Pokemon Go – Gotta Blog About Em All

Pokemon deja vu


The second coming of over one hundred catchable Pokemon as a phone app has created a lot of excitement. And ‘Pokemon Go’ has sent the blogosphere into full hyperbolic overdrive.

I have to admit that even I’ve got a little caught up in the frenzy. Well if you can’t beat ’em, join ’em. And it’s a feeling of deja-vu.

Over fifteen years ago I queued up for hours at Nintendo’s Pokemon store in the Ginza district (think Oxford Street) of Tokyo to buy a Pokemon branded GameBoy. And then I did it again as they only sold one at a time and I have two daughters.

So last weekend, when my Pokemon loving eldest daughter returned home to celebrate her 24th birthday, I was feeling somewhat nostalgic and made her a Pikachu cake. And the theme continued when she arrived. She had her ‘Pokemon Go’ in hand and the first thing she told me was there are pocket monsters in our driveway.

And there’s the hook. Whether you’re a chartered wealth manager or a Phd student of atmospheric science, you can’t help but look.

To be fair, she said they were just the common ones; the pidgeys, zubats and rattatas. There’s no more merit in catching them than a cold. But, lurking in our Jurassic garden she also found an Oddish, Eevee and even a Jigglypuff which are far higher up the Pokemon gene pool.

At this point I’d ask all the Big Pokemon Game Hunters amongst you that, before entering our garden, could you kindly knock first? And please take a business card on the way out.

All right, it's not the best interpretation of Pikachu, but there are some worse ones out there!
All right, it’s not the best interpretation of Pikachu, but there are some worse ones out there!

Risk assessment needed


As delightful as the game is, it’s not without its unintended risks as one young man found out when his girlfriend checked his phone. The app’s tracking history showed that he’d been playing hunt the ‘Weedle’ and ‘Wigglytuff’ at his ex-girlfriend’s place.  Ouch!

But I’m safe.

It’s over 34 years since I had an ex-girlfriend. And I can’t play the game even if I wanted to – I have a Windows phone and there is no windows app. And that is a clue to what I am supposed to be writing about in this blog. The problem for investors surrounding the value of the Pokemon Go to Nintendo.

 

A roller coaster ride for Nintendo shares


Microsoft, the owner of everything Windows, has upset plenty of software firms getting to where it is. So some app developers won’t cater for its phone operating system. It also doesn’t have the scale of Apples iOS system or Google’s Android.

Nintendo, as a hardware and software maker, didn’t want to be in Microsoft’s position. To avoid a conflict of interest with Apple or Google, it spun off everything Pokemon into a separate venture.

After the wildly successful launch of Pokemon Go in the States the question then was, ‘how much of that venture does Nintendo own and how much money will they make from it?’. But the answer didn’t seem to bother those caught up in the hyperbole.  From July 6th to July 19th Nintendo shares more than doubled from 14,380 yen to 31,770 yen.

During that run a sobering assessment of Nintendo’s Pokemon Go earnings on July 13th by John Gapper in the FT was ignored.  But people did pay attention when Mr Gapper’s assessment was backed up by the company themselves on July 25th. Nintendo said earnings from the game would be ‘limited’.

On the Monday before that announcement one headline stated, ‘Nintendo breaks stock market records thanks to Pokemon’. After the company’s mea culpa there was a change of tone, ‘Nintendo feels pressure after biggest fall in 26 years’ and ‘Nintendo loses $6 billion in value’.

But as I write it’s still at 21,080 yen compared with 14,380 yen at the start of the month.

 

Keep calm and carry on


What happened to Nintendo shares this month is a demonstration of how emotive investing can be. And it’s not helped by headline writers stressing the most absurd comparative statistic without any constructive context.

And that emotion can lead to bad outcomes. I wrote about a variety of cognitive biases that can lead to bad decision making here.

The answer is to plan and manage risk where possible. From auto-enrolment workplace pension schemes to stock index investments to balanced funds to currencies, there are different ways of approaching all of them.

