Too soon for Workplace Pension reform?

5 October 2011

With the economy growing far slower than expected and inflation being so high with no potential for an increase in interest rates, I don’t believe the government should be introducing Workplace Pension reform from 2012. The potential knock on effects to the economy could be substantial because it will severely reduce the disposable income of many UK citizens. For those who are unaware of the new rules, the legislation will look to make all employed people pay up to 4% of their earnings into a pension scheme and their employer will pay a further 3%. This will mean that they take home 4% less each year and if their company has to pay into many pensions then this could mean that there would not be a pay rise offered in the same tax year.

Therefore the overall effect of these new rules on people’s available cash will be significant. Although there will be the option to ‘opt out’ of these payments, which many people will do, there is no doubt that the overall effect on the UK economy will not help it achieve the predicted growth figures which it needs I order to get out of debt as quickly as anticipated.

More warning for Workplace Pension would have been good

5 October 2011

Pension legislation is being introduced from 2012 which will change Workplace Pension procedures in a big way, and personally I don’t think the government has done enough to advertise exactly what will be happening and when. I work in HR and it has been my responsibility to assess what the changes are, how they will affect our company and when we need to do something. I decided to search the internet and luckily I found a very good firm who look to review workplace pension schemes and set up new ones where appropriate. There seems to be many issues which need to be considered, such as when each specific company has to start paying into a pension for their staff, how much they have to pay in at first and how much in a few years, and what options have their employees got if they don’t want to pay into a pension plan.

One of the most important issues from our point of view is that our company can be fined up to £10,000 if we don’t pay into pension plans for our staff and we need to have a compliant reporting process so that we can prove what is being paid and when, who has opted out after the auto-enrolment process and so on. These details should have been advertised by the government sooner as many companies may be unprepared.

Do I have Options for a Workplace Pension?

5 October 2011

My firm does not currently offer a workplace pension scheme, but I hear there are going to be new rules introduced from 2012 which will ensure that they pay into a pension on my behalf. However I already have a pension scheme at the moment so I was wondering how this would be affected. I currently pay £60 per month into a personal pension, which is around about 3% of my salary. The pension plan has done fairly well so I don’t particularly want to change it or stop paying in, but I was wondering what my options would be. Ideally I’d like my company to pay 3% into a pension plan for me and I continue to pay 3% into my existing plan, and if my company would agree to make that payment into my existing pension plan.

If my company refuses to pay into my existing pension then it can pay into its own plan but the problem would be if I continue to pay into my plan but don’t want to pay into their plan I would have to ‘opt out’ of the auto-enrolment. This would mean that my company are not legally obliged to pay into the pensions either.

If believe I have this right but if anyone else has thoughts on this I’d be happy to hear them

What are the changes to workplace pensions from 2012?

16 September 2011

You may have heard about government legislation that will be introduced from 2012 but the details do not seem to be common knowledge. New Review site, Workplace Pension, have put together a breakdown of the new rules which will affect all companies and their staff over the next 5 years.

The basic intention is for all employers to pay into a workplace pension on behalf of their employees. There will also be a requirement for all members to make a contribution to their plan aswell. The aim is for people to fund a pension scheme in order to provide a sufficient income in retirement.

Employees need to be between 22 years old their state pension age and earn over £7,475 per year to become eligible for auto-enrolment, where the company has to pay into the plan on their behalf and if the member does not want to be part of the scheme then they have to actively ‘opt out’. Similarly if a person does not qualify as en eligible member then they can opt into a workplace pension scheme but their employer would not be required to make a contribution aswell.

Administering the pension schemes could be the biggest difficulty for employers because they have to ensure their paperwork and reporting duties are compliant in the eyes of The Pension Regulator (TPR). Employers need to keep a record of the members of staff who are eligible to join the scheme, documentation to show that all members were automatically enrolled and a log of those who have chosen to opt out.

Workplace pensions are changing and the impact on companies, individuals and the UK economy could be significant. The best advice would be to ensure you are prepared for your responsibilities from 2012.

Doorstep Lenders Receiving Unwanted Interest

14 January 2011

Unwanted interest has come from sources including industry regulator, the Competition Commission (CC), following an Office of Fair Trading (OFT) investigation which was in turn sparked by a super-complaint lodged by the National Consumer Council (NCC).

