Compulsory retirement to be phased out
Plan to end the so called default retirement age is outlined in a consultation document to be published today
People will be encouraged to work longer under government plans to phase out the so-called default retirement age of 65 by October 2011.
Currently employers can make staff retire at 65 regardless of their circumstances, but ministers signalled this was set to change as people were living longer, healthier lives.
The proposal to phase out the default retirement age (DRA) is outlined in a consultation document, published today, which will run until October.
However, the government said bosses will still be able to operate a compulsory retirement age if they can “objectively justify it”.
The move to phase out the DRA is one of a number of measures the government is taking to help and encourage people to work for longer against the backdrop of demographic change.
Other steps include reviewing when the state pension age should increase to 66 and re-establishing the link between earnings and the basic state pension.
The business department said the consultation also proposes to help employers by removing the administrative burden of statutory retirement procedures.
A department spokesperson said: “With the DRA removed there is no reason to keep employees’ right to request working beyond retirement or for employers to give them a minimum of six months notice of retirement.
“Although the government is proposing to remove the DRA, it will still be possible for individual employers to operate a compulsory retirement age, provided that they can objectively justify it. Examples could include air traffic controllers and police officers.”
The plans provoked a mixed reaction. Campaigners welcomed the decision, but employers warned the removal of a default retirement age could make workforce planning more difficult.
Chris Ball, chief executive of The Age and Employment Network, called it a “win/win outcome” for employers, but warned that today’s move is only a first step.
“Many employers will need to adopt a totally new mindset,” Ball said. “They will need to actively plan and assist workers to be able to go on contributing to the success of their organisations.
“This may mean adapting work practices and work places. It will certainly mean providing opportunities to train or retrain and to work more flexibly, and, crucially, actually recruiting people in their 50s and 60s where they may not have done so in the past.”
Rachel Krys, campaign director of anti-ageism group the Employers Forum on Age, said the default retirement age, which was created in 2006, was a “dated and unfair system”.
“Its removal is simply common sense,” she said. “With rising life expectancies, and people staying fitter for longer, it is archaic to assume that someone’s age is an indicator of the contribution they can make to the workplace.
“Employers have nothing to fear from this change. This is an outdated policy and the removal of forced retirement is an opportunity to put policies and processes in place which make the most of an age-diverse workforce.”
The Chartered Institute of Personnel and Development (CIPD), which has campaigned for many years to remove the DRA, said the “breakthrough” was “greatly encouraging”.
Dianah Worman, the CIPD’s diversity adviser, said: “Our research has shown that many employees wish to work past retirement for differing reasons and many employers are already benefiting from allowing such flexibility.”
The Confederation of British Industry (CBI) said the proposals will give employers little time to prepare and leave them with unresolved problems. John Cridland, CBI deputy director-general, said: “Scrapping the DRA will leave a vacuum and raise a large number of complex legal and employment questions, which the government has not yet addressed. Employers and staff will not know where they stand. There will need to be more than a code of practice to address these practical issues; we will need changes in the law to deal more effectively with difficult employment situations.”
David Yeandle, the Engineering Employers Federation‘s head of employment policy, said: “Many manufacturers will be seriously concerned about this change in policy, which will make workforce planning more difficult.
“The proposed timetable also gives employers virtually little or no time to alter their policies and practices before such an important change in employment legislation is introduced.
“There is also a real danger that it could open a Pandora’s box with the onus being placed on employers to prove whether older employees are capable of continuing in their current role. Inevitably, this could lead to employment tribunal cases from some older employees who have been dismissed rather than allowed to retire.”
Today, pensions minister Steve Webb admitted that people face a “hell of a shock” when they reach retirement because of their failure to save.
In an interview with the Independent, he admitted that the basic state pension of £97 a week is “not enough to live on”, and confirmed that the government would raise the state retirement age to 66 earlier than planned. He said that around 7 million people are currently not saving enough to meet their retirement aspirations.
Personal finance and money news, analysis and comment | guardian.co.uk
Yorkshire and Clydesdale customers face mortgage rise
A miscaculation by the Yorkshire and Clydesdale banks means some mortgage holders could be asked to repay up to £300 more each month
Thousands of Clydesdale and Yorkshire Bank mortgage customers are facing higher monthly payments after the providers, owned by National Australia Bank, said they had miscalculated repayments on some of their variable and tracker rate mortgages.
