Labour to target higher-rate pension tax relief

Labour has set its sights on higher-rate pension tax relief, declaring that too much Government money is being spent on the pensions of higher earners.

Speaking at a fringe event at the Labour conference in Liverpool this week, Shadow pensions minister Rachel Reeves said the Government should look at redistributing some of the £20bn a year it spends on pension tax relief.

She said: “We spend £20bn a year on tax relief for pensions and two-thirds of that goes to higher-rate taxpayers. Half the population get just 10 per cent of that £20bn. So I would like the Government to look at ways to make pension tax relief more efficient, more effective and better value for the taxpayer in incentivising the people who most need to save.”

National Association of Pension Funds chief executive Joanne Segars said: “We need to remember we are talking about tax relief here. There are a large number of people who get higher-rate tax relief on their contributions but they also pay tax at a higher rate when they retire and we should not lose sight of that.”

In 2009, Labour proposed a reform of higher-rate pension tax relief which would have seen relief cut for people earning over £130,000.

The complex measures were scrapped by the coalition Government which instead implemented a £50,000 annual allowance while continuing to allow individuals to receive relief at their marginal rate. It also announced a cut to the lifetime allowance from £1.8m to £1.5m from April 2012.

Scrapping higher-rate relief was a LibDem policy before the election and was promoted by current pensions minister Steve Webb.

Hargreaves Lansdown head of pensions research Tom McPhail says: “If Labour are going to raise the issue of tax relief, it is essential they look at the broader pensions tax landscape rather than simply looking at higher-rate relief in isolation. Making it

fairer will be harder to deliver than it is to speculate on and I am not convinced now is the right time with automatic enrolment starting next year.”

ould look at redistributing some of the £20bn a year it spends on pension tax relief.


Worst-hit funds fell by a quarter amid volatility

Standard Life’s £40m UK equity recovery fund has been the worst-performing fund across the IMA sectors over the last three months, according to data from Morningstar.

Recent volatility in the markets has affected the short-term performance of a number of funds. Financials have been badly affected through the equity sell-off of the past few weeks, as investors become increasingly risk-averse in response to global events.

.Standard Life’s UK equity recovery fund fell by 25.5 per cent between May 24 and August 24. JP Morgan’s £117.7m global financials fund is the second-worst performer, falling by 24.3 per cent over the same period.

Third on the list is the £19.6m CF Richmond core fund, which fell by 23.92 per cent, followed by the £52.5m CF junior oils trust which took a 23.7 per cent hit.

Sector Investment Managers chief executive Angelos Damaskos, who manages the junior oils trust, says: “Medium to smaller-sized companies have suffered the worst during the sell-off because of the risk aversion of investors. The mandate of the fund constrains us to these types of stocks.”

Damaskos says he has sold down the fund’s 30 per cent holding in cash and bonds to 14 per cent over the last few months in favour of cheap equities. He expects the stocks will re-rate when markets stabilise.

Standard Life’s £436.5m UK equity unconstrained fund is the fifth-worst performer, down by 23.4 per cent. Manager Ed Legget says global growth expectation has fallen as a result of sovereign risk in Europe and policy issues in the US.

He says: “I have been overweight industrials, which has hurt particularly in the last few weeks. Industrials have de-rated by 25 to 30 per cent over a four-week time period.”

In terms of industrials, he remains committed to the sector. He says: “Corporate capex and emerging markets is a better place to be than developed market consumer over the next two to three years.”

Legget has added 2 per cent to UK banks to make up a 5.5 per cent position over the last couple of months.

He says: “It is riskier not to own banking stocks. They have got the potential to go up a long way if people get a little bit more confident about life.”

Legget says the Standard Life UK equity recovery fund’s focus on recovery stocks and its high exposure to financials has hurt performance over the last four to six weeks. He says: “Recovery stocks are not as popular in times of uncertainty, where people are less optimistic about the prospect of recovery.”

The sixth-worst performer is the Cavendish European fund, followed by the Digital Stars Europe ex UK fund, Jupiter China, JPM Europe smaller companies and the Ignis European growth fund in 10th spot.

A spokeswoman for Cavendish Asset Management says: “Cavendish takes a stock picking approach looking for value in our investments and, as such, the European fund has had some exposure to underperforming markets. We have recently re-aligned our position to reflect these volatile times selling a number of stocks and re-defining our exposure to the emerging economies of Europe.  We continue to believe that there is value in Europe and are confident that the portfolio contains  attractively priced stocks which offer the prospect of outperformance moving forward.”

Premier Wealth Management managing director Adrian Shandley says: “Global financials have underperformed because of the banks but the managers of the other funds must have been taking speculative smaller companies positions.”

Source “ “

Politicians move to battle debt crisis

Markets in the Far East fell last night and the FTSE 100 fell this morning as politicians continue to battle the debt crisis.

In the Far East markets reacted badly to news of America’s downgrade with Japan’s Nikkei 225 falling 2.18 per cent to 9098 by close while in China the Shanghei Composite index fell 3.77 per cent to  2527.

The FTSE 100 fluctuated this morning and by 10am had fallen 0.76 per cent to 5207. This follows a fall of nearly 10 per cent last week.