Doorstep loans offer small short-term loans to people who are on low incomes or without access to bank accounts, with repayments being collected weekly or fortnightly by collectors who directly call at the customer’s homes.

Peter Freeman, chairman of the CC, said, “Customers value home credit because it suits their needs very well but the fact is that they are paying too much for it, because of the lack of competitive pressure in the market.”

The regulator found that the lack of competition in the home credit market has meant that customers had, in their opinion, been overcharged by 500m during the past five years.

Peter Freeman believes, “Price competition between the existing lenders is weak, partly because customers seem insensitive to prices, given the greater value they place on factors such as the convenience of the loan and the difficulty in comparing prices between companies.”

Although there are more transparent alternatives to doorstep lenders through such high street companies as My PayDay Loan (http://www.mypaydayloan.co.uk ), which provide quick access short term loans, the six major door-step lenders still account for about 90% of the market, with the largest, Provident Financial, currently owning 60% of the 2bn per year industry.

Whereas there is ample regulation and there are high levels of competition for traditional unsecured loans, with financial product comparison sites like Moneynet (http://www.moneynet.co.uk ) providing consumers with quick access to comparisons across the standard loan industry, there is little competition and product comparison information is not readily available from doorstep lenders. The CC announced that the lack of adequate competition within the market was allowing lenders to overcharge their most vulnerable customers.

The CC recommended a series of changes to help reduce the problem, including suggestions that the lenders provide better information on their pricing and introducing regular statements in an effort to allow customers to shop around easier. Another suggestion to promote increased competition which was put on the table was for more data sharing with the credit reference agencies by the lenders about their customers’ credit histories. The CC also threatened that if lenders did not follow the recommendations, then in future it might impose a price cap on the maximum interest payable for these types of loan.

The CC’s announcements have provoked a furious reaction from the doorstep lenders who have challenged the calculations and the conclusion that this sector of the loan industry was making excessive profits.

A representative for Provident stated, “Customers are not being overcharged for their home credit loans nor is the home credit sector making excessive profits.”

Provident commented that the method of calculating the loan profitability was “flawed”, as it did not include the intangible costs of running a network of agents who collected payments door-to-door.

Peter Freeman, chairman of the Competition Commission, said recommendation by the CC might help to encourage some of the more mainstream banks to extend their lending practices into lending to lower-income customers.

Disclaimer:
All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.

You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

Does the American government see its citizens as its children?

7 January 2011

Does the American government see its citizens as its children?

In Americas 230 year history the government seems to have forgotten that there job is to run the government as the people see as best and not the government telling the people what is best for them.

The most recent example is the Internet gambling Ban signed into law last week by President Bush. The bill makes it illegal for banks and credit card companies to transfer money to casinos for the purpose of wagering on sports or games of chance, like roulette, blackjack and poker.

These games are harmlessly enjoyed regularly by millions of Americans everyday, but some people become addicted to these games so the government is telling all of its citizens that no one is allowed to play these games in an online casino.

This is not the first case of the government going against the wishes of the people, in the early 1900s the government decided that the consumption of Alcohol should be banned, because some people were developing health and mental problems related to drinking too much. So rather then educating the people on the ill effects of prolonged Alcohol abuse the American government banned Alcohol.

But instead of reducing the consumption of Alcoholic beverages it increased, and because the government was not allowing the production or importing of Alcohol, organized grime got into the moonshine business, and eventually the Government saw the error of their decision and repealed the law.

Another great example of a failed policy to protect the people is the war on drugs that the government has been aging since the early 1980s Billions of tax dollars a year goes into the war on drugs, but what are the results?

The price of drugs has risen, and to support their habits many drug addicts have had to commit acts of robbery and murder to get their drugs.

The American prisons are packed full of people whose only crime was possession of these illegal drugs.

Instead of being an industry that is regulated and controlled you have people selling these drugs to kids in school playgrounds, and shooting each other to protect their territory.

Had the government decided not to criminalize drugs but make it a heavily controlled industry, they could use the tax money for social programs like schools ad to give Americans universal health care.

Please do not misunderstand me I am not in favor for legalizing hard drugs, but the current system is not working at all, but I am all in favor for legalizing online casino gambling.

If I choose to play some hands of blackjack or poker from the comfort of my home what rights does the government have to tell me not to, and what sense does it make that I can not play in a casino over the internet, but I can drive down the street to the local casino and play there.

