More than 13 million people in the UK have never reviewed their pension plan, according to new research from Baring Asset Management, but it is vitally important for clients to keep tabs on their pot to help prevent a serious shortfall in later life.

Attitudes many people showed towards retirement planning have to change, such as keeping track of pensions and investigating options. It is important that people are keeping a check on how their preparations for the future are progressing and realise at the earliest possible moment that they have got a potential problem – when they are able to do something about it. If you realise a couple of years before you retire, it can be a bit too late.

People are losing out by not keeping their records up to date with their pension provider. People move addresses and do not notify pension providers, so they are not receiving their annual statement. Accessibility was not the only hurdle to pension awareness; apathy and a lack of trust also played key roles. In the past few years, the shocks we have had in the equity market, coupled with the adverse tax changes that have been made by Gordon Brown have generally made people more wary about pensions than they were before.

Barings’ research found that 13.6 million people in the UK had never reviewed their pension plan and a further 2.2 million had not done so in the last five years. And the results showed gender differences when it came to choosing funds, with 53% of women not knowing if they were in the default fund compared to 29% men. Marino Valensise, chief investment officer at Barings, said the low number of individuals reviewing their pension on a regular basis was ‘concerning’ and could spell a shortfall for those that were not lucky

The explosive conflict between Russia and Georgia has exacerbated some fund managers’ reservations on investing in the country while others believe the region is offering historically cheap buying opportunities on the back of a further sell off.

Jupiter’s Eastern European Opportunities manager Elena Shaftan, who holds a position in Bank of Georgia within her Global European Euro Select Sicav, said the events of the past week would increase Western investors’ concerns over Russia but should ultimately have little long-term impact on returns. She said: ‘Having already suffered a 20% fall since May the Russian stock market has dropped a further 10% in the past two days on the back of the military action. It is clearly a very upsetting event that has led to indiscriminate market selling and Russia’s perception in the West will suffer as a result.’

Baring’s Citywire AA-rated Eastern Europe manager Dr Ghadir Abu Leil-Cooper also did not expect the conflict to have a significant long-term impact. She said: ‘The South Caucasus is not a major economic centre for Russia, and none of the firms we invest in have significant operations in the region.’

However, Aberdeen Asset Management’s head of global emerging markets Devan Kaloo reiterated why the group was underweight Russia. He said: ‘Recent headlines haven’t really affected our view of investing in the country.

'We have been significantly underweight Russia for some years, largely due to concerns regarding corporate governance, financial disclosure, treatment of minorities and the growing role of the state in the private sector.’

Global Insight

On a similar theme to my last posting I attach a link to Standard Life's most recent market report.

Given that the report is set-out in a more presentable manner than most I thought it might be of some interest to those clients looking for some insight into where markets are heading, at least in Standard Life's opinion. http://pdf.standardlifeinvestments.com/exported/pdf/GS_Insight/GS_Insight_M08_08.pdf

Credit Crunch - Stage 2 ?

It is just possible we have now reached that stage in the credit crunch when the bungee jump that is the global economy has reached the bottom for the first time. This does not mean, of course, that the world is set to boom again. The bungee jump has several more rises and falls yet before it finally stops. In any case, it all happens in very slow motion.

But it appears that something very significant is happening about now. There are good reasons to believe the credit crunch has reached a new stage – the last few days have seen some of the most dramatic developments to date. It was told earlier this week that the world appears to be re-aligning; well even stronger evidence has now emerged to support that view.

Has credit crunch stage 2 has begun. Demand for oil in the West is falling. And it is falling fast. Global demand is still growing, but by nowhere near as fast as was recently expected. It seems that at last we may be seeing the consequences of what happens when oil becomes too expensive.

According to the International Energy Agency (IEA), the OECD is on course to consume 48.6 million barrels of oil per day this year, compared to 49.2 million in 2007. Across the globe, oil consumption per day is likely to be around 800,000 barrels a day higher than last year. According to an article by Ed Morse, chief energy economist at Lehman Brothers in the FT earlier this week, last October, the International Energy Agency expected global demand for oil to be 2.1 million barrels a day more than in 2007. In other words, growth in demand this year is barely a third as fast as previously forecast. Demand from the OECD is 600,000 barrels a day less than last year.

Ed Morse said in the FT: “In our judgment, the IEA’s forecasts for emerging markets will turn out to have been far too optimistic by year’s end and OPEC countries will again complain about the inability of oil importers to guarantee sufficient demand growth to warrant investments in expanded production capacity.”

