The Weekend FT’s coverage is led by an account of the “game changing” £75,000 fine imposed by the FCA on a compliance oversight officer who, it says, failed to ensure that adequate care was provided when advising clients on the transfer of defined benefit pensions into lump sum purchases. And it goes on to say that the FCA is likely to bring further actions against advisory firms as its investigations into defined-benefit transfer schemes continue. Between 50 and 100 firms are thought to have been scrutinised so far.
David Watters, the oversight official at Belfast-based FGS McClure Watters and later chairman of Lanyon Astor Buller (following a takeover of FGS) was specifically accused of having failed to establish an adequate structure for his teams to follow during some 700 client approaches which led to around 500 pension transfers with a combined value of £12.7 million. As a result, it said, “in many cases, it may have been unnecessary for customers to leave their defined benefit schemes, thereby losing their guaranteed benefits.”
Mr Watters was criticised for failing to manage conflicts of interest – including one example, says the FT, of an adviser receiving incentives from a pension provider for organising the transfer. The firm is now required to set up an independent review and redress scheme to compensate clients who have lost out.
Importantly, the FT also notes that the FCA’s enforcement action breaks new ground by targeting a senior manager for his responsibility — a theme, it says, which was embedded in last year’s new accountability regime for banks and insurance companies, but which is to be extended to all financial services companies during 2018.
Money Mail reports on what it says is a growing trend toward householders being driven toward second charge mortgages, with which to finance home alterations or simply to consolidate debts. The volumes of new lending in this area between March and end-May were 25% higher than a year earlier, it says – and the preference for second mortgages is a direct result of the tighter conditions being levied on mortgage borrowers.
Let’s explain. Some borrowers opt for a second charge mortgage because they literally can’t get clearance for an increase from their existing lenders – perhaps because of the stress tests, or perhaps because they’ve actually had payment difficulties, caused perhaps by illness or unemployment. But others go for second mortgages because they can’t get a new loan at comparable rates to the attractive ones they originally had. (Or because arrangement fees for a remortgage are too high to be palatable.)
In short, say the Mail’s interviewees, opting for a second mortgage is not necessarily a sign of trouble or mismanagement. But it still advises readers to consider alternatives such as secured/unsecured bank loans, overdrafts or even credit cards as alternatives to second charge mortgages, which will normally come in at higher interest rates than first mortgages. The devil is in the details. Absolutely…
The Telegraph features the Government’s confirmation that it is to reduce the amount that taxpayers can contribute to their pensions if they have already taken advantage of the pension freedoms.
The existing contribution limit of £10,000 a year was to have been reduced in April to £4,000 during this year’s spring Budget, but it had been hurriedly shelved as the general election approached. Now, however, Whitehall has confirmed that the £4,000 limit is to go ahead as planned, and is to be backdated to April 2017.
The contributions cap has a definite logic to it. It exists in order to stop over-55s who might have got their 25% tax free lump sum and who might now be tempted to ‘recycle’ it back into their pensions, so as to recoup a second round of government contributions or tax allowances. But the pensions industry has been protesting at the sudden turnaround, the Telegraph says.
Former pensions minister Steve Webb, who is now at Royal London, calls the decision “arrogant” and “outrageous” – not least, he says, because it has caught some savers who have not yet acted yet because they believed they would have longer to get their money in and now find that they won’t. “These hopes have now been dashed by the Government,” it quotes Tom Selby of AJ Bell as saying. And the change should be delayed until April 2018.
We all know that many Brits find it hard not to spend more than they earn. The Sunday Times examines the new breed of apps which track your finances on the go. Journalist Leaf Arbuthnot has a go at using Monzo, but other apps such as Revolut, Plum, Tricount and Ontrees all get a mention. Do they work? Well, that’s down to the individual of course, but we think that anything which helps people to gain more control over their spending and focus the mind on the need for financial planning has to be positive.
No news to advisers we realise, but again we hear calls that people might be treading a risky path in cashing in pensions this time in a report from the Sunday Times. It follows on from the recent FCA report which showed that 52% of those who did so then invested the money in another savings or investment vehicle. The paper warns those in DB schemes in particular, to take extreme care when faced with decisions whether or not to accept a transfer value, some of which are climbing as high as 40 times the promised annual pension. The warnings around considering all the different benefits that exist are sensible. Let’s hope people heed them.
The Personal Account column is journalist Ian Cowie’s ongoing account of his struggle to avoid poverty in old age by using a sensible investment strategy. This week he confesses to reacting to concerns over recent reports about electric car maker Tesla and the sharp fall in its share price. He has sold his holding – albeit at a profit – and split the reinvestment of cash into Daimler and in topping up his holding in Polar Capital Technology Trust. His parting advice is that diversification via pooled funds is the simplest way to soften the shocks of stock market investment. He also voices concerns following the release of official figures which show that the average Brit now sets aside just 1.7% of earnings for a rainy day – less than a fifth of the long term average of 9.2% since records began in 1962 as he reminds of the benefits of compound interest.
The third of the Sunday Times’ four part series on how to invest £10,000 in order to beat inflation, invites Mark Dampier of Hargreaves Lansdown to give his recommendations. His suggestion is a three way split between Capital Gearing Trust, RIT Capital Partners and Lindsell Train Global Equity fund.
The fund in focus in the Financial Mail on Sunday is the JO Hambro Capital Management UK Dynamic fund. Manager Alex Savvides points to the fund’s strong performance from launch in 2008, regularly outshining peers. He seeks out a different sort of ‘uncertainty’ – the MoS suggests it is possibly better described as positive uncertainty – that comes when a company gets a new top management team. This usually means a new chief executive, financial director and chairman. He will watch closely how they work together to deal with cashflow and earnings. Savvides likes to bet on firms of any size that can deliver value from such changes and calls his position ‘business transformation investing’. His methods have helped the fund deliver returns of 110 per cent in five years. Pat Connolly of Chase de Vere comments favourably on the manager’s approach but reminds advisers to look out for the big downside of the fund – which is that it applies a fee of 15 per cent on outperformance of the FTSE All-Share Index.
Also in the MoS, Sally Hamilton also reflects on the FCA report revealing that those cashing in their pensions are resisting the urge to buy Lamborghinis but voices concerns that instead they are taking risks by not taking professional advice and either putting their cash on deposit or investing in stockmarkets which are at historically high levels. She also highlights last week’s nasty revision from the Government, affecting those who dip into their pension before retirement, who can now only make future payments at £4000 a year instead of £10,000. Particular concerns are voiced that it is backdated to April 2017, meaning that many might have already made higher contributions and face problems ahead as a result.
Alistair Cunningham of Wingate Financial Planning has done some excellent cash flow analysis for The Sunday Telegraph, in an article looking at whether anyone can really afford to retire at 40 – and what that might entail financially. His conclusion, after weighing up likely lifespan against the standard of living that someone might reasonably expect, is that retiring at 40 looks unlikely for anyone who hopes for more than a very constrained existence. No surprise for financial planners we grant you, but for the average Brit it’s a lesson in what it takes to finance a standard of living in retirement that would be acceptable.