 


Please remember:

  • past performance is no guide or guarantee of future returns;
  • the value of stock market investments can rise and fall over time, so it is quite possible to get back less than what you put in, depending upon timing;
  • this blog does not constitute financial advice and is provided for general information purposes only.

Brexit – Welcome to Poundland

Letter to The Times, 24th June 2016


Sir,  It is now surely unthinkable that we can continue to call our country the United Kingdom of Great Britain and Northern Ireland. The only thing uniting us is our currency. Perhaps Poundland would be more appropriate

David Jones W11

 

Beware of the Bull


I sincerely hope that, whatever your views on the Brexit vote, you’ll appreciate the succinctness and humour of Mr Jones’ letter.

Succinctness and humour are not however words I’d use to describe aspects of the rival ‘Leave’ or ‘Remain’ campaigns.  I would not describe the sheer volume of analysis provided by financial companies as being a delight either.

A better description would be something I trod in while on a hike around the beautiful village of Braunston (nr Oakham). The sign in the picture gives you a clue as to its origin.

WP_20160528_18_38_18_Pro

 

 

The first week after Brexit.


In my last blog I wrote,

It’s important to understand that, whatever the outcome of the referendum, that the world of finance is already very ‘stressed’.

And in the paragraph titled ‘Special FX’ I explained how in a world where central banks are managing interest rates (and indirectly asset prices), the only escape valves for economic reality are exchange rates.

In the week since the Brexit vote we’ve seen another example of what this can mean in practise with the sudden and abrupt changes in several currencies.

From coverage in the media you might think it was all about ‘Poundland’ and the fall in sterling, but there were also significant changes in the value of the yen.

Bank of America Merrill Lynch, referring to the foreign exchange markets, called Brexit day ‘the most volatile day in modern history’. And it’s easy to see why. While all the talk was of the pound falling I took this screenshot of changes in the yen against a variety of different currencies.

Brexit day yen crosses
This is a snapshot taken from Yahoo Finance once the Brexit result was known. The ‘% Change’ column shows the falls in the relevant currencies compared to the Yen.

 

Those are remarkable gains for the yen in one day, especially for a currency that its central bank wants to see weaken – but markets regard as a safe haven. And it highlights the bind central banks are in. They’re all pursuing variations of quantitative easing but they don’t all have the same economic fundamentals of debt, foreign reserves or balance of trade.

Perhaps the limits of quantitative easing are now being realised.  And that could eventually have an impact on the beneficiaries of that policy, namely asset prices.

 

How to react?


In terms of what the effect of the Brexit vote has on personal finances there’s not much point on me adding to this article on the BBC.

From a purely investment perspective, you might wonder what all the fuss is about. The FTSE 100 where 70% of company earnings come from overseas – and therefore benefit from a weaker pound – is barely changed from before the vote. Albeit with a bit of a wobble in between.

But, inward looking UK companies did not fare as well, the FTSE 250 index is down 10%. And there will be implications for government debt if the pound keeps on weakening as overseas investors have been the biggest losers this week.

The standard advice is ‘keep calm and carry on’, but it’s a lot easier to do that if you have a professionally tailored plan.

To repeat what I wrote at the end of my last blog before the referendum –

‘The mispricing of rates and assets also means that we have to take great care and be especially wary with any income investment strategy. This will be as true of the trustees of pension schemes as those looking to grow and drawdown income from their own pension.

And it’s not just about the risk of prices moving up and down. It’s also about liquidity risk, the ability to get to your money when you want to.

I’d add, for those of you who might have a significant foreign exchange risk now, or sometime in the future, please get in touch and I’ll explain some options that are available to you.

In light of the cancellation of withdrawals from three commercial property funds my constant banging on about liquidity risk remains a valid as ever. It’s not that you should avoid illiquid assets entirely just that you need to manage the amount of exposure and check if there’s a better alternative.