Mr Morse went on to expand on the theme that when prices get too high, demand falls. We start looking for alternative products. We start looking for efficiencies. Sometimes there are false dawns before a bubble bursts. The Dotcom boom saw many mini crashes followed by new peaks after the point when people started fearing a crash was inevitable. In 1928 and 1929, the stock market had several big falls that were then reversed before the crash. The current sell off in oil may well prove to be temporary, but sooner or later the oil and wider commodity bubble is set to burst.

But in the slow tick–tock of economic change, the path will be gradual. First to feel the benefit will be those who were first to feel the pain. It seems that just as the Eurozone and Japan have surprised all by seeing GDP contract before the US and UK, they are likely to recover first.

A place in the sun?

And the rain in Spain jumps out of the drain.

Right now, things in Spain seem to be a lot like the UK, only more so. While we fret about inflation going over 4 per cent, in Spain the 5 per cent mark has been breached. Spanish inflation in July hit 5.3 per cent, from 5 per cent in June and a Eurozone average of 4.1 per cent. But the big concern relates to Spanish house prices.

Over the last ten years, Spanish house prices rose by 175 per cent, but in the second quarter prices fell, the first negative quarter in over ten years. Meanwhile, retail sales recently fell by 7.7 per cent, consumer confidence has fallen off the edge of a steep cliff and unemployment is rising fast. Now Capital Economics has revised its prediction for falls in Spanish houses – it now reckons prices will fall by a total of 25 per cent.

Its European economist Ben May said: “The downturn in the wider Spanish economy will not be short lived. With house prices set to fall sharply throughout 2009, we doubt that there will be any meaningful pick-up in GDP growth until the start of 2010 at the earliest.”

To fix or not to fix that is the question.....

With the base rate on hold for another month and some major lenders reducing their fixed rates, is now the time to switch to a fixed rate mortgage? Probably not, say the experts who predict that fixed rates may fall further in the next few months and suggest that trackers are a better punt at the moment.

Amongst the lenders that have already cut their rates Nationwide has dropped rates on all its mainstream fixed-rate mortgages and some of its tracker deals for new customers by up to 0.46 percentage points and Newcastle building society has lowered its two-year fix for borrowers with a 25% deposit from 6.20% to 6.12%. Halifax also announced cuts of up to 0.15 percentage points to its fixed deals last week. Its five-year fix for customers with a 25% deposit has gone from 6.49% to 6.34%. BM Solutions, Bank of Scotland and Intelligent Finance, which are part of the same group as Halifax, have also made cuts as have both Cheltenham & Gloucester and Abbey.

Swap rates, the starting point that lenders use to determine the price of their fixed rates, have fallen dramatically over the last few weeks, coming down 0.7% from their peak a month ago.

Even the bad news on inflation has failed to dent their progress downwards, and now lenders are, theoretically at least, able to offer better priced products. Although sounds like good news there are still a couple of factors that might prevent fixed rates dropping straight away. Firstly, lenders have been looking to increase margin rather than market share, so have priced more profit into their products. Secondly lenders are concerned about being inundated with applications so they don't want to appear too competitive.

However with swap rates likely to decrease further with expectations that bank rate would be cut before the end of the year there may be more cuts in the next few months so borrowers that can hold out before locking into a new fixed rate might be wise to wait before they do so. Those lenders that haven't reduced their fixed rates yet also have some catching up to do. At the moment trackers and variable rates appear to be the best bet for borrowers looking for a new deal although these will be still be more expensive than most deals coming to an end.

Equity release for cash poor predicted to grow

Equity release is becoming increasingly popular. Safe Home Income Plans recently reported equity release business by its members rose by 14% to £275 million in the second quarter of 2008.

We are hearing more and more that pensioners and those approaching pensionable age are going to face poverty because they have not provided enough for their retirement. As a result I think equity release is going to be something we hear more and more about and the credit crunch had boosted the appeal of equity release products. At the moment a lot of equity release rates are better than mortgage rates.

A lot of people are very asset rich but cash poor and people have often got hundreds of thousands of pounds tied up in property but a very low pension equity release could be used not only to fund retirement but also to pay off other debts such as credit cards and mortgage repayments, and even to finance holidays.

It is however a specialist area of business requiring specialist and carefully thought out advice. We advise clients to take time and fully consider all options before rushing in to an equity release arrangement. That said when it does fit the bill and all aspects are fully considered it can prove worthwhile and offer clients options they perhaps had not considered previously.

Stamp duty in for a licking

So the government is considering temporarily lifting stamp duty on the first £250,000 of the price paid for a home. So that means no stamp duty for homes less than a quarter of a million. And stamp duty on the value of the home minus £250,000 for the rest. It is a desperate gamble. The move will be expensive, and if it doesn’t work, it is money down the drain.

