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Mowatt Financial Planning: November 2009

Monday, 30 November 2009

Recovery Tracker

According to the latest recovery tracker from Fidelity things are looking better. However, given recent volatility in the stock market as a result of concerns in Dubai it doesn't feel like the situation is stable yet.




Why Vanguard is good news

Vanguard is an American based fund manager who came to the UK market earlier this year with a range of tracker funds (also known as passive fund management). As they entered the market with generally lower charges this was good news. In fact since they have entered the UK market the likes of HSBC have subsequently reduced their charges.

The good news continues as Vanguard intend to launch active funds in the UK in 2010/11: Vanguard to launch UK active products.

My view is that it should be possible for an active fund manager to outperform an index. However, the fund manager charges are often so high that they wipe out the benefit of any active fund management. In short they are charging too much. The cost of Vanguard's actively managed US funds is much lower than the charges we see in the UK and so hopefully this will put pressure on other fund managers to bring down their charges. If this happens, this should help swing the advantage back towards active fund management.


Sunday, 29 November 2009

Actuarial Life Conference 2010

I went to the Actuarial Life Conference in Edinburgh on Friday and took part in a session on Alternative careers for actuaries on a panel with representatives from High Finance, McKinsey & Company and Fitch Ratings. It's always great to go back to Edinburgh.

While I was at the conference I took the opportunity to attend a couple of sessions.

The session on Personal Accounts was very good because Maggie Craig who is acting Director General at the ABI was co-presenting. She was very clear on how she saw things and when asked if she thought that Personal Accounts would be here in 2012 she was very confident that they would be even of there is a change in government. Her view was that Personal Accounts were moving forwards at such pace the they would be here in 2012 although there might be some tweaking such as earlier access.

The other session was on variable annuities and was looking at the question of whether there was a big future for them. (Note that variable annuities is a name that came from the US and doesn't fit particularly well with the UK market.) The two things which struck me were that more thought needs to be given as to how this type of product fits into the advice process and secondly there has to be a place for this style of product which avoids individuals locking into Bond yields at retirement.


Monday, 23 November 2009

Keep Your Pension on Track

Just added this article to my website. It will appear in the Easingwold Advertiser on Thursday.



Wednesday, 18 November 2009


The latest inflation figures were announced yesterday with Consumer Price Inflation rising to 1.5% in October (from 1.1% in September).

This means that a basic rate tax payer has to be in a savings account paying at least 1.875% to keep pace with inflation. For a higher rate tax payer the rate is 2.5%.

A review of all savings accounts on offer (apart from ISAs and Fixed Rate Bonds), reveals that over 78% of variable rate accounts are paying a rate of 1.875% or less.

What this means is that you need to shop around to get a good rate on your savings. It also means that for investments that you can hold for 3 years or more you should be thinking about National Savings & Investments index-linked savings certificates or investing on other assets which can give some protection against inflation such as equities or property.

It pays to shop around.


Tuesday, 17 November 2009

Retirement Income Options

I've just been to a talk in York by Ian Naismith of Scottish Widows about retirement income. Ian's a bit of a guru on pensions matters so it was really nice that he came to York to share his thoughts.

I did check if he thought that healthy lives are able to get a good deal on annuities at the moment and he agreed (see previous post).

He also allowed himself to crystal ball gaze as to what might be on the agenda for pensions after the next election. Among his thoughts were:

Moving the compulsory annuity age to 80/85
Improving the tax position on death benefits after 75

It does feel to me that these are quite possible given the likely change in government next year.


Monday, 16 November 2009

Buying an annuity

When you come to take retirement income from your pension fund the most popular way of doing this is by buying an annuity from an annuity provider.

I don't subscribe to the view of Patrick Collinson that annuities are poor value (this Saturday's Guardian). They are a form of insurance so if you live longer than expected your insurance pays out; if you live shorter than expected that's the price of insurance.

Unfortuantely it's not a brilliant model as you can end up buying an annuity when your pension fund has fallen in value. The chart below shows annuity rates (aqua) against the FTSE (grey).

(Click on the image to get a decent view)

What this shows is that annuity rates have been falling fairly steadily over the period shown (1990 to 2009). It also shows that November 2008 to March 2009 would have been a bad time to buy an annuity because of the fall in fund values. Note that not many pension funds would (or should) have been 100% invested in FTSE 100 at retirement but where there was equity exposure, there would have been a proportionate fall.

The recovery in markets means that it is a better time now than earlier in the year to buy an annuity.

The other factor which suggests that it is a good time to buy is that the pricing of annuities is just begining to get more sophisticated and to allow much more accurately for individual life expectancy (taking account of lifestyle; smoking status; medical conditions etc). At the moment the annuity rates for healthy lives probably don't allow fully for the increased life expectancy of these lives. Evidence for this is the fact that specialist annuity providers such as Just Retirement who focus on lives with shorter life expectancies don't compete in the "healthy" market as they believe the pricing is wrong.

In summary now is not a bad time to buy an annuity.

Of course for large pension funds (£100,000 plus) or for individuals who have the scope to take some risk, there is no need to buy an annuity - they can take an unsecured pension but that is another subject.


Tuesday, 3 November 2009

Pension Credit

Pension Credit is a state benefit which ensures a minimum income from age 60. From the beginning of November, the amount of savings which can be held without affecting the pension credit received from the state has gone up from £6,ooo to £10,000.

According to the Department of Work and Pensions almost 500,000 pensioners will be up to £8 per week better off.

This is good news as it gives a bit extra to the people who have saved for their retirement. Any change will apply automatically to anyone who is currently receiving pesnion credit. However, it also serves as a reminder to make sure anyone who might be entitled to pension credit checks their situation.


Monday, 2 November 2009

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