Category: Pensions

What are The Main Benefits of a SIPP Investment?
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What are The Main Benefits of a SIPP Investment?

A self-invested personal pension (SIPP) is one of the most popular long term investment options when preparing for retirement. They are very similar to standard personal pension plans, except they offer a lot more hands-on experience for those taking one out.

Unlike a standard personal pension, where you will invest the money to be looked after by a financial professional, with a SIPP you have more of a say over where it is invested. This makes it a much more appealing option for those who enjoy and have experience with investing, and there are many other benefits to it as a long term investment option.

Flexible Investment Choice

If you want to manage your own retirement fund, then a SIPP is the way forward. They offer the opportunity to pick and switch investments when you decide, providing full control over your financial future.

There is a broad range of assets available from most SIPP providers to invest in. These include stocks and shares on a recognised stock exchange, government securities, investment trusts, insurance company funds, commercial property and many other options. Such a flexible investment choice means experienced investors should have the opportunity to tailor their retirement fund to be exactly as they want it.

Tax-Efficient

A SIPP is an incredibly efficient long term investment option. Up to 25% of the accumulated fund can be withdrawn as a tax-free cash lump, while the rest will be taxed as income. Plus, all the other tax benefits that come with standard pension plans are still included.

Savers can benefit from tax relief when it comes to making contributions into a SIPP. Compared to making some other financial investments in an attempt to increase retirement funds before you finish working, these tax-efficient benefits are a worthy perk.

Early Access

New rules introduced in April 2015 mean that pensions can be accessed and used in any way deemed necessary by holders from the age of 55. This includes a SIPP, and you can keep paying into it until the age of 75. However, from 2028 you will need to be 57 or over to make withdrawals.
Accessing the fund is also highly flexible, with options to take it all in one go as cash, in smaller lumps or as regular income. As a long term investment option, there aren’t many more tax-efficient and flexible options available to savers at the moment than a SIPP.

Business Elite MD of the Year 2016
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Business Elite MD of the Year 2016

As the UK’s largest friendly society, LV= have more than five million members and customers and exist to grow the value of their business for the benefit of their members. When asked about why their company has grown from strength to strength, Rowney simply says: “We do this by putting our customers at the centre of everything we do and by living our mutual and ethical values. We offer our products and services direct to customers, as well as through advisers and brokers, and through strategic partnerships.”

Formerly known as Liverpool Victoria, the company rebranded as LV= in 2007. Since then, the LV= brand is now recognised for being modern and vibrant and well placed for an even more successful future. A testament to their success is that they have over 5.7 million customers, of which 1.1 million are members. Furthermore, within life and pensions, they are the top provider of individual income protection in the advised market and a leading provider of enhanced annuities.

Although the company is very forward-thinking, to say that the company has been around for quite a while is an understatement. LV= was founded in Liverpool in March 1843, with the aim to help people on low incomes maintain a standard of living for their families and save for their funerals so they didn’t burden their families with this expense after they had passed away.

173 years on, the LV= Group employs over 6000 people. The Life and Pensions area that Rowney controls has over 1,000 employees based across main centres in Bournemouth, Exeter and Hitchin plus a network of regional offices.

As you can imagine, managing such an enormous team can be quite a daunting task. However, Rowney believes that the degree of specialisation is what allows them to perform so well. “We help our customers protect their health, wealth, family and wellbeing,” says Rowney. “To do this we specialise in a number of areas. Firstly, our Retirement Solutions business covers our retirement and investment businesses, from pensions and annuities to equity release and bonds.

Secondly, our Protection business includes a range of award winning products and services including a market leading position in income protection. Lastly, our Protection and Retirement Financial Advice Services include our automated online advice offering via our Retirement Wizard. All of these services combine to create the success behind our Life and Pensions team.”

Prior to LV=, Rowney accumulated a wealth of experience and expertise that has added to his current role. “In the early 1990s, I joined Barclays, which gave me my first insight into the financial services industry,” explains Rowney. “During this time I held a number of different positions, including business risk director, chief operating officer of premier banking and integration director for Woolwich and Barclay’s retail bank.”

It was in 2007 when Rowney joined what was then known as Liverpool Victoria, where he was instrumental in their rebranding as LV=.

“I started as a group chief operating officer in February and was appointed to the board in August 2007,” says Rowney. “As group COO, I was responsible for the transformation programme that saw LV= successfully re-brand and develop functions to support the trading businesses that have delivered significant growth over recent years. In 2010, I was appointed managing director of LV= Life and Pensions – leading a strategy to become the UK’s leading retirement and protection specialist.”

LV= ‘s position as leaders in their industry is something Rowney takes great pride in, and as such he is constantly ensuring that the company is always embracing any new technology or trends that come along the way.

“Our continual challenge is to utilise digital technology,” says Rowney. “We’ve made great strides into embracing digital, but technology progresses quickly, so it’s important for us to continue to move at pace to be at the digital forefront – replacing our legacy systems enabling us to become more efficient and easy to do business with.” Alongside the continuing developments in technology, there are also challenges facing Rowney in the retirement industry too.

“At the moment, we are nearing the end of a period of transition in the retirement industry,” says Rowney. “Driven by the pension freedoms changes in 2015 and now the FAMR review impacting people heading into retirement. With retirement being viewed as a series of smaller stages, which require multiple decisions, it’s important for customers to understand the decisions they are making. We’ve been proactively looking at ways to help people reaching retirement, making advice affordable to everyone through utilising automated online advice, but there is more to be done to get people thinking about their retirement sooner.”

“Looking towards the long term, these challenges include how we engage with our current generation to talk about saving for retirement, and we really need to challenge the ‘buy for today over saving for tomorrow’ culture. Auto-enrolment has attempted to improve one part of this but I still believe we need to do more as an industry to engage people to think about their retirement, at both ends of peoples working lives, to save enough for retirement and to make the right decision at retirement.”

“Furthermore, there appears to be no let-up in the pace of regulatory change, with the launch of the secondary annuity market and forecast tax changes are areas that will keep the life industry busy over the coming years.”

Despite these challenges, Rowney remains optimistic that they are more than capable of meeting the demands of their industry. A motivating factor for him is receiving recognition from Wealth & Finance magazine, which he believes is further evidence of their success.

“I was very surprised to be receiving this award,” says Rowney. “Nonetheless, our Life and Pensions business has gone from strength to strength in recent years, so this is testament to our hard work paying off to be officially recognised.”

Name: Richard Rowney

Company: LV=

Web: www.lv.com

Pension Savers Could Lose up to £58
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Pension Savers Could Lose up to £58,500 in tax Relief due to Annual Allowance Minefield

Savers currently benefit from tax relieved pension accrual up to the annual allowance of £40,000 for the 2016/17 tax year. However, from 6 April 2016, individuals with “adjusted income” greater than £150,000 will have their annual allowance reduced by £1 for every £2 of excess income. An individual with adjusted income of £210,000 or more will have their annual allowance tapered down to the minimum of £10,000 for that year.

However, individuals, including additional rate taxpayers affected by the taper, can carry forward any unused allowance from the previous three tax years to increase the tax relief they receive. An individual earning £210,000 or more making a personal net contribution of £8,000 in 2016/17 will benefit from £2,000 basic rate tax relief giving a gross payment into their pension of £10,000, plus further £2,500 tax relief via self-assessment as their top rate of income tax is 45%.

By way of an example, let’s consider a self-employed individual who has total earnings in 2016/17 of £400,000, he has made no pension contributions since March 2013 so has unused annual allowances of £130,000 to carry forward. If he decides to make the maximum pension contribution of £140,000, the position would be as follows:

• Contribution (made net of 20% relief at source of £28,000) £ 112,000;
• Balance of additional rate income tax reclaimed from HMRC £ 35,000;
• Net cost of £140,000 pension contribution £ 77,000;
• Total overall tax relief (£28,000 plus £35,000) £ 63,000.

By maximising the use of carry forward of unused annual allowance in this example the individual has benefit from additional tax relief of £58,500 (the difference between the £4,500 and the £63,000).

Brian Davidson, Senior Pensions Proposition Manager, Alliance Trust Savings, commented:

“The tax rules around pensions can be complex and with so much radical change to pensions over the last few years, some savers could easily miss out on tax relief in the new tax year. When the unclaimed tax relief could be as high as £58,500, it can make a substantial difference to retirement savings. When people realise that they are affected by the tapered annual allowance they could be forgiven for assuming that the carry forward rules will not apply which could be a costly error.”

