The largest tour operator in Europe, TUI Travel, have revealed plans to merge four of their six active pension schemes in a very unusual restructuring plan.

The group, who are majority owned by German firm, TUI AG, will merge four company pension schemes together to make one large one.

After discussions with financial planners they will them be left with just three schemes, all of which will be provided with a small share of a partnership created by TUI Travel, a partnership which will hold the rights to the First Choice and Thomson holiday brands.

The partnership is being set up to make annual income distributions to the three different pension schemes, payments they hope will total around 16.5 million pounds over the next decade and a half. The partnership will make its money through royalty payments from TUI UK’s subsidiary for the use of the brands now owned by the partnership.

On top of the money from the partnership, TUI Travel have revealed an annual payment to the pension funds which will total £275 million and will be made until 2026, should the schemes remain in the red.

They will receive collateral for these payments from the partnerships interest in the Thomson and First Choice brands.

Chief executive of TUI Travel, Pater Long explained, “This is a mutually acceptable solution and an innovative scheme which mitigates the group’s pension risk whilst increasing security for members’ pensions,”

TUI are not the first company to use non-cash assets to plug holes in their pensions schemes.

Diageo, the firm who make Guinness agreed a 15-year plan last year which sees the firm commit to transfer 2.5million barrels of Scotch whiskey into their pension funds to help tackle their deficit, almost £900million.

Sainsbury’s and Mark and Spencer’s have both used property to increase the assets in their funds as firms have to look for non cash alternatives at a time when they are cash poor.

Budget proposals that threaten an increase from the current 18% Capital Gains Tax to a possible 40% or more would give the UK the highest level of Capital Gains Tax in the world. These budget changes are likely to hit entrepreneurs and business, despite government assurances that they would be protected, said the British Chambers in their submission to the Treasury ahead of next week’s budget changes on 22nd June.

Capital Gains Tax applies to gains from sales of assets, including private investments and gains from stocks and shares, and also to gains from sales of second properties and buy to let properties.

The British Chambers of Commerce cast doubt on government’s capacity to distinguish between private and business assets in relation to Capital Gains Tax, and also stated that in a survey of Chamber members, over three-quarters of businesses were concerned about the negative impression that hikes in Capital Gains Tax would send out to potential investors. With a 50% top rate of income tax and a possible 40% rate of Capital Gains Tax, Britain is sending out a message that it is a high-tax country, said British Chambers of Commerce spokesman Sam Turvey.

Britain’s rate of Capital Gains Tax of 18% is already higher than the average rate in other countries of 15%, while countries such as Austria, Belgium Switzerland and Germany have no such tax at all, said the BCC.

In addition to these increases, the budget proposals also include government cuts in the Capital Gains Tax allowances. While the first £10.100 of capital gains is currently tax-free, government budget cuts may reduce this to £2,000 on June 22nd.

Any budget proposals for government cuts in this area are expected to be implemented without delay, rather than being held over until 2011 or later.

The new report* reveals that while the number of seriously underperforming funds has risen from 77 to 90 over the last six months, the amount of money invested in these s0-called ‘dog’ funds is now £14.25bn, almost double what it was in January 2009. This is because adverse conditions in the markets in recent years have caused some of the country’s largest funds to slide into the ‘dog’ category.

“The last three years cover a period in which markets have fallen sharply and then recovered strongly. Funds which have managed to perform poorly in both conditions need to be inspected closely,” said Bestinvest.

In order for a fund to qualify for the ‘dog’ category in the Bestinvest report, it must be a UK-registered unit trust or open-ended investment company (OEIC) investing mainly in equities. The fund is then compared to the relevant benchmark or index, which for most is the FTSE All Share Index.

Then the fund must have underperformed the selected benchmark in each of the last 3 years, and have underperformed its benchmark by 10% cumulatively over three years as well.

The report serves as a reminder that any shares investment or stocks investment needs to be monitored on an ongoing basis, as a fund performing above its benchmark this year may not maintain its performance in the future.

One way to ensure that a shares investment is still performing well is by taking financial planning advice, preferably from an independent financial planner.

Principle First Financial Advisers offers a free funds portfolio analysis within its investments advice service, which will analyse a client’s existing shares investment portfolio, identify any underperforming funds, and recommend changes that should be made. Clients interested in setting up funds investments, Principle First offers a range of investment portfolios.

