Coveting the shiny stuff – Gold
By Gareth Horsfall
This article is published on: 7th September 2016
Dear Readers, please forgive me for I have sinned. It has been quite some time since my last post and during this time I confess I have been having impure thoughts.
I have been dreaming that the UK did not vote to leave Europe. I have been dreaming that Sterling had not fallen 12% against the Euro since June 23rd and that pasta was not now 10% more expensive in the UK, I have been having impure thoughts about low(ish) inflation in the UK and not rampant price increases after BREXIT. Lastly, I have been dreaming that interest rates would rise and not fall further into negative territory, basically charging customers to hold money with them.
Forgive me for my sins and lead me not into new temptation…………GOLD
There is a lot of talk going around at the moment about gold being the best investment to hold and certainly since BREXIT it has proven its case. However, gold has some signifcant shortcomings alongside other forms of investment. Essentially, it is of pretty much no use and it does not produce any yield. True gold has some decorative and industrial uses but demand is limited and doesn’t really use up all of the production. If you hold a kilo of gold today it will still be a kilo of gold at the end of eternity (taking into account any chance events which may affect the gravitational effects on earth).
THE INVESTMENT CHOICE DILEMMA
PILE A
Today the worlds total gold stores are approximately 170,000 tons. If all this gold was melded together it would form a cube of about 21 metres per side. Thats about as long as a blue whale. At $1750 per ounce, it is worth about $9.6 TRILLION.
PILE B
Warren Buffet, who is not a fan of gold as an investment, is famously quoted as saying that with the same amount of money you could buy ALL US cropland (which produces about $200 billion annually), plus 16 Exxon Mobils (which earns $40 billion annually). After these purchases you would still have $1 trillion left over. (You wouldn’t want to feel strapped for cash after such a big spending spree, so best to leave some spare cash lying around)
So the Investment choice dilemma is who, given the choice, would choose PILE A over PILE B?
In 100 years from now the 400 million acres of farmland would have produced an immense amount of corn, wheat, cotton, and other crops and should continue to do so. Exxon Mobil will probably have delivered back to shareholders, in the form of dividends, trillions of dollars and will hold assets worth a lot more. The 170,000 tons of gold will still be the same and still incapable of producing anything. You can cuddle and hug the cube, and I am sure it would look very nice but I don’t think you will get much response.
So, taking all this into consideration, you would be forgiven for thinking that gold really doesn’t have a place in anyone’s portfolio. I think you would be wrong.
Gold may not produce any yield, but with people in Asia, especially China and India, gold is very popular. In addition, it is also proving very popular for nearly ALL central banks around the world. Are all they all going mad, or do they have specific reasons for holding gold?
Well, despite Warren Buffets’ musings above, gold has to be seen in todays world as another form of money as central governments continue to print more traditional money, uncontrollably, and the paper currencies that we use in everday life become more and more worthless.
We must remember that the history of gold is that it rose, on its own, as a tradeable form of money in the world. No one has been forced into using gold as a form of money, whereas paper money is controlled by the state and has never been adopted voluntarily, at any time.
So this is where Waren Buffets argument falls down, because actual money in itself has exactly the same characteristics as gold. Its value! (Gold has some minor commercial uses, but its true value is in its store of value). Therefore, it should not be considered an investment, but actually another form of money/currency. In its basic form it is a form of barter and exchange.
Unlike paper money which can just be created without limit and at next to no cost, gold is both scarce and expensive to mine. It takes 38 man hours to produce one ounce, about 1400 gallons of water, enough electricity to run a large house for 10 days, upto 565 cubic feet of air under pressure and lots of toxic chemicals, cyanide, acids, lead, borax, and lime. (Just writing this makes me feel sick about the environmental impact of mining gold).
So, in summary the problem with the PILE A and Pile B scenario is that it assumes that gold is a form of investment, whereas in reality it should be considered another form of money.
For 6000 years gold has been an effective store of value.
The correct comparison that should be made is gold versus cash. Imagine a gigantic pile of cash. This pile of cash would be as equally inert and equally unproductive as gold, in itself.
The only way you could earn anything from gold or cash, in this case, is by depositing it with a bank and earning interest, at which point you relinquish your ownership (it becomes the property of the bank) and you then become an unsecured creditor to the bank itself, i.e if the bank fails it has the legal right to take all your gold and cash. Sound familiar? It might be better to hold true gold in a safe at home!