“In addition to the tapering that can reduce an individual’s annual allowance below the full £40,000, there is also the Money Purchase Annual Allowance, which, when it applies, also caps an individual’s ability to make tax efficient contributions to a money purchase pension, such as a SIPP. The Money Purchase Annual Allowance may be triggered depending on how you have taken an income from your pension. However, unlike the tapering, once the Money Purchase Annual Allowance applies, it is no longer possible to utilise carry forward.

There is also the Lifetime Allowance – the total amount you can hold in pensions without being subject to tax – which reduced this month from £1.25million to £1 million. With all these different rules, pension saving is one area where seeking professional advice to maximise your tax relief can really add value.”

Defaqto Launches 'The case for hybrid'
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Defaqto Launches ‘The case for hybrid’

The case study explores the differences between blended solutions, in which two or more individual products are implemented side by side, and hybrid solutions which offer flexibility and security in one simple arrangement.

Gillian Cardy, Insight Consultant (Wealth) at Defaqto who wrote the study commented:

“Numerous studies are continuing to demonstrate that clients value secure income in retirement, but that they are also interested in benefiting from many of the flexibilities introduced by last year’s pension reforms.

“The practical issue that advisers have to confront is how to offer such advice in a cost effective way, especially for those with more modest pension funds who would typically have been advised to purchase annuities and for whom the cost of more bespoke advice strategies may have been prohibitive.”

The publication is free to download here.

UK Government one step Closer to Introducing new State Pension
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UK Government one step Closer to Introducing new State Pension

This means that those who reach State Pension Age on or after the 6th April 2016 and before the 6th December 2018 – when the State Pension Age equalises – will receive a fully indexed public service pension for their whole life.

This will ensure public service pension payments to these individuals continue to be equal between men and women.

The government is committed to ensuring older people can live with dignity and security in retirement. The introduction of the new State Pension in April this year will radically simplify state pension provision, making it easier for ‎people to understand what the State will provide in retirement.

As well as simplifying the system, the new State Pension will remove the inequalities in the current system whereby some groups, such as women and the self-employed, tended to build up low amounts of Additional State Pension.

As part of these changes, this complicated, earnings related element of the current system, is being abolished. To manage the transition to the new state pension, the government will continue its current practice of directly price protecting the Guaranteed Minimum Pension of public sector workers where the Additional State Pension uprating rules do not apply.

The government, as a large employer, has considered how best to address the implications of changes resulting from the introduction of the new State Pension, for public service pension schemes and their members, taking into account historical commitments made by previous governments.

The government is expected to launch a consultation this year on how to address this issue in the longer term, recognising the increased value of the new State Pension, and seeking to balance simplicity, fairness and cost for members, public service pension schemes and the taxpayer.

PMI and OPDU Collaborate to Promote Good Governance in Pension Schemes
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PMI and OPDU Collaborate to Promote Good Governance in Pension Schemes

For all new OPDU members, the organisation will enrol the Chair of Trustees, free of charge, in the PMI’s Trustee Group for the first year of membership thus promoting even better governance of that company’s pension scheme.

Martin Kellaway, Executive Director at OPDU said:

“We welcome the opportunity to join with the PMI on this initiative. It comes at an exciting time for OPDU and represents a key part of our strategy to provide strong customer focus, and ensure our members derive maximum benefit from joining. The PMI is the industry leading provider of professional qualifications and training so a perfect partnership to support our aim of improved governance.”

Vince Linnane, PMI Chief Executive, commented:

“We are continually looking for ways to support trustees to provide good governance and working in partnership with OPDU is key to ensuring we expand our membership and raise the standards of our Trustee Group. We believe the knowledge sharing enabled by the educational material and information we provide, will help to raise the bar for what pension scheme members can expect from their trustees.”

The PMI Trustee Group has a strong track record going back to 1994 of supporting pension scheme trustees. More than 3,000 trustees have passed the PMI Award in Pension Trusteeship qualification since it was introduced. Many more have also attended dedicated PMI Trustee Seminars.

FCA Encourages Firms to do more to Support Ageing Population
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FCA Encourages Firms to do more to Support Ageing Population

Changing demographics and trends in health and society mean that developing more inclusive financial products and services is increasingly important the FCA argues. Their Ageing Population Discussion Paper is an important first step in their conversation with firms, consumer groups, and other stakeholders to determine how the regulator and industry can collaborate to address the range of issues facing older consumers, when they engage with financial services.

Tracey McDermott, acting chief executive of the FCA, commented:

“The number of people aged over 65 in the UK is expected to increase by 1.1 million in the next five years. There is a real and urgent challenge for the financial services sector to develop new and innovative products to meet the needs of our changing population.

“The publication of this discussion paper is intended to stimulate debate and discussion about these needs and how to meet them. Ultimately, the industry must take the lead but we recognise that the FCA has a key part to play in ensuring we encourage appropriate innovation that also provides proper levels of protection for consumers. This work will help us and the industry to develop our approach with the benefit of insights from others, in particular those representing the end consumers of these services.”

Next steps

The FCA is working with stakeholders, including industry, trade bodies, consumer groups, and the public sector to discuss experiences, best practice and potential approaches to the issues raised in this discussion paper. Further research will be undertaken by the FCA to develop a regulatory strategy that promotes better outcomes for older consumers. The strategy will be launched in 2017.

New CEO of PMI Announced
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New CEO of PMI Announced

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Mr Tancred has enjoyed a long and successful career to date in a number of financial and senior managerial positions. He was most recently employed by the British Institute of Facilities Management, latterly as its Chief Executive Officer, where he oversaw a significant growth in its qualifications, membership and profitability.

Mr Tancred said:

”I am very excited to be joining PMI at this time. I look forward to building on the successes that Vince, the Board, Advisory Council and the PMI House team have achieved and to delivering the PMI vision. Clearly there are significant challenges ahead, but I eagerly anticipate serving an industry and profession that is vital to the economy and society at large.”

He commences work at the PMI on 1 March, where he will work for a period alongside Mr Linnane to ensure a smooth transition.

PMI President Kevin LeGrand commented:

“I am delighted to welcome Gareth to the PMI team. His experience, enthusiasm and impressive track record make him an ideal candidate to lead the PMI through the next phase of its development. I have no doubt he will provide strong leadership for the Institute though the challenges that undoubtedly lie ahead, positioning it to help its members in addressing the new pensions and savings world that is developing now.

I would also like to pay tribute to Vince Linnane, who has led the PMI to this point, handing on a strong organisation to Gareth. I wish Vince every success in his future endeavours.”

UK Government Takes aim at Pension Freedom Barriers
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UK Government Takes aim at Pension Freedom Barriers

People looking to access their pension pot under the new pension freedoms will benefit from easier transfers and more information as the government outlines further action to remove unjustifiable barriers, the Economic Secretary to the Treasury Harriett Baldwin announced today (10 February 2016).

Building on the Chancellor’s announcement last month that the government would limit early exit charges for people seeking to access the freedoms, the government has today published its response to the Pension Transfer and Early Exit Charges consultation.

The response outlines that:

• government will introduce a new requirement for trust-based pension schemes to regularly report on their performance in processing transfers;
• The Pensions Regulator (TPR) will issue new guidance for scheme trustees to ensure transfers are processed quickly and accurately;
• Pension Wise will develop new content on the transfer process, which will include information on likely timescales, what customers need to do and greater clarity on whether financial advice is required.

The consultation found that whilst the majority of eligible individuals are able to access their pension under the new freedoms, there are a small but significant number who have been effectively prevented from accessing the pension freedoms because of high exit charges or long transfer times.

The consultation found that for Financial Conduct Authority(FCA)-regulated contract-based pension schemes, transfers took 16 days on average, however, TPR data showed that the mean transfer time for trust-based pensions was 39 days, with many consumer survey respondents saying that they had to wait significantly longer for individual transfers.
Harriett Baldwin, Economic Secretary to the Treasury, commented:

“It is only fair that people who have worked hard and saved their entire lives are able to access their pensions flexibly, without facing any unjustifiable barriers. That’s why we’re taking action to curb excessive exit charges, make transfers easier and ensure people have the information they need to make informed decisions.

“We will continue to work to ensure that our landmark reforms deliver real freedom and choice for people.”

