Adrian Garside

When I stopped being employed and became self employed I had to leave the company pension scheme.

The old scheme was based on my final salary – 1/60 of my salary will be paid as pension for every year that I was a member of the scheme – yes, it was was of the old fashioned schemes, I was very lucky.

Last year, out of curiosity I asked the scheme how much they’d give me to transfer out of the scheme – essentially I am a liability as they are obliged to give me alot of money when I am 65.  Many schemes are quite generous when it comes to letting members go, but my scheme offered quite a paltry amount that I felt undervalued my pension.

If I’d taken their offer, I’d have had to invest it,  achieving growth of 11.9% just to match the amount they would be contractually obliged to give me when I am 65.  Now, that seemed daunting, even to me – in some years maybe, but not every year. So, I left it with them.

This weekend they have written to me asking if I’d transfer away from them if they gave me some cash.

1. Ethically, I wonder if is it right to encourage me to transfer by offering me cash – the amount intimated was £3000. I know what I’m doing and will judge the final offer on it’s overall merit.  Many will not, and may make a bad decision purely based on a handy windfall.

2. I’m in the odd, possibly unique position of knowing the ‘old figure’. It will be interesting to see how the new figure compares – will it be £3k lower than my original figure, but with £3k as cash?

3. They have appointed an IFA for people who don’t have one. Clearly that isn’t me, but presumably they wouldn’t be recommending transfers if people need to get absurdly high growth rates to just break even, so maybe the old employers have ‘seen the light’ and will be offering proper valuations.

I am concerned about this offer. While I would welcome the cash as much as anyone, I can’t help but feel that a ‘sweetener’ is being offered to offset the bitter pill of transferring the good, guaranteed pension into a potentially less good one.  Or, putting it a different way, they wouldn’t need to offer me cash if they were offering a good deal on the pension.

So, while I hope the deal is good, I don’t expect it to be. And, if it is poor, I really hope that people don’t take up the offer. But I expect they will.

photo credit: LOLren

Scottish life have added some pensions calculators onto their website for people to use.

They’re here

Now, I should point out that I expect other pensions providers also have pensions calculators.

I should also point out that by making this post I am not making a recommendation for a Scottish Life Pension – their pensions will be good for some, and for others there will be better companies – but that’s what your Independent Financial Adviser is for…

However, it’s useful for if you want to have a play or want to be scared/reassured – if it prompts any questions, give me a call.

I’ve just been reading an article by Roger Nightingale, a well known and well respected economist.

The article is pretty downbeat – on growth he says “At no stage, and in no country, has it been self sustaining” and he’s including the US, Europe and China in that analysis. He also predicts that the cycle is due to turn down in late 2011 whatever has happened before then.

So, what’s the good news?

Well, I’m taking 2 things from this. *

For borrowers: He predicts interest rates to remain low for a bit longer – which explains the trend for mortgage fixed rates to become a bit cheaper over the past month or two. Actually, fixed rates are getting so low that it may be a good time to switch over to one for some people.

For investers: Stocks and Shares should suffer in this environment, but that gives investers a chance to buy up stocks and shares cheaply and profit when the recovery (becuase there will be one, one day) happens. Mind you, it can be a little disappointing when you analyse the growth in your portfolio during this period, you have to hold your nerve.

* When I typed that initially I had 3 things, but I’m blowed if I can remember the 3rd now. I’ll post it later if it comes back to me!

An annuity is a product that gives you a pension income when you are old – if you save up in a  pension, when you want to draw the income, you ‘Buy an Annuity’.

The annuity guarantees to give you an income until you die. You may live a couple of years, you may live until you are 110, the annuity will still pay. Mind you, if you do die early, the annuity dies with you and once chosen, the terms of the annuity can’t be changed.

The new government has announced that it will scrap the maximum age (currently 75) for choosing your annuity.

Scrapping the maximum age for taking the annuity provides additional flexibility when planning your pension and is just as important for people with small pensions as large, maybe more so.

Here’s why.

If you are statistically normal – ie healthy – the annuity provider knows that if you are a man you will die at age 84 and if you are a woman, you will die at age 87.

However, we all know that if you smoke, you will die earlier. So, some companies will offer an ‘Enhanced Annuity’ to smokers. For example, if they think a smoking man will die at say, 80, they know they they will have to pay out for a shorter time and will be able to afford to give our man a better pension income. I have often thought I might start smoking when I’m about 63…

Now you can also get an Enhanced Pension if some form of ill health affects you, I saw a chap last week with heart and kidney problems, I’m expecting to be able to get him an awesome pension – the worse the state of your health, the shorter your ‘statistical’ life expectancy. You can get pensions 30% or more better with an Enhanced pension and 30% extra money in retirement isn’t to be sniffed at.

