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Economy

Don’t get fooled again: a Daily Mail budget proposal with a Financial Times impact

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George Osborne unveiled significant changes to the UK pensions landscape in his budget on Wednesday. Hailed as a revolution and freedom for the common man, Julian Parrott argues the changes were in fact an illusory, Daily Mail-focused con.

Roger Daltrey may not have achieved his apparent desire to “die before I get old” but at least he has the multimillions derived from rockstar royalties, business and a highly rewarding touring circuit to fall back on in his dotage. Not for him the decisions about whether to take the tax free cash, annuitise or drawdown income from his pension. But to paraphrase Roger again, I issue a word of caution to his baby boomer fans and the many of us to follow – “Don’t get fooled again”!

George Osborne’s acutely political act of sophistry in his budget on Wednesday was part two of his idol Maggie Thatcher’s first introduction of pension ‘freedom’ in the 1980s. At the time, like today, some adjustments to the pensions structure were necessary but the centre piece of that legislation was the ‘freedom’ to opt out of your final salary scheme or move your pension fund to your own ‘personal fund’ and have ‘control’ over your future. This went hand in hand with the ‘freedom’ to reclaim State Earnings-Related Pension Scheme (SERPs) contributions from the state and put them in your own pot.

This new-found freedom was the first death knell of the late lamented final salary scheme and led directly to the pensions mis-selling scandals of the 90s. In fact, so bad were these reforms that the SERPs opt out were effectively cancelled some 10 years ago and Osborne’s proposals are consulting on the total ban of occupational pension transfers.

I hear a lot in the media about “taking the shackles off” and “freedom to choose”, but if life has shown us anything it’s the lack of financial sophistication and literacy that the general public have shown over years with their finances. That we have a massively under-saved population with an obsession for housing and a deep suspicion of pensions is undeniable – I have my doubts whether the proposals unveiled on Wednesday are the solution. I have already had my first enquiry for a pension ‘cash-in’ from a significantly under-funded client who could really do to save more not cash in.

The proposals demonstrate what a clever political operator Osborne is. The pension proposals appeal to the many but really only make significant impact on the few, and those few are the wealthiest. This is a Daily Mail budget proposal with a Financial Times impact.

The reality is that for those with small pension pots the ‘choice’ is illusory. With a small pot, there are limited choices about what they can do for an income. The cost, risk and complexity of a managed drawdown fund put it out of reach of those without other resources to fall back on.  The safe, secure income option other than an annuity is to draw an income form a deposit account. With interest rates at 2.5% for a three-year bond at best, that is well below what an annuity will offer you and inflation erodes your capital every year. The conundrum for any income-seeking capital investor is that if you need the income, you can’t spend the capital.

Annuities serve a purpose – to give people certainty over future income, a monthly payment to pay the bills. The annuity market has been changed dramatically, not by major life companies portrayed as celebrating at every early death of an annuitant (there is a cross subsidy factored into every annuity calculation) but by the impacts of free market capitalism. Most notably, the massive fall in gilt yields arising from the fallout of the financial crisis but also the cherrypicking of the very lives that help to cross subsidise the market by the enhanced annuity providers. For those with very strongly held, often faith beliefs, the need to draw a gilts-based annuity that benefits from others’ mortality will be welcome, but that was effectively there with drawdown anyway.

The winners, as ever, from these proposals are the wealthiest. The options to draw down and control the flow of money works well with individuals who already have enough money to live on and want to play the tax system with their income flows – perhaps funding with higher rate tax relief when incomes are high and drawing out at basic rate when incomes can be manipulated as low. With no compulsion to annuitise or for the pension pot to suffer 55% penalty charges on death, the pension now becomes a valuable tool in the hands of the planner for mitigation of inheritance tax.