Baroness Ros Altmann, Minister for Pensions at the Department for Work and Pensions, said:

“Encouraging people to save and helping them on their way to a financially secure retirement is a priority for this government and we need to ensure that the right protections are in place for consumers.

“No consumers should have to pay excessive early exit fees, regardless of the type of scheme that they are in. And we will be working to ensure that action is taken to protect members of trust based schemes.”

Lesley Titcomb, Chief Executive of The Pensions Regulator added:

“We welcome the government’s commitment that all pension savers will be protected from unnecessary barriers to accessing their pensions, such as excessive early exit charges and delayed transfers. We will be working closely with government and the industry to deliver the recommendations of the response.”

The Chancellor announced on 19 January 2016 that the government would introduce legislation to place a new duty on the FCA to cap early exit charges. The consultation sets out that the government will introduce this legislation through the Bank of England and Financial Services Bill. The government will mirror these requirements in relation to trust-based schemes.

As part of the consultation the government conducted an online consumer survey – with over 70% of respondents supporting a legislative cap.

The pension freedoms, which came into effect on 6 April 2015, represent the most significant pension reforms for a generation. They allow people who have worked hard and saved their entire lives to access their savings how and when they want. Still in its first year, the government’s pension reforms have already seen over £3.5 billion flexibly accessed through nearly 400,000 payments.

Excessive Charges for Accessing a Pension pot Early will End
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Excessive Charges for Accessing a Pension pot Early will End

Speaking at Treasury Oral questions in the House of Commons, the Chancellor George Osborne said:

“The pension freedoms we’ve introduced have been widely welcomed, but we know that nearly 700,000 people who are eligible face some sort of early exit charge.The government isn’t prepared to stand by and see people either ripped off or blocked from accessing their own money by excessive charges.

“We’ve listened to the concerns and the newspaper campaigns that have been run and today we’re announcing that we will change the law to place a duty on the Financial Conduct Authority to cap excessive early exit charges for pension savers.

“We’re determined that people who’ve done the right thing and saved responsibly are able to access their pensions fairly.”

The new duty, introduced through legislation, will form part of the response to the government’s Pension Transfers and Exit Charges consultation, and will help people take full advantage of the new flexibilities.

FCA data collected through the consultation showed that nearly 700,000 (16%) customers in contract-based schemes who are able to flexibly access their pension could face some sort of early exit charge, including a significant minority who faced charges that were high enough that the government consider that they effectively put them off accessing their pension flexibly.

The independent FCA will be responsible for setting the level of the cap and will consult fully on this in due course

The new pension freedoms, which came into effect on 6 April 2015, represent the most significant pension reforms for a generation. They allow people who have worked hard and saved all their lives to access their savings how and when they want.

So far almost 400,000 pension pots have been accessed flexibly under the new freedoms with many providers offering their customers a range of options.

The government will shortly publish its formal response to the Pension Transfers and Exit Charges consultation, which also looks at ways of making the process for transferring pensions from one scheme to another quicker and smoother.
FCA investigations have shown that 670,000 consumer aged 55 or over faced an early exit charge. Of these, 358,000 faced charges between 0-2%; 165,000 faced charges between 2-5%; 81,000 faced charges between 5-10%; and 66,000 faced charges above 10%.

Banks Offer Improved Deal on Mortgages for Armed Forces Personnel
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Banks Offer Improved Deal on Mortgages for Armed Forces Personnel

The commitment from the UK’s biggest high street banks will benefit almost 265,000 people in the UK and abroad, including Forces families. The move comes ahead of an Armed Forces Covenant roundtable meeting of banking chiefs and Ministers at No.10 Downing Street yesterday (Thursday 14 January) where a range of further measures to help service personnel and their families will be discussed.

Currently, members of Armed Forces who rent out their homes during deployment have to change their residential mortgage to a buy-to-let mortgage, often incurring new product charges and an increased rate of interest. Under the new agreement they will no longer have to change their mortgage product, saving them time and money.

Barclays, HSBC, Lloyds Banking Group, Santander UK, Royal Bank of Scotland and Nationwide – the UK’s biggest building society – will all offer the support.

Defence Secretary Michael Fallon said:

“Looking after your home and your money can be more of a challenge when deployed on operations or serving abroad. This is a welcome first step from the major banks and financial institutions to help our servicemen and women get a better mortgage deal.

“I look forward to further pledges from across the financial services sector to support the Armed Forces Covenant after today’s roundtable.

Anthony Browne BBA CEO said:

“Members of our Armed Forces work all over the world to look after us, so it’s only right that we look after them. The extra support proposed by the banks and the Ministry of Defence will make sure service personnel and their families are not disadvantaged for working aboard and make their mortgages and credit history fairer.”

Of the nearly 800 business signatories of the Armed Forces Covenant, 29 are from the financial services sector.
Other measures being discussed at the roundtable are aimed at meeting the unique pressures of service personnel and their families, whose jobs require them to relocate and move more often than in civilian life Problems can arise because the financial services sector has difficulty recognising the postcodes of UK military bases abroad – the British Forces Postal Order index provided for free by the Royal Mail – as UK addresses. Time spent serving their country from UK military bases abroad can affect the Forces community’s credit history, and cause difficulties when applying for products that civilians take for granted, for example mortgages and bank accounts. The Forces can also lose out on benefits and cost savings, like no claims bonuses and discounts, which is being discussed with the insurance industry.

Sara Baade, Chief Executive of the Army Families Federation, said:

“What this recognises is that military families often have limited choice in where they are sent to live. They go overseas because the country needs them to. It will mean a lot to those that have bought their own homes to know that the challenges of service life are beginning to be understood by our banks.

“This is an issue Army Families Federation has campaigned on and we look forward to informing future financial measures that will counter the very real disadvantage families experience as a result of their service.”

FCA Reveals New Retirement Income Market Data
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FCA Reveals New Retirement Income Market Data

The FCA collected data from retirement income providers covering an estimated 95% of assets in contract based pensions to enable it to monitor and track changes in the market. The information is helping to inform the FCA’s approach to regulation of the market.

The Government’s pension reforms brought about significant changes in the way consumers can access their pensions and the data provides insight into how people are using the new freedoms.

The report covers:

• Choices made by consumers accessing their pensions;
• Guaranteed annuity rates – levels taken up and not taken up;
• Levels of pension withdrawals for customers making a partial withdrawal;
• Use of regulated advisers;
• Consumers’ stated use of Pension Wise;
• Whether consumers change providers when accessing their pensions.

Retirement income market data will be published quarterly. The data published today concerns the second quarter following the pension reforms and may not reflect longer term trends.

Women and Pensions 2016 Survey Launched in UK
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Women and Pensions 2016 Survey Launched in UK

The survey recently launched looks at confidence and empowerment of female pension savers, exploring attitudes and beliefs about planning for retirement.

While the survey is aimed at “Women and Pensions”, we are aware that many factors highlighted in the survey, which influence saving amongst women, also affect other genders. The service therefore welcome views from all genders within the world of pension planning.

Michelle Cracknell, Chief Executive of the Pension Advisory Service said:

“We know that women face significant barriers to achieving a good retirement income; on average lower levels of income throughout their working life, impact of career breaks and carer responsibilities and lower levels of confidence around financial products.

“Women and Pensions survey’s conducted by TPAS have previously focused on knowledge, whereas this latest survey looks more specifically at women’s attitudes, beliefs and rationale for financial decision making. The results of this survey will help us to really appreciate what women need from the pensions world, so that they can plan their pension provision confidently.”

If you are interested in taking part please click here.

Slocum Implementing New Risk Analytics Platform
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Slocum Implementing New Risk Analytics Platform

Slocum has adopted RiskFirst’s real-time analytics and reporting platform, PFaroe. The investment advisory firm – which serves more than 125 institutional clients with total invested client assets of approximately $120bn – will use PFaroe to help inform strategic asset allocation decisions and implement dynamic de-risking strategies.

Nicole Delahanty, Principal at Slocum, comments: “We will always strive to be a firm that takes a big picture or qualitative view of the market when setting long-term asset allocation strategy for our retirement plan clients. But a dynamic pension landscape also calls for the ability to view pension risk on a frequent basis – we need to stress-test our views and ensure that they meet the needs of our clients from a funded status, cash and expense perspective. PFaroe is an important addition to our toolkit – allowing us to evaluate clients’ risk from multiple perspectives and to perform real-time scenario stress-testing.”