The banks said 18,000 customers have been left with a shortfall on their mortgages, all of who have now been asked to pay the correct monthly amount plus an additional monthly sum to meet the shortfall. According to a spokesman for Yorkshire Bank the affected products are “some variable rate mortgages on which interest is calculated daily, which will include some trackers.”
Around 10,000 of the victims are Clydesdale customers in Scotland, with the remainder Yorkshire Bank customers. In total, £19m has been underpaid with an average individual total underpayment of £800. However, some homeowners face soaring repayments of up to an extra £300 a month.
One mortgage payer, writing on the MoneySavingExpert forum, said: “They are asking for an extra £200 per month for the remaining nine years of our mortgage. This is in excess of £21,000. How is this possible?”
The problem began in 2005 when a mathematical error resulted in over or underpayments being made whenever the Bank of England base rate moved up or down sharply. When rates plummeted in late-2008 to early-2009 customers were not asked to pay enough.
The bank said there were options available to customers, including making a one-off payment to cover the shortfall or extending their mortgage term, and both providers were dealing with problems on a case-by-case basis.
A spokesman for Yorkshire Bank said: “[The banks] have been speaking to the Financial Services Authority and the Financial Ombudsman Service (FOS) about how best to handle this, and they wanted to do it the right way.”
Steve Reid, retail director for the Clydesdale and Yorkshire Bank, said: “We are very sorry that this error has happened and for any inconvenience it may have caused those customers affected. We would like to reassure mortgage customers that they need take no action unless they have received a letter from us.
“The vast majority of our customers are not affected and, of those that are, 99% have already received their letter advising them of the specific impact on their account. The other 1% will hear from us in the next couple of weeks advising them of options to bring their account back on track.”
But Dan Plant, a money analyst at MoneySavingExpert, said: “This huge error could push many borrowers into difficulties paying their everyday bills, as the massive hikes in mortgage payments are unlikely to have been budgeted for.
“However, unlike when customers miscalculate payments and get slapped with huge £30-£40 charges, here the bank has messed up but the customers are still feeling the brunt.”
The website said customers could demand not to pay the shortfall or try and come to an agreement where they only pay a percentage of the cash due. If customers don’t get a satisfactory response within eight weeks or are rejected earlier, they have a right to complain to the independent FOS.
Personal finance and money news, analysis and comment | guardian.co.uk
Compulsory pension annuities could be scrapped
Announcement this morning expected to say that pension investors will no longer be forced to buy an annuity
The government will announce a long awaited consultation on the scrapping of compulsory annuitisation later this morning.
The Financial Secretary to the Treasury Mark Hoban will announce proposals outlining how the government intends to implement the “simplification” of rules from 2011 which force people to buy an annuity with their pension fund.
Both the Conservative and the Liberal Democrat manifestos included plans for the ending of these rules, which are particularly unpopular with wealthier investors who feel they and their families lose out through having to buy an annuity which will die with its owner.
Chancellor George Osborne announced in the budget that the age at which an investor has to use his pension fund to buy an annuity would be pushed back from 75 to 77.
But Tom McPhail, head of research with independent financial adviser Hargreaves Lansdown said he expected the Treasury to announce a further relaxation of this requirement.
He said: “This change is likely to require investors to secure a minimum level of guaranteed income, ensuring that they won’t be a welfare liability to other taxpayers. Investors will then have the freedom to draw on the balance of their pension investments either as a lump sum or in the form of a drawdown income. On death they will be able to pass on their remaining pension assets to family members.
“This consultation is a revolutionary change, putting investors in charge of their own retirement plans. The more you save for retirement, the more control and flexibility you’ll have and ultimately, the more you’ll be able to pass on to your family on death. Combined with the tax breaks on pensions, these simple messages will be very popular with investors.”
However, he pointed out that most people would still end up being required to buy a pension annuity, because the vast majority are bought with relatively small pension funds of £50,000 or less.
