Public sector pensions get major reform

In a further erosion of the concept of global final salary pension provision, The UK Treasury has just announced their plans to drastically reduce the cost base for the provision of public sector pensions.

Their efforts to reduce by 50% the cost to the tax payer for this sectors pension provision will result in the government saving approximately £65bn over the next 50 years. This would account for a large proportion of the total savings hoped for by the Treasury of £430bn in the overall costs of those pensions.

The main thrust of the savings being proposed in ‘The Public Service Pensions Bill’ is the abolition of the concept of a final salary scheme for civil servants and this being replaced with a career average income pension scheme.  At the same time these civil servants will also be expected to work longer before receiving their pensions.  An exception here is being made for the armed forces, the police, and fire-fighters. Here their pensions will be linked to their normal state pension retirement date.

A buffer has also been included, however, for those who are currently within 10 years of retirement (to be calculated from April 1st 2012).  This group will see no change in their retirement age (or date) or any decrease in their presently anticipated pension amount.

Confirming that the present and future pension provision for civil servants is still amongst the best available in the UK, Danny Alexander, the Chief Secretary to the Treasury was quoted as saying about this bill that: “It will cut the cost to taxpayers by nearly a half, while ensuring that public sector workers, rightly, continue to receive pensions amongst the very best available.”

This action is seen to be a continuation of the erosion of final salary pension provision here in the UK, so careful forward planning must be undertaken by not only private sector workers but now public sector workers as well to ensure that a comfortable retirement income will be made available, when that time comes.

Contact us for guidance and assistance in this regard.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

EU to protect investors

Euro‘Packaged’ investment policies may be policed by the European Commission (EU) in a move aimed at offering greater transparency of products and protection to investors.

It is their intention to request all EU Governments to bring in new regulations to ensure that investors are given a key information document to “prevent consumers from being sold investment and insurance products, including pension plans that are not right for them.”

This document, entitled a Key Information Document (KID) would be in a standardised format enabling all investors to compare the investment/s they are considering.

This regulation would apply to “private pensions, all types of investment funds, insurance based investments and retail structured products.” It would apply to products marketed by banks, insurers, and investment funds.

The EU Commission was quoted as saying: “The EU retail investment market is worth up to €10 trillion (£8 trillion) and for consumers, life savings are often at stake if something goes wrong.”

The KIDs will provide information on the products features, including an explanation of their costs, and an additional explanation of any risks associated with them, this mean it will “make clear to every consumer whether or not they could lose money.”

As the EU has been in prolonged consultation over these suggestions since 2008, it is hoped, they claim, to have the new KID rules in place by 2014.

Any improvement in investor protection is to be applauded and we are happy to discuss your investment needs across all investment vehicles.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Greek debt swap agreed at 11th hour

Greek debt swap agreed at 11th hour

 
It went right up to the wire, but Greece has managed to agree with their creditors the sovereign debt swap needed to stave off default and receive the Troika’s (The EU, ECB, and IMF) €130bn bail-out fund.
Today (Friday, March 9, 2012) holders of 85% of debt subject to Greek law and 65% of international debt holders agreed to swap their sovereign bond debt holdings.  Reflecting this positive response the Greek Government said it would extend its deadline for bond holders not governed by Greek law (international debt holders) to March 23rd.

 The Finance Minister of Greece, Evangelos Venizelos, was quoted as saying: “We have achieved an exceptional success… and I believe everyone will soon realise that this is the only way to keep the country on its feet, and give it the second historic chance that it needs.”

Given that these holders of debt have suffered a total loss of 74%, that may be considered an understatement.

Following on from his statement, Jean-Claude Juncker, President of the 17-nation Eurogroup of nations, responded thus: “the necessary conditions are in place to launch the relevant national procedures required for the final approval” of the bail-out.

Whilst Greece needed an acceptance rate of 75% of creditors to receive the Troika’s bail-out funds, the International Swaps and Derivatives Association has yet to determine if this represents a technical default.  If it found that this was the case, it would trigger the payment of existing Debt Default Swaps and other insurance to the value of $3.2bn.

The long-term goal of the bail-out remains to reduce Greece’s debt from 160% of GDP to 120% by 2020.