Delahanty adds: “More and more of our clients are also implementing LDI or de-risking programs – particularly those with frozen plans who want to reduce funded status volatility as their funded status improves. To do this efficiently and effectively, we need a robust and real-time system – cue PFaroe.”

Matthew Seymour, Managing Director, RiskFirst, comments: “It is clear that de-risking is swiftly moving up the agenda for US pension plans, large and small, and we are delighted that the industry is turning to real-time analytics to improve efficiency and effectiveness of such solutions. Slocum is a firm that takes a highly customised approach to developing asset allocation and risk management for clients, which marries perfectly with PFaroe’s holistic and flexible approach.”

New Global Report Finds Advantage with Funded Pension Schemes
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New Global Report Finds Advantage with Funded Pension Schemes

Emerging markets with funded government pension systems will enjoy important advantages over those with pay-as-you-go systems, according to a report from the nonprofitGlobal Aging Institute and sponsored by the Principal Financial Group®.

In order to realize their potential, funded pension systems must be well-designed because inadequate contribution rates, restrictive portfolio allocation rules, early retirement ages or the failure to provide for annuitization of account balances can all undermine the model’s adequacy, the report found.

Global Aging and Retirement Security in Emerging Markets: Reassessing the Role of Funded Pensions explores how today’s emerging markets will encounter many of the challenges that now confront developed economies, such as rising fiscal burdens, aging workforces and declining rates of savings and investment.

“If the challenge for most developed countries is how to reduce the rising burden that government retirement systems threaten to place on the young without undermining the security they now provide to the old, the challenge for many emerging markets is precisely the opposite,” said Richard Jackson, president of the Global Aging Institute and author of the report. “How do they guarantee a measure of security to the old that does not now exist, without at the same time placing a large new burden on the young?”

The design challenges can be addressed though relatively straightforward policy measures, according to the report. While emerging markets have much greater flexibility to design retirement systems that adapt to new demographic realities, failure to rise to the challenge could result in a humanitarian aging crisis of immense proportions.

“It’s clear that policymakers need to address the aging challenge and make it a priority,” said Luis Valdes, president and CEO of Principal International. “Unfortunately, regulations can get in the way of creating the right environment for retirement plan providers to be able to offer the right solutions. We continue to be proactive and advocate for further reforms around the globe.”

Funded pension systems alone do not add up to a complete solution, the report cautions. Emerging markets also need to support citizens by having a noncontributory old-age poverty protection program. This comes into play for workers who retire with inadequate benefits from their contributory pension system or with no benefits at all, which in some countries is the majority of workers.

Corporate Pension Funded Status Improves by $25bn in October
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Corporate Pension Funded Status Improves by $25bn in October

Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In October, these pension plans experienced a $25bn increase in funded status based on a $33bn increase in asset values and an $8bn increase in pension liabilities. The funded status for these pensions increased from 81.7% to 83.3%.

“October was a great month for these pensions, but it may be too little too late as far as 2015 is concerned,” said John Ehrhardt, co-author of the Milliman 100 Pension Funding Index. “Overall funded status has improved by only 1.8% this year, and this would be worse if it weren’t for interest rates inching in the right direction to reduce pension liabilities.”

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.26% by the end of 2015 and 4.86% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 85% by the end of 2015 and 98% by the end of 2016. Under a pessimistic forecast (4.06% discount rate at the end of 2015 and 3.46% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 82% by the end of 2015 and 75% by the end of 2016.

Milliman is among the world’s largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe.

Canada Pensions Consortium To Acquire Chicago Skyway Toll Road
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Canada Pensions Consortium To Acquire Chicago Skyway Toll Road

A consortium comprising Canada Pension Plan Investment Board (“CPPIB”), OMERS and Ontario Teachers’ Pension Plan (“Ontario Teachers'”), together “the Consortium”, has announced that they have signed an agreement to acquire Skyway Concession Company LLC (“SCC”) for a total consideration of US$2.8 billion. SCC manages, operates and maintains the Chicago Skyway toll road (“Skyway”) under a concession agreement, which runs until 2104.
CPPIB, OMERS and Ontario Teachers’ will each own a 33.33% interest in SCC and contribute an equity investment of approximately US$512 million each. The transaction is subject to regulatory approvals and customary closing conditions.

Skyway is a 7.8 mile (12.5 kilometre) toll road that forms a critical link between downtown Chicago and its south-eastern suburbs. As an essential part of the Chicago road network, it delivers reliability and time savings for its users in one of the busiest corridors in the U.S.

“Skyway represents a rare opportunity for us to invest in a mature and significant toll road of this size in the U.S.,” said Cressida Hogg, Managing Director and Head of Infrastructure, CPPIB. “This investment fits well with CPPIB’s strategy to invest in core infrastructure assets with long-term, stable cash flows in key global markets. We are pleased to partner with OMERS and Ontario Teachers’ in this investment as like-minded, long-term investors.”

“We’re pleased to announce OMERS investment in Skyway, which aligns with our strategy to acquire assets that will generate stable, consistent returns, matching our long-term obligations to the pension plan’s members,” said Ralph Berg, Executive Vice President & Global Head of Infrastructure, OMERS Private Markets. “Our investment in Skyway also fits with our goal of growing our assets under management in the North American infrastructure space. We welcome the opportunity to partner with CPPIB and Ontario Teachers’ as co-investors in this acquisition.”

“Skyway is a critical asset for the Chicago region that will provide inflation-protected returns to match our liabilities and further diversify our infrastructure portfolio,” said Andrew Claerhout, Senior Vice-President, Infrastructure at Ontario Teachers’. “The long-dated nature of the concession closely reflects the investment horizon of Ontario Teachers’ and our partners at CPPIB and OMERS.”

UK Chancellor Abolishes 55% Tax on Pension Funds at Death
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UK Chancellor Abolishes 55% Tax on Pension Funds at Death

George Osborne, the UK Chancellor of the Exchequer, today announced that from April 2015 individuals will have the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die, rather than paying the 55% tax charge which currently applies to pensions passed on at death.

Around 320,000 people retire each year with defined contribution pension savings; these people will no longer have to worry about their pension savings being taxed at 55% on death.

From next year, individuals with a drawdown arrangement or with uncrystallised pension funds will be able to nominate a beneficiary to pass their pension to if they die.

If the individual dies before they reach the age of 75, they will be able to give their remaining defined contribution pension to anyone as a lump sum completely tax free, if it is in a drawdown account or uncrystallised.

The person receiving the pension will pay no tax on the money they withdraw from that pension, whether it is taken as a single lump sum, or accessed through drawdown.

Anyone who dies with a drawdown arrangement or with uncrystallised pension funds at or over the age of 75 will also be able to nominate a beneficiary to pass their pension to.

The nominated beneficiary will be able to access the pension funds flexibly, at any age, and pay tax at their marginal rate of income tax.

There are no restrictions on how much of the pension fund the beneficiary can withdraw at any one time. There will also be an option to receive the pension as a lump sum payment, subject to a tax charge of 45%.

This system replaces the current 55% tax charge which the government committed to reviewing as part of the Freedom and Choice in Pensions consultation and has the potential to benefit all those with some form of defined contribution pension savings – that is 12 million people in the UK.

At Budget 2014, the government announced a fundamental change to how people can access their pension.
From April 2015, around 320,000 individuals retiring each year with defined contribution pension savings will be able to access them as they wish, subject to their marginal rate of tax.

The tax free pension commencement lump sum (usually 25% of an individual’s pot) will continue to be available.
This policy will be scored at the Autumn Statement and is expected to cost around £150m per annum.

One in Five Brits Will "Work until They Drop"
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One in Five Brits Will “Work until They Drop”

One in five Brits admit they are planning to “work until they drop” in order to have a comfortable retirement, a new study by insurance company Aviva reveals.

Researchers found worries about being able to afford their “ideal retirement” means millions of over 40s are expecting to carry on working until they physically can’t continue.

Others are concerned about simply paying their day-to-day bills without the regular income from employment coming in. A further three in ten expect to continue working until at least a few years past the state retirement age.

Clive Bolton, managing director of retirement solutions at Aviva, said: ”For many, their retirement is a time they are looking forward to, whether it’s to get away from the pressures of work or simply having more time on their hands.