To enforce this ban millions if not billions of dollars of software and computer hardware will be needed to monitor all of the banks transactions and that money will come from taxes instead of the government taxing online casinos or even having all the online casinos government controlled then they get all the profits to be used to improve the lives of the American citizens, millions of which are bellow the poverty line if not homeless.

The American government needs to start re-thinking its policy of treating its citizens like small children, or the American people need to demand a new government.

Does Paying Points on a Mortgage Make Sense?

31 December 2010

You’ve found your dream home and are now ready to start shopping for a mortgage. Several lenders have talked about points. You’ve heard that paying points is the only way to get a low interest rate. But is increasing your initial costs worth getting a lower rate?

For most people, paying points doesn’t make sense. Points, also called discount points or origination fees, are each worth one percent of the loan amount. They are paid to the lender at closing.

Paying points basically allows the borrower to buy down the interest rate.

Points became popular in the early 1980s when mortgage rates were in excess of 15%. Most people could not afford the monthly payments that come with such high interest rates. Lenders began offering discounted rates at a certain fee. Sellers often paid the points in order to sell their properties. This gave buyers affordable mortgages and owners were able to sell their homes.

Times are different now. Interest rates are reasonable. There isn’t a large need to pay a lot of money up front in order to get a lower rate.

Let’s look at the numbers. You have contracted to purchase a home for $240,000. You have the 20% down, which leaves you with a mortgage of $192,000.

You find a 30-year fixed rate mortgage at 6.5% with two points. For closing, you will need to pay $3,840 ($192,000 x 2%) for the points.

The lender can also offer you a rate of 7% with no points.

What do you choose? The lower rate or the lower closing?

At 6.5% you will have a monthly principal and interest payment of $1,207. At 7% your payment increases to $1,270 each month. That’s a difference of $63 per month. If you are looking for a monthly payment reduction, it’s not really a significant one.

It will take you 61 months ($3,840 divided by $63) to recoup your points payment in the form of a lower payment. This is your payback period. But if you had the $3,840 still, it could be earning interest in the bank. If it gets 3% interest in the bank, it would earn about $10 per month. If you pay points, this is interest lost, so subtract $10 from your $63 per month savings. Now divide $53 into $3,840, and your payback period increases to 72 months — six years.

So you have to live in your home for at least six years in order to take advantage of the savings that paying points gives you. Most people don’t keep a mortgage for six years. Unless you are absolutely sure you will live in the home for the time period necessary to recoup your points, you should probably invest your money instead of putting towards points.

If you are looking at paying points in order to reduce your monthly housing payment, you may want to look at a less expensive property. Sixty dollars worth of savings isn’t a lot if you have a tight budget. Chances are that if you have a tight budget to start with, finding extra money for closing would be difficult. And don’t forget, taking out a side loan to get the money to pay points with is defeating the purpose.

Disposable Income Figures Show Gap Narrowing

26 December 2010

The research from KBD has also revealed the full extent of the north-south financial divide.

Taking the UK as a whole, the typical household has some 40,000 of disposable wealth, but this figure oscillates wildly depending on where you look and indeed where you live.

An average London family will possess 81,732 in readily-accessible cash, while the Midlands sees this figure reduced to 31,939 and Scots find themselves cut somewhat adrift with a typical 29,724 waiting to be spent.

The gap, however, is closing the Scottish figure was in fact a 35 per cent increase on that of 12 months ago while north-westerners and the Welsh, with 32 per cent and 31 per cent rises respectively, also saw notable and much-welcomed rises.

London may top the charts, but its disposable income figure has only escalated by two per cent, while usually-affluent south-westerners only saw a seven per cent appreciation.

Matt Boot, chief analyst at KDB, commented on some of the factors behind these fresh figures.

He said: “Early signs in 2006 show an upturn in housing values along with continued stock market growth, and this has swelled the amount that households can really lay their hands on.

“Although absolute disposable wealth levels per household still show a marked north-south divide, the gap is closing, and the smart money for growth is in the Midlands and above.”

This is heartening news for many Brits but also indicative of how volatile and changeable such figures can be, with many variables lying behind them. In turn, this shows how carefully-laid spending and saving plans can change due to a variety of factors, be they economic or personal.

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