THE LAST WORD: This shameful silence

By James ConeyLast updated at 11:01 AM on 1st September 2010

What a disastrous time to be facing retirement. Annuity rates have plunged to an all-time low, meaning that those who are forced to buy an income for life are receiving half the amount today they would have got 15 years ago.
If you have to buy an annuity now, you are facing 20 years of being tied in to these historically low rates.
Those who can afford to, and have another source of income, may well delay. But it’s a luxury that only a few can take - and it’s a gamble.

So it’s even more crucial that pensioners don’t just accept the annuity handed to them.Those offered by pension firms are often among the worst rates - they can pay up to a fifth less than those sold by rival companies.
There is a rule that is supposed to protect pensioners: it’s called the Open Market Option. This is meant to ensure that pensioners are told they can shop around for an annuity. But fewer than four in ten people who took their pension last year opted to do this.
A handful of people may be put off by the effort of shopping around. But surely when confronted with the choice of getting £800 a month or £1,000 for the next 20 years, most pensioners would opt to put in a little bit of effort.
The financial cost of failing to shop around is not being made clear. Pensioners are being lied to, misled, baffled by small print or not told. This has to stop.
The Government wants to know why this is happening, and the insurance industry is scrabbling around for some kind of justification.Well, let me help them in three simple words: Seven billion pounds.
That’s the estimated figure of how much extra cash the insurers have lined their coffers with because so many pensioners have failed to shop around.
Let’s not forget that the people missing out on this much-needed money are the loyal customers who have spent decades saving with these companies.
The Coalition Government has already done more for pension reform than Labour did in all the years it was in power.
Hopefully, it won’t be fobbed off by powerful insurance company lobbyists - as the former government was - and instead be able to pick through the excuses and see the simple, plain fact that this shameful annuity silence has picked £7 billion from the pockets of pensioners.
Don’t bank on it
Banks and building societies’ desire to push us all online is ostracising huge swathes of the population. Don’t just take my word for it; have a look at the latest data from the Office for National Statistics.
Banks use these figures to tell you that 72 pc of households have internet access.
But if you delve into the detail, it reveals that 60 pc of those aged 65 and over have never used the internet. A fifth of those aged 55 to 64 haven’t, and neither have one in ten of those aged 45 to 54.
More than 13 million people have never used the internet or use it less than once a month.
And of those people who do use the web regularly, little over half of them bank online.Banks and building societies peddle the myth that all of their customers want the ‘convenience’ of internet banking.
The reality is that branches are expensive to run and that’s why they are trying to force us all on to the internet through attractive web deals.
Take West Bromwich BS, for example. It pays 2 pc after tax (2.51 pc before) on its new Web¬saver Plus; but on the High Street it’s offering only 0.04 pc (0.05 pc) on its easy access account.
On top of this, branches are facing cutbacks — take Nationwide’s pathetic response to long queues: instead of opening more counters, it has limited services.
Our postbag is filled with complaints about the shoddy service customers are getting from their banks.
Banks are fond of asking their customers what they want — maybe it’s time they started listening to what they’re saying.
Caring insurers
For once, insurers are to be applauded. Private medical policies are paying out for drugs that the NHS won’t fund.
Money Mail asked all the leading firms for cast-iron guarantees that they would continue funding Avastin - a life-prolonging treatment mainly for those with terminal bowel, lung, breast or kidney cancer - even though it has been all but barred by the health service rationing body NICE because it costs £20,000 a patient. 
We got those guarantees.
Health insurance premiums may be soaring as a result, but that is the knock-on effect of funding these expensive treatments.
As long as health insurers keep paying for the drug for those sufferers who would benefit, it’s hard to find fault with this.
Any complaints should be directed at NICE and not the insurers.
These policies have given cancer sufferers such as former Army Captain Johnny Mann extra weeks, months or even years with their families. It’s priceless time they will cherish. 

 

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Miners in landmark iron ore deals

Two of the world’s biggest mining companies have agreed landmark deals with Asian steel mills to buy iron ore on quarterly contracts.The deals could mark the end of annual contracts that have formed the basis for pricing in the steel industry for decades. Vale and BHP Billiton said the new system was fairer and more transparent. The price of iron ore under their first quarterly contracts has risen strongly, reflecting increased demand. ‘Ending confrontations’According to reports, Brazil’s Vale is now charging Japan’s Nippon Steel around $105 per tonne of iron ore.