Actually, the move from the government will be the equivalent to it handing people buying properties an amount of money worth 1 per cent of the home’s value. Or if it is worth more than £250,000, £2,500. So that means buyers find themselves getting closer to the deposit they need all the quicker.

The snag is this. It is only 1 per cent. House prices are falling by more than that each month – it is not difficult to see why this may not work. In the last house price crash, John Major tried something similar – his move failed. But a more pertinent question is this. Why does the government want to do this? When house prices were rising too fast, it stayed clear. If you believe the current housing market turmoil is all a little odd, and solely down to this credit crunch which had nothing to do with us, then the move makes sense. If you believe house prices are falling because they are too expensive, and the credit crunch is down to lending that was too high, based on property valuations that were not sustainable, then reducing stamp duty would be a fool’s errand. It seems more likely that this move will just result in a short pick up in opinion polls, followed by the loss of taxpayers’ money – never to be seen again.

Quite frankly, the government would be better off using the money it would spend on reducing stamp duty, giving us all some kind of tax credit. Vince Cable, the Liberal Democrats’ shadow chancellor, said: “The falls we are seeing in the housing market are painful, but necessary, if homes are to become affordable once more for those not on the property ladder. “Ministers allowed house prices to get hopelessly out of control. They must not now artificially prop up the market for political expediency.”

And as for the markets…….. well they had another day of celebrating yesterday – although when you drill down and examine the reason why, it does seem a tad daft. The Dow Jones soared 331 points, one of its best days of the year. The FTSE 100 rose a healthy 134 points, the German DAX index was up 168 points. But the news in the US, UK and Germany was hardly the stuff booms are made of. In fact, you could say all three economies saw a catalogue of woes yesterday.

So why did markets celebrate? Well, for one thing, the Fed stopped talking about “continued increases” in energy prices, and merely said they were “elevated.” As for growth. Last time, the Fed said the downside risks to growth “appear to have diminished somewhat.” This time it merely said “the downside risks to growth remain.” All we can conclude is that the markets are only a slight guide to what is going on, but for those interested in what is actually going on whilst equities were performing well certain popular commodities had a tougher day with Oil down 2.16% and Gold also down 14.1%.

A year on - credit crunch

What is a credit crunch?
A credit crunch is a situation in an economy where there is a sudden decrease in the availability of credit from banks and other lenders in order to reduce their risk. They may also increase the cost of obtaining credit by raising interest rates. It is a time of mild recession as the growth of debt if forced to slow, money is tied up in debt and not immediately available and there fewer liquid assets.

How did it start?
The global credit we’re now experiencing was caused when people with poor credit ratings (or “subprime credit risks”) were unable to meet higher debt higher repayments to US mortgage brokers due to rising interest rates. As more mortgages were foreclosed in America (so properties could be repossessed and then sold on for a profit), their previously buoyant housing market nosedived. These subprime losses started in early 2006 and continued to worsen throughout 2006 and into 2007.

Debts often get sold to other financial companies around the world to help create one of their sources of money which can then be invested or lent to people or companies. With little debt being paid off, financial institutions like mortgage providers and banks have been unwilling to take on more debt themselves and have little money to lend, and so these effects have spread around the world. Some firms, like Northern Rock, have been too dependent on this source of finance and have suffered as a result. There is quite some debate about whether the blame lies with consumers for putting too much on credit and overspending or whether banks are the culprits for irresponsible, high-risk lending.

How does it affect me and what can I do?
To make sure they are no longer at risk, these companies have made it harder to get loans, mortgages, and plastic by tightening their lending policies, charging higher fees, and increasing interest rates. This affects you as it means you may have fewer methods to get out of debt, spending may be cut, and your repayments may increase. The credit crunch even affects job seekers as companies are less willing to take on permanent employees in case they have to make job cuts.

Now is the time to check your credit rating because if you want to borrow money, get a mortgage or remortgage then banks are more likely to lend to someone who is not deemed as a risky investment.

Be careful with credit cards and balance transfers. Try to pay them off or reduce the debt on them as interest rates are high. It’s also more difficult to get cards for new 0 per cent rates now and any cards you get may have lower credit ratings as banks are unwilling to be as generous as before.

The main market where the credit crunch is felt is in housing. Now is a good time to either improve your home so it’s ready for when the market improves too, buy a home at auction which has been repossessed, or get a mortgage with the lowest rate possible if you’re coming to end of a fixed-rate mortgage. If you’re looking to sell your home to move or use the money to pay off debt then shifting to a smaller property or even until the economy recovers may also be a good idea.

A year on !

A year in to credit crunch and where are we at. If you want to read on I will refer you to the BBC webpage which I believe presents the clearest opinion on where we are at focussing on specific areas of concern:

http://news.bbc.co.uk/1/hi/business/7521250.stm