”But worryingly, it seems there are a large number of people who are so concerned about what their financial situation is going to be like, they are beginning to consider the possibility that they will always be working.

”I’m sure there are a small number of people who simply don’t want to give up work, but most would rather spend their retirement doing what they want to do, rather than continue to work.

”And while some will be working to ensure they have enough money to have the kind of retirement they are hoping for, it seems there are some who will still be getting up every day to go to work simply to pay the bills.

”Your state pension is unlikely to cover everything you want to do during your retirement and cover unexpected expenditure, so it’s important to have some kind of financial plan in place to provide additional funds to give you some breathing space.

”The change to pensions and annuities announced in this year’s budget now mean you can spend your pension pot how you want, but given we’re all living longer too, it’s still important to make sure you have enough put by to cover your annual costs for the long term.”

The study of 2,000 over 40s found that while the average adult would like to retire around the age of 60, one in five believe they will be working right until the bitter end.

More than three quarters said they are worried about being able to afford all they have planned during their retirement. Another 64% are concerned about simply paying for day-to-day living costs.

But despite these fears, around three in ten over 40s have no plans in place to fund their retirement. Even of those that have a financial plan, 64% admit it’s probably not going to be enough to do everything they want to do. And almost two thirds of those surveyed wish they had started to plan for their retirement much earlier.

Thousands Make Contact with Long Lost Funds
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Thousands Make Contact with Long Lost Funds

Latest figures show that in the past year alone almost 145,000 people have used the service to locate those long forgotten pensions. This is more than double the number who used the service in 2010, with numbers rising year on year.

By 2018 all employers will have to provide a workplace pension and with the average person having 11 jobs in their lifetime this could lead to 50 million dormant and lost pension pots by 2050.

The government announced last year that it was introducing a system whereby if you move job your pension pot moves too. The ‘pot follows member’ system will mean that any pots of less than £10,000 will automatically move with them.

Minister for Pensions Steve Webb said: “With the new flexibilities announced at the Budget it is now even more important that people can access all of their pension saving. People who have already lost touch with a pension can use our free tracing service to track down their fund and many more are.

“Soon it will be the norm that when you move job your small pension pot moves with you. This will reduce the costs of providing pensions and help people to plan for their future.”

The Pension Tracing Service helps individuals to find occupational and personal pensions that they have lost track of. It uses a database containing information on more than 200,000 pension schemes. The free service provides contact details of the potential scheme administrator to enable customers to make subsequent enquiries.

Pension Deficits Reach 12-Month High
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Pension Deficits Reach 12-Month High

Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s largest 350 companies increased significantly during April.

According to Mercer’s latest data, the estimated aggregate IAS19 deficit for the DB schemes of FTSE350 companies stood at £111bn (equivalent to a funding ratio of 84%) at 30 April 2014 compared to £102bn (equivalent to a funding ratio of 85%) at 31 March 2014.

At 30th April 2014, asset values stood at £575bn (representing an increase of £4bn compared to the corresponding figure of £571bn as at 31 March 2014), and liability values stood at £686bn (representing an increase of £13bn compared to the corresponding figure at 31 March 2014). As at 31 December 2013, pension scheme deficits stood at £96bn corresponding to a funding ratio of 85%.

“It is disappointing that despite more than a 3% increase in the FTSE100 over April, pension scheme deficits still increased so significantly,” said Ali Tayyebi, Senior Partner in Mercer’s Retirement Business. “The driving factor was a significant increase in liability values which in turn resulted from a small reduction in long dated corporate bond yields, combined with a small increase in the market’s expectations for long term inflation.

“Despite the historically high deficit as at 30 April 2014, the three key drivers of the pension scheme deficit on the balance sheet, namely: corporate bond yields, market implied inflation and the FTSE 100 index, have all individually been at even more unfavourable levels over the last 12 months.

“This is a sobering thought for those inclined to assume that financial conditions are bound to get better and might therefore be deferring risk management or deficit correction actions on that basis,” added Tayyebi.

“According to the most recent data available from the Office for National Statistics , UK Companies contributed £63bn to UK pension schemes in 2010, and will likely have seen further increases since 2010. This is up from £25bn in 2000. It is clear that despite this increase in contributions funding levels are not improving. Companies and trustees need to explore other ways of controlling costs, managing risk and discharging liabilities. Companies that execute this efficiently will put themselves at a competitive advantage,” said Adrian Hartshorn, Senior Partner in Mercer’s Financial Strategy Group.

Mercer’s data relates only to about 50% of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. But data published by the Pensions Regulator and elsewhere tells a similar story.

Most Advisers Optimistic About Proposed Pension Reforms
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Most Advisers Optimistic About Proposed Pension Reforms

Advisers are largely optimistic about the proposed savings and pension reforms and the advisory market in general, according to the latest Adviser Barometer from Aviva. A growth in the number of customers receiving advice, together with an increase in adviser firms looking to hire new staff provides clear signs of positivity in the market.

The study of more than 1,500 advisers found that almost two thirds (64%) claim to have seen an increase in the size of their “active” client base, which is a significant increase from 28% in September 2013. The bulk of their clients are new to the market (43%) rather than former clients of other advisers (34%). There also appears to be potential for growth in the size of adviser firms, with 35% of advisers expecting to hire new staff in the next year, and only a small minority (4%) thinking of leaving the industry.

The majority (86%) of advisers think the proposed package of savings and pension reforms will have a positive effect on the advice market, and almost a half (46%) say they are likely to offer a broader range of products to their customers. At least four out of five advisers predict they will see an increase in demand for advice amongst those aged 55 and over.

However, regulatory fees and levies remain the biggest concerns for the largest proportion of advisers (48%), with professional indemnity costs (43%) and ‘remaining profitable’ (42%) running close behind.

Andy Beswick, Aviva’s intermediary director, retirement solutions, said: “After the retail distribution review (RDR), the savings and pension reforms announced at this year’s budget are the biggest change to happen in the advice market in recent years and this has presented advisers with some interesting opportunities.

“What our research has identified is a clear shift in advisers’ attitude in the last six months. There appears to be an upturn in the number of advisers joining the market, growth in the number of ‘active’ clients being serviced, and a real expectation that there will be an increase in demand for advice amongst those in the over 55 age group. A growing number of advisers are already looking to broaden their range of services to meet their customers’ changing needs in this new era.

“Clearly, advisers still have concerns about regulatory fees and levies, but despite this the results of the latest survey show the most optimistic picture for the advisory market since we started tracking adviser opinions in 2009.
“Aviva has a key role to play in supporting advisers and we will continue to deliver practical solutions and support to help advisers take advantage of these new opportunities.”

Consumers Positive About Retirement Income Changes
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Consumers Positive About Retirement Income Changes

Nearly two-thirds of yet-to-retire Brits (62%) say they think giving people more choice and flexibility in how they take their retirement income is a good idea, according to research from Aviva.

Awareness about the retirement income changes announced in this year’s Budget is high, with 80% of people saying they have some level of knowledge of them. In the 2014 Budget, the government announced it planned to give people more freedom in how they take their retirement savings, and from April 2015 people aged over 55 will be able to take their defined contribution pension savings as they want, subject to their marginal rate of income tax.

Just over a half (52%) of those asked in the Aviva research think people can be trusted to spend their retirement savings wisely. And there is strong support for having control over their finances (63%), which will allow them greater freedom to do what they want with their money (67%).

Restraint will be needed

Despite support for the changes, 61% of people say that as the pension rules are relaxed, individuals will need to show greater restraint in coming years to avoid spending all of the money earmarked for their living costs.

Running out of money

Nearly a quarter (22%) say they do not feel their retirement income will last for the whole of their lifetime, and 42% say it will last while they are still active. But a third (34%) feel their savings will last for the whole of their retirement. Men are much more likely than women to be confident that their money will last their lifetime (41% vs. 27%). In addition, 27% say they do not worry about their finances and 31% say they just live for today.

Most affected are the soon-to-be-retired

People retiring within the next year are more likely to say that the Budget changes will affect their retirement plans (57%), compared to those retiring in the next two years (21%), and in five years (17%). A third of people (34%) say the changes will make no difference to them and more than a quarter (27%) say they do not know how their plans will
be affected.

