Stop press….. another bank bites the dust

December 1, 2008 | posted by Pam Atherton in Investments, Mortgages, Pensions, Taxation | comments (0)

London Scottish Bank has gone into administration after the Financial Services Authority stepped in to stop it accepting deposits.

The FSA acted because the Manchester-based firm did not have enough capital reserves to continue operating.

HM Treasury issued a statement saying that all retail depositors would get their money back, even those with more than £50,000 in their accounts. Accountants, Ernst & Young, have been appointed as the administrator.

Meanwhile, the Pre Budget Report on 24 November, which was followed the next dayby the Financial Services Authority’s latest statement on the Retail Distribution Review made for a frantic end to a busy month for financial advisers

The PBR contained a number of changes which will impact high earners with pensions at or near the lifetime allowance (currently £1.65m).
The freezing of the annual pension contribution and lifetime allowances (LTA) at £255,000 and £1.8m respectively from 2010 to 2015-16, is expected to make more high earners liable for the 55 per cent tax charge on pension funds which exceed the LTA when an individual retires. 
 
Advisers were quick to point out that the worst effects of the rise in the top rate of tax to 45 per cent for those earning £150,000+, the gradual withdrawal of the personal allowance for incomes over £100,000 and the increase in NICs by 0.5 per cent across the board from 2011, can be mitigated by using salary sacrifice for pension contributions.
 
The reduction in VAT to 15 per cent which will reduce adviser and Sipp fees for a 13 month period, effective from today, 1 December 08.
 
The Crosby report’s recommendation for the Government to guarantee mortgage-backed securities was slammed by industry experts for doing nothing to bring first time buyer and sub prime mortgages back into the market.
 
Elsewhere in the PBR, the Chancellor, Alistair Darling called for an official review of the regulatory and depositor protection arrangements in offshore centres such as the Isle of Man and the Channel Islands.
 
Meanwhile, the FSA’s feedback statement on the RDR was criticised by  many IFAs for not putting clear blue water between ‘advice’ and ’sales.’ 

IFAs will have to charge fees for advice from 2012 and have higher capital adequacy and qualfications in order to call themselves ‘independent advisers.’

Anyone else selling financial services - including single tied, multi-tied, guided sales and execution only  - will have to call themselves a ’sales adviser.’
 
IFAs, multi-ties and single-tied advisers will all have to achieve a minimum of QCA level 4 or equivalent by the end of 2012.

IFAs reacted furiously to the term ’sales adviser’ as a contradiction in terms, saying that individuals are either a ’salesperson’ or an ‘adviser,’ and cannot be both. 

But the FSA said that all advisers, whether independent or sales, will have to show the cost of the advice being given at the point of sale and that this must be agreed upfront with the customer. 
 
Meanwhile, the FSA warned advisers and providers not to exploit the run-up to 2012 to push high commission products, such as insurance bonds, by hiking commission terms.
 
Elsewhere, Standard Life and Axa said they would stop paying commission on default annuities where no advice has been given, while the FSA ordered Abby to change an unfair term in its open market option application forms.
 
Cofunds, meanwhile, is under pressure to review its decision to stop paying fees to fund managers re-registering ISA and Pep funds on its platform.
 
The FSA said it would appeal against the Information Tribunal’s decision to reject the FSA’s decision that the Information Commissioner (IC) did not have the right to order the publication of the names of the ‘Lautro 19′ mortgage endowment providers.
 
The latter misused Lautro projection figures when setting premiums, which led to customers being given unrealistically high maturity figures.
 
Elsewhere, the Government is to launch a crackdown on Qrops, after Guernsey tightened its rules on pension transfers.
 
In a separate move, the Government agreed to allow employers to self certify that their pension schemes meet the exemption test for personal accounts in 2012, namely that contribution levels are above the minimum qualifying level of 8 per cent of qualifying earnings.

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Time running out to register for pension protection

November 6, 2008 | posted by Pam Atherton in Pensions | comments (0)

NEWS FLASH: Bank of England cuts base rate to 3 per cent 

Time is running out if you need to register your pension fund for protection against penal taxation when you come to retire.

 If you have a  pension fund worth £1.65m or more, you may need to register for the so-called ‘Lifetime Allowance,’  to protect savings over this amount from being taxed at 55 per cent.