BHP and Vale’s announcements could mark the end of an era. For decades global iron ore prices have been set on an annual basis, the idea being that 12-month pricing brings much-needed stability to what has always been a volatile industry. However, the big growth in iron ore also traded freely on the markets - so called ’spot’ iron ore - has put increasing pressure on the annual price arrangement in recent years. Four years ago, only 4% of iron ore was available to buy on the spot market, but this has now risen to about one third - with most being bought by China. When the spot price has been significantly below the set annual price, the steelmakers complain, and when it is above, it is the iron ore firms that are unhappy. By switching to quarterly pricing, BHP and Vale hope that the fixed price will more closely mirror that of the spot market, and be more able to respond to changes in iron ore demand. It remains to be seen whether Rio Tinto - the third of the big three iron firms will follow BHP and Vale’s lead. And more importantly, whether China - the world’s largest importer of iron ore - will also agree to accept quarterly pricing. In recent years China has strongly opposed the annual prices the iron ore firms have offered - saying they are too high - but continued to support 12-month pricing in principle.

This compares with the 2009/10 annual price of around $62, that expires on Wednesday. If Vale and Anglo-Australian BHP had continued with annual pricing, it is likely that the new annual price would also have been set around $105 per tonne, as demand for iron ore is now rising strongly again compared with 2009’s much lower volumes. But by moving to quarterly contracts, the two firms are hoping to end the friction that the old annual pricing system caused, especially when the cost of iron ore on the open market moved strongly up or down away from the fixed 12-month price. “BHP Billiton today announced that it had reached agreement with a significant number of customers throughout Asia to move existing iron ore contracts that were previously priced annually onto a shorter-term basis,” said BHP. Pedro Gutemburg at Vale said: “The old system generates never-ending confrontations between buyers and sellers.” Chinese questionWhile Vale said it had signed new quarterly agreements with Japanese and South Korean steelmakers, BHP was more vague, only saying it had reached agreement with “a significant number of customers throughout Asia”. This leaves open the question as to whether China - the world’s largest importer of iron ore - has also agreed to the new quarterly deals. Some analysts have speculated that some smaller Chinese steel firms have also signed up, but the Chinese government has yet to make any announcement. It also remains to be seen whether Rio Tinto, the third of the big three iron ore companies will follow Vale and BHP’s lead. It has not yet commented. Iron ore negotiations is a sensitive subject for Rio, especially a day after four of its executives were jailed in China for bribery related to iron ore price talks. Some analysts think Rio will ultimately follow suit. “Annual prices are a relic of the past,” said Tim Schroeders at Pengana Capital. “In today’s environment, you need to be able to adjust to the market reality a lot quicker than on an annual basis.”

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Warren Buffett’s Berkshire Hathaway cuts Moody’s again

Published: 8:42AM GMT 23 Dec 2009

The investment company sold 87,992 shares at 426.77 on December 18, Bloomberg
reported citing a regulatory filing.

Berkshire, which is still Moody’s biggest shareholder, has now cut is stake by
around 34pc since July when it held 48m shares.

The move is unusual as Mr Buffett is a value investor and believes in holding
shares for a long time, ignoring ups and downs at companies. He has had
stakes in Coca-Cola and American Express for more than two decades.

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Network Rail boss takes humble approach to getting back on track

By Alistair Osborne

Published: 11:14PM GMT 21 Nov 2009

Rick Haythornthwaite, the former Invensys boss who took over in July, said he
wanted to see Network Rail serve “a leadership purpose in this industry”.

That could only happen, however, when “we show we can deliver with
humility”, he said, adding: “At the moment I hear the word
‘arrogant’ a lot.”

Network Rail, which posts half-year results on Thursday, is responsible over
the next five years for the biggest expansion of the railways for decades.
Its £35bn of spending will include around £10bn of expansion projects,
including the Thameslink plan to increase capacity across London and the
rebuilding of Reading and Birmingham New Street stations.