Family and friends are top for guidance

When it comes to guidance and support on their retirement plans, just under half of people say they turn to friends and family (45%), with women more likely than men (52% vs. 45%). Pension providers also rank highly (33%) together with independent financial advisers (28%) and the Pensions Advisory Service (24%).

While more than a quarter (28%) of people say they have enough knowledge to be able to make the right decisions about their retirement, 41% say that although they have some knowledge they would benefit from further help, and 30% admit they are lacking in their understanding. Women are more likely than men to say they have a lack of knowledge (39% vs. 23%). Being close to retirement is also an indicator of how well informed people feel about the changes, with those retiring in the next year saying they feel confident about their level of knowledge (72%).

Clive Bolton, Aviva’s managing director, retirement solutions, said: “It’s good to see that consumers support the government’s changes to retirement income, and are confident about the opportunities that increased flexibility and choice will bring them. It’s clear that people will need support and guidance as they choose how to make the most of their savings, particularly as many are concerned about running out of money over what could be a long and
varied retirement.

“With additional flexibility, people are increasingly likely to adjust or change their retirement income decisions as their needs evolve over the retirement years. Having access to a range of robust solutions that suit different needs, as Aviva offers, will be important. Retirement solutions such as pensions, annuities, income drawdown and equity release will continue to have a role to play in people’s retirement plans.”

For more information visit Aviva’s Retirement Centre at Aviva’s Retirement Centre HERE.

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deVere Launches Workplace Solutions

deVere United Kingdom has today launched its Workplace Solutions division.

This new department within deVere United Kingdom, the UK arm of deVere Group, one of the world’s largest independent financial advisory organisations, will provide whole of the market advice to current and former employees of larger corporations on their workplace pension schemes in order to help them meet their long-term financial objectives.

Responsible for overseeing the development of deVere’s Workplace Solutions is Mitch Hopkinson, deVere United Kingdom’s Head of East Midlands. Commenting on the launch, Mr Hopkinson, says: “This new division has been established because there has been a tide shift in traditional retirement planning methods in the UK, which requires a fresh approach.

“The increasing demand for this department’s services is largely due to the unprecedented changes taking place with workplace pensions, driven by the demise of the ‘gold plated’ final salary pensions and the move to more flexible working patterns as well as the long term upward trend in mortality.”

He continues: “We are coming to the marketplace with a team who have a wealth of top-level experience in this field, having worked with major multinationals, including leading automotive and pharmaceutical companies. We have cumulatively advised more than 30,000 individuals on their workplace pension arrangements. Therefore, we might be entering this market as a new unit, but individually our people are already proven experts in the sector.

“In addition, our team are from an independent financial advisory background, and as such we are professionally and instinctively focused on ensuring improved pension outcomes from each member’s perspective.”

Mr Hopkinson notes: “The hot topics that will dominate our Workplace Solutions conversations with current and former employees are regarding existing final salary benefits when given options to alter them, and how best to approach retirement in light of the changing landscape of more flexible retirement options.

“For example, some employers will offer Pension Income Exchange where members decide on exchanging annual increases for a larger initial income. This might sound a good deal, but there are many things to take into account. Once we consider inflation and life expectancy, for example, it might not be the best solution. What is an absolute must though is access for the member to good independent advice – that can be trusted.

“It should be remembered that these options are often designed to reduce liabilities and lower future funding amounts which may mean that the individual – who is a liability of the scheme – could see benefits reduced if they enjoy a long retirement and inflation stays above trend.

“Money Purchase Schemes are now the most common form of funding retirement, this is where the member and employer will pay into a fund that is invested. It should be noted that because these schemes are solely dependent on investment returns there is no obligation on the company to make up the difference should there be poor performance. Therefore all the risk is placed upon the member and is not shared by the company.

“Increasingly it is apparent that workplace advice is required to ensure that staff are educated to understand the ‘savings culture’ and also have access to advice at retirement, or when needed most. This is where Workplace Solutions can help.”

Mitch Hopkinson concludes: “Workplace Solutions is designed with today’s working age population in mind. Naturally, these people will be of different ages; career levels and retirement planning knowledge and they will certainly have diverse requirements.

“Our bespoke solutions reflect all of this in order to meet their ultimate goals. It is almost as if George Osborne had this in mind when he announced the changes to pensions in the latest budget.”

UK Annuities Market Could Decline by up to 75%
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UK Annuities Market Could Decline by up to 75%

The UK annuities market could decline by up to 75% after the recently announced changes to compulsory annuity purchase come into effect, according to PwC analysis supported by a new consumer survey.

The survey, which looks at consumer behaviour of people aged 50-75, reveals that 63% of consumers have or intend to ask for financial advice from an IFA on how they will access their pension pot. With half of respondents having pension pots of under £40,000, this questions the affordability of advice, and IFAs may not be able to provide value for money for small pension pots.

Results also show that the most important factors for consumers deciding how to manage their pension pot are having the certainty of a guaranteed income for life, followed by tax efficiency. Having a simple and understandable product ranked surprisingly low, just higher than dependants having security after death, which respondents considered their lowest priority.

PwC UK insurance leader, Jonathan Howe, said:

“It was clear that life insurers were in for a shake-up following the recent annuity announcements, but our survey quantifies the scale of the effect on the life industry. People still want to invest a small part of their pension pot in an annuity, but it’s crucial that insurers offer innovative new products to satisfy their customer demands and to fill the hole left by up to a 75% fall in annuity sales.

“63% of consumers have or intend to ask for financial advice from an IFA on how they will access their pension pot, which is likely to account for the low ranking in importance of having a simple product. However, the key point here is that many consumers may not have a big enough pension pot to justify significant advice fees, particularly as since the Retail Distribution Review came in last year IFAs now have to charge fixed service fees to customers. What we will see is an advice ‘black hole’ – a supply gap between what consumers want and what they can get.

The Government’s free guidance will no doubt have its limits, and consumers will turn to their product providers for help in deciding what to do.

“This is a good opportunity for financial institutions to react to customers and to offer new products and services that suit their needs. Our survey shows that over 50% of people still want to buy products offered by financial institutions, and given the key focus on guaranteed income for life, insurers’ expertise in the area of longevity risk will be key.”

Latin American Pension Industry Tops US$900bn in AUM
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Latin American Pension Industry Tops US$900bn in AUM

The Latin American pension system has grown to more than US$900bn in assets under management, according to new research from global analytics firm Cerulli Associates.

“The pension industry in Latin America has been a key source of allocations for global managers and exchange-traded fund sponsors over the years, and promises to grow in importance as the size of these privatised social security systems quickly expand,” comments Nina Czarnowski, senior analyst at Cerulli. “Local capital markets will eventually be unable to absorb these additional flows.”

In their Latin American Distribution Dynamics 2013: Closed Markets Begin to Mature and Open report, Cerulli analyzes distribution and product development trends in the six key local mutual fund and pension fund markets–Brazil, Mexico, Chile, Colombia, Peru, and Argentina.

“Cross-border distribution to the regional pension industry remains the biggest opportunity. The good news is that, while highly competitive, it remains a fairly low-cost endeavor,” Czarnowski explains. “In fact, some of the top global managers in the region have succeeded in gaining more than US$5bn each without a local office, or a local product.”

To the credit of the pension managers themselves, performance, global expertise, and on-going support have been the most-sought-after characteristics when choosing among cross-border managers.

“There has been a flurry of merger and acquisition activity in the pension space in Latin America, beginning in the last quarter of 2012,” Czarnowski continues.

Cerulli’s research finds that the compulsory fund systems from Mexico to Chile are doubling in size every five to six years. As they amass large sums of assets, it will be imperative for them to channel greater percentages of their assets outside of their borders.

One in Seven will Retire with No Pension
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One in Seven will Retire with No Pension

One in seven (14 per cent) of those planning to retire this year has made no personal pension provision and will be either totally or heavily dependent on the State Pension, according to research by Prudential1.

The insurer’s seventh annual ‘Class of’ study, tracking the future plans and aspirations of people who plan to retire this year, shows that in the Class of 2014 women are nearly three times more likely to rely on the State Pension than men – 20 per cent of women say they have no pension savings compared with seven per cent of men.

The reality of many people’s reliance on the State Pension is underlined by the research, which shows that nearly one in five (18 per cent) of those planning to retire this year will have an income below the Minimum Income Standard as defined by the Joseph Rowntree Foundation (JRF)2. JRF estimates that a single pensioner needs an income of at least £8,600 a year to reach a minimum socially acceptable standard of living; a retired couple needs an annual income of more than £12,500.