Those likely to be affected are high earners, with many years of membership in  a final salary pension scheme, particularly if this started before 1989.

On April 6 2006 - known as ‘A-day’ - a new lifetime allowance was introduced, representing the limit at which pension savings can be taken  tax-free.

Those with assets over the lifetime allowance were allowed until April 5 2009 to register the excess with the taxman. The lifetime allowance increases each year and will  £1.8m in 2010-11.

There are two types of protection you can register for: primary and enhanced.

Primary protection
This applies if the value of your pension benefits on 5 April  2006 was greater than the lifetime allowance in force at that time, namely £1.5m.

This form of protection allows you to continue making pension contributions until retirement, when you will receive an uplift to the lifetime allowance as follows.

If, for example, your pension fund on 6 April 2006 (A day) was worth £3m, this was 200 per cent of the prevailing lifetime allowance of £1.5m in 2006-07.

If you  retire in 2010, your uplifted lifetime allowance will be 200 per cent of the prevailing lifetime allowance of £1.8m for tax year 2010-11,  giving you a protected fund of £3.6m - all tax free.

Any pension you draw over the £3.6m uplifted limit would be taxable at 55 per cent.

Enhanced protection
This is available to everyone irrespective of the value of their pension fund.

But,  if you opt for ‘enhanced protection,’ you are forbidden from making any further contributions or receiving accruals to any pension scheme whatsoever as from 5 April 2006, and including personal accounts from 2012.

Providing you stick to this rule, the value of your pension fund as at 6 April 2006, plus  all future growth is protected from taxation.

However, if you have put a penny into your pension since 6 April 2006, you will have destoyed your entitlement to enhanced protection.

So who is most likely to be affected by these rules?

The answer is largely individuals who have been members of  a final salary scheme since before 1989. As a rough rule of thumb, if you multiply your years of membership by your highest salary while a member, and the answer is £3m or more, you should register
 
This is a very complex area and it is advisable that you consult an independent financial adviser in order that you register for the appropriate type of protection.

To find an IFA, visit www.unbiased.co.uk
To download the forms, visit www.hmrc.gov.uk/pensionschemes/protection.htm

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Financial services news round up

November 5, 2008 | posted by Pam Atherton in Banking, Insurance, Pensions, Savings | comments (0)

Extreme economic turbulence  continued to dominate events in  October as concerns over the financial stability of banks, building societies and insurance companies intensified.
 
The FSA said it was keeping a wary eye on life companies, as life assurers suffered from a steep decline in the value of their portfolios of equities, bonds and commercial property.
 
Analysts, Fox Pitt Kelton, correctly predicted that Aegon and ING were among the most vulnerable and both received capital injections from the Dutch authorities to strengthen their balance sheets by the end of the month.
 
The FSA relaxed some of its capital requirements for life assurers to prevent them having to sell equities in a falling market. Some annuity advisers called for the  age 75 annuity purchase rule to be waived temporarily because of the financial crisis, but to no avail.
 
The UK Government increased compensation on savings accounts to £50,000 per person and per UK authorised institution, following the collapse of three Icelandic banks. However, it agreed to guarantee UK-based retail deposits in Icelandic bank accounts up to 100 per cent.
 
For investors in the Icelandic banks’ offshore accounts, such as in the Channel Islands and the Isle of Man, the situation was less clear. IFAs with clients in offshore bonds, Sipps and SSASs were frantically trying to establish what compensation, if any, was available at the time of writing.
 
There were also concerns about money held in AIG Life’s UK enhanced fund which is to close on 15 December. Investors have the choice of withdrawing their investment or transferring it to a protected recovery fund.
 
Market value reductions were imposed on with profit policies provided by Friends Provident, Scottish Widows (15-20 per cent) and Norwich Union (13-22 per cent).
 
Elsewhere, as the industry awaits the final version of the Retail Distribution Review, financial adviser firm, Lighthouse, called for the review to be delayed due to the current financial crisis.
 
The Association of Independent Financial Advisers attacked the ABI’s attempt to undermine the sales/advice split proposed in the latest version of the RDR and warned that, if successful, this would lead to more mis-selling. Instead, it called for tied and multi-tied agents to be placed  under the ’sales’ banner.
 
