There are a very large number of UK employees who have been contributing to a private pension scheme partially funded by their employers, which they are assuming will provide them with either a very tasty lump sum, or a monthly stipend that will considerably boost their state pension. However people who are due to retire within the next five years are in for a not too pleasant surprise when they discover that the value of their pension has been eroded due to the economic ravages that the equities market has experienced in the last 24 months.

Some worrying information has emerged that the UK’s largest private sector retirement fund ,the BT Group Pension Scheme was reported to have only sufficient funds on hand to pay about 57 per cent of their pension obligations in the event, albeit unlikely, that the telecommunications company were to become insolvent. A spokesman for the company did hasten to announce that they are now taking every step possible to return this figure to a healthier level, as well as considerably cutting back on its future investments in equities for the future.

Huge companies, such as BT, who are faced with the awesome responsibility of handling huge pension funds consistently, took refuge in the FTSE as a hedge against inflation. The shift in investment strategy that they will now be making is significant and they will now have to find ways to make safer short term investments to keep their pensions funds at a higher level.

A spokesman for the British Telecom Pension Scheme (BTPS) announced their target is cut to 33 per cent of the fund’s equities portfolio and instead acquire assets which are low yielding and safer such as bonds that will move in line with liabilities.

The statement of investment principles applying to company managed pension funds explained the investment shift, noting: “The trustee acknowledges that, in particular, the level of investment in risky assets might, over the short to medium-term, influence the volatility of the funding level of the scheme, and hence may influence the volatility of the employer balancing contribution rate.”

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Tags: Company Pension, Minister for Pensions, Pension Scheme, Pensions, Private Pension

Recent figures have shown that the aggregate deficit of corporate UK pension funds has now soared past the benchmark figure of £250 billion. This record breaking shortfall which was arrived at in March was attributed to, drop in gilt yields, apparently caused by the Bank of England’s policy of quantitative easing. According to a spokesman from the Pension Protection Fund, the aggregate gap between the values of assets of liabilities it raised to £253.1bn, reflecting 90% of all the UK’s 7,400 current pension plans. The deficit is now more than 10 times higher than the level it was in the corresponding month of last year.

On the FTSE yesterday the carry forward of disappointing economic data coming out of Wall Street, seemed to curtail gains across the board although banking stocks did continue to move forward after strong 1st quarter results from Goldman Sachs gave the sector a boost. This piece of positive news was dampened by the news of an unexpected drop in US retail sales

Lloyds Banking Group rose by 11% (8.4p to 87.9p)and Barclays already on a role buoyed by last week’s iShares deal struck with CVC announced that it could still sell its entire asset management arm also jumped by 10.5% (18p to 195.5p)

The insurance sector saw some price adjustment after analyst comments that recent share price falls were overdone. Legal and general rose by more than 13% (5.7 pence to 54.5) with Friend Provident rising 3.7p to 68.6p and Standard Life up 9.7 pence at 183.1p.

The mining community on the Stock Exchange also had smiles on their faces with Vedanta Resources humping 15% (134.5 pence to 1008) Trailing in their wake, but not by a distance were Kazakhmys who rose 47.5pence to 513.5and Xstrata whose shares moved forward by 41pence to close at 613.5 .

It was a much stormier ride for British Telecom investors yesterday, with shares dropping by 6% on early trading on news that the group’s annual results next month may include a £1.5bn write down. Later trading saw their shares make a rally closing 0.1p higher at 81.1p

BP didn’t enjoy the same relative fortune, with the petroleum giant’s shares losing 7.5 pence to close the day on 438.5. Reasons given were the decrease in crude oil prices and expectations of falling demand

To prove the point that if people won’t buy crude oil but will still buy fruit drinks was the news that Britvic, the Robinsons and Fruit Shoot company enjoyed a sugar intake of 4% on their shares for the day. They raised 9.75p to 255.25p, after the company announced that they had successfully arranged new banking facilities, which will run through to 2012.

Over the day, the FTSE 100 peaked at 4039.67 points during early trade, and then closed up just 5.28 points, or 0.1 per cent, at 3988.99 points. The FTSE 250 closed the day on 7152.16, up nearly 175 points on the day.

The pound hit a five-week high against the euro and rose against the dollar on Tuesday as well as rising slightly against the Japanese Yen and the Swiss Franc:

Pound/US dollar 1.4879

Pound/Euro 1.11268

Pound/Japanese Yen 147.80

Pound/Swiss Franc 1.7057

Uncertain corporate outlooks and data showing the U.S. economy is still suffering weighed on global stocks on Wednesday, despite claims from U.S. President Barack Obama that his remedies were starting to work. The Dow Jones Average dropped 137.63 to close at 7920.18. NASDAQ fell 27.59 points to close at 1625.72.