Over the weekend, Standard & Poor’s announced it had downgraded America’s credit rating for the first time, from AAA to AA+, due to concerns about the way American politicians are responding to the escalating debt crisis. In Europe, the European Central Bank is to purchase Euro member state bonds in an attempt to allay debt concerns.

Latest news on the debt crisis:

* The Telegraph reports that Bank of England governor Mervyn King is expected to reduce the UK’s target range for growth.
* In an interview with The Sunday Times, Business Secretary Vince Cable warned that Britain could face a double-dip recession but rejected comparisons with the 2008 credit crisis.
* The European Central Bank has announced it is purchase Euro member state bonds in an effort to halt financial market contagion as markets opened this morning. A statement from the ECB, released yesterday, welcomed deficit cutting measures taken by Italy and Spain and welcomed a statement from France and Germany which pledged that the European Financial Stability Fund would take over paying for the purchases when it is fully up and running. The move is seen as a watershed moment because until now the ECB has maintained that responsibility for dealing with the Euro crisis rests with National Governments.
* Italy brought forward a pledge to balance the country’s budget from 2013 to 2014 to enable the move. Interest on Italy’s 10 year bonds reached 6.08 per cent on Friday, after hitting 6.4 per cent, the highest level since 1997. Spain’s bonds were offering 6.05 per cent. Some economists argue that anything higher than 7 per cent makes borrowing to fund Government spending unsustainable.
* On Sunday Angela Merkel appeared to support the move in a statement with Nicolas Sarkozy saying it was up to the ECB to decide when there was a material risk to financial stability. However, its been reported Merkel complained to Chancellor George Osborne in a phone call about European Commission President Jose Manuel Borroso’s claim more action was needed beyond what was agreed by European leaders in July.
* The IMF has welcomed the statements from the European Central Bank, Germany, France and the G7.
* Amid reports accusing European leaders of being absent in a crisis, George Osborne also called G7 leaders on Saturday from his holiday in California, stressing the interconnected nature of the European and American debt crises. Speaking to European Monetary Commissioner Ollie Rehn he suggested launching Eurobonds in exchange for more control over member states’ domestic economies.
* Standard and Poor’s is warning this morning that Asian sovereign ratings could face downgrades if global financial markets deteriorate. The ratings agency says its downgrade of US debt to AA+ on Friday would not weigh on Asian Governments ratings in the near term but added Asia-Pacific economies would have to support their domestic economies.
* The Australian market dropped 2 per cent as it opened and briefly rallied during the day but at close the S&P/ASX200 index was down 2.9 per cent.

“Money Marketing 08/08/2011

US debt-limit bill heads to Senate

The US Senate is to vote on a bill to raise the nation’s debt limit, one day after the House of Representatives backed it and hours before a deadline.

Monday’s vote in the House appears to have averted the prospect of the first full-scale US federal debt default.

Members of the 100-seat Senate will vote at midday (16:00 GMT) on Tuesday. If approved it will be signed into law by President Barac

The bill has the backing of Republican and Democratic leaders in the Senate and is thought likely to win the support of the 60 senators it needs to pass.

In the House on Monday evening the bill passed by a clear margin of 269 votes to 161.

Despite ongoing reservations about how the bill would fare with conservative members of the House, the bill won the backing of 175 Republicans, with 66 voting against.

Democrats were more evenly split – 95 for and 95 against.

The vote was notable for the reappearance in the House of Congresswoman Gabrielle Giffords for the first time since she was shot in the head in Tuscon, Arizona in January.

Ms Giffords – who has undergone a number of operations – caught lawmakers by surprise when she appeared on the floor of the House on Monday evening.

There was a standing ovation and embraces for the Democratic representative, who voted in favour of raising the debt ceiling.

k Obama.


The deal ties a $2.4tn (£1.5tn) debt increase to spending cuts.

The Senate vote will take place barely 12 hours before Washington is due – according to the US treasury department – to cease to be able to meet all its bills.

Markets predict no rate rise before August 2012

The UK money market is pricing in a first UK interest rate hike for August 2012, says Mike Riddell, the manager of the M&G international sovereign bond fund.

Back in January the money market was pricing in three rate hikes of 0.25 per cent in 2011 alone, with the first fully priced in for June.

“Earlier this year the market was almost pricing in five rate hikes, now it’s just one,” says Riddell. “Anyone who’s been betting on a gilt sell-off or rate hikes will be in a world of pain.”

Riddell notes that the pound sterling is now the weakest currency in the world today, while 10-year gilts yields have rallied seven basis points to 3.1 per cent, the lowest yield in seven months.

“The trigger was the minutes from the last Monetary Policy Committee meeting, where the crucial sentences were ’current weakness of demand growth to persist for longer than previously thought’ and ’further asset purchases might become warranted if the downside risks to medium-term inflation materialised’,” he says.

“Money Marketing 22 June 2011 4:04 pm ”


Who knows what is going to happen after all we do not have a crystal ball, maybe though it would be a good idea to get some advice before it is too late and rates start to increase!!!.