McPhail said: “For most investors with this size of pension fund, it is not realistic to take on investment risk or life expectancy risk after retirement. Over time we expect more and more investors to build up money purchase funds large enough to be relevant.”
Yesterday Hoban announced further details of a new scheme that could help people to save more towards their retirement: the planned “financial healthcheck”, which will be developed and piloted by the Consumer Financial Education Body, should be ready for launch next spring.
He said: “The healthcheck will help families and individuals get into the habit of taking a thorough look at their finances. It will show them where they are most at risk and how they can regain control and plan for the future. The healthcheck will give people a ‘prescription’ that will offer clear advice on what they can do to improve their financial situation now and for the years ahead.”
He added that general household savings were also far too low: “In fact, household saving was negative in 2008 for the first time since the 1950s. Far too few were saving for a rainy day. Before the crisis more than a quarter of households had no savings at all, almost half had less than £1500 in savings and of those who were in debt, many were in arrears, at an average level of £1,100.
“As a government, we are committed to helping families to take greater responsibility for their finances and to cushion themselves from future shocks.”
Personal finance and money news, analysis and comment | guardian.co.uk
Consolidation loans
Consolidation loans
Paying off a number of debts can be made easier by consolidating them into easy, single monthly payments. There are different ways to consolidate loans and debts with varying terms and conditions, but for many people they can be a more affordable and less stressful way of coping with debt.
Having a number of bank loans can be a huge financial burden, with managing separate payments often being a time consuming and costly process. For many borrowers, a consolidation loan can be an easy and cost effective way to bring the debts together under one loan, with an easy to understand and management repayment schedule. Essentially, a consolidation loan will pay off your existing loans, with all the money you previously owed transferred to a single and hopefully more manageable monthly payment. There are different types of consolidation loan, so it’s important to find a type that suits your needs and your budget, and to know exactly how they work.
Managing repayments and spending
One of the first things to do with a consolidation loan is to be careful with your spending. After all of your debts have been consolidated into one monthly payment, it is important to be disciplined and stick to a planned monthly spend, so you can afford the loan repayments. Previously borrowers with a range of loans may have been only making the minimum payments, sometimes just paying the interest added to the debt rather than clearing the debt itself. But by spreading out the debt over a longer period of time, monthly payments can be reduced to a more affordable level.
Your credit rating could be helped by getting a consolidation loan. By paying off the consolidation loan without building up any further debts, it is likely this will have a beneficial effect on your overall credit rating. Loan companies use credit ratings when determining your suitability for borrowing money, and getting a good credit rating can help in the future if you need a loan. Many loans can attract a high rate of interest, especially high street store cards and credit cards, so consolidating these debts into a single loan with a lower rate of interest can save a significant amount of money. Consolidation loans typically have a lower rate of interest as they involve a larger amount of debt, repaid over a longer period of time.
Choosing the right type of consolidation loan
It’s important to understand the difference between a secured and unsecured consolidation loan. A secured loan is usually tied to an asset, normally your property. If you are considered to be a higher risk then the lender could ask that one condition of taking the consolidation loan is that your home is used as guaranteed collateral if you cannot repay the money. You should think very seriously about taking out a secured loan, as if you default on the repayments your house could be taken from you and sold to pay off the debt. If you have a choice between a secured and unsecured loan, it might be preferable to consider the unsecured loan, even if the interest rate on this is slightly higher than on a secured loan.
Debts can be consolidated in a variety of ways – there is no set type of consolidation loan. Some loan companies specialise in comprehensive loans for people with bad debts or low credit ratings. When choosing the type of consolidation that’s right for your needs, it’s best to consider the amount you need to borrow, your credit history, and how much time you’ll need to repay the debt.
It’s also important to consider that if your total debts are not particularly high, then a small short-term personal loan could be adequate for reducing your debt. Going online and looking at the features of loans can get you all the details you need on consolidating your debts. Using a web site for information on consolidation loans can save a lot of time and stress, and give you all the information on interest rates and repayment schedules to help you make a well informed decision.
Volcano fears spark travel insurance inquiries
Experts says further eruptions are possible as insurers unveil a raft of add-ons to cover flight disruption
Holidaymakers hoping for a trouble-free trip may yet find their travels disrupted by further Icelandic volcano activity this summer, according to volcanologists.
