Auto Enrolment in UK Pension Schemes

There is a huge debate over auto-joining pension schemes. If you are an employer, and you set up a pension scheme for staff, do you want them automatically enrolled or do you want them to sign up.

 

You can see the pros and cons from the employer’s side-

 

1. If you set up auto join, everyone goes in, so you don’t get a huge amount of hassle explaining the scheme to members and financial advisers around your work place while staff take time to think about whether they join or not
2. At the same time, maybe it is good for them to reflect on the generosity of their employer contributing to their old age. So many benefits are just a “given”- maternity pay, holidays, getting away before 9pm. Taking just 5 minutes to opt in sounds like a good thing
3. But then, if you auto enrol them, then you have to pay for them, whether they would really have joined. Younger staff would perhaps just take the money and spend it. One of my colleagues cashed in a final salary scheme for his first decent guitar. He reckons he did the right thing.
4. What about short term and temporary contracts. More red tape and hassle for employers.

 

From the staff point of view it is difficult to think of the downside apart from being forced to save, get tax relief and probably an employers contribution without having to even think about it.

 

The government has to do the balancing act. Euroland says it might breach our human rights, the UK Government says it should be brought in and is seeking ways to ensure that it is. From the government’s point of view, it will certainly pull many people out of retirement poverty who would only get their through sheer lethargy of not joining an available scheme.

 

Having dealt with schemes for a number of years you would be shocked at how many people don’t join a scheme that is set up and waiting. And how many people say that they had no idea that it was even there. You don’t believe them either, but you will have to bail them out in retirement, while they enjoy their extra pint today.

 

 

Self Certification Mortgages

 

The credit crunch gets blamed for a lot of things, but it is fascinating to see what has been going on in the self certification market.

 

Self Certification, in case you don’t know is telling a lender what your salary is without having to prove it. Over the last few years, it has developed from a niche based product to highly touted favourite of equally desperate brokers and lenders.

 

Historically, “self cert” was where self employed people with highly fluctuating income, could get round the need to produce three years audited accounts or physical proof of their tax assessment before lenders would lend. They simply told the lender what they were earning and in the higher lending amounts, their accountant signed off to the fact they could afford the payments. Voila up to 85% loan to value.

 

But then lots of greedy people got on the bandwagon. Employees could certify their irregular commission or bonuses and borrow 5 or more times their salary. With some lenders, they just made a quick call to the place of work, checked your job title and job done.

 

Some lenders would lend clients with unlimited arrears on their current mortgage up to 75% of their home value with full self cert. Can you guess their name?

 

The regulator warned brokers that if they lied about clients’ income they faced being struck off or disciplined, which did not have a huge effect, but the credit crunch and inter bank lending has absolutely changed this sector.

 

Personally, I think it is a shame, the traditional self cert is a very important aspect of funding for small business people. Let’s face it, these people should be living in the best houses so that they can pledge them to the bank when they get the jitters about their trading businesses.

 

I also think that lenders have over-reacted and will calm down in die course. There are still a number of schemes working on self cert basis, albeit on reduced total loans and a much smaller number of lenders. Expect a tougher ride on underwriting, more delays and tell your IFA absolutely the truth about your income. If he offers to fudge the numbers, walk away- he really doesn’t value his licence. Of the few self cert lenders left they do vary markedly on their income multiples and affordability calculations. Some lenders will lend on a multiple of your profits, share of profit, earnings; some on your affordable income.

 

There may be other ways to legitimately increase your net profit, consider car allowances under the fixed cost car scheme to increase net income or pension contributions to increase gross emoluments. Think dividend instead of schedule D for a period if you are a company director.

 

There is no doubt that there are buying opportunities coming in the housing market, but it is not for the faint of heart- so business people will want to take advantage. My message- think outside the box, use all of the available products, but do not buy it if you can’t afford it. IT REALLY IS AT RISK IF YOU CAN’T KEEP UP THE PAYMENTS, however you got the mortgage.

Oil Prices hit $100/barrel

Many people laughed at the $100 forecast per barrel for crude only a few years ago. Yesterday that price became a reality.

What is the impact for investors?

Firstly what has brought the price to this point- many economic and political factors have had a bearing, lack of investment in refining and production, the dollar position and the importance of hedge fund commodity dealing.

Fundamentally supply and demand is a important consideration, world oil consumption in 2004 to 2.7m barrels per day- this has been seen by some commentators as the tipping point. There is also a generally held view that OPEC is running out of spare capacity

So, how much should investors worry? There is no doubt that this will be a major factor in world economic conditions- many investors will recall the impact of the last period of high oil prices in the 1970’s .

Prices will no doubt be pushed up as suppliers pass on the costs to consumers.

In Euroland and the UK much of the impact is yet to be felt because the pricing of oil is in dollars

This represents opportunities to invest in the sector but investors should have a careful eye to the cost side of these businesses.

There are many smaller energy companies that have seen significant upswings in their price, but investors should look to larger integrated companies too. Eggs and Baskets- as always!