You also need to understand that the ease at which you can get money out of certain investments can change as it has with the commercial property funds. I remain very concerned about the p2p loan market for example.

More on that soon.

 


Please remember:

  • past performance is no guide or guarantee of future returns;
  • the value of stock market investments can rise and fall over time, so it is quite possible to get back less than what you put in, depending upon timing;
  • this blog does not constitute financial advice and is provided for general information purposes only.

Interest Rates: The Power of Negative Thinking 2

 

negative thinking 2

Stressed Out


While the main media is consumed with the economics of Bremain versus Brexit, I am going to return to the topic of ‘negative interest rates’.  It’s important to understand that, whatever the outcome of the referendum, that the world of finance is already very ‘stressed’.

And as a sign of that stress, we learned this week that over $10 trillion worth of government bonds and corporate debt now carries a small negative interest rate. In other words, in return for lending money for as long as ten years, you eventually receive a slightly smaller amount in return.

To put that last paragraph into context, the annual production of the UK is worth about $3 trillion. And the interest rate on the debt means that the associated bonds are the most expensive (i.e. good for the borrower, bad for the lender) in 500 years according to some data sources.

The problem for lenders is that they are competing with the leading central banks who via monetary policy are creating money to buy those same bonds. Last week I likened this evolving policy of QE to an old rugby song with the chorus, ‘next verse, same as the first – a little bit louder and a little bit worse’.

And the little bit worse this week was the beginning of a new programme aimed at buying corporate debt by the European Central Bank (ECB).

The stated aim of the ECB and others like the Bank of Japan (BoJ) is to create economic growth and moderate inflation. But the results of QE remain mixed and they appear to need to do progressively more to achieve less. And this medicine they’re prescribing is creating significant and worrying side-effects that I mentioned in the last blog.

It’s clear, however, that their intention is to continue on this aggressive path, while also considering more radical solutions. And they have plenty of backers. The Financial Times wrote an editorial this week endorsing such moves.

And the boat of alternative strategies that some believe would have restored credibility earlier has likely sailed. The restructuring of Greece, or lack thereof, is a prime example.

 

Will it work?


From my perspective I can’t know. The problem is I don’t think an academic economist working for a central bank can either.

Economic theory originally drew on the early laws of physics and it has serious limitations when you compare that theory with the real world.  This attempt to artificially maintain very low interest rates for a long time strikes me as more like the physicists’ concept of ‘entropy’. In other words, the more central banks seek to artificially set long term interest rates the more destabilised the system will become.

 

Special FX


As an example, when you ‘pressurise’ interest rates in this way the only escape valve for economic reality is via the exchange rate. This isn’t such a problem if all economic areas are in the same position as, but some are better and some worse.

If we compare the Eurozone with Switzerland, economically the latter is better. But last year the Swiss central bank did not want the franc to appreciate against the euro and hurt its exporters. So it tried to create an artificially low exchange rate, which ultimately failed spectacularly on one day in March as the franc rallied 25%. I wrote about it at the time here.

Fast forward to today and the Swiss are back to square one and trying to stop the franc appreciating again.  To do this they are making it less attractive to foreign investors by giving it a negative interest rate. And they’re also actively selling the franc and buying foreign assets. These assets are collectively known as ‘foreign reserves’ and are currently at the highest level ever for the swiss central bank.

China is a different story.  In some ways it is worse than the EU economic area, despite the official growth figures.  Like the EU, it’s trying to contain the interest cost of government and corporate debt through its own version of QE. But its overall debt levels are even higher than the EU’s and its currency has come under increasing selling pressure.

Fortunately, it already has huge foreign reserves built up via its positive trade balance with the world in recent years. And it can sell those to buy and stabilise its own currency – the opposite of what the Swiss are doing.  In the last two years its China’s reserves have fallen from almost $4 trilllion to $3.2 trillion.

 

What to do?