It was politically unacceptable for the chancellor who, in opposition, promised a £1m inheritance tax nil rate band, but in these proposals he has gone a long way to introducing it by stealth.  All over the country, the wealthiest are engaged with their advisers as to how they can use this new-found freedom to pass this pot that has been built up on higher rate relief over to the next generation.

One thing is for sure, Osborne has caused “a big sensation”. Queue up for the Magic Bus.

Julian Parrott is a founding partner of Ethical Futures, ethical specialist independent financial advisers (IFA) based in Edinburgh.

Further reading:

Osborne is fiddling while the Earth burns: ‘extracting every drop of oil we can’

Budget 2014: Pensions shake-up divides industry – but may boost sustainable investment

Budget 2014: Osborne freezes carbon price floor and boosts North Sea oil

Budget 2014: Investment tax relief to boost social enterprises

Budget 2014: the reaction

Julian Parrott is a founding partner of Ethical Futures, ethical specialist independent financial advisers (IFA) based in Edinburgh.

Economy

Report: Green, Ethical and Socially Responsible Finance

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“The level of influence that ethical considerations have over consumer selection of financial services products and services is minimal, however, this is beginning to change. Younger consumers are more willing to pay extra for products provided by socially responsible companies.” Jessica Morley, Mintel’s Financial Services Analyst.

Consumer awareness of the impact consumerism has on society and the planet is increasing. In addition, the link between doing good and feeling good has never been clearer. Just 19% of people claim to not participate in any socially responsible activities.

As a result, the level of attention that people pay to the green and ethical claims made by products and providers is also increasing, meaning that such considerations play a greater role in the purchasing decision making process.

However, this is less true in the context of financial services, where people are much more concerned about the performance of a product rather than green and ethical factors. This is not to say, however, that they are not interested in the behaviour of financial service providers or in gaining more information about how firms behave responsibly.

This report focuses on why these consumer attitudes towards financial services providers exist and how they are changing. This includes examination of the wider economy and the current structure of the financial services sector.

Mintel’s exclusive consumer research looks at consumer participation in socially responsible activities, trust in the behaviour of financial services companies and attitudes towards green, ethical and socially responsible financial services products and providers. The report also considers consumer attitudes towards the social responsibilities of financial services firms and the green, ethical and socially responsible nature of new entrants.

There are some elements missing from this report, such as conducting socially responsible finance with OTC trading. We will cover these other topics in more detail in the future. You can research about Ameritrade if you want to know more ..

By this report today: call: 0203 416 4502 | email: iainooson[at]mintel.com

Report contents:

OVERVIEW
What you need to know
Report definition
EXECUTIVE SUMMARY
The market
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
The consumer
For financial products, performance is more important than principle
Competition from technology companies
Financial services firms perceived to be some of the least socially responsible
Repaying the social debt
Consumer trust is built on evidence
What we think
ISSUES AND INSIGHTS
Creating a more inclusive economy
The facts
The implications
Payments innovation helps fundraising go digital
The facts
The implications
The social debt of the financial crisis
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
PUTTING FINANCIAL SERVICES IN AN ETHICAL CONTEXT
An ethical economy
An ethical financial sector
Ethical financial services providers
GREEN, ETHICAL AND SOCIALLY RESPONSIBLE ISSUES IN FINANCIAL SERVICES
The role of investing
Divestment
The change potential of pensions
The role of trust
Greater transparency informs decisions
Learning from past mistakes
The role of innovation
Payments innovation: Improving financial inclusion
Competition from new entrants
The power of new money
The role of the consumer
Consumers empowered to make a change
Aligning products with self
THE CONSUMER – WHAT YOU NEED TO KNOW
For financial products, performance is more important than ethics
Financial services firms perceived to be some of the least socially responsible
Competition from technology companies
Repaying the social debt
Consumer trust is built on evidence
Overall trust levels are high
THE ETHICAL CONSUMER – SOCIALLY RESPONSIBLE ACTIVITIES
Payments innovation can boost charitable donations
Consumer engagement in socially responsible activities is high
Healthier finances make it easier to go green
SOCIALLY RESPONSIBLE COMPANIES
37% unable to identify socially responsible companies
Building societies seen to be more responsible than banks….
….whilst short-term loan companies are at the bottom of the pile
CONSUMER TRUST IN THE BEHAVIOUR OF FINANCIAL SERVICES COMPANIES
Overall trust levels are high
Tax avoidance remains a major concern
The divestment movement
Nationwide significantly more trusted
Trust levels remain high
CONSUMER ATTITUDES TOWARDS GREEN AND ETHICAL FINANCIAL PRODUCTS
For financial products, performance is more important than principle
Socially conscious consumers are more concerned
CONSUMER ATTITUDES TOWARDS TRANSPARENCY
Strategy reports provide little insight for consumers
Lack of clarity regarding corporate culture causes concern
Consumers want more information
THE ROLE OF FINANCIAL SERVICES FIRMS IN SOCIETY
The social debt of the financial crisis
THE SOCIAL RESPONSIBILITIES OF FINANCIAL SERVICES FIRMS
For consumers, financial services firms play larger economic role
Promoting financial responsibility
CHALLENGER COMPANIES AND SOCIAL RESPONSIBILITY
Consumer trust is built on evidence
The alternative opportunity
The target customer