The question is whether you invest directly in gold or the gold mining companies themselves?
Timing the markets
By Pauline Bowden
This article is published on: 29th August 2016
Staying the course
Every market cycle has both up days and down days. Often, a few very good days account for a large part of the total return. Staying the course ensures that investments will be “in” the market on the good days. Some people try to time market movements by selling stocks when they think the market is about to decline and by buying stocks when they think the market is about to rise. Resist being a market timer. By trying to time the market, you potentially miss out on market rallies that could substantially improve your overall return and long-term wealth. Thus, what’s most important is not timing the market, but rather time IN the market. Staying the course when confronting difficult markets may prove very rewarding in the long run. Consistently predicting which days will move in which direction, though, is virtually impossible and can be very costly.
Diversifying your portfolio
Diversification may reduce the overall volatility of your entire portfolio, thereby helping you achieve greater long-term returns. It is important to remember, however, that diversification does not protect against loss in broadly declining markets. Like markets in general, different investment styles come in and out of favour in Cycles Rather than trying to predict which investment is likely to be the best performer in the future, investing in a well-diversified portfolio can help you to seek returns whilst managing for volatility. Diversification strategies may be especially important in a volatile market environment, when sector rotations and market fluctuations happen continuously.
The Importance of Protection and Protecting What’s Important
By Pauline Bowden
This article is published on: 25th August 2016
Life Assurance is not the most popular of topics, as no-one wants to think about dying!
Most people have mortgages, loans, household bills, perhaps education fees, the payment of which is totally dependant on the income of the “bread winner”. Most Life Assurance policies are taken out to replace that income should the bread winner die or where there are children in a family to cover the life of the housewife/husband.
If your partner died, would you give up work to look after your children? A Life Assurance policy can provide the funds necessary to employ a carer/housekeeper.
Business partners too are financially dependant on each other. Should one of the partners in your company die, Life Assurance can provide a lump sum payment to buy the shares from the widow/er and help with the costs of finding new staff.
There are two main types of Life Assurance:
- Term Assurance. This pays a lump sum on death or diagnosis of terminal illness within a set period of time. Often used for mortgage protection/family protection.
- Whole of Life. This pays out whenever you die. Often used for Inheritance Tax, funeral expenses or for family protection.
So, how much life cover do you need?
Employer schemes generally provide 4 times the annual salary but in order to provide sufficient capital to fully protect the financial future of a family, most Financial Advisers would recommend up to 10 times the annual salary.
And how much will it cost?
The cost of Life Assurance varies according to age, sex, medical and family history etc.
To find out more about this subject call Pauline Bowden now on 95 289 0383 for a confidential and personal consultation.
Parkinson’s Law
By Victoria Lewis
This article is published on: 24th August 2016
Are you familiar with Parkinson’s Law? Originally it stated that “work expands to fill the time available for its completion.”
Parkinson’s Law is the title of the book written by Englishman Cyril Northcote Parkinson in 1958 and today, the more recent understanding of the law is a reference to the self-satisfying uncontrolled growth of the bureaucratic apparatus in an organization.
The Law is also applied to money and wealth accumulation: expenses always rise to match income. Parkinson’s Law can explain why many people retire poor and why some people succeed, whilst others fail.
The law says that, no matter how much money people earn, they tend to spend the entire amount and a little bit more. Their expenses increase in line with their earnings. Many people earn today several times more than they were earning at their first jobs. But somehow, they seem to need every single penny to maintain their current lifestyles. No matter how much they make, it is never enough.
The key to financial success – break the (Parkinson’s) law
Parkinson’s Law explains the trap that most people fall into. This is the reason for debt, money worries and financial frustration. It is only when you have sufficient willpower to resist the urge to spend everything you make that you begin to accumulate money – the perfect environment to help you achieve financial independence.
Reduce your outgoings
If you ensure your expenses increase at a slower rate than your earnings, and you save or invest the difference, you will become financially independent in your working lifetime (and retirement).
Measure the difference between your earnings and the costs of your lifestyle, and then save and invest the difference. You can continue to improve your lifestyle as you make more money.
Take action
Here are two things you can do to apply this law immediately:
- Imagine that your financial life is like a failing company that you have taken over. Stop all non-essential expenses. Draw up a budget of your fixed, unavoidable costs per month and resolve to limit your expenditures to these amounts. The aim is to make sure that your ‘company is making a profit’.