So while we rightly focus in the UK on Remain versus Leave, be aware that the tectonic plates of different currency zones are under a lot of stress at various points along their edges. If any volatility in the next month gets blamed on the referendum, remember that the economic backdrop is somewhat fragile in any event and prone to sudden adjustment.

The mispricing of rates and assets also means that we have to take great care and be especially wary with any income investment strategy. This will be as true of the trustees of pension schemes as those looking to grow and drawdown income from their own pension.

And it’s not just about the risk of prices moving up and down. It’s also about liquidity risk, the ability to get to your money when you want to.

I’d add, for those of you who might have a significant foreign exchange risk now, or sometime in the future, please get in touch and I’ll explain some options that are available to you.

 


Please remember:

  • past performance is no guide or guarantee of future returns;
  • the value of stock market investments can rise and fall over time, so it is quite possible to get back less than what you put in, depending upon timing;
  • this blog does not constitute financial advice and is provided for general information purposes only.

Interest Rates: The Power of Negative Thinking

A Song For Europe


 A long time ago in a bar far, far away (Yokohama actually) a former colleague introduced me to a song called ‘The cow kicked Nelly in the belly in the barn’.  The attraction of the song, especially to those with a little Dutch courage, lies in the chorus.

Next verse, same as the first,
A little bit louder and a little bit worse’

From an initial whisper, each verse grows a little bit louder and a little bit worse and eventually reaches a final crescendo at the limit of the singers’ lungs.

It is definitely not ‘Nessun dorma’, although the famous aria’s meaning of ‘None shall sleep’ is appropriate enough.  

And it’s not a very edifying sight. 

Which brings me to the financial version of the song being performed by the central banks of Europe (ECB) and Japan with others joining in.

We have already seen several verses of quantitative easing which are aimed at stimulating modest inflation and improving economic growth by lowering interest rates. But they haven’t been very effective. And it’s clear that central bank thinking is not that the policy is wrong, rather that not enough has been done.

So the ECB and others still want to be a ‘little bit louder and a little bit worse’.

And to achieve they are beginning to charge commercial banks for holding deposits with them. That charge is effectively a negative interest rate since the depositor gets a negative return on their money i.e gets back less than they started with.

In turn, the commercial banks are passing those negative rate costs onto their institutional and corporate clients with the largest deposits.

This BBC article by Andrew Walker does a good job of explaining what negative rates are and where they exist in a bit more detail.

 

Why push rates negative?


By imposing a cost on deposits, central banks are encouraging the regular banks and indirectly their largest clients to find better uses for their money, either in riskier investments or another currency. But it’s not that easy to find suitable debt or equity to invest in.

The earlier verses of quantitative easing have already distorted asset prices as returns have fallen due to artificially low interest rates.

As just one example of how this works, large companies in the US have gorged on cheap debt to buy either their own shares or those of other companies. That has supported equity prices to extreme valuations by some historical measures.  And with that extra debt there are now just two companies left that have the safest credit rating, triple A – Johnson & Johnson and Microsoft.

For banks, the problem is not just where to lend. There is the added problem that it may be difficult to pass their negative interest rate costs to all their depositors.  I explained in my last article that in order to implement negative interest charges with a bank’s retail customers you’d also need to limit access to cash, which is politically very difficult.

So profitability is likely to be affected at banks across Europe that are still repairing their balance sheets.

Negative rates and negative bond yields also change to whole basis of analysing how an investment performs over time. So they also affect those with long term liabilities such as a pension funds or insurance companies. And you’ll see that reflected in news of growing pension funding liabilities in Europe and elsewhere.

Germany is already pushing back against what it sees as an aggressive policy change.  But the ECB headed by ‘Super’ Mario Draghi rightly points out that it sets policy based on the whole of Europe.

He is also quoted in today’s FT as stating that low interest rates are also the result of a savings glut not just ECB policy. But by competing with that savings glut with the ECB’s own printed money he’s clearly and openly driving rates lower than they would otherwise be.  And the ECB hasn’t abolished risk as we saw in the collapse in the oil price and the debt of related companies.