But, most of us are pretty healthy at age 65. What if we choose our annuity at age 65, and become ill age age 68? If only we’d waited we could have got a much better pension.

Well, a strategy worth considering at age 65, is to organise a “temporary pension” and review at, say age 70, and then again at age 75. If you were still healthy at age 75, well, up until now it was tough, you had to commit to whatever was available.

Now you don’t, and that may quietly revolutionise pensions strategies.

In 2010-2011, the full basic State Pension is £97.65 a week. The full basic State Pension for a married woman using her husband’s National Insurance record is £58.50 a week.

This means that a married couple could get separate basic State Pension payments totalling £156.15 a week. If they both qualify for a full basic State Pension (say, if both worked and if both paid enough National Insurance) this could be £195.30 a week.

In all cases your individual circumstances may affect the amount you get.

The basic pension is lower than the income support threshold, so if a pensioner has no other income, the state may top up with income support. This comes in the form of a means-tested Pension Credit which brings the weekly amount up to £130 for a single person and £198.45 for a couple.

There is also a State second pension, which, if you get it, will be on top of the standard state pension, but it’s only a top up pension to the ‘main’ one.

That’s it.

If you’re Ok with that, relax.

If not, you’ll need to look at your pension options – an IFA can do that, or, your company may/should have some kind of scheme set up, and may even pay in as well if you ask. Your pension option may well include ISA’s…

Gordon Brown has said (here) that under a Labour government the FSA would have powers to tear up bankers contracts if they don’t like the bonuses.

Now, these are the bankers that run your pension schemes, your ISA’s and other investments. If you don’t have these things, your parents, siblings and friends do.

So, questions.

Regarding the man who is trying to make your investment grow well, would you like the best man for the job or the cheapest man for the job?

If the best man for the job reckons he can make £100 million profit for your pension fund but wants to earn £5 million wages and the cheapest man for the job makes no promises, but only wants to earn £250k which would you choose?

Lets assume you choose the best man, even though he wants a staggering wage.

Would you prefer to pay him £500k salary and £4.5million in performance related bonuses – so that if he does make £100m profit he earns £5m, but if he only makes £20m profit he only earns £1m. Or would you put him on a £5m basic salary and not worry about performance.

When you answer this, also consider – his pension scheme will be linked to his basic salary, so if his basic is low, you are not leaving yourself with a hideous pension bill. Also consider, if he’s off sick, (and you will be paying the guy sick pay at full salary) which option would you prefer?

To my mind, I’d prefer to pay the guy a low basic and big bonuses. Cheaper to sack him as well, if he turns out to be rubbish.

Full story – http://www.dailymail.co.uk/news/article-1254881/Cigarettes-killed-Message-smoker-funeral-hearse.html

Albert Whittamore died from smoking, and now must be applauded for trying to get the message across and also answering the question that everyone asks when they see a hearse “I wonder what happened”

This trend could continue, and then you can imagine ‘one upmanship’ entering the equation – I will be amending my will to include instructions for “died spying for country while jumping across rooftops” to be on the sign in my hearse – I’m not taking my final journey with everyone knowing that I died playing a quick game of patience.

This fits with my oldest sons birth certificate, where I convinced the lady at the registry office that I was a ‘special agent’. Should keep geneologists guessing in years to come.

I am also now amending my divorce story from ‘we gradually drifted apart’ to “she caught me in bed with two women”…

Think about this for a second, because it will help explain what I am on about.

You know with life insurance, if you smoke, or you suffer ill health, or like me you have eaten too many cakes and people say ‘You’re looking well’, the insurance companies make your insurance more expensive – well that’s because they reckon you will die earlier than the health freaks (ie, you may be “looking well”, but you may not last long), and so they stand a greater risk of paying out a claim.

Pensions are the opposite of Life Insurance. With Life Insurance they collect money while you are alive and pay out when you die.

With pensions they are paying out cash while you are alive, so will reward you if you are likely to die early.

So, if you smoke, or you are a bit portly, or you have health issues – any health issue, there is a decent that an “Enhanced Pension” may be available to you.

Now most people, when they get to retirement take the 1st pension they are offered, thinking they have no choice. The  pensions companies know this, so rarely offer a good pension, let alone an enhanced pension. Why should they?

Now, bearing in mind, the pension decision is your last ever pay negotiation, you can see how important it is to get it right – especially if you can qualify for an enhanced pension.

Most people could do better by shopping around anyway.

40% of people could qualify for an enhanced pension.

An enhanced pension could produce a pension income a third higher for the rest of your life. That’s a 33% payrise.

So please, when the time comes to take your pension, see an IFA. Preferably me, but if not me, any IFA will do.