Carefully examine every expense. Question it as though you were analysing someone else’s expenses and look for ways to economise. Aim for a minimum of say, 10% reduction in your living costs.
- Resolve to save and invest 50% of any increase you receive in your earnings from any source. Learn to live on the rest. This still leaves you the other 50 percent to do with as you desire!
Autumn Tour de Finance seminars
By Spectrum IFA
This article is published on: 16th August 2016
At this time of the year, it’s pretty difficult for anyone to think about financial planning. The sun is shining, families are visiting, or perhaps we are taking our own vacations somewhere else. Tax, investment markets, pensions and inheritance planning are usually the last things that people want to think about, but this year is proving to be a pretty exceptional year.
September brings the rentrée and it’s also a time when reasonable assumptions can usually be made about what might happen in financial markets over the rest of the year -although this year may be a challenge!
There is at least one ‘big political event’ up ahead that might keep the markets guessing and who knows what the outcome of the US Presidential Election will be? Can anyone ever depend again on forecast polls to gain some insight, after the shock result of the EU Referendum?
On the UK, could there also be a General Election? If not this year, next year? Will Theresa May really be able to resist the pressure that is likely to ensue and stay firm to the statement she made in her leadership campaign not to call a snap election?
Brexit is of course a big question – will it happen or not? If so, when? No-one really knows, but in the meantime, markets remain on high alert and sensitive to the potential outcomes of a Brexit.
As a result of Brexit, the Bank of England has drastically cut its forecast for UK growth for 2017. The interest rate has also been cut to a historic low of 0.25% and this may not be the last reduction for this year. Combined with the prospect of an increase in inflation, due to a weaker Sterling, the prospect for any meaningful return on cash has diminished still further. How will this affect you? What will happen if interest rates stay permanently lower and not just for longer?
There are other things that could affect the way that markets perform over the rest of the year and into 2017. What is the prospect for global equity and bond markets? Are we reaching the peak of the current market cycle? Should you be taking short-term ‘protective’ actions to protect your wealth for the long-term? Do you need to take action with your pension funds to make sure these last as long as you do?
Le Tour de Finance
All very interesting questions and fortunately, we are again holding our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”, which is a perfect opportunity for you to discuss some of these questions directly with experts. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- Pensions/QROPS
- French Tax Issues
- Currency Exchange
The date for the local seminar is Friday, 7th October 2016 at the Domaine Gayda, 11300 Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and so early booking is recommended.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you would like to attend the seminar or would anyway like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10. Alternatively, drop-by to our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.
One final thing to share with you is the news that our Languedoc team is expanding. Sue Regan has joined us as an adviser and so now we have six advisers covering this region. Sue lives at Cruzy and so is well placed for visiting clients in Narbonne, Beziers and the surrounding areas. She can be contacted directly by telephone on 04 67 24 90 95 or by email at sue.regan@spectrum-ifa.com. Sue will also be at the Gayda event with Derek, Rob and myself.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter here
Tin Hat Time at the FCA
By Derek Winsland
This article is published on: 1st August 2016
In the wake of the fourth Parliamentary Review into the Financial Conduct Authority and its handling of high-profile incidents, comes the latest criticism from the Financial Services Complaints Commissioner who accuses the FCA of “an unwillingness to face up to and address its shortcomings”. He went on to say he had seen a tendency at the FCA to find reasons for excluding cases from the complaints scheme in circumstances where they should not have been excluded. Oh dear, smacks of Big Brother getting too big for his boots and believing itself to be above the law?
It is currently squirming with embarrassment over the antics of Sir Phillip Green and the BHS pension scheme, and this is fostering the belief in the industry that it is too focussed on the advisory sector and overlooking the problems that Pension Freedoms is having on occupational pension schemes, especially Defined Benefit (DB) or ‘final salary’ schemes.
You will no doubt be aware that the legislation passed in April 2015 relaxed the rules over how benefits could be taken from pensions. Gone was the insistence that a “pension is a pension – its job is to provide your income in retirement.” Although this is true, the old-fashioned rules take no consideration of lifestyle and personal choices. A casualty of this new form of thinking is the annuity, where you handed over your pension pot to an insurance company in return for an income for the rest of your life. A great concept except that the insurance company kept your money when you died. Under the new rules, you could use your pension pot to draw income off in retirement (or even before retirement now). This ‘income’ could be regular or ad-hoc in support of other income like state pensions for example.