The Pensions Bill, which continues its tortuous journey through Parliament, included changes which will allow people to buy back 9 missing years of National Insurance Contributions if they retire before 2010, and 6 years if they retire after 2010.
 
However, potential entitlement to superior benefits via entitlement to the  pension credit or via a spouse’s basic state pension, mean that many individuals will need advice as to whether it is in their interests to pay for missing years’ contributions.

Scottish Life’s pension guru, Steve Bee, highlighted the fact that the State Second Pension ( S2P) will soon become a flat rate top-up and that the loss of the earnings-related second pension will be a big issue for many middle earning employees.
 
With the relaxation of the self-investment rules for protected rights funds on 1 October, the FSA warned advisers to ensure they give suitable advice when transferring protected rights into Sipps.
 
As part of the latest ministerial reshuffle, Rosie Winterton became Pensions Minister, replacing the highly regarded Mike O’Brien, while Paul Myners became City minister, requiring him to step down from his role at the  Personal Accounts Delivery Authority.

This led some commentators to predict the launch of personal accounts might have to be pushed back from 2012.
 
Elsewhere, the Financial Ombudsman Service announced plans to ‘name and shame’ financial firms with poor complaints handling statistics, while the FSA failed in its bid to use human rights legislation (which guarantees individual privacy) to block a freedom of information request about the ‘Lautro 12′ life offices. 
 
The FSA hit back saying that the Tribunal needs to consider its other arguments before the IFA Defence Union can claim victory.  But the IFADU said it was confident the information would be disclosed and that it would set up a fighting fund to investigate whether advisers can sue the regulator and the life offices.

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IFA news round up

May 30, 2008 | posted by Pam Atherton in Banking, Investments, Uncategorized | comments (0)

The FSA’s  interim feedback report on the Retail Distribution Review published at the end of April received a cautious welcome for having listened to IFAs’ concerns and for making a clear distinction between advice and sales.

Other key points in the report were that advisers should achieve minimum qualifications, possibly diploma level, but not as high as chartered status.

‘Advisers’ offering independent advice, must be ‘whole of market,’ while ‘sales’ services  would have to be on a strictly non-advised execution only, or ‘guided sales’ basis.

This would mean that multi-tied andtied advisers would be likely to fall under the sales category.

Advisers would have to operate ‘customer agreed remuneration,’ without any influence from product providers, although the FSA suggests that providers can still advance payments to advisers and recover the costs from customers out of regular charges, in a similar way to front end commission.

The feedback document also mentions the potential for some form of maximum commission agreement. Less popular was the FSA’s proposal that there should be no 15-year time bar on customer complaints.

The Institute of Financial Planning attacked the FSA for dropping proposals to separate advisers into general advisers and financial planners, saying that the distinction between advice and sales needs to go further. 

AIFA deputy director general, Fay Goddard, said there was a danger that the mass market would be predominantly serviced by sales people.

Unsurprisingly, the banks and building societies are expected to fight a vigorous rearguard action to overturn the proposals which would effectively ban tied advisers in their branches from offering general advice on pensions and long term savings to the mass market.

But everything is still up for grabs and the FSA says it is up to the industry to provide ‘market-led solutions’ that will deliver better outcomes for customers. Its final report on retail distribution will be published in October 2008.

Elsewhere, there was uproar when the ABI ditched its 10 day turn- round target for processing open market annuities, replacing it with a requirement to pay out funds by the selected retirement date.

IFAs’ anger was compounded by the publication of a FSA report severely criticising the standard of insurers’ open market option (OMO) communications with customers six months before they retire, calling on annuity providers to improve their OMO correspondence by December this year.

Tom McPhail of IFA firm, Hargreaves Lansdown, accused the ABI of being “in real danger of becoming the Comical Ali of the finance industry” and called for the OMO to be the default option, with a requirement for fund transfers to be made within five days of the relevant paperwork being submitted to an insurer.

Meanwhile, Lord Hunt’s recommendation that the Financial Ombudsman Service ‘name and shame’ the worst performing companies with regard to their uphold rate, was attacked by a former FOS adjudicator on the grounds that firms might feel pressurised to settle unjustified complaints.