To achieve this, the austerity measures already agreed by the Greek Government – including spending cuts of 1.5% of GDP, civil service job cuts, a reduction in the National minimum wage, the abolition of restrictive employment laws, and cuts in public sector pension payments – will need to be strictly adhered to, and with an economy already recording a 7.5% annual decline in GDP for the final quarter of 2011 this will be a tall order.
Some economists believe that these additional and punitive austerity measures may well further damage the already very weak Greek economy, which may result in additional bail-outs being required or further debt write-offs in the near future.

Civil unrest has been continuing in the country, with national strikes and protest rallies now a regular occurrence across the country, but particularly in the capital Athens.

Global markets took a sanguine view of events with the equity markets little changed.   This was partly due to a strong rally seen on the previous Thursday, with most European markets seeing gains on the hopes of this optimistic outcome.  Athens saw its stock market gain 3% on the day, with the German and French markets following suit.

Joseph Ackerman, the Chairman of the International Institute of Finance (IIF), who have been representing the private lenders to Greece, was quoted as saying: “The very strong and positive result provides a major opportunity now for Greece to move ahead with its economic reform program, while strengthening the euro area’s ability to create an economic environment of stability and growth.”
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.
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Quantitative easing and you

Tudor housing
Nothing is new

Back in the mid 1540, Henry VIII debased the coinage in order to help pay for his disastrous wars with France and Scotland. The result was a high level of inflation.

This month, the Bank of England has decided that it needs to print more money through quantitative easing – arguably the modern day equivalent of adding copper to silver coins, since it puts more money into circulation without taking anything out of the economy to compensate.

With low interest rates already, the Bank clearly feels it has no alternative way of helping to inject a much needed stimulus into the economy; it may be right.

Why the need to ‘print money’?
According to the Bank’s calculations, the first £200 billion of quantitative easing contributed up to 1.5% towards inflation, but also prevented the economy from going into a double dip recession (source: Telegraph – 19/09/11). Now it is to create a further £75 billion, not to help us fight the French but partly to help us fend off the financial implications of a banking crisis created by the inability of Greece to reduce its borrowing.

Actually, this is only part of the picture. Poor data from the US and rising unemployment in the UK are probably symptomatic of a wider malaise in the economy that shows the developed world failing to generate significant (if any) domestic growth or to build on the growth within emerging economies such as India and China. Even without the impending banking crisis, something needs to be done to help boost the economy. Many outside bodies – that have no interest in our domestic politicking – appear to agree that the aim of slashing the UK’s borrowing is essential as a precursor to recovery. Conversely, many are pressing for some form of growth strategy that appears still to be sadly lacking. QE2, as this second tranche of quantitative easing is becoming known, could be at least part of the solution.

What might happen this time?
It is essential, however that this round of injecting money into the banking system does not, as previously, simply serve to strengthen bank balance sheets (important as this is to us all). It must reach the real economy in such a way that it stimulates growth in manufacturing and exporting, if we are to benefit. Otherwise we will simply see inflation and an even longer period of low interest rates.

Pensioners will pay the price
And here, of course, comes the crunch. The immediate impact of QE2 will be to further to depress annuity rates, becasue gilt prices will fall as a result of the cash injection. From a wider perspective for savers, particularly those in retirement, interest rates are unlikely recover for some time which will mean that bank and building society deposits will continue to offer poor returns.

The longer term implication is that inflation is likely to stay at relatively high levels, rather than falling back as the Bank of England has been predicting. This compounds the impact on those with fixed incomes, or where increases fail to keep pace with real inflation.

Those planning for retirement should be aware that reverses of this nature are by no means isolated and that boosting retirement funds as quickly as possible is the only way of countering the adverse effect that QE2 – and further such actions – could have.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Moving the deckchairs

A few weeks ago, it was announced that the Office for National Statistics (ONS) was proposing to reclassify the way the 3G auction of mobile telephone licenses A DECADE AGO was handled in the nation’s accounts, which could lead to the public spending deficit increasing by some £10 billion.

In fact, this will not really impact on the real world – it is not as if the government is actually spending more money or receiving less income, this is simply an accounting issue. On the other hand, it makes the economy look weaker at a time when that is hardly helpful.

Just doing its job
It could be argued that the ONS is imply regularising the situation. However, since this will force the Office for Budget Responsibility to widen its deficit forecast, it simply makes matters more difficult for the Chancellor to balance his books. One has to wonder whether this is simply a matter of the ONS moving the deckchairs on the Titanic while it sinks (perhaps an unfortunate analogy with the centenary of that disaster looming in just seven months) or an attempt to derail the government’s plans, for darker reasons.