So while to some the investing world might appear to be in equilibrium and seem like business as usual it really isn’t.  Central banks are playing a huge role in setting asset prices and they are still singing loudly.  And there are several verses of policy changes, some quite radical, that they could still employ.

I’ll cover those in a later blog.

 

The Chase


The danger for investors in this environment is that you start chasing investment propositions that seem to offer a reasonable yield, but where the underlying risk is not well understood.

The fact that something has worked well to this point or that the crowd is recommending it is not necessarily risk analysis. Nor is a fancy brochure or a nicely designed website with a fat investment return on it.

Unsecured retail loans, volatility trades, aircraft leases and catastrophe bonds, to name just a few, all offer yields that individuals can now get exposure to. But they are all forms of underwriting and proper risk assessment is very difficult. And I’ve considerable experience of debt and volatility trading.

It’s also important to understand liquidity, which is the ability to get access to your money.

Your current investments may prove to be far less liquid and more complicated and risky than you think. And that’s where serious errors can occur, either in unanticipated losses or your response to them.

The role of your adviser is, in large part, trying to make sure you avoid those mistakes.

 

Another ‘Song For Europe’


 I am sure there are worse ‘Songs For Europe’ out there…but here’s Father Ted’s spoof.


 Please remember:

  • past performance is no guide or guarantee of future returns;
  • the value of stock market investments can rise and fall over time, so it is quite possible to get back less than what you put in, depending upon timing;
  • this blog does not constitute financial advice and is provided for general information purposes only.

‘Back to the future’ Dynamic Retirement Planning

back to the future ii header


Great Scott!! – It’s the week of ‘Back To The Future Day’, the date in the second movie that they travel to in the Doc’s DeLorean – which, incidentally, doubles as the perfect retirement planning tool as he spends much of the 3-movie franchise trying to determine his own longevity.

This is also the week that I can finally introduce my own ‘dynamic’ retirement planning software, which isn’t quite as sexy or effective as a time-travelling DeLorean, but can draw on the practical and theoretical lessons in risk that I have learned and developed since first being introduced to them by a real doctor of mathematics soon after the original Back to the Future was made in 1985!

Since starting this company, I’ve never been entirely happy with the financial planning tools available to me – I will still be using the excellent CashCalc, but I wanted to be able to use the techniques that I’ve learned to illustrate with simple charts better answers for clients to questions like, ‘what is the chance that my money lasts my lifetime?’. And that can only help discussions about ‘risk’ and ‘loss’.

I had hoped to do this using some readily available dedicated software, but the few on offer weren’t versatile enough and I wanted to eventually apply more than one type of forecasting model. So, I decided to go ‘back to the future’ and write my own – and over 2000 lines of code later the first edition is finished and as it aims to look at a retirement plan and to sum it all up, that’s what I called it – SumItAllUp.

 

Over 1000 ‘What-if?’ calculations per month for each of five case studies


For a more thorough comparison with Dr Emmit Brown’s DeLorean take a look below, but SumItAllUp is no slouch. It can calculate over 1,000 ‘What-If?’ changes each month of a forecast and that can amount to over 1 million formulas in just 1.73 seconds on a standard laptop.  And it also rebuilds itself for every individual case study – hence the ‘dynamic’ in the description.

But the biggest requirement was that I wanted not one ‘flux capacitor’ in the application, but five.


sumitapp example 2

back to the future dashboardDashboard Envy

Even I have to admit that the DeLorean dashboard has a bit more going for it than the ones I designed for SumItApp – but, I reckon it has more features.

And there’s only ever been one model of DeLorean – I’ll be adding another two models once I’ve added even more ‘number crunching’ power. Why shouldn’t you have access to the same pricing techniques as a fund manager?


And being able to crunch five case studies at once means that I can choose to either compare different investment strategies and tax wrappers, for example a pension versus an ISA. Or, if more detail is needed, break an investment’s projected performance into different asset classes. But, it can also be used to combine the results of different case studies together, like the drawdown pensions of a couple.