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Economy

A Good Look At How Homes Will Become More Energy Efficient Soon

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energy efficient homes

Everyone always talks about ways they can save energy at home, but the tactics are old school. They’re only tweaking the way they do things at the moment. Sealing holes in your home isn’t exactly the next scientific breakthrough we’ve been waiting for.

There is some good news because technology is progressing quickly. Some tactics might not be brand new, but they’re becoming more popular. Here are a few things you should expect to see in homes all around the country within a few years.

1. The Rise Of Smart Windows

When you look at a window right now it’s just a pane of glass. In the future they’ll be controlled by microprocessors and sensors. They’ll change depending on the specific weather conditions directly outside.

If the sun disappears the shade will automatically adjust to let in more light. The exact opposite will happen when it’s sunny. These energy efficient windows will save everyone a huge amount of money.

2. A Better Way To Cool Roofs

If you wanted to cool a roof down today you would coat it with a material full of specialized pigments. This would allow roofs to deflect the sun and they’d absorb less heat in the process too.

Soon we’ll see the same thing being done, but it will be four times more effective. Roofs will never get too hot again. Anyone with a large roof is going to see a sharp decrease in their energy bills.

3. Low-E Windows Taking Over

It’s a mystery why these aren’t already extremely popular, but things are starting to change. Read low-E window replacement reviews and you’ll see everyone loves them because they’re extremely effective.

They’ll keep heat outside in summer or inside in winter. People don’t even have to buy new windows to enjoy the technology. All they’ll need is a low-E film to place over their current ones.

4. Magnets Will Cool Fridges

Refrigerators haven’t changed much in a very long time. They’re still using a vapor compression process that wastes energy while harming the environment. It won’t be long until they’ll be cooled using magnets instead.

The magnetocaloric effect is going to revolutionize cold food storage. The fluid these fridges are going to use will be water-based, which means the environment can rest easy and energy bills will drop.

5. Improving Our Current LEDs

Everyone who spent a lot of money on energy must have been very happy when LEDs became mainstream. Incandescent light bulbs belong in museums today because the new tech cut costs by up to 85 percent.

That doesn’t mean someone isn’t always trying to improve on an already great invention. The amount of lumens LEDs produce per watt isn’t great, but we’ve already found a way to increase it by 25 percent.

Maybe Homes Will Look Different Too

Do you think we’ll come up with new styles of homes that will take off? Surely it’s not out of the question. Everything inside homes seems to be changing for the better with each passing year. It’s going to continue doing so thanks to amazing inventors.

ShutterStock – Stock photo ID: 613912244

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