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Global bank regulator says treat recent improvements at banks with caution

AFP

Published: 6:55AM BST 21 Sep 2009

Mr Caruana, general manager of the Bank for International Settlements, warned
that the sector could not afford to slip into complacency about rebounds in
the markets after the worst global downturn in decades.

“It is not the right time for complacency,” he
told the Financial Times.

“The profile of the recovery is not clear. Obviously things have improved
significantly … but my sentiment would be that we have to be cautious
about this improvement.”

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British Land shares jump on bid talk

By Ben Harrington

Published: 10:33AM BST 13 Aug 2009

British Land Co

British Land
shares jumped more than 15p to 498p on unconfirmed speculation that the
company could soon be on the receiving end of a £6 a share bid from a
consortium of Asian investors.

Traders also noted chatter that a sovereign wealth fund is building a secret
stake in British Land, which is due to release its first quarter results
next week.

More than 3m British Land shares had changed hands by 8:30am compared with a
daily average of 5m shares in the past 30 days.

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Don’t bank on a good deal when you retire

Hundreds of thousands of pensioners are being prevented from getting the best return from their investments by life insurers who are letting them down at retirement, advisers claim.
Some of Britain’s biggest pension companies seem to be using every obstacle they can to prevent savers from getting a good deal, while in other cases simple incompetence is to blame.
The damaging consequences could have repercussions for decades to come. For hundreds of thousands of people retiring every year, choosing how to use their pension pot is one of the biggest financial decisions they will make — one that will affect their standard of living for up to 20 years or more.
Penalties applied to savers mean that anyone who does not want to buy an annuity could find that the value of their pension is reduced by thousands of pounds. In other cases, savers who want an annuity, which pays an income for life, are suffering financial loss because of administrative bungles. Many other providers are failing to give clear advice, leaving customers in the dark about how to maximise their income.