Crucially, the new rules addressed the world in which we live and choose to live. An example of this could be where a member of a DB pension scheme (or a number of schemes over his/her working life) may decide on a change of career, to move to France to buy a property with an attached Gite to rent out. That is a lifestyle choice that perhaps suits that individual. Personal choice.
Under current (and out of date) FCA thinking, the default assumption is that it would not be appropriate for that individual to transfer the accrued benefits from such DB pension schemes, unless it can be proven that such a transfer is in that client’s best interest. How is this tested? Through the Transfer Value Analysis System or TVAS. Results are shown in the form of critical yields and hurdle rates. Sound complicated? You bet! Except it doesn’t allow for lifestyle choices or individual circumstances, which to the member are of far more importance. As advisers we’re told we must advise and inform the client of what’s in his or her best interest, even if it doesn’t gel with that person’s view. Believe me, those conversations are not easy. The FCA, meanwhile, sits in Canary Wharf, navel-gazing while all this is going on. The more cynical amongst us think the FCA has far more on its plate like finding ways to boost its coffers now it’s been told to stop bank-bashing and fining them for their latest misdemeanours.
There is hope on the horizon, however. The new chief executive of the FCA, Andrew Bailey has promised a greater focus on pensions, hopefully this won’t be an exercise in covering their backsides, but rather a genuine attempt to move with the times, providing much-needed and valuable guidance to the people they serve, the consumer. Let’s all hope that this is sooner rather than later and that the FCA doesn’t get distracted too much wrestling with the bear called Brexit.
If you would like more information on our view of how the investment markets are likely to play out into the future, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings.
Some alternative BREXIT thoughts and why Italy could be next
By Gareth Horsfall
This article is published on: 12th July 2016
The last couple of weeks entertainment have taught me that there are decades when nothing happens in the world and weeks where decades happen. I have bounced from anger to frustration and back again. and am still trying to understand the logic for the BREXIT vote. I am slowly getting to that place and thought I might share some alternative, and thought provoking views in this E-zine.
I also want to write about why Italy could be next in line. (Any ideas on what to call it, Exaly, ItIt?)
One thing appears to be much clearer to me now and that is that the vote on June 23rd was basically the ordinary people of the UK telling the ‘establishment’ that they have had enough of austerity and want change.
This shouldn’t come as a surprise after 8 years of government and central banks supporting bailed out banks (TARP, LTRO, LTRO2, QE, ZIRP, NIRP to name a few of the easing programmes that have been employed!) allowing huge corporate bonuses to continue, destroying income from savings with low interest rate policies and more austerity/taxes for you and I. Conversely the uber rich and corporates have seen asset price rises, an increase in offshoring and consistent tax breaks. Warren Buffet is quoted as saying that he would be happy to pay higher taxes and cannot understand why he pays a lesser percentage of personal tax than a nurse. It seems that since the financial crisis of 2008 there has been one objective: to save the financial industry at all costs.
With all this in mind is it any wonder that the average working man in Northern England is ‘not’ concerned about the consequences of BREXIT; a possible fall in house prices, a loss of jobs in the City, a 10% fall in share prices. These people are immune to this kind of pain. For this person BREXIT probably seems like a bonus. An opportunity to put a finger up to the establishment and David Cameron who have not protected their interests as they should have.
The working class man from Northern England may be immune to the pain of people who have assets, but financial markets are not, and they have reacted as you would expect. (Admittedly they have rebounded in the last few days). This affects the middle class, who also have assets. Expect more volatility to come.
This could all signify an end to economic policy being controlled by academics and economists.
BREXIT: In two minds
Continue with the status quo; economic tranquility and pushing the economic pain further down the road, in reality to the next generation or, should I be a supporter of BREXIT’s ‘economic’ possibilities and what it could ultimately deliver: higher interest rates, debt defaults, inflation, possible asset price falls (no one really knows what will happen here), higher taxes in the short term, vast privatisation of public assets and reduced benefits, with the aim of normalising world economic affairs through short term pain, long term gain. My problem with BREXIT is that I don’t think that the average man in Northern England who voted out actually understands that this is what it actually signifies and if they did then would they really have voted out?
In the end that decision will be made by the people, but let’s not think it is only isolated to the UK. Donald Trump is making similar inroads into the old industrial heartlands of America. Don’t be surprised to see him as President of the USA later in the year. Marine Le Pen in France and Movimento 5 Stelle in Italy (although they have now come out in support of the EU, but with radically changed policies).