Magnús Tumi Gudmundsson, professor of geophysics at the University of Iceland, said: “The previous activity lasted for 14 months with long spells of inactivity, so on the basis of the history of this volcano we are not convinced that the current activity is over.”
Any new eruption could boost demand for “volcano insurance”, following a surge in demand after Eyjafjallajökull erupted in April, leading to air travel disruption across Europe. This led to huge interest and increased sales of travel insurance add-ons to cover airspace closure, according to figures from Aviva and web research company Greenlight.
The number of people searching on Google for “volcano insurance” increased from 58 searches in March (were they volcanologists who knew what was coming?) to 9,900 in April – an increase of 17,000% – while “travel insurance compare” increased, month-on-month, from 18,100 searches in March to 33,100 in May.
As a result some websites attracted a huge number of clients during April. Moneysupermarket.com benefited most, with a surge in travel insurance-related traffic of 27% from 15-20 April. By contrast, searches for home insurance products dropped from 1.3m to 476,000.
In May Aviva, the UK’s largest insurer, announced the launch of an optional add-on to its standard travel insurance policy, offering extra protection should customers’ holiday travel be affected by UK airspace, port or airport closure.
Aviva’s Sally Leeman said that since they began offering the added cover 83% of existing customers who have called the group about the product have gone through with the purchase, though the insurer could not give a figure for how many actual added policies were sold.
Aviva’s standard cover offers £25 a person for every full 12-hour period of delay up to £250 between the scheduled departure of the original flight and the eventual departure time.
The add-on raises this to £100 a person for every 24 hours that the policyholder is unable to return home (to a maximum of £1,500), irrespective of any help given by the travel provider or airline.
A second option offers up to £1,000 a person for any “necessary and reasonable” travel expenses where after 24 hours you unavoidably have to make immediate alternative arrangements to get home, which your holiday provider cannot arrange. It will also pay for emergency medical supplies required to prevent a deterioration or exacerbation of an existing condition.
Aviva’s Jerry Finch said the added cover is worth it: “It should help customers feel more confident of their position. By introducing the new option we are providing our customers with the freedom to choose the amount of cover they feel would be right for them.”
The key benefit normally associated with a standard travel policy has historically been medical emergency cover, and this still remains the top reason for any claim.
Research company Defaqto said most travel insurance policies fail to even offer cover for scheduled airline failure, let alone so-called volcano cover, and the £1,500 average limit may not be enough. “Of the 20% of providers that do offer scheduled airline failure cover, the limit may not be sufficient to cover all of the other pre-booked and paid-for items such as hotel accommodation, excursion tickets and car hire,” Brian Brown said. “It is essential travellers review the details of their policy before they set off.”
He added that travelling with an ATOL- or ABTA-bonded organisation would offer holidaymakers more protection than independent arrangements, and travellers should use their credit card when booking, which on purchases of £100 to £30,000 provides statutory protection if the company or supplier goes bust, or if there is a problem with goods or services.
Personal finance and money news, analysis and comment | guardian.co.uk
Economic outlook: Momentum declining, but upswing not in danger
Recent days have had something to offer for both pessimists
and optimists in regard to releases of economic data. At any
rate, economists appear to have divided into two camps in
the past months. On the one side are the optimists, who
make the basic assumption that out of the artificial upswing
induced by anticyclical monetary and fiscal policy, a selfsustaining
upswing is developing and will continue next
year. On the other side are the pessimists, who point to
sluggish lending in the United States and Europe and infer
that at least monetary policy has so far had little positive
effect. Moreover, the pessimists argue that the announced
austerity programs, including especially those in Europe,
might choke off growth and thus cause a relapse into recession.
As evidence for this, they cite the halting development
on the US labor market or the disappointing development of
US private housing and commercial property.
In our opinion, the truth lies, as is so often the case, somewhere
in the middle. It can scarcely be disputed that a
self-sustaining upswing with remarkable momentum has
been observed, but it is equally true that not all the data
now available put the world in a rosy light. On the other
hand, it is fair to ask when an economic upswing has ever
been accompanied by exclusively positive news and outlooks.