Vince Smith-Hughes, retirement income expert at Prudential, said: “The changes to pensions and how people can take their retirement income announced in the Budget last month will provide savers and retirees with more choices. However they don’t alter the fundamental fact that many people are not saving enough for a comfortable retirement.”

The Prudential research also highlights the importance of the State Pension to people planning to retire this year. On average it makes up 35 per cent of an individual’s total expected retirement income, which is the same proportion on average that is expected to come from company pension schemes.

Women are more reliant on the State Pension than men – on average the State Pension makes up 42 per cent of women’s expected retirement incomes compared with 28 per cent for men. Also, Women have less company pension scheme income than men – it makes up 27 per cent of women’s expected retirement incomes compared with 42 per cent for men.

Despite the widespread reliance on the State Pension, there is confusion among those planning to retire this year about how much the State Pension is worth for an individual. Nearly two in five (39 per cent) either have no idea what the State Pension is worth or think it is worth more than the £113.10 a week payable from April 2014. Around one in six (17 per cent) overestimate the value of the State Pension by at least £880 a year.

Vince Smith-Hughes added: “It is also important to avoid falling into the trap of overestimating the contribution that the State will make to your retirement income, as the State Pension alone is barely sufficient.

“The introduction of auto-enrolment into workplace pension schemes is helping to encourage saving, and along with plans for a flat rate State Pension from 2016, small steps are being taken to improve retirees’ prospects. However, simply saving as much as possible as early as possible in your working life and seeking professional financial advice in the run up to retirement will help to make the most of your savings when you’re ready to stop working.”

Across the country people expecting to retire this year in the North East and South West are the most likely to rely on the State Pension (20 per cent with no other pension). In contrast, those in the North West will be the least reliant, with just eight per cent entering retirement without any private pension savings.

Budget’s Pension Changes “Style Over Substance”
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Budget’s Pension Changes “Style Over Substance”

 

The 2014 budget’s pension changes have been slammed as “style over substance” by the chief executive of one of the world’s largest independent financial advisory organisations, who also says it will “fuel pension transfers.”

The comments from Nigel Green, founder and CEO of deVere Group, follow Steve Webb, the pensions minister, yesterday hailing the pension changes announced in last week’s budget as “a big step forward.”

Mr Green observes: “It was a budget in which there were several headline-grabbing pension policies annoucned, but scratch the surface and it was more style over substance.

“For instance, the scrapping of restrictions on pensions access will be a policy that will have little real appeal to the vast majority of people. This is because accessing a pension will be taxed at the individual’s highest marginal rate of income tax – which for anyone with total UK income (including salary, rental and investment income) over £31,866 will be 40 per cent and 45 per cent on all earnings over £150,000.

“Anyone who has worked hard and saved hard all their life for their retirement will be, rightly, loathed to drawdown their pension and handover almost half of their nest egg to the Treasury, simply for the privilege of having earlier access to their own funds. The average pension transfer we encounter is £320,000, which will lead to considerable tax charges if accessed all at once.”

Regarding the Chancellor’s much lauded budget pledge that “no one will have to buy an annuity,” Mr Green notes: “The requirement to purchase an annuity was actually removed in the 2011 budget and people could opt to take income drawdown instead. However, despite this change the number of people taking annuities remained relatively unchanged.

“Whilst I support the Chancellor releasing individuals from buying annuities because it encourages people to save, knowing that they can access the full capital rather than purchase an annuity, I suspect that most people will continue to buy annuities, perhaps not realising that there are better ways to create an income in retirement.”

Despite insisting that these two highly-publicised changes to pension policy will do little to alter most people’s long-term financial strategies, there is one area of pension planning which is set to be impacted from the Chancellor’s statement, according to the deVere Group CEO.

Mr Green explains: “To my mind, the primary change for our industry is that civil service pensions will not be able to be transferred outside of the UK unless there are ‘exceptional circumstances’.

“The government’s reasoning behind stopping civil service schemes transferring is that they are massively underfunded and they will be left with the debts.

“Now that it has been admitted that their schemes are underfunded, an increasing number of civil servants will want to review their pensions options and take advantage of any alternative arrangements, such as QROPS (Qualifying Recognised Overseas Pension Scheme), that may currently be available to them, before the government disempowers them to do so.

“It should also be stated that the government is also actively reviewing the possibility of prohibiting the transfer of all defined benefit schemes.”

He adds: “We have found that QROPS enquiries have increased since the government’s proposals were announced and this upsurge, it can be reasonably assumed, is being driven by those who might shortly not be able to take advantage of the many associated benefits of QROPS. Such benefits include a greater freedom over pension investments, a choice of major currencies, and often far more efficient tax treatment of the pension – both when income is accessed and on the individual’s death.”

Mr Green concludes: “In short, Chancellor George Osborne’s 2014 budget was, perhaps unsurprisingly, an electioneering budget that promises a lot and that will impact little on pension planning, except for fuelling demand for overseas pension transfers.”

More Than Half Over-55s Want To Work
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More Than Half Over-55s Want To Work

 

More than half of over-55s currently in the workforce are happy to work past the default retirement age of 65, according to new research from MetLife.

Its nationwide study found 54% of those aged 55+ who are currently in jobs want to keep working when they get to 65. However one in four want to reduce their hours and work part-time either in their current job or with a new employer.

MetLife believes the demand for part-time work highlights the need for changes in retirement income solutions to enable people to adapt to new working patterns and reductions in income. Solutions could include the use of deferred income guarantees enabling savers to plan ahead for retirement guaranteeing a level of income.

The nationwide study found nearly one in five (19%) of those aged 55+ regret not having taken financial advice on their retirement income planning while 29% say they have taken financial advice. However that leaves more than two-fifths who have not taken any advice.

The research, which was commissioned as part of Dr Ros Altmann’s report ‘Pensions – Time for change’ sponsored by MetLife, underlines the need for new thinking on pensions. Dr Altmann’s report highlighted how retirement and pensions have not kept up with improvements in life expectancy and national health.

Dominic Grinstead, Managing Director, UK, MetLife said: “As life expectancy is rising and working lives are getting longer, the demands on retirement income have evolved and the demand for part-time working reflects that. New living patterns require retirement income solutions that offer flexibility to ensure sufficient income will be provided in later life.

“However the research also shows that people are not taking – or getting the advice they need to adapt. Sound independent financial advice is central to people’s ability to make the right retirement income choice. The Government is doing its best to promote long-term savings and the industry should encourage people to look beyond traditional solutions such as annuities when appropriate.

The MetLife research shows those aged 55+ who want to carry on working full-time overwhelmingly want to stay with their existing employer – more than 90% say they want to continue in their current job. However those who want to work part-time are more likely to switch to a new employer – nearly 60% would move to a new part-time role.

MetLife passed the £4 billion assets under management milestone a year after hitting the £3 billion mark underlining the continued strong growth in the unit-linked guarantees market.

Continuing expansion is being driven by the success of its new generation of guaranteed products offering market-leading deferred income rates of 4.25% and shorter capital guarantee terms.

MetLife has seen rapid growth underpinned by its Managed Wealth Portfolios which have grown to more than £1.3 billion under management in just 12 months after launching the new funds in partnership with world-leading asset manager BlackRock.

UK's Most Popular DC Pension Funds
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UK’s Most Popular DC Pension Funds

 

The dominance of diversified asset allocation strategies in the UK defined contribution pension default fund landscape has been underlined by an exclusive finding in Cerulli Associates’ institutional report, European Defined Contribution Markets 2013: Winning With a Targeted Approach.

In the survey of European asset managers conducted for this report, two-thirds (66.7%) of managers expected diversified growth/asset allocation strategies to be the most popular choice, followed by lifestyle strategies (20%).

Target-date funds, which have been launched in Europe by some US-headquartered investment managers, were mentioned by fewer asset managers (6.7%), but interest in this sector is expected to grow. Blended funds, with a significant portion of active and passive approaches, were also mentioned.

“Getting one’s default fund strategy right is crucial for managers in the UK and Continental markets, because default funds take in the bulk of DC pension contributions,” said David Walker, associate director at Cerulli Associates in London.

Laura D’Ippolito, a senior analyst at the firm, added: “Setting up a target-date strategy in the United Kingdom is much more complex than simply bringing over a successful strategy from the United States.” 