Which brings me nicely onto Italy. I have had the BREXIT conversation with many people since then and I have been surprised to hear the reactions from Italians. I can give 5 cases when each person considered their future better outside the EU. A fascist man running a stabilimento (no surprise there then!); a right leaning hairdresser from Naples, devout catholic and openly critical of the influx of immigrants (in my opinion you could call him racist with some of the views on non Italians); a centre right voting physiotherapist with 3 children and self employed; a self confessed communist psychiatrist (with 3 houses and a house in the centre of Rome paid for by her father); and a cartoon animator, living hand to mouth, who is an open supporter of M5S and a vote to exit from the euro and the EU.
All have their own reasons but essentially the same rationale. When the euro was introduced everything doubled in price and wages halved. They seem to think a vote to leave is a way to turn back the clock. That nostalgic feeling…’taking back control’. We have heard that somewhere before!
The reality is likely to be quite different and would reflect the UK’s immediate future if they do exit from EU (I am still not convinced they will). However, the point is that they all feel let down by the EU and would be better off without it.
So, where does this lead us to. A huge inflection point for Italy will come in October. Renzi has proposed a Constitutional change which will essentially liberate the Government from the current two chamber system and allow one party rule for a 5 year period, in much the same way as the UK and the USA.
If this Referendum should fail to be approved by the people then Renzi has stated that he will step down as Prime Minister.
The problem for Italy is that:
- It will likely return to less than 1% economic growth, and for a country that has hardly grown since the introduction of the Euro in 1999, that would not be good
- Italian banks do not have enough capital to weather a storm of that nature. They are sat on €360 billion of non performing loans (a third of the size of the Italian economy). If Italy voted out of the EU, Banca Italia would have to print that money to re-liquidate the Italians banks and that would lead to some pretty spectacular inflation
- And lastly, Renzi leaving his post would would leave a big void and allow parties with an anti European sentiment to fill the space
This is going to be a trying time for Italy, the EU and the UK. I would suggest that this IS the EU’s ‘moment’. If it can survive this then it will pull through, if not then it will fall apart.
So in all this mess and future potential mess what should we be doing with our money. GOLD and the US Dollar. These are things that will weather the storm. How and in what to invest to get best access to these assets is a subject for another time.
Concerns over effect of BREXIT on expat pensions
By Graham Keysell
This article is published on: 5th July 2016
The decision by UK voters to leave the European Union could have far-reaching consequences for pensioners living abroad.
This is especially the case for those receiving UK state pensions, but who are living in another EU member state.
The main uncertainty is whether state pensions will continue to benefit from annual increases.
As at September 2014 there were 1.24 million people receiving British state pensions but living outside the UK.
Approximately 560,000 expat pensioners live in countries such as Australia, New Zealand, Canada and South Africa, where their state pension is frozen at the amount it was when they left the UK.
Is it going to be the case that British expats living in EU countries such as France or Spain will find themselves in a similar position?
Since 1955, pensions have been paid worldwide, but there was never any mention of annual increases.
However, in the period to 1973, reciprocal arrangements were made between the UK and 30 other countries, which allowed for annual increases to be paid in certain countries. This was seen as making it easier for people to move freely between countries during their working life without suffering penalties in retirement for doing so.
Very few new agreements have been signed since, possibly because the EU rules meant that there was no need for them between EU countries.
Pension increases
Pensioners living in the EU, Norway, Iceland and Liechtenstein do get increases, but there is no guarantee that this will continue following Brexit.
Inevitably, the UK government will be tempted to save money by ending the increases to pensioners living in the EU.
It is already estimated that the Treasury saves around half a billion pounds a year from pensioners excluded from the increases. This could easily double if pensioners in the EU were to be treated similarly.
The number of overseas voters still on the UK electoral register is negligible, so the government might decide that upsetting these people would have a very modest negative effect. One result could be that more expats would get themselves back on to the UK electoral register (if it were possible for them to do so).
There is also the question of people who are planning to retire to a EU country in the future. They might show their dissatisfaction at the ballot box.
Another reason for the government might not stop the increases is the possibility of large numbers of pensioners living in the EU finding that they have no choice but to return to the UK
If access to free healthcare in the host country was also abolished, the UK government could easily find that significant numbers of pensioners return to the UK, which is a situation it would want to avoid.