There have always been impeding factors, and all
good things come to end.
It is therefore a little surprising that in recent days, the fly in
the ointment has been sought in the economic indicators,
when in principle the released data were positive. A good
example of that is the Ifo index.
Perhaps Europe’s most important leading indicator, the Ifo
index has increased again in June and now also reached a
high index value compared with its own history. Many
commentators nevertheless warn that the expectations component
has fallen despite an impressive rise in the rating of
current conditions. This picture was repeated upon the
release of the PMI indexes for Europe’s manufacturing and
services sectors. Instead of acknowledging that the indexes
show impressively high levels significantly above the crucial
50-point threshold, the complainers point to a marginal
decline in relation to the preceding month. The same was
also true, by the way, of the Belgian National Bank’s important
leading indicator (BNB index) and of French business
sentiment. On the other hand, little or no notice has
been taken of the fact that German business sentiment has
in June also seemed largely unimpressed by the gyrations
on the markets, the debt crisis in Europe, and the debates
over the austerity packages. Even a growth rate for industrial
orders in the euro area of 21% compared with the yearearlier
month has not aroused any enthusiasm, although that
is the highest growth rate in the last ten years.
We have the impression that as a result of the recent crises
and gyrations, too may market participants have become
conditioned to seek only the “critical points” for any state
of affairs. That may be understandable given the experience
of recent years, but in the long run it does not yield a successful
asset allocation, when for an analyst or portfolio
manager the glass is always half empty and never half full.
So, it may now be that economic momentum has reached or
even passed its peak, but that certainly does not mean that a
slide into the next recession will now inevitably begin.
Instead, the past shows that after stormy economic upswings,
the economy is often able to grow for years near the
rate of potential growth without the next downswing occurring
immediately. In the language of an airplane pilot, one
could say that the economy has now reached its cruising
speed and altitude, after takeoff was accomplished with an
exceptionally great amount of thrust. However, there is no
reason, in our view, that the cruising elevation must already
be left again soon.
Of course, it cannot be rationalized away that the austerity
packages will have a negative effect on growth, especially
in Europe. However, we already pointed out some weeks
ago that, for example, the German “austerity package” (the
name is somewhat misleading because the package really
consists to a considerable extent of tax hikes) will not have
any dramatic influence on growth because of both its size
and its structure.
Budget cuts hit women harder
Detailed audit shows women to shoulder three-quarters of cuts
The coalition’s financial plans are the “worst for women since the creation of the welfare state” according to an analysis of last month’s emergency budget.
As the government warned some departments to prepare for cuts of up to 40%, a study by the House of Commons library on behalf of the shadow welfare secretary, Yvette Cooper, revealed that women will shoulder nearly three-quarters of the burden.
Cooper accused the coalition government of sanctioning a budget whose impact fell disproportionately on women. The gender audit of the budget – structured by Cooper but conducted by the Commons library – showed that more than 70% of the revenue raised from direct tax and benefit changes is to come from female taxpayers.
Of the nearly £8bn net revenue to be raised by the financial year 2014-15, nearly £6bn will be from women and just over £2bn from men. Cooper said the proposed cuts of up to 40% in some departments’ budgets, floated by the government at the weekend, would also be likely to disproportionately hit women, who make up a large section of the public sector workforce.
She told the Guardian: “Women are bearing nearly three-quarters of the Tory-Liberal plans, while men are bearing just a quarter. This is despite the fact that women’s income and wealth is still considerably lower than men’s.
“Even more significant, this doesn’t include the impact of public spending cuts. As women make up more of the public sector workforce they will be more heavily hit by the public sector pay freeze and the projected 600,000 net public sector job losses.”
Cooper said that the coalition had failed even on its own criteria by decreasing support for families.
“David Cameron promised the most family-friendly government ever. Yet they have just launched the fiercest attack on family support in the history of the welfare state,” she said. “This budget seems to be reaching back to a prewar approach to families. They’ve cut support for children more savagely than anything else so far, with billions of pounds being cut from child benefit, child tax credits, maternity support and child trust funds.”
She said her research showed that women would suffer disproportionately, even beyond the cuts to family benefits.