But FSA chief executive, Hector Sants, appears to be keen on the idea, saying that ’naming and shaming’ can be a more powerful deterrent than imposing fines.

Elsewhere, the European Commission confirmed that automatic enrolment of members into contract-based pension schemes is consistent with EU law which will greatly simplify enrolment into both GPPs and personal accounts  from 2012.

But pensions consultant, Ros Altmann, called on the industry to break the political consensus on personal accounts because she believes the scheme is doomed to fail, due to the disincentive to save posed by means testing.

Meanwhile, Friends Provident remains in talks with various bidders for its 52  per cent stake in F&C and its wealth management unit, Lombard and Prudential is eyeing up Equitable Life’s £7bn with profit fund, having already taken on £1.7bn of its with profit annuity book.

Lord Adair Turner, meanwhile, looks set to become the next chairman of the FSA, replacing Callum McCarthy who steps downin September.

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Women missing out on state pension benefits

May 12, 2008 | posted by Pam Atherton in Pensions | comments (0)

As though women didn’t suffer enough from inadequate pension provision, due to broken career patterns, child care responsibilities and lower pay, the Government has just admitted that thousands of  women may have overpaid national insurance contributions (NICs) and be due an extra lump sum payout following administrative errors.

There are two areas where women may have been affected. The first concerns married women’s NICs, which applied during the 1970s, but have now been phased out.

These allowed married women to  pay less NICs on the assumption that they would claim on their husbands’ state pension record.

However, this created a time lag between the age at which these women were entitled to the state pension - namely age 60, and the state pension age for men, which is currently age 65.

During this gap, women might have to wait until they could receive any state pension.

To address this problem, women were allowed to make additional voluntary contributions, so that they can claim some state pension based on their own NIC record, on reaching 60.

But the DWP has discovered that between 1996 and 2002, it failed to send out letters to such women, pointing out the facility for them to make voluntary contributions to plug gaps in their NIC records.

Because the DWP omitted to do so, it is now saying that married women can make the additional payments now and have them backdated.

The second area where the DWP admits that mistakes have been made in calculating ing the number of  years women caring for children should have been credited with NICs because they were eligible for ‘home responsibilities protection’  (HRP).

HRP could have reduced the number of years of NICs needed to build up a full basic  state pension to 20 (from 39 years), because a  woman caring for children could be eligible for a maximum of 19 years’ HRP.

So where a woman has not been adequately credited with HRP, she may have paid too much NICs.

The DWP says it is conducting a review and that women who have suffered financial loss due to errors will get their money back with interest.

In the meantime, if you think you may be affected, contact the Pension Disability and Carer Service on 0845 602 1785.

If you are due to retire before 2010, you can get an instant calculation of how much your basic state pension will be by going to:

http://www.thepensionservice.gov.uk/approachingretirement/home.asp

If you are due to retire after 2010, the following link will tell you when you are due to receive your  state pension, (but not  the amount:

http://www.thepensionservice.gov.uk/resourcecentre/statepensioncalc.asp

For a post April 6 2010 basis state pension forecast, ring 0845 300 0168.

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Building societies and regulator clash over future of mortgage distribution

May 7, 2008 | posted by Pam Atherton in Mortgages | comments (0)

The future of mortgage lending could change out of all proportion as more and more consumers opt to do DIY financing, according to the chief executive of the Norwich & Peterborough building society.

Speaking at the Building Societies Assocation Conference in Manchester, Mr Bulloch said that mortgages are already being priced for risk in line with the creditworthiness of the borrower and that the UK could see the introduction of individuals knowing their own credit score and shopping around accordingly, as happens in the US.
This disintermediation of the market place is already happening here with online services  such as Zopa, a financial equivalent of eBay, which marries up borrowers and lenders on line, without the intermediation of a broker.

Elsewhere at the conference, John Howard, a non executive director of the Financial Ombudsman Service welcomed the Retail Distribution Review’s call for a separation of advice from sales, a greater role for a basic money guidance service and a streamlining of the alphabet soup of adviser qualifications which currently total  27.