Retirees to Seek Higher Risk Investments
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Retirees to Seek Higher Risk Investments


The CEO of one of the world’s largest independent financial advisory organisations expects a growing number of retirees to consider “higher risk-higher return investments” as a direct result of the Bank of England’s February statement that interest rates are likely to remain low until the end of the decade.

The comments from Nigel Green, founder and chief executive of deVere Group, follow Mark Carney’s assertion last month that rates will not rise from their historic lows for at least another year – and when they do rise, the increases are to be “gradual” and “limited”. The BoE governor also hinted that rates are expected to remain low – staying between 2 and 3 per cent – until around 2020.

Mr Green comments: “The rock bottom interest rates are eroding people’s savings, which is reducing their spending power and limiting their financial options.

“Therefore, the Bank’s raising of the prospect that interest rates are to stay low until the end of the decade is another hammer blow for retirees, and others living off a fixed income.

“Tired of their cash holdings making them, in effect, poorer over time, I fully expect more and more retirees will turn traditional investment thinking on its head. An increasing number will, I believe, consider higher risk-higher return investment opportunities as part of a well-diversified portfolio in order to be able to fund the retirement they want to enjoy.

He adds: “Traditionally, the mindset has been that as we get older we should reduce our exposure to risk and, for example, increase holdings of cash and bonds. However, in today’s world this prudent intention could have serious unintended consequences.

“Since Mr Carney’s unveiling of his forward guidance policy last summer, we have found there’s been a steady growth in the number of retired clients seeking to increase their holdings of higher risk-higher return investments, which could potentially enable them to maintain or enhance their spending power and lifestyles in retirement. This trend’s momentum is, I believe, likely to build following the BoE governor’s latest longer-term forecast on interest rates.”

40% of Landlords Relying on Property
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40% of Landlords Relying on Property

A survey of independent landlords has shown over 40 per cent are putting their trust wholly in property as their means for pension provisions.

The survey of 879 property investors shows 42.4 per cent, with a further 49 percent using it as a major part of their income for their later years.

The findings by the Property Investors Network (PIN), comes less than a fortnight after the Financial Conduct Authority said millions of pensioners are getting a poor deal from the annuity market.

“We have a situation now where there is an endemic loss of faith amongst traditional financial institutions, and the public believe that good old bricks and mortar remain the best way forward,” said Simon Zutshi, founder of PIN.

Mr Zutshi, whose organisation hosts 41 property networking meetings each month across the UK, said the consensus amongst those involved in property investment is that it should be allowed the tax benefits given to other types of pension provision.

“The tales we’ve heard in recent years of highly paid bankers being utterly reckless with the futures of many, plus other tales of woe by those looking after our money, shows that the public should be entrusted with more control over their futures and Self-Invested Personal Pensions (SIPP) and should allow residential property as part of a solid portfolio.”

The FCA said in its recent report that millions of pensioners were getting a raw deal due to poor annuities, with the regulator also highly critical of price comparison websites used by some people to buy an annuity, saying that every one of the 13 sites it looked at was guilty of poor practices.

An annuity provides a regular income from the pot of money that a pension plan holder has accumulated during their working life. At retirement, an estimated 60% of people simply take the deal offered by their pension provider, even though they are entitled to shop around and make use of the so-called open market option.

“State pensions are on the decline and private pensions are under invested in,” added Mr Zutshi. “Yet the performance of property historically provides enough evidence to provide a compelling argument as a means for pension provision. We hope these findings will add to the debate.”

Calculus Invests in Digital Admin Firm
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Calculus Invests in Digital Admin Firm

Private equity fund manager Calculus Capital has invested £2m – via its EIS Fund – into a digital administration services provider that is helping to deliver a low-cost revolution in the pensions, savings and investment industries.

Through its proprietary technology platform, Quai provides white-label administration services for personal savings products at a fraction of the costs currently borne by traditional providers.

Quai was established in 2011 by a team of former Legal and General, Brewin Dolphin and BNP Paribas Securities Services executives. The founders recognised that legislative and regulatory changes such as auto-enrolment, the Retail Distribution Review and the Solvency II Directive would fundamentally change the way wealth managers, insurers, banks and other pension and investment companies provide savings products to individuals.

Mass distribution of individual savings plans, combined with the elimination of commission payments are forcing providers to offer high-volume, low-margin saving plans – a process that is being further accelerated by the proposed Government cap on pension scheme costs.

However, the legacy systems of providers are increasingly unfit for the demands of this rapidly evolving landscape, driving a need for more advanced technology to reduce administrative costs, increase capacity and improve efficiency.

Susan McDonald, chairman of Calculus Capital, said: “Providers are having to manage more pension schemes, savings and investment products at a lower unit cost, whilst struggling with inefficient legacy systems and processes. Established operators must choose whether to build bespoke in-house systems to administer mass-market products – which is likely to be extremely expensive and time-consuming – or to outsource to a service supplier with a fully developed platform. Quai’s platform is regarded as one of the most advanced and cost-effective third-party solutions and is therefore generating a great deal of interest from major financial institutions.”

Quai’s outsourced service is built on a proprietary technology platform incorporating a full service portfolio management system. It allows banks, insurance, pension and investment businesses to efficiently administer extremely high volumes of savings plans through automated systems, straight-through processing, online functionality and multi-currency individual and model portfolio management services.

Ms McDonald adds: “Our investment should provide Quai with the breakthrough capital it needs to convert current levels of interest in its platform into signed contracts. The funding will support Quai in the completion of several deals with key UK financial institution that are keen to benefit from the company’s services as soon as possible.

“It also provides extra resources so the company can continue to develop and enhance its systems and focus more efforts on business development.”

Tony Webb, Quai managing director, adds: “Calculus’s investment comes at a crucial stage in our growth and development. There is a huge need for our services and technology platform; investment and pension administration systems are effectively creaking under the increased demands placed on them by the need to roll out mass-market products. Unless they take action this strain on their back-office systems is likely to result in potentially costly and damaging problems occurring. With our focus on high efficiency systems, we are able to resolve these problems and reduce costs to our clients and their end customers.”

One in Four Not Ready to Retire
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One in Four Not Ready to Retire

New research from Prudential has highlighted how attitudes to retirement are changing, with nearly one in four (23 per cent) people planning to retire this year saying they don’t feel ready to stop working altogether.

Meanwhile 13 per cent of those who had been scheduled to retire have chosen to delay their plans because they don’t want to give up work just yet.

The research into the ‘Class of 2014’ is Prudential’s seventh annual study tracking the future plans and aspirations of people who plan to become new retirees this year. More than half (54 per cent) will consider working past the State Pension Age in an attempt to make their retirement more financially comfortable.

Around a quarter (23 per cent) would consider working full-time while 31 per cent would weigh up the idea of working on part-time. Ideally they would prefer to continue in their current job with reduced hours, with 32 per cent of those considering working past the State Pension Age suggesting that option is the one that would suit them best.

However, this year’s results highlight positive attitudes to retirement despite ongoing financial pressures. The main motivation for 57 per cent of this year’s retirees who would consider continuing to work past the traditional retirement age is to keep mentally and physically fit. More than a third (35 per cent) also cite the ability to boost retirement savings as a consideration, while 40 per cent simply enjoy working and 39 per cent don’t feel ready to retire just yet.

The study also found that the ‘Class of 2014’ are expecting a busy and enjoyable retirement – 53 per cent of those planning to retire this year intend to do more exercise, 37 per cent will be socialising more, while 36 per cent plan to take up voluntary or charity work. Around 29 per cent say they have no worries or concerns and are really looking forward to their retirement.

Stan Russell, a retirement income expert at Prudential, said: “For many people retirement is now a gradual process rather than a watershed where you simply stop working one day and become retired the next, and that is reflected in the change in attitudes shown by our research.

“However, there is no one size fits all solution to retirement and many people will be looking forward to leaving work as soon as they can. What is important is that people plan ahead for retirement and do as much as possible to ensure a comfortable retirement by consulting a financial adviser or retirement specialist well ahead of their planned retirement date.

“Working past traditional retirement ages is not solely driven by financial pressures and the research shows growing numbers of people wanting to carry on working because they enjoy it and because it keeps them stimulated mentally and physically. Increased life expectancy and improvements in general health are changing how we think about retirement.”