These actions seems to fly in the face of the Government’s stated ambition to give savers greater choice at retirement. Since 2002 the regulator has insisted that insurers tell customers that they can buy an annuity from any provider. But latest figures indicate that only 37 per cent of people are taking advantage of the so-called open-market option (OMO) to get the best deal for their circumstances.
A separate overhaul of the rules in 2006 — A-Day — introduced more flexibility. Among the changes was the introduction of the ability to unlock tax-free cash in your pension without having to retire or take an income. However, many companies stuck with the old, inflexible rules.
Tom McPhail, of Hargreaves Lansdown, the independent financial adviser, says: “Everyone knows that the system is not working. Only about a third of people are shopping around for the best solution. Unless this is dealt with, the country will be storing up social problems for 20 years down the line.”
Here we highlight the problems that advisers believe need to be addressed urgently.
Pension penalty
Standard Life, Britain’s fifth-biggest insurer, has caused anger by penalising customers who do not want to use their with-profits pensions to buy a conventional annuity. Other providers, such as Equitable Life, Prudential, Co-operative Insurance and Windsor Life, also have the power to impose these penalties, called market value adjustments. Advisers say that this makes a mockery of a system that is meant to offer flexibility.
Jeffrey Warrilow, of Stoke-on-Trent, is one of the victims of Standard Life’s uncompromising stance and may be prevented from retiring by its actions. The 55-year old, who runs a bone china business, wants to move his with-profits pension into a fixed-term annuity from Living Time, the retirement income specialist. This is a halfway house between a full annuity and a risky income-drawdown plan. He has been told, however, that he will lose almost £8,000, or 9 per cent, of his retirement pot if he goes down this route — a penalty that would not be applied if he bought an annuity.
Mr Warrilow says: “The plan was to take some of the tax-free lump sum to pay off the mortgage, which would have allowed me to retire. I think it is appalling that Standard Life has put the block on this for, what seems to me, no good reason and completely against the spirit of the rules. What is the point in having flexibility to use my pension money in the way that I want if Standard Life can turn around and say no?”
He does not want to buy an annuity because he has enough income from other sources, such as property investments, to cover his day-to-day expenses. A fixed-term annuity would allow him to leave his fund invested without taking an income but allow him to lock in to an annuity at a later date if he wishes.
His independent financial adviser, Tony Castrey, of ASC Financial Management, says: “It seems amazing that he can have a penalty-free exit if he wants to buy an annuity but is penalised for choosing an alternative that better suits his circumstances. A-Day introduced the option of taking tax-free cash without taking an income, yet here is a big insurer stopping that from happening.”
Standard Life argues that the penalties are fair.
Advice gap
Pension providers are required to send “wake-up” packs at least four months before a person is due to retire and a reminder six weeks before retirement. This is supposed to set out the options clearly and explain the potential benefits of using the open-market option.
But last year, the Financial Services Authority (FSA) issued a warning to the industry after finding that 40 per cent of insurers were failing to advise customers of their right to choose an annuity from another company. The investigation found that two in five pension providers did not meet even the most basic criteria for providing guidance on how to buy an annuity. David Harris, of Living Time, says: “Retirees are not being presented with the full range of options, meaning that they end up enslaved in an annuity with no opportunity to change their decision. The OMO should be the default option. Retirees who stick with their pension provider should have to actively sign away their rights to shop around.”
There are instances where people are unable to use the OMO. Most insurers will not accept small pensions of £10,000 or less, for example, leaving savers with no choice but to purchase one from their pension provider.
In other cases, it makes sense to stick with your pension provider. Some pensions come with valuable guaranteed annuity rates than can provide a retirement income up to 40 per cent higher than a standard annuity. They were sold mainly in the 1970s and 1980s, usually alongside retirement annuity contracts.
However, advisers and the FSA agree that more people should be shopping around for the best deal at retirement.
Transfer delay
Some of Britain’s biggest insurers are making investors wait ten weeks for their pension pots to be transferred to annuity providers. This allows insurers to earn extra interest. Investors, however, could lose vital income as annuity rates fall — in most cases quotes are valid for only 14 days. Savers are also starved of cash until the transfer is complete.
Steve Hunt, managing director of the Annuity Clearing House (ACH), the retirement specialist, says: “The delays endanger the retirement income of many people and will often cause significant difficulties at an already very stressful time of their life.”
The Association of British Insurers has said that its introduction of Options, an electronic transfer system, in December has cut transfer rates from an average of 31 days to only eight. Advisers say that a transfer should take no more than seven working days.
However, research by ACH suggests that Windsor Life and Phoenix are taking an average of 51 working days to carry out transfers. Winterthur Life, which takes 41 days on average, Scottish Mutual (40 days) and Co-operative Insurance (39 days) are also guilty of dragging their heels. Zurich Assurance was found to provide the quickest service, with average transfers of 18 days, followed by Abbey Life (19 days) and Virgin Money (21 days).
Maximise your pension income
• When you convert your pension pot into an annuity, take the open market option. By choosing the best option from the entire market, you can boost your retirement income by as much as 20 per cent Defer your state pension. Laith Khalaf, of Hargreaves Lansdown, says that if you delay taking it for a year the Government will increase your pension by 10.4 per cent. This should allow you to recoup the lost year within ten years.
Put some money in a personal pension and cash it in immediately. You can put in £2,880 a year and the Government will top this up to £3,600 with basic-rate tax relief (with a further £720 for higher-rate taxpayers). You cash in, take a 25 per cent tax-free lump sum of £900, and a pension of about £150 a year.
Consider income drawdown if you have a pot of more than £100,000. You have more flexibility on the size and timing of withdrawals.
Reinvest your tax-free lump sum in an individual savings account and take the income while retaining the capital.

Pension view ‘not radical enough’

The author of an influential report into the future of pensions now believes that his proposals were not radical enough.

Lord Turner told the BBC he would now argue that the age at which people received a state pension should be raised more quickly.

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Aviva starts vote on fund payout

About one million policyholders with the insurance group Aviva are being sent voting packs about the proposed "reattribution" of its surplus funds.

The company is asking them to accept payments of at least £200 to renounce any future share of the surplus money.

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IBM bucks gloom with rosy outlook

IBM’s latest quarterly profits rose 12% and the technology services firm issued a rosy forecast for 2009 - a rare ray of light for the gloomy tech sector.

IBM believes it can benefit as cash-strapped companies seek its help to cut costs and improve IT infrastructure. Read more

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