“A money guidance service could provide the equivalent of the first hour’s consultation with an IFA, where the client’s financial circumstances and needs could be established. This could lead to greater consumer confidence and more business for IFAs,” said Howard.

One of the main objectives of the RDR is to break the provider-distributor link on remuneration, with FSA director of retail policy division, Dan Waters, saying that it is untenable that an agent of the consumer is paid for by the provider.

But Mr Bulloch said the RDR proposals could lead to “a real risk of creating a backward looking construct which won’t be financially viable.”  Higher statutory qualifications  for his staff would lead to higher costs and the removal of commission would make a building society network uneconomic, he said.

“We are looking for a longer term relationship with our customers than a two year fixed rate churn,” he said.

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April financial services news round up

April 30, 2008 | posted by Pam Atherton in Banking, Investments, Pensions, Savings, Uncategorized | comments (1)

April saw the publication of two reports - the FSA’s interim feedback on the Retail Distribution Review and Lord Hunt’s review of the Financial Ombudsman Service.

RDR 

Many respondents to the RDR called for a ‘simpler’ landscape, with a clear distinction between advice and sales, with the FSA suggesting three components - advice, sales and money guidance.

The General Financial Adviser category has been jettisoned, raising the prospect of tied and multi tied advisers having to choose between the advice and sales categories.

Advice could only be given by independent advisers, who would have to reach minimum professional standards and advise on a ‘whole of market’ basis. Remuneration would have to be agreed with the client, and not influenced in any way by the provider.

Salesmen would have to conduct business on a ‘non advised’ basis, although they would still have to operate within the current regulatory framework.

Money guidance is a newly proposed information and guidance service along the lines proposed by the Thoresen Review, which the FSA is taking forward as a ‘Pathfinder’ project to see how this service might develop as a national service.

The BBA attacked the proposals because they would limit the service they currently operate for the mass market and would present consumers with a stark choice between expensive financial advice or a non advised sale.

The FSA acknowledged that it needed to do more work in this area, saying it was in discussions with banks about allowing them to continue to offer advice on their own products.

Edinburgh declaration

Meanwhile, the Chartered Insurance Institute, the Institute of Financial Planning, the Securities & Investment Institute and Chartered Institute of Bankers in Scotland signed a joint declaration of principles setting out how they will supervise advisers in the future.

They called for a single independent professional standards board to create, oversee and develop high standards, with the power to expel advisers from the industry.

Review of FOS

The Hunt review of the Financial Ombudsman Service called for a crackdown on claims-chasers, including a fee for vexatious claims and moves to force them to use more transparent advertising.

The review also called for FOS decision letters to contain the proposed amount of compensation rather than a formula, and for the worst performers in terms of uphold rates to be named and shamed.

But he rejected calls for consumers to have to pay a fee, suggesting that a higher fee should apply to enforced ‘deadlock’ cases and differential pricing for ‘assessment’ and ‘investigation’ cases.

Personal accounts

On the personal accounts front, the European Commission informally agreed that employees can be auto-enrolled into GPPs when personal accounts are introduced in 2012.

Standard Life is lobbying the House of Lords to pressurise the Government to change the exemption test for personal accounts and to look at a dual earnings model using band earnings and basic earnings. (TheGovernment wants the exemption test for personal accounts to be based on total band earnings).

Meanwhile the Personal Accounts Delivery Authority (PADA) came in for criticism for spending £830,000 a month on consultants and £6.7m between August and March 2008.

There were sharply differing views on how people should be charged for personal accounts, with the ABI and NAPF both opting for an annual management charge plus a contribution charge, whereas the IMA and the AIC favoured an AMC only.

Wraps

Elsewhere, the FSA warned it was concerned about potential for conflicts of interest, extra consumer costs and inappropriate advice when using wrap platforms.

In its feedback statement to last summer’s platform discussion paper, the FSA pledged to visit a number of adviser firms of all sizes to ensure they are using platforms appropriately.

Many advisers were not treating customers fairly, if they failed to manage potential conflicts of interest, such as where the adviser holds shares in a platform.

Resolution

Meanwhile, the near-£5bn sale of Resolution to Hugh Osmond’s Pearl Group neared completion, opening the way for Royal London to acquire some of Resolution’s assets from Pearl for £1.2bn.

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