“Even if you put aside cuts in support for children, women are still more heavily hit,” she said. “Women are more affected by the cuts in things like housing benefit, cuts in upratings to the additional pension, public sector pensions or attendance allowances, and they benefit less than men from the increases in the income tax allowances. Even putting children aside, they are hitting women hardest.”
After looking at other budgets, she believes last month’s must be the hardest on women with Nigel Lawson’s 1988 budget – which abolished top rates of tax and froze child benefit and pensions – coming close.
The analysis looks at a net total of £8bn raised by 2014-15 through direct tax and benefit measures. It includes the effects of raising the personal tax allowance, the increase in capital gains tax, the freezing of benefits and the changes to pensions. A typical assumption in the analysis is: “94% of child benefit recipients are women, so of the £975m saving from child benefit, it follows that 94% (£913m) is coming from women and the rest from men.
“However, on capital gains tax around 27% of receipts currently come from women, so of the £925m additional revenue, 27% (£249m) is coming from women and 73% (£676m) is coming from men.”
The analysis also includes the impact of changing to using the consumer price index for calculating benefits and tax credits.
The Commons library comes up with a weighted average in order to take account of the different impact of each of these on women and men. Men will pay £2.2bn while women will pay £5.8bn.
The figures do not include the impact of measures such as the £640m council tax freeze or the abolition of the child trust fund. Nor do they include indirect taxes such as VAT. They do include the effect of cutting the health in pregnancy grant and the Sure Start maternity grant.
Personal finance and money news, analysis and comment | guardian.co.uk
BT launches cheap package to view Sky Sports
BT undercuts Sky and Virgin to offer Sky Sports 1 for £6.99 a month to customers signing up for other services
BT today launched a package allowing its customer to view Sky Sports from as little as £6.99 a month on top of the basic monthly subscription.
The telecoms provider is offering Sky Sports 1 for £6.99 a month, or both Sky Sports 1 or 2 for £11.99, to customers willing to sign up to other services, such as broadband and telephone, for a minimum of two years.
This is cheaper than both Sky and Virgin, which charge £9 and £13.50 respectively a month for Sky Sports 1 or 2 and £27 or £28.50 respectively for a Sky Sports package that includes ESPN.
A basic monthly subscription to either Sky, Virgin Media or BT is £18, while monthly line rental differs from £11 with Sky, to £11.54 with BT to £11.99 with Virgin Media. While BT remains cheaper for the monthly cost of sports channels, unlike Sky and Virgin Media customers, its customers will also have to pay set up and set top box costs of £60 for its basic bundled package.
However, a BT basic bundle that includes both Sky Sports channels and ESPN works out around £100 cheaper in the first year than the equivalent with Sky or Virgin, even taking into account the set up costs, according to price comparison website Digitalchoices.co.uk. Once the set up costs have been paid, it is £160 cheaper than its rivals in year two.
“With first year cost savings of over £100, BT has priced its Sky Sports 1 and 2 with ESPN offering to warrant serious consideration from anyone looking to bundle their TV with broadband and phone,” says Michael Phillips of Digitalchoices.co.uk. “If recent reports are true about Sky looking to increase its own channel pricing, then BT’s new offering could look even more compelling.”
Sky has said that it will raise prices for its Sky Sports channels from September, which will affect not just Sky’s customers but the wholesale costs BT pays for the Sky Sports channels. BT’s prices to its customers will then be substantially lower than it is paying for the service.
Phillips said that while BT’s pricing was compelling, Virgin, Sky and BT were offering slightly different packages for the price, and customers need to work out which elements were important to them before making a decision.
“It is worth remembering that for those interested in programming beyond sport, it [BT] doesn’t carry Sky1, which has a history of premiering key entertainment shows in the UK,” he said. “BT’s announcement is great news for people that don’t live in a Virgin Media cabled street, since there is now a competitive alternative to Sky’s own offering. Although BT’s Vision+ box is HD ready, there is currently only one real solution for those wanting their sport fix in HD – and that is Sky.”
For those interested in the broadband and phone side of the packages, Sky’s proposition is better as it offers free evening and weekend calls to UK landlines, whereas its competitors only offer free weekend calls.
