17/12/2010 by Arthur Childs.

As expected, the Government has announced that it will shortly no longer be necessary for those with sufficient funds in their personal pension plans and other private pensions to purchase an annuity, that is, a guaranteed income for life. 

Whilst, on the surface this may seem a minor change, possibly only affecting a few people, in practice this has, at a stroke, changed the whole nature of pension planning in the UK. 

We very much welcome these changes and over the months ahead, as we discuss their impact on individual client situations, we believe that their enormity in terms of our whole thinking about pensions will gradually become clear.

In a Nutshell

With effect from 6 April 2011 it will no longer be necessary for those with sufficient funds in their private pension arrangements to purchase an annuity at any age. Instead those who prefer to leave their pension fund invested can continue to do so. 

If their fund is large enough they can draw out amounts as and when required for the rest of their lives and leave the balance of the pension fund (less a tax charge) to their dependents. 

Alternatively they can simply leave the whole fund to their dependents with no tax charge if death occurs before age 75 and a 55% tax charge if death occurs after age 75. Very importantly such funds are outside of their estate for inheritance tax purposes.

This is good news for many people who consider annuities to be poor value for money, or perhaps prefer to wait for a period of time before making a decision to buy a guaranteed income with their funds.

A New Guide

The changes are contained in a 62 page document Removing the Effective Requirement to Annuitise by Age 75 published by H M Revenue & Customs and a 28 page document A summary of the consultation responses and the Government’s response published by H M Treasury.

We have produced a new 4 page Guide: Changes to Private Pensions which provides an overview of the changes and which we would encourage you to read. You can obtain a copy of the Guide in pdf format via www.arch-fp.co.uk/changes_to_private_pensions.php.

Christmas Greetings

May we wish you and your families a Very Happy Christmas and may we all look forward to a Peaceful and Prosperous New Year surrounded by those we love.

If you would like to review your financial planning in 2011 please ask your usual Arch adviser, telephone 01483 204600 or email enquiries@arch-fp.co.uk.

Posted in Blogroll | Print | 1 Comment »

13/12/2010 by Arthur Childs.

I don’t know if you saw the BBC television programme Rip-Off Britain that was shown last week but I need to mention it as a few clients have contacted me about this.

The programme included the story of David Mason who invested £126,000 in the CF Arch Cru Finance Fund, previously managed by Arch Financial Products LLP (www.archfunds.com) and who has now lost the larger part of his investment.

This particular programme series is very well produced and having now watched last week’s programme via BBC iPlayer I have been impressed by the accuracy with which it reported the facts in this case. Those clients who have contacted me locked onto the name ‘Arch Financial’ and so an explanation is in order.

This is nothing to do with us!

Arch Financial Planning Limited is nothing whatsoever to do with Arch Financial Products LLP. The similarity between the two names is unfortunate. When we changed from a partnership to a limited company at the beginning of 2003 we wanted a new company name to replace the previous highly personal name of our firm which was Arthur Childs Financial Services. We lighted on Arch as it was made up from the first two letters of my first name and surname, ie AR thur CH ilds. We checked the company registry for other Arch names and only found one in financial services and that was not actively trading. As Arch Financial Products LLP is a limited liability partnership rather than a limited company they do not have to register their name and we were unaware of their existence.

By all accounts Arch Financial Products LLP is very experienced in managing private company investments. Their relationship with Cru Investment Management of Cardiff created a series of funds aimed at retail investors which were launched in July 2006.

The lessons are there to be seen

Much as we might sympathise with David Mason’s plight, his story highlights the need to obtain proper advice before investing. Just based on the BBC programme we can determine that:

(a) he invested in the Arch Cru Finance Fund on the recommendation of his son, Alex, who had ‘recently started working for an investment company’. Alex seems to have simply passed on information he had gleened from his new colleagues. If you are going to invest virtually all of your liquid assets and particularly if, like David Mason, your only experience of ‘investments’ seems to have been using deposit accounts, then please visit an independent financial adviser (IFA). The first meeting will usually be at the IFA’s expense although you should check on this first.

(b) he makes no mention of completing a ‘fact find’ or ‘risk questionnaire’. There does not seem to have been any attempt to match up his requirements with the fund in question. An IFA will only provide advice once he has gathered a lot of information about your personal financial situation. Most importantly he or she will want to ascertain your attitude to risk. David Mason stated that he would rather have kept the money under his mattress than lose any of it. This is one indicator of a defensive attitude to risk and with such an investor a large proportion of their liquid assets should be left on deposit and the rest very well diversified across a range of assets.

(c) he invested nearly all of his liquid assets (£126,000) in a single fund. One of the foundational rules of good investment practice is diversification, that is, don’t put all your eggs in one basket however strong that basket may look. Our investment proposition is based on professionally run, regularly updated and rebalanced portfolios containing a wide range of heavily researched investment funds for this very reason.

(d) he kept referring to this stockmarket linked investment as a ‘safe fund’ providing a ‘safe return’. We are at pains to educate our clients over time about the nature of risk. Words like ‘safe’ have no place in the investment world because every investment carries an element of risk. What is important is to match the risk of an investment with the risk profile of the investor. For example, the lowest risk investments are National Savings & Investment products as these are 100% backed by the Government, but if the rate of inflation is higher than the promised return then the buying power of your investment will still reduce over time. The same applies to deposit accounts which not only face the ravages of inflation but the possible collapse of the bank. Once you start looking at other forms of investments then other risks such as market risk must be taken into account.

(e) he only enquired about the underlying investments after he was told that he had lost at least £80,000. This is equivalent to buying a house on eBay without going to look at it first or bothering to get a survey carried out. In fact the Arch Cru Finance Fund was substantially invested in the shares of various Guernsey incorporated ‘cell’ companies which are listed on the Channel Islands Stock Exchange. The underlying assets of the ‘cells’, taken as a whole, are investments in a range of assets, such as private equity, hedge funds, asset backed loans linked to ships, real estate linked investments, direct investments in various entities, including investments in a fine wine investment company. Certain of the cells have also invested in other cells. The point is that the underlying assets are medium to long-term in nature and are generally illiquid which would have been a contributing factor in their downfall.

It’s not too late

David Mason is still working although he says that his plans for early retirement have been put on hold. He has time to try and rebuild his investment portfolio and we wish him well with this. I suspect he will stick to deposit accounts in the future which is unfortunate as they are really not suitable for long term investing. Let us hope he finds his way to a decent IFA firm. Unfortunately for us I think our company name may be a bit offputting for him!

If you would like to review your pension planning please ask your usual Arch adviser, telephone 01483 204600 or email enquiries@arch-fp.co.uk.

Posted in Blogroll | Print | No Comments »