Your Pensions & Investments – is it …. Goodbye Forever (Part 2)

In my last post http://www.cpfs.uk.com/your-investmen…ντίο-για-πάντα/ I talked about the three threats that confronted investors and pension investors which would come together in almost a perfect storm and seriously affect your funds invested unless you used diversification as a means of spreading the risk to cushion any downward pull of the markets.

Don’t forget that the value of your investments can Fall as well as Plummet!

Anyway, this week I have been calling on businesses in the local Counties that we cover (Hertfordshire, Cambridgeshire, Bedfordshire, Essex and North London – we will go to see clients anywhere in the UK but this is where the majority of our clients are).

Pension Plans

The purpose of my  visit was to discuss the implications to them of not protecting the investments in the company pension plan (Group Personal Pension Plan) or Personal Pension plans by diversification as much as possible and also about the upcoming Auto Enrolment where employers and businesses must provide a pension for their employees (employer payroll cost of 3% of payroll, employee will eventually pay 4% so with tax relief total is 8%) which is being phased in from October 2012.

I explained that the majority of pension funds were intiatially set up with a default fund of, say, a Managed Fund, and that unless these had a well diversified asset allocation, the value of the pension/s would be massively affected in the event of a Recession as all of the signs are pointing that way!

I explained that the most common scenario was that these pension plans were set up by either a bank or an adviser who subsequently didn’t re-visit the inital fund choice decision, for whatever reason, and additionally, from our experience, most pension funds do not have a financial adviser who provides on-going financial planning advice or reviews of the original basis on which the plans were started.

We discussed the current market volatility and in general we talked about the major events that were occurring in the wider economy which could have a major impact on their retirement plans – these I had covered in my Post on Monday 3rd October 2011 on this website.

In the Post I posited three scenarios and these were:

Dexia Bank – I talked about the problem the bank was having in terms of inter-bank lending (sound familiar?) and that EU Ministers (who appear clueless and apathetic to the economic dangers that surround them (and us) were to meet last Monday to discuss the problems;

Greece and the continuing financial problems that this is causing, not just in the EU but in the wider world economy;

and finally, I pointed out that the Bank of England may be getting its shopping trolley out to go into the market and by up Bonds – called Quantitiave Easing 2.

The thrust of my article was that these three scenarios will cause major problems to pensions funds, and the resulting inflation that may be 18 months away, due to it being a lagging indicator, will seriously erode the value of peoples investment.

Well, this week, in the last two days in fact, 3 Exocet missiles (coincidentally, Exocet missiles are manufactured in France) were launched in the general direction of your pension funds and investments and when they land will have a massive affect on your investment funds and pensions unless you can ‘cushion’ the blow with a well designed asset allocation and diversification of your funds.

I use the term ‘when they land’ because, as I pointed out in my last Post, these things tend to explode and cause mayhem sometimes years after they set off on their journey.

Put simply, they are the modern day equivalent of the 2nd World War DoodleBug. Now I hasten to add, at this point, that although my photo on this website might give the indication that I have been ‘around the block’ a few times I am not that old that I remember these things, recalling only what I have heard from those who were around at that time and also historic records, films etc.,

DoodleBugs were a German Rocket (called the V1) whose singular charecteristic was that as they motored by above you (at about the speed of a light plane) they caused no risk or danger to your physical wellbeing wherever you were – until, that is, the engine stopped.

Even when the engine stopped you were quite safe – for about the next 15 seconds until it plundged to the ground and detonated and blew you, and all in its vicinity, to smithereens. And that was its curious subtlety, really!

Firstly then:

Dexia Bank
The EU Ministers have come up with a cunning plan to save Dexia (the ‘solution’, as the French Finance Minister quaintly calls it!) is rumoured to be (and will probably be announced today, 7th October 2011) is that the French public bank, La Poste (pretty yellow vans which deliver the post) could take part in the rescue. Indeed, such is the largesse of the French Finance Minister (it isn’t after all his money) that he has extended the invitation and will invite another French, publicly owned, Bank, Caisse des Depots (they don’t have any vans, to my knowledge) to take part in the rescue.

