INDUSTRY NEWS

Minister of State to the Department for Work and Pensions Steve Webb is to push for implementation of the Netherlands style ‘Defined Ambition’ pension scheme that offers more guarantee than the current defined contributions pension plan.

The Dutch scheme functions whereby the annual contribution is specified and benefits are based on amounts paid in by employer, plus investment earnings on the amount in the account. The scheme operating currently assures only employer but not future benefits, which fluctuate on the basis of investment earnings.

The Minister’s proposal has been triggered by the rapid disappearance of final salary schemes and the increasing number of people failing to save for their retirement and under the urgent reform companies are to be encouraged to offer the new ‘defined ambition’ alternative.
Webb favours the new plan currently being piloted in the Netherlands as it offers savers some reassurance from their employers on the size of their pension pot and even the approximate size of their income on retirement. The scheme would not be state regulated to the same extend as final salary schemes however, giving the employer some flexibility in terms of fluctuations and life expectancy increase.
Recent date from a  leading Life Insurance company report, suggests ten percent of those due to retire this year will delay taking their pension, a third stating the reason as not ready to give up work, with the remainder in the main citing the reason as not being able to afford to. A typical calculation shows two decades ago a pension of £100k would return an income of £15K, that same return today reduced today to just £6k. Only one quarter of final salary schemes are in existence since its peak in the 1960s.
Webbs hopes of greater assurance for workers to be less affected by the quirks of the market was summed up in his remarks “I would rather know roughly what I was going to get than have no idea what I was going to get.”
In other pension news the government will start an auto-enrolment scheme in October that will see 10 million people earning £7475 or more per annum and not already in a company pension scheme automatically put into the existing defined contribution scheme.

Fidelity International, the US financial services company and one of the world’s largest mutual fund groups, is calling for an ‘industry standard’ to protect investors from an array of hidden charges. A simple breakdown of the total cost of investing in a fund should be made clear and available through universal approach, it has said.

Investors generally use the TER, Total Expense Ratio, to compare the costs of investment funds. These costs would typically include administration fees and annual management fees. But depending on how often an investor sells shares within their portfolio, they will be hit by hidden fees such as turnover costs and stamp duty, which only become apparent on receiving their annual statement.

Indeed, consumer rights group Which? has estimated that over £250million of portfolio costs are being hidden each year. The results of their findings reflecting the conclusions of the investigation by Fidelity.

Fidelity’s UK managing director Gary Shaughnessy has expressed concern over selective pricing that misleads investors and believes they are only being shown part of the cost they can expect to incur from holding investments. ”We believe the charging structure on funds should be simple, easy to understand and should not discriminate against smaller investors. What will really help is a transparent and standardised cost breakdown in pounds and pence.” says Mr Shaughnessy.

In concurrence with the US company, Alan and Gina Miller of fund specialists SCM Private, have launched their website www.trueandfaircampaign.com which similarly criticises hidden charges and in turn calls for greater openness about how managers invest clients’ cash.  The Millers’ own research suggests less than 20% of investors and savers know exactly how much they are being charged each year, with a lack of transparency being facilitated by a mass of convoluted language.

However, a resolute reaction from asset management industry’s trade body, the Investment Management Association as been received, with the IMA arguing that trading costs are freely available in fund literature, and highlighting that companies are obliged by investment fund regulation to disclose all fees. CEO Richard Saunders has challenged the research implying ‘false stories’ damage the industry at a time when people should be saving for the long term.

A defiante Saunders added: “The IMA’s figures demonstrate clearly that so-called hidden charges which cost investors billions a year are a complete myth. If the accusation were true, it would show up in the net returns achieved by investors. But there is no sign of it. The accusations of hidden charges do not stand up.”

It appears that concerns of a second recession and continuing turmoil in the Eurozone has led to investors leaving equity scheme at a rapid rate, a rate not seen in records first began in 1992.

The Investment Management Association has claimed that British investors have taken out more than £800m with the past four of five months having seen net outflows, this follows a two year period of constant net inflows, the IMA reveal.

Remaining investors, unsurprisingly, are electing to invest in balanced funds and corporate bonds, which are seen as a safer option. The popular ‘Bond funds’ have seen an increase in sales, as have UK ‘Absolute Return funds’. Meanwhile financial advisers express little surprise at this turnabout, in light of the constant media flood of Eurozone crisis news.

Ordinarily, negativity in the market would signify an ideal time to buy, but the unusually adverse market conditions are discouraging investors from taking any risks.

According the IMA, holding funds in tax-efficient ISAS have also relinquished shares, with £28m being withdrawn from these.