Its pence per minute call rate is cheaper than Virgin’s and roughly in line with BT’s. On broadband, BT and Sky claim to offer a speed of up to 20Mb, compared to Virgin’s 10Mb, while BT has a broadband download limit of 40GB compared to 2Gb with Sky and unlimited downloads with Virgin.
Personal finance and money news, analysis and comment | guardian.co.uk
The Cooperative bank
I opened an account with the Cooperative bank about six months ago, I got fed up with the other major uk banks as they were not being very understanding during the harsh times and relied only on a computer credit score to assess your eligibility for lending. So I opened a privilege bank account with the COOP which was probably the best banking move I have done so far, they have a sort of systems that assess you internally regarless of your credit profile with the major credit reference agencies like experian which sometimes make mistakes and have the wrong information about you.
I was trying to look for a loan to consolidate my other credit cards that have run out or 0% transfers and purchases, now the credit card companies were charging on average 20%-30% on the balances, I started struggling keeping up with the high interest payments and was getting very stressed.I have tried my other bank First Direct which has a very good customer service but they also depend on outside agencies to judge your financial position, so could not get a loan from them. When I rung the COOP they advised me that they could offer me a £10k loan because I have maintained my account properly and have shown that I can manage my finances properly and will lend me without having to go to credit agencies. I was thrilled as I paid off the high interest credit cards and can manage my budget every month properly and being self employed it makes life much simpler.
A 200% return from FTSE 100 – too good to be true?
Investment product promises to maximise earnings on slow growth in the market, but financial advisers are sceptical
Cater Allen Private Bank has launched a structured product promising to return up to 200% of any growth in the FTSE 100 during a six-year period, capped at 50% of the initial investment. The bank says the Capital Guaranteed Enhanced Growth Plan 1 is aimed at investors who believe the index will rise only marginally during the term, offering a high return on minimal growth.
Fernando Gasca, head of structured products at Cater Allen (which is owned by Santander), explains: “While uncertainty is still prevalent in today’s market, the long-term outlook for FTSE growth is more promising. This product will allow you to benefit from any future economic improvement and without taking the risk of any stock market correction.”
But financial advisers are not so sure. Ben Yearsley of Hargreaves Lansdown says: “I can’t think why anyone would want to invest in this product. I’m finding it very hard to get excited about it.”
Martin Bamford of Informed Choice adds: “This is fairly typical fare from a bank to try and get some cash in during a difficult period. But investors will find they are penalised if they make a withdrawal, while the averaging process Cater Allen is using could make a significant difference to the return investors will get.”
The product will take as its opening price the FTSE 100 index value at the close of play on 3 September 2010, but the closing index value will be calculated from an average of the index taken at 12 stages over the final year, effectively once a month throughout the last 12 months. The bank says this will, “ensure the plan is cushioned from any sudden fluctuations in the FTSE 100″.
But Bamford warns that by taking the average, investors could lose out on any surging growth in the final year. “This can really affect the return investors receive if the index rises significantly during that final year,” Bamford argues. “They’ll get an average, when investors in other products will see the full benefits of that growth. If investors want equity-style returns with less risk, they are better off building a balanced portfolio rather than investing in this kind of product.”
Yearsley says the cap on returns of 50% of the original investment means investors can easily generate the same or better returns elsewhere: “The FTSE100 has a dividend yield of 3.5%, so if you invest in a simple tracker with dividends reinvested, you only need the index to rise by 25% and you’re on the same return as the Cater Allen product already.”
He recommends an absolute return fund that offers a high return of 7%, 8% or 9% per annum with limited downside – “something like the Gartmore European Absolute Return Fund or the BlackRock European Absolute Alpha Fund“.
The product is guaranteed by Santander, something Bamford says might not be so safe given the current state of the eurozone. Moreover, he reminds investors that six years is a long time in investment and a lot can happen. “We expect to see this kind of advertising at a time like this, preying on investors’ nerves a little. I’d think very carefully before investing.”
The Capital Guaranteed Enhanced Growth Plan 1 has a minimum investment of £10,000. The offer closes on 13 August 2010 and the product matures on 5 September, 2016.
Personal finance and money news, analysis and comment | guardian.co.uk