So at a stroke the debts of this Bank (they hold exposure of about (Euro) 21billion of exposure to eurozone sovereign debt, in particular that of Italy and Greece), has been passed, with a sleight of hand that would make Paul Daniels proud, deftly to the taxpayer in France but also to the wider Euro community, of which Britain, of course, is a part.

I would imagine that the French public are very, very cross about this indeed – in fact, I go to France about once a month and the ones that I know will be absolutely seething!

So in all probability, the French people will wake up tomorrow morning and find that they are the proud owners of a Bank where UBS estimate the ‘at risk’ loans held by the bank are equal to 80% of its common equity, while their loan to deposit ratio has risen to more than 250%. And ‘the hits’ just keep on coming….

So, I suppose the least we can do is to wish the French Finance Minister well in possibly having completed a sound job and know that he can sleep well tonight in the knowledge that he has passed even more of the toxic product of this failed project directly and squarely into the hands of the European taxpayer. Thats US.

Greece

- now has a strike on its hands with the transport and taxi drivers ‘downing tools’ or should that be keys, reports say that many thousands of civil servants face the sack as they impose their ‘austerity measures’ and the prospects of them ever repaying any debt must surely be fading faster than the colour in a cheap pair of jeans.

And finally,

QE2 (Quantitiative Easing Round 2)
The last of the three Exocets was launched by the Bank of England yesterday (6th October 2011) where the go ahead was given for some £75bn to be released to purchase Bonds from the market (the equivalent of printing money) in an attempt to make borrowing as cheap as possible. This has the effect of depressing Bond yields as the price of Bonds goes up and this, among other things, will cause a reduction in the income that pension funds receive, and so your savings.

This, combined with the massive danger of inflation in about 18 months time, will seriously affect those on low incomes (Pensioners living off savings and investments and other low paid workers) and anybody with savings in pension funds and investments (Unit Trusts, ISA’s etc.,).

The conclusion then, which is the same as it ever is, is to check your existing pension plans and investment plans – if you haven’t got the policy documents to hand then phone the provider (bank or insurance company) and ask for a benefit statement which should (ask for it) also include details of the funds invested and the values therein.

Once you have this information, check it very carefully, and if the funds invested are in funds labelled, laughingly, as Cautious Managed, Balanced Managed, Adventurous Managed (I say laughingly because these phrases are almost totally meaningless once you look into the funds details of the funds within each one), (sometimes they dress it up and call it some kind of Portfolio – the banks I mean) then seek help – speak to an IFA – the insurance companies will advise you to speak to your adviser, and the bank will be tied (some do have IFA arms but they tend to be for the wealthy investor) so cannot advise you of the overall and wider options of investment opportunity that you could make – so don’t let them fob you off – it’s your investment, get the detail! (re-read my Post re the Banks and the article by last Saturday’s The Daily Telegraph Money section). If you need help in deciphering this ‘mumbo jumbo’ then please call us – the number is on this website.

As I keep on saying in my posts, the world is changing fast and there are moves afoot which will place you, the consumer, back in the driving seat and give you control over the choice of the  advice process and the amount that you pay from either your bank account or your invesment  to your adviser for advice from 1st Janauary 2013 – there will be no such thing then as commission, it will all be on fee basis – but the reality is tha if you wish you can still pay for the cost of the advice directly from the investment – it has always been this way, but this time it will give you the control of knowing exactly how much it will cost you for the advice – good news for the consumer – although this is a year away  there is nothing to stop you taking control – now.

Just ask for the advice to be on a fee basis and discuss it with the IFA or even better still, Us!

Finally, their is a ‘comments‘ button on this website which enables you to make any comments that you think are relevnt to these posts – maybe you disagree – the statistics indicate that these post are read all around the world and we get comments from different languages that we have to go to ‘Google’ to translate – so if you wish to pass comment please feel free to do so.

It just goes to show the power of the web and the ability to communicate your thoughts anywhere in the world!

If you would like to speak to us you can do so without any obligation, on your part or ours – just pick up the phone.

Have a nice day.