A more important role
For many of us, the relative importance of the ONS must be questionable at a time when the National Audit Office (NAO) could probably do with more weight in order to combat the waste that still pervades all levels of government.

Examples of government waste abound, such as reports that the £12 billion spend on a computer system to centralise NHS data is to be scrapped, because it didn’t work. The NAO has already stated (last May) that the scheme offered poor value for  money, so how much more could be saved if it had the resources to become involved – and challenge waste effectively – much earlier?

Not an academic question
This is not an issue that simply affects politicians and accountants. Every one of us has a vested interest in reducing government waste so that the budget deficit can be reduced without effecting public services; if we could afford to retain more front-end public servants – while perhaps making them more productive – this could actually help the economy because there would be more people in employment paying tax and NI contributions, as well as spending more in the shops.

What is sapping the economy, is money being spend needlessly in areas where the nation receives no benefit; in fact only a few wealthy consultancy firms receive any advantage at all. The NAO needs to be given the resources and power to slash government waste, because politicians and senior civil servants do not appear capable of doing so.

If we are to plan effectively for our own retirement, we need to have a stable economic environment within which to do so. £12 billion in wasted spending (just one example) could, if properly directed, have made a significant difference to public spending plans. Moving £10 billion from one accounting column to another does nothing but harm.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Greek tragedy

Watching events develop in Greece brings to mind the comment made by Professor Sir Ernst Gombrich (1909 – 2011) in his seminal book, A little history of the world, that “the Greeks could do everything but live in peace with one another”.

The famous art historian was actually looking back to the wars between the ancient city states of Sparta and Athens in about 430 BC. He could, however, just as easily have been describing the tension between a government that knows it has to find some way of reducing its borrowings at a time when there is insufficient economic growth to generate increased revenues and a population that appears unprepared to accept any further austerity measures.

What are the options?
Arguably, had Greece not fought its way into the Eurozone (some say by being economical with the facts about its true financial status) it would not currently be in such a mess. If it still had the Drachma, it could allow the valuing of its currency to fluctuate in order to make its overseas repayments cheaper, in domestic terms; as the UK has done in the past. With the Euro firmly in place, this is not an option – without withdrawal from the ‘club’. Unfortunately, it has been estimated that leaving the Euro could cost every Greek person the equivalent of €9,500 to €11,500 in the first year alone.

The Greek people appear to view demands for reduced social spending as unwarranted foreign interference while the Germans, effectively the Eurozone’s paymasters, are unwilling to suffer financial hardship in order to help a country that they see as indolent and unwilling to accept any financial pain as a consequence of their previous profligacy.

Does the Euro have a future?
While we may be tempted to stand back and congratulate ourselves for refusing to join the Euro – which could turn out to be Gordon Brown’s sole positive legacy – the fact remains that it is in our interests to have a strong Eurozone. A significant proportion of our trade is with them and our banks have lent to them considerable sums (along with Italy, which has just had its sovereign debt credit rating cut by Standard and Poor’s from A+ to A).

This close relationship makes us vulnerable to any economic decline there – especially as our other leading trading partner, the US, is not doing very well either – one reason why we have not objected to putting money into the rescue plans though our shareholding in the IMF.

What does this foretell UK investors?
There are three key issues for the UK. First, we cannot afford to allow the government to take its eye off the ball of cutting our deficit. However much public sector unions may decide that their members are disadvantaged by the debt reduction measures being taken, the fact is that their salaries – and pensions – are paid for by the rest of us. In any event, the pension changes proposed are most unlikely to disadvantage most lower-paid workers and could actually benefit them, because of the way career average pensions work.

Secondly, while there may be no “Plan B”, it seems essential that the government should take steps to boost the economy by bringing forward some of the capital spending planned for later years, in order to help increase GDP. The private sector has a far larger role to play, however, and it is more important that the government creates an environment of positive support for wealth creation as a matter of urgency.

Does this mean cutting the 50p tax rate? Probably not, for political reasons; however, other tax incentives to entrepreneurs and foreign investors could help.

Thirdly, at an individual level, whilst adopting a ‘defensive’ investment strategy could be seen as something of an overreaction, looking carefully at how your investments are allocated could be a very good idea, in view of the likelihood of further turbulence ahead.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.