The problem is, there’s no transparency between schemes and their members; they will quote a figure but offer no breakdown.’

Contact David to discuss any of his comments from this article

Article:  Aegon launches new guaranteed option | Publication: MoneyMarketing | Date: 22 July 2010| Author: Nicola Blackmore | Quoted: David Trenner

Aegon has launched a new guaranteed income option which secures an income of 5 per cent of the original investment for 20 years.

Its previous five for life product offered 5 per cent guaranteed income for life from age 60 but was withdrawn in June 2009 due to market conditions.

Under the new guarantee on the company’s investment control bond, if the value of the bond grows beyond the original investment, this is locked in annually on the bond’s anniversary and returned to the client at the end of the term.

The secure income option allows clients to cover their own life and up to three other people by offering an inheritance benefit of the highest of 100.1 per cent of the cash-in value, the original investment less any income taken, or the highest recorded fund value, recorded on the anniversary, less any income taken. The maximum exposure is 50 per cent, which attracts a 1.2 per cent guarantee charge.

Hargreaves Lansdown pensions analyst Laith Khalaf says: “Five for life proved too costly so what we have here is five for 20. I think most clients will find the promise of their initial investment back over a period of 20 years underwhelming.”

Burrows & Cummins partner Billy Burrows says: “It is good to see a product offering 5 per cent at a time when we have low interest rates but I would rather see income growth than a lump sum at the end of the term.”

Intelligent Pensions technical director David Trenner says: “This new product is only really guaranteeing to return the original capital over 20 years – (20 x 5 per cent = 100 per cent), which for an investment of up to £50,000 could be achieved by putting the money in a bank account.”

Trenner adds: “For a cautious investor with 20 or more years to invest I think I would stick with the bank account, which has no smoke, no mirrors, yet still offers the same guarantee as Aegon. 

“For someone less cautious and with 20 or more years to invest I would be looking for something which offered the prospect of a real return without paying for the guarantees.”

Contact David to discuss any of his comments from this article

Article: An Age Old Dilemma | Publication: Investment Life & Pensions (Moneyfacts) | Date: July 2010 – Issue 165 | Author: David Trenner

The announcement in the Emergency Budget that it would no longer be compulsory to buy an annuity or go into Alternatively Secured Pension (ASP) at age 75 was generally well received. However, financial advisers should be wary that this change does not work against them.

Firstly, there has been some confusion about the ‘interim rules’, which has caught out a number of commentators. Budget Note 22 paragraph 6 was perhaps not the cleverest piece of drafting, but Stephen Webb (the one that works for HMRC, not the minister) has confirmed what I thought: anyone who was 75 before the Budget will still be subject to the 82% tax charge on death, with the 35% rate only applying to those who reach 75 after 22 June. As Mr Webb pointed out, anyone going into ASP before the Budget knew the rules and accepted them. He also confirmed that tax free cash must be taken at 75, and cannot be deferred to 77.

Click here to see the article in full

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Article:  A clever annuity quote | Publication: The Money Debate | Author: John Lappin |Date: 19 July 2010 | Quoted: Steve Patterson

Sometimes journalists get criticised for simply cutting and pasting releases on to their websites. Most of the time this is lazy and you miss something by not phoning and asking questions. Sometimes though a press release offers an expert view and a quote that sums up an issue. Here is Intelligent Pensions MD Steve Patterson on the 75 reform.

“Removing the requirement to annuitise by 75 might sound like a great opportunity for advisers to keep clients in drawdown for as long as possible, but advisers need to beware. The regulatory scrutiny on the issue of when to annuitise will become even greater, especially to demonstrate appropriate risk management processes are in place with suitable ‘exit strategies’ for drawdown clients, according to their individual needs and circumstances.”

Cut, paste. Job done. Well done Steve.

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“In recent weeks there has been increasing talk of the possibility of “double-dips” in major global economies. Such scaremongering obviously impacts market sentiment and of course threatens to become a ‘self fulfilling’ prophecy, but real evidence to support such concerns is hard to find. Most fund managers are still predicting continuing gradual improvement – albeit at a much slower pace that we have seen over the last 12 months.”

Click here to see the full Investment View for July 2010