The individual factors affecting your future pension income don’t all move in straight lines either and nor should your planner.  So input changes like contributions or withdrawals can be made monthly, whereas some programs only update annually – that’s a big difference.

If you’d like to know more about this additional service please contact me.

SumItAllUp is exclusive to Pearce Wealth Management and I am offering it as an add-on to our normal planning service for no extra fee.

 


 

Time-Travelling Delorean

Designer – Dr Emmit ‘Doc’ Brown. With the help of plutonium stolen  from Libyan rebels

Hardware/Software – One singe engine DeLorean fitted with a ‘flux capacitor’.

Energy Use – 1.21 gigawatts. According to a Buzzfeed article, that’s equivalent to 484 wind turbines, a nuclear power plant or 8 billion spinning hamster wheels.

Forecasting ability – perfect!

Price – You can find a variety of second hand and refurbished DeLoreans here. Unfortunately, they come without the ‘flux capacitor’ optional extra….and they’re in Texas.

SumItAllUp

Designer – my good self, using approximately 2000 lines of code and drawing on a variety of data sources including longevity data from the Office of National Statistics.

Hardware/Software – Standard laptop fitted with SumItAllUp

Energy Use – Approx 60 watts

Forecasting ability – However, sophisticated I make it, it remains a really useful forecasting tool – it can never be a guarantee of investment performance.

Price – There is no additional cost for using our SumItApp dynamic retirement planning service on top of our already comprehensive proposition.

Please remember:

  • ‘Pension Theft’ is unfortunately a reality. If you are cold-called by unknown companies or advisers offering you something that seems too good to be true, then it probably is – all qualified advisers are listed in the FCA Register;
  • Past performance is no guide or guarantee of future returns;
  • Investment risks apply to all kinds of pensions. Values can rise and fall over time, so it is quite possible to get back less than what you put in, depending upon timing;
  • This blog does not constitute financial advice and is provided for general information purposes only.

Annuities, The Budget and a hint of Chanel

For the last fortnight the press has been full of articles about annuities in light of the Chancellor’s decision in the Budget to remove the requirement in 2015 to purchase one with your pension pot when you retire.

What does this mean? Well for most of you it will mean you want to immediately leave this page and I appreciate that for many the idea of reading, as I have, the full Budget Report and its supplementary publications would leave you cold. But then that’s what I’m here for.

I even quite enjoyed it. I had originally planned a very different career in art and design and even applied for a job with the satirical TV show ‘Spitting Image’, but was advised in a very nice letter to do something more useful with my other qualifications and forget about painting puppets with an airbrush.

It was sound advice on their part. Some years later the limitations of my artistic skills were laid bare when I thought I’d offer to apply my wife’s make up for her. I was aiming for ‘Coco Chanel’, but she got ‘Coco the Clown’. Face painting at the school fete I can do, make-up no.

coco
The lovely Keira (the one on the left ) shows the famous Coco Chanel look I was after….the reality was Coco The Clown – I am being a bit unfair on myself as my wife wasn’t wearing that hat.

 

So returning to the budget, let me start by explaining a little about annuities and why they’ve become less generous.

A basic annuity is, in essence, the mirror image of a product many of you will be more familiar with – a simple repayment mortgage.

With a basic mortgage you borrow a lump sum for a fixed period and pay it back in monthly increments including the interest on the loan. A simple annuity is the opposite, you effectively loan a lump sum and are paid a monthly income including your original loan.

If I work out the monthly cost of a 15 year, £100,000 mortgage at an interest rate of 3%, it would be exactly the same as the amount I would receive monthly for an annuity for the same term at the same rate i.e £ 698.

(Now this is purely an example to demonstrate how the mathematics in this case is the same for both products. In practice, of course, there would be differences especially in the interest rate, fees etc. But given mortgages and annuities represent the two of the largest financial decisions an individual can make I’d be happy to send you a fully worked example – the maths involved falls within GCSE  level)

So while falling interest rates are good for mortgage borrowers they’re bad for annuity holders. And if I spread the loan and monthly payments over a longer period, they fall for the mortgage borrower, but also mean less income for the annuity holder.