Pension Changes

Financial Secretary to the Treasury, Mark Hoban MP has announced a series of
changes to the pension rules. The main changes include:


  • for 2011/12 the amount of the annual allowance will be
    reduced to £50,000 (from the current £255,000)
  • the method of calculating the amount of pension input
    amounts will be changed
  • there will be rule that allows carry forward of unused
    annual allowance from the last three tax years, and
  • from April 2012 the lifetime limit will be reduced to £1.5m.

Hutton recommends career average pensions for public sector

Lord John Hutton has recommended pensions for public sector workers shift from final salary to career average provision before the end of this Parliament.

In the final report of the Independent Public Service Pensions Commission, published today, the former Labour minister sets out detailed structural reforms designed to make public sector schemes “sustainable and affordable”.

He resists calls to introduce a hybrid scheme with a salary cap “due to the complexity this introduces to the system”, instead suggesting Government implements tiered contribution rates to reflect the “different characteristics” of higher earners.

Other key recommendations include linking the normal pension age in most public sector schemes to the state pension age, setting a “clear cost ceiling” for public provision to limit taxpayers’ exposure to employees’ pensions and introducing stronger, independent governance regimes across public service pensions.The pension age for uniformed services employees – which includes the armed forces, police and firefighters – will be 60.

The report says the cost ceiling, which has not been specified, should be the proportion of pay that Government will contribute. If it is breached, a consultation would be issued to bring costs back below the ceiling. However, if the consultation ended in deadlock Hutton says there should be a default mechanism which could take the form of an increase in employee contributions or a decrease in accrual rates.

The commission says accrued rights should be protected, meaning the final salary link for past service for current members would be maintained. It also proposes an overhaul of the legal framework for public service pensions to make it simpler.

Hutton (pictured) says: “These proposals strike a balanced deal between public service workers and the taxpayer. Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes.

“The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.”

The commission has not recommended specific levels for accrual rates, indexation and employee contributions as these remain “a matter for Government”. However, Hutton does warn that setting contribution rates too high would risk low-earners opting out of the scheme.

The report also recommends that benefits are increased in line with average earnings during the accrual phase for active scheme members. Post-retirement benefits should then be linked to prices to ensure they maintain their purchasing power.

The Treasury is currently in discussions with representatives from the Trades Union Congress over how a 3 per cent increase public sector pensions contributions will be phased in from 2012.

Building societies get mortgage indemnity cover

Genworth Financial is to provide mortgage indemnity insurance for the building society collective Mutual One.

The partnership between the two organisations will mean that building society members of Mutual One can use the mortgage indemnity insurance provided by Genworth Financial to maintain a presence in the higher loan to value and first-time buyer market.

Building society members of Mutual One include Hanley Economic Building Society and Skipton Building Society.

Mutual One chief operating officer Andrew Gold says: “We believe the MII collective relationship will help societies continue to meet their core purpose of providing a wide choice of residential mortgages including those for borrowers who need higher LTV mortgages.”

Genworth Financial mortgage insurance senior vice president of UK commercial business Tammy Richardson says: “It’s a long held principle of Genworth that mortgage insurance enables lenders to widen access to home ownership for consumers through the bad times as well as the good.

“We advocate prudent lending as a means to returning to stability in the housing market, and believe this new facility with Mutual One will help both the building societies involved, and their customers.”

Building Societies Association chairman and Hanley Economic chief executive David Webster says: “The Hanley wants to continue to lend to the first-time buyers within our local community at 90 per cent LTV. The new Genworth and Mutual One mortgage insurance collective will provide The Hanley with a cost effective approach to mortgage insurance. We look forward to a long term successful relationship with Genworth and Mutual One.”

Genworth Financial were among several industry figures called together by housing minister Grant Shapps last week to discuss how to help first-time buyers access the housing market.

Other attendees included Council of Mortgage Lenders director general Michael Coogan, BSA head of mortgage policy Paul Broadhead, and FSA manager of credit risk Duncan Mackinnon.

Mervyn King hints at May interest rate rise

Bank of England governor Mervyn King has hinted interest rates may rise in May, with further increases possible by the end of the year.
He says this prediction is based on bank rate increases “in line with market expectations”. Many experts have suggested a 0.5 per cent rise in rates is likely in May with further rises throughout the year.

King says three factors account for the current high level of inflation, including the January rise in VAT, the continuing consequences of the fall in sterling in late 2007 and 2008 and recent increases in commodity prices, particularly energy prices.

He says: “Although one cannot be sure, prices excluding the effects of these factors would probably have increased at a rate well below the 2 per cent inflation target.

“Inflation is likely to continue to pick up to somewhere between 4 per cent and 5 per cent over the next few months. That primarily reflects further pass through from recent increases in world commodity and energy prices.

“The MPC’s-central judgment, under the assumption that bank rate increases in line with market expectations, remains that, as the temporary effects of the factors listed above wane, inflation will fall back so that it is about as likely to be above the target as below it two to three years ahead.”
Last week, the Bank of England’s Monetary Policy Committee held base rate at 0.5 per cent for the twenty-third month in a row and held its quantitative easing programme at £200bn.