For this reason, it is to be hoped that state pension increases will be paid, and there will almost certainly be considerable pressure on the government to find a way to preserve the existing system.
British Chamber of Commerce, Spain and The Spectrum IFA Group
By Spectrum IFA
This article is published on: 3rd July 2016
Here in Spain, the British Chamber of Commerce (BCC) is a very strong and successful organisation. In fact, it has just won an award for being the best Chamber in the World for promoting British trade! It was therefore no surprise to hear that the Summer Cocktail was UK themed and included Mini Cars, Scottish Beers and British Gins, amongst other things.
At the party, The Spectrum IFA Group were honoured to be presented with a plaque to thank us for 20 years of membership of the Chamber. The award was presented to Jonathan Goodman, Development Director of Spain, who has overseen our business here for the last 20 years. During this time we have worked closely with the Chamber on a large number of matters and events. In addition to the more formal associations it is always a pleasure to meet other members at their many social gatherings.
We would like to thank the BCC for their recognition of The Spectrum IFA Group and we look forward to working with them for at least another 20 years!
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When is a guarantee not a guarantee
By Derek Winsland
This article is published on: 28th June 2016
When is a guarantee not a guarantee? Members of the BHS Pension Scheme must be wondering that after news broke that the scheme, into which both they and their employer diligently contributed into, is £571 million in deficit. Questions are being asked as to how it ended up in this situation, given that the Trustees of the scheme were supposed to operate within quite strict guidelines, within a regulatory regime that doesn’t usually miss much. It is at this point that a short history lesson is perhaps needed.
The more mature reader will no doubt remember the Robert Maxwell Affair. The former owner of Mirror Group Newspapers (under rules that were allowed at that time) regularly dipped into the wonderfully overfunded Mirror Pension Scheme to prop up his ailing business, to the tune of around £500 million. When this didn’t work, he (allegedly) took a swallow dive off the back of his boat, leaving others to clear up the mess he’d created.
Much hand-wringing in the corridors of power resulted in more stringent rules being put in place to avoid a repetition and to which pension scheme trustees would henceforth have to abide by. Bear in mind, that the employer was generally the trustee of its own scheme, being told to conform to new rules limiting what they could and couldn’t do was a challenge; in the end the regulator focused on policing the funding position of schemes….no more than 110% overfunded and no less than 90% underfunded. This led to overfunded schemes using imaginative ways to reduce its funding position such as providing contribution holidays to its members or giving discretionary increases to retiring members’ benefits for example. Another bright idea was the introduction of reporting requirements that insisted on pension fund deficits being carried through to the company balance sheet – that’ll stop those pesky company executives from massaging their company’s financial position.
Pension Protection Fund (PPF)
Fast forward a few years to the start of the millennium when three years of turmoil in equity markets had a disastrous impact on those funding positions…whoops! This resulted in the creation of the Pension Protection Fund (PPF), a funding mechanism put in place to safeguard the benefits of pension scheme members in the event of company failure. The government of the day decreed that PPF should be funded by the family of pension schemes themselves…..anyone spot the flaw in this? At some indefinable future date, it will fail because the ratio of fully funded schemes will reduce, whilst the number of failing companies increases. Interestingly, one of my colleagues in Spain has analyzed the funding position of the PPF, the results of which are on the Spectrum IFA Group’s website. To the end of January 2016, there are 5,945 member schemes in the PPF, 4,923 of which are in deficit, and only 1,022 in surplus. The average funding position across all companies is 80% (remember the ‘no less than 90% underfunded’ rule?); the deficit position of the PPF is £304.9 billion.
Perhaps, this is the real reason why Pensions Flexibility was introduced? Encourage pension policyholders including members of final salary pension schemes (also known as Defined Benefit or DB Schemes) “to take control of their own retirements”, or buy a Lamborghini if you prefer! The lure of that invitation has not been lost on the Great British pension public, which has resulted in meaningful conversations being had between them and their IFA’s. In some cases, it really is beneficial to take the transfer value offered and put it into a personal pension arrangement, but I stress this does depend on individual circumstances.
Are you a member of a Defined Benefit Pension Scheme?
If you are a member of a defined benefit pension scheme and would like us to carry out an analysis to determine how valuable it is to you and your circumstances, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings. There is also no charge for the gathering of information from your pension scheme administrator, after which we will put you in a much more-enlightened position as to your benefits.