The likelihood of Europe’s stock exchanges merging with New York’s is diminishing as the European Commission Competition regulator recommends blocking any potential deal.
The recommendation to reject the plan is understood to have come about after both Deutsche Borse (owner of Eurex), and Euronext (NYSE) each refused to sell one of their derivative exchanges.
Commission vice president Joaquin Almunia, who is in charge of competition policy, has advocated vetoing a merger that would create a monopoly in clearing and derivatives, a monopoly that would effectively create the world’s biggest stock exchange entity.
The chief executives of the two companies involved are to meet imminently to discuss what action to take next. Observers are forecasting it will mean the launch of a major lobbying endeavour on other commissioners with the aim of outvoting Almunia.
Using the lure of job creation from a merged company power house might encourage Almunia’s counterparts to reject his recommendation, although an overruling of the Competition Commissioner is uncommon.
The deadline to close a deal has been extended to 9th February.

The FSA warned earlier this month of a pension transfer scam currently in operation and has advised extreme caution in the event of receiving a cold call encouraging you to moved your pension into an overseas scheme or to sell it to raise instant funds.
They warned that should you be approached by anyone wishing to help you with unlocking or transferring your pension, chances are they that are scamsters. They could also be salespeople trying to earn a fee by convincing you to switch from one supplier to another, an action which usually results in your pension pot shrinking significantly.
The FSA have expressed concern that pension holders may be vunerable to the lure of instant financial gain and not consider seriously enough the losses incurred once retirement age is reached.
They advised that moving your pension overseas would mean that you would no longer have the protection offered by the financial authorities in the UK and would not be able to look to the UK to claim compensation should you lose your money. They also warned of excessive tax charges and penalty charges levied on an early transaction, which is effectively an unauthorised one.
For anyone suspecting they may have already fallen victim to the scam or who has concerns about a company they have been contacted by, the FSA Consumer Helpline number is 0845 606 1234.
You can also use the FSA register of financial firms to check whether a company is registered and legitimate. www.fsa.gov.uk/pages/register/

Welcome relief for the Channel Islands as Chancellor George Osborne reiterated his opposition to the EU proposed  ‘Robin Hood’ tax. In his recent Autumn Statement, he repeated his opposition to the tax, currently being planned by the European Union, which would result in a levy being paid on each individual financial transaction. As he did so, supporters and critics went to head to head with their opinions.

Tax director Gary Bell of PricewaterhouseCoopers voiced his approval, asserting the importance of financial services companies in the Channels Islands to success in the City of London. ‘Robin Hood Tax’ campaigners however, shared an altogether different view, claiming that key workers and low earners are yet again being forced to pay the price for the damage caused by banks in the financial crisis.

The Law Commission has recommended that couples who have lived together for five years and more, but remain unmarried, should automatically inherit from their partner in the event that a will has not been written. They further state that the law should apply after just two years for couples with children.
The bill is part of a complete review of inheritance law which also includes actions to make sure married couples and couples in civil partnerships automatically receive assets in all cases where there are no children or other descendants.
It is estimated that up to two thirds of adults in England and Wales have not written out a will, and according to the study, co-habiting couples are most likely to be among this figure. In this case, current intestacy laws pass property on to the closest blood relations, or distant relatives in the absence of close family members.
The recommendations have been welcomed in some quarters, as an improvement on the current rules atleast, but concerns that the two and five-year cut off points would cause frustration where the partner dies just before these set time periods are up have been raised.  The best advice still remains to write a will at all costs.
For couples living apart who have never divorced, the Law Commission has proposed that the surviving cohabitant would have no entitlement to any of the estate in this case.

The treasury has estimated that 6 million children will
be eligible to take out a 'Junior ISA' which
can be cashed at age 18. Family or friends will be
able to pay up to £3600 into a child's account either wholly
in cash or as mixture of shares, bonds and cash. 

A competition battle is already ensuing amongst providers, as
big names in the savings market keep details
of their rates a secret for the moment. 

Speculation on the potential value of the new scheme has been put forward
by various providers however, some of whom evaluate the scheme could
accumulate an amount of up to £100,000, based on 5% growth on the
full £3,600 being deposited every year. 

Some criticism has been drawn since the announcement
of its launch. In particular from the Institute for Public Policy Research
who argue that the incentive for the Child Trust Funds is now lost
and low and middle earning families will not be able to instead afford
to open a Junior ISA, its effective replacement.

28th November saw the end of NS&I's
Investments and Easy Access Savings accounts via the
Post Office. 

NS&I cite the reason as part of a larger plan
to 'simplify and modernise' its range of services and
encourage customers to deal with it directly.

Over 2 million Investment Account holders will be affected by
the move although until May 2012 existing customers will still
be able to operate their accounts through the Post Office.

After this time, accounts will become postal
only accounts and through this postal only function,
new accounts will once again be available to opened.

The Easy Access Savings Account, on the other hand, will be
closed completely in July 2012. These customers will then be offered
3 choices; move their cash to the new postal Investment Account,
switch to a Direct Saver Account or take their money elsewhere. 

The change comes as NS&I has seen a reduction in
the number of people making transactions via the Post Office
counter, with some customers already preferring to use the existing
postal service, NC&I's online service and the call centre, which is open
7 days.  

Premium Bonds will continue to remain on sale at the Post Office.