Europe was in shock Wednesday on the news that Swiss banking group UBS were about to announce a very heart loss for the first quarter of this year, during their annual meeting to be held in Zurich. Investors’ worst fears will be confirmed along with the news that the Swiss banking group will be dispensing with the services of more than ten per cent of their global workforce.

In Asia, early trading saw stocks values dropping back from the six-month highs achieved on Wednesday after the drops on Wall Street. Later hopes for increase Chinese stimulus spending helping offset these early losses. The feeling was that investors were cashing in on gains after many equity markets have jumped between 20 percent and 30 percent since early March.

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Tags: Bank, Bank of England, Banking, British Economy, Credit Crunch, FTSE, Money Management, Pensions, Private Pension, Recession, UK Banks, UK Recession

A pension is a financial device, effectively a savings mechanism, which in theory is designed to pay for your retirement years. You pay into a fund during the years you earn, which builds the fund up to a level which is then released per month once you have retired and will continue to pay until you die.

And once you start a pension, the actuaries will have worked out for you on a regular basis what is required to keep the fund up to the level of pay-out you are expecting in your retirement. As many pension funds are big investors in stock markets, then pension funds, as a collective, can go up and down like a yo-yo. In principle, a long term investment, like a pension, should show substantial growth over the period of the pension policy’s life. And as for fund managers, stock markets do give better returns than simply collecting interest on a daily basis from a more reserved saving funds vehicle. But therein lies the rub. When markets collapse, so can the value of pension funds, so you might be thinking that retirement is looking very rosy indeed, and then find out that you might not be as well of as you thought.

So, a pension is a quite simple idea, but as with many financial tools in the modern world, it’s anything but straightforward. It used to be that most employees in the private sector would join a company pension. And the employee and employer would both make contributions to a fund. Then businesses decided that running pension funds was firstly rather expensive and secondly, a too time-consuming task. Thus the private pension was thrust into the lime light and people were told to make their own provisions.

Nowadays most companies either do not run their own pension schemes, or have closed their existing schemes to new employees, much to the chagrin of the workers and unions.

Even in the public sector, in which employees were compensated with lower wages than the private sector with extremely good pension provisions, the Government is now mooting the idea that things will have to change.

Basically, as we all live longer and people fight off diseases that would once kill at an earlier age, providing a pension is a very expensive business.

So, mostly, preparing for your retirement is up to you. And a basic principle of a pension is that the earlier you can afford to start one, the better, as it is cheaper to establish a useful fund over a long period of time.

It’s been estimated that if a man in his mid-twenties were to contribute £100 a month up until a retirement age of 60, his annual pension could be in the region of £1,000 per month. But if that same man started at 40, he would have to contribute nearer £300 and for a 50-year-old, £1,000 a month. So, it follows, the earlier you get started, the better.

As to how much, that usually depends on your personal circumstances and how much you can afford. In many early working careers there’s little money to spare and other things keep intruding, such as marriage and children. And this is why a popular way of saving for your retirement is to build a pension fund to make the final payment on an interest-only mortgage. This method is now more popular than endowments. 

But you can see from the above calculation of £100 a month returning £1,000 a month from a mid 20-year-old, you have to look at your wage packet, or salary slip, and think if you can mange that, as well as afford all the other things you want to do.

But don’t put it off; most people make retirement and you will need some provision for your later life.

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For More information on specific Banks use these links

• Alliance & Leicester
• Barclays
• Capital One
• Child Trust Fund
• First Direct
• HSBC
• Post Office
• Tesco Savings

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Tags: Pension, Pensions, Private Pension, Saving, Stock Markets

My heart really does go out to anyone who is about to retire at this time. What a horrible position they are in. Not only has the value of their investment pool lost about 40% of its value over the last year, if it’s been invested in equities, but interest rates are forecast to come down even further, hurting their annuity payments if they have a private pension plan. But that’s really only the start…the real pain could yet lie ahead.

Since it is expensive to protect against a high level of inflation in an annuity, the retiree faces a difficult choice. Do I take the maximum income now from my annuity now and hope that inflation comes down as the government and industry say it will, or do I plan for inflation to creep up faster and faster as I draw the income from my annuity? This is such a tough choice at even the best of times since the variables are unknown, but the current economic situation makes this balancing act even tougher.

For those who do not wish to make this choice right now with so much financial uncertainty, the current rules many force them into the decision. If you are approaching your 75th birthday and have yet to vest a pension pot, the law as it stands today says you must do it before your birthday. This forces otherwise prudent savers into taking these decisions at exactly the worst time. So not only must they take the decision, they have no idea if the government’s huge spending plans will ramp up inflation after the commodity and GDP growth cooling period has ended and the prevailing force in the inflationary world becomes the money supply, which is currently being expanded massively.

Thank heavens I’m only 38…because I would have no idea which way to turn if this type of decision was forced onto me…and I’m a highly qualified pension’s adviser!

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Tags: Current Economic Situation, Government, Interest Rates, Investment, Pension, Private Pension