And this last point is particularly true for the type of annuity that was required to be bought with your pension savings – a lifetime annuity. As the name suggests the term over which the annuity is repaid is determined by how long you live, after which payments cease. And as average life expectancy has increased life companies have had to increase the length of time in which they expect to make payments – lowering the calculation of monthly income. It also is why those buying an annuity who can demonstrate a recognised life impairment which implies a lower life expectancy are able to receive higher monthly payments.

Now there are other types of annuity that cater for other client needs, but its hard to escape the realities of increased longevity and a government sponsored low interest rate environment that makes them less attractive – and that low interest rate environment may not last, whatever the governments wishes.

And when such an investment is forced (see first note below) as was the case, it can only add to the sense of frustration. It’s also true that the rates offered for small pots were poor and that despite ensuring that clients be made aware that they could shop around for their annuity purchase not enough did.

To return to the original question, what does this mean?

To begin with what has not changed is that you are still going to need to understand, or know someone who does,  the calculation above to have a better idea of how long your pension pot will last – and to regularly reconcile that with the risks of the investments held in your pension and your own personal circumstances. The government says it intends to provide free advice, but hasn’t yet said how it will do so.

There is expected to be a huge fall in the number of new annuities sold – they hardly exist in Australia and represent only 5% of the US market. I doubt it will be this absolute, but there are concerns that a dramatic fall in the number of policy holders worsens the pooling of longevity risk for life companies because they become less certain that a smaller pool of policy holders matches their assumptions. (This is quite easy to understand, it’s just like saying the more times you toss a coin, the more certain you are that exactly half will be heads and half tails). There is also the suggestion that the pool of people buying annuities will become biased more towards those expecting to live longer, again lowering rates.

But, and this is very important to appreciate – no other product offers the same guarantee at the same rates at present. And payments are also 90% protected by the Financial Services Compensation Scheme – the income is also tax free if used to provide long term care.

No doubt, annuity providers and others will also begin to offer more hybrid products although I will view these with great scepticism unless they can demonstrate transparent fees and performance.

One final implication of the changes is that on death a pension pot fully invested in an annuity is worth nothing, but with these changes more pensions will be left with funds still in them, which currently (depending on certain circumstances) are taxed at 55%. But there is a suggestion this will be lowered.  Page 26, section 3.17 of the supplementary Budget guide ‘Freedom and Choice in Pensions’ has this to say:

‘In particular, the government believes that a flat 55% rate will be too high in many cases given that everyone with defined contribution pension savings will now have the freedom to enter into drawdown rather than an annuity. We will engage with stakeholders to review these rules to ensure that the taxation of pension wealth at death remains fair under the new system’.

I told you I read it.

And finally, I mentioned ‘Spitting Image’ earlier, which coincidentally began 30 years ago, and here is a short example of their work.  The target of their satire is the Budget of the then Chancellor Nigel Lawson, who is probably more famous these days as Nigella’s dad.

Note: 25%  of funds can be withdrawn tax free and this will remain the case. The balance you could either invest in an annuity or limit your withdrawals as though you had invested in one – this is set using the government actuary department rates +20% ( +40% next year) . The latter option allows you to keep the balance of your funds invested as you wish. If, however you can prove pension income over £20,000 you can withdraw the addition funds as you see fit subject to tax at your marginal rate – this amount falls to £12,000 next year.

Risk note:
Clients are reminded that the values of some kinds of investments can fluctuate over time; that past performance is no guarantee of future returns; and that it is possible to get back less than what you invested, especially in the early years.
This blog is based upon our initial understanding of the Spring 2014 Budget, but proposals may be modified or delayed by legislation.
Please therefore treat this content as general guidance only, and seek personal advice on specific issues.