*Bestinvest’s quarterly ‘Spot the Dog’ guide to UK funds, Spring 2010

Would you like to discuss funds investments, or check  how your funds are performing? Contact us by making an online investment enquiry or ring freephone 0800 678 5929 now

Guaranteed investments are where performance meets peace of mind, coming as they do with a very simple guarantee: you get back at least what you put in.

Guaranteed investments come in many shapes and sizes, offering access to a wide range of asset classes from cash to property to equities. They appeal to those who are wary of taking on any risk to capital, but are attracted by the potential benefits that certain types of investments, such as medium-term stock market investments, have to offer. They are the perfect option for those prepared to pay an additional charge in return for the knowledge that they cannot lose, only gain in their investments.

It must be noted, though, that the real value of a lump sum would be reduced by inflation, if no growth were to occur during the term of the investment.

Three such guaranteed investments that copperfasten an agreed return are guaranteed bonds, income bonds, and fixed rate bonds.

Guaranteed bonds require you to lock your cash away for an agreed period, known as the term of the bond. At the end of the term they return your capital as a minimum, plus any growth that is achieved.

Certain guaranteed bonds provide the facility for taking income on an ongoing basis. One such bond is theMetLife Guaranteed Investment Bond, with a term of 8 years and the facility to draw up to 5% of your capital every year. The MetLife Guaranteed Investment Bondcombines the potential growth that the stock market has to offer, with the guarantee that your money will be returned in full. A particular attraction of the MetLife Guaranteed Investment Bond is the option to fold gains of up to 10% in any given year back into the bond, thus increasing the capital amount under guarantee.

Income bonds are guaranteed investments suited to those who want to take a monthly income from a lump sum, but avoid the stock markets altogether. Income bonds are not invested in stocks, and any charges on the bond are wrapped into the investment, so that you are paid the full amount of interest agreed.

Fixed rate bonds guarantee a fixed rate of interest on your investment, paid monthly or annually, either into the bond or into a separate bank account. Generally, the longer you agree to leave your money invested, the better the terms and conditions you will be offered.

Pension planning is on the minds of savers again, with 1 in 3 people thinking of setting up private pension schemes this year, compared with just 1 in 5 a year ago, according to Legal and General.

Increasing interest in a pension plan has been most marked among men, where 40% are now considering pension plans compared with 21% in 2009.

Interest in private pensions among women, however, has not changed significantly, although the trend is also upward. This year, 25% of women are actively considering private pensions, compared with 20% last year.

Not surprisingly, the bulk of interest in pensions planning comes from the 25 to 64 age group, while those younger or older than that show a decline in interest in pension plans, year on year.

To show the wisdom of making an early start on pension planning, Legal and General point out that aiming for a pension income of £20,000 per year at age 65 would mean monthly contributions of £234 for a 30 year old starting his pension plan today.

If the same person delayed starting their pensions planning by just 5 years, until they were 35, that figure would rise to £328 per month, to achieve the same target sum of £20,000.

For a man ten years older, in other words a 40 year old starting his private pension today, he would have to save £470 a month into his private pension to attain the same retirement income.

These projected pension plans do not factor in inflation, which would reduce what can be bought with £20,000 in the future.

Source: Legal & General MoneyMood Survey 2010

Pension Transfers – Know the Facts

It is important, when considering a pension transfer, that the correct assessment has been carried out on your existing pension, as well as a pension review on the pension product or wrapper to which you are moving. Most pension transfers can be classified into the following two areas.

Occupational Scheme Pension Transfers

Moving from an occupational scheme into a Money Purchase pension scheme is not to be treated lightly.  Only a select few financial advisers are qualified to advise on such an undertaking. Even those that do, need to carry out rigorous analysis, prior to recommendation. Before advising, a Principle First Pension Adviser will carry out a “Transfer Analysis”,  based on the potential benefits in your current pension scheme, and assess these in relation to what you may achieve in a Private Money Purchase scheme. There may be certain pension guarantees associated with your occupational scheme, that may not seem important today, but could become very important at retirement. When transferring from an occupational pension scheme, we must take into account your needs at retirement, as well as your needs today, when advising.

Many people will also consider moving from one Occupational Scheme  to another due to job migration. This is not necessarily the best option for clients, and advice would be necessary prior to making decisions.

Get pension advice on switching from an Occupational Pension Scheme

Transfers between Money Purchase Pension Schemes

For transferring between Money Purchase or Fund-based pension schemes, an analysis of the funds, and of the companies you are moving from and moving to, is needed. Assessing the restrictions and the benefits of both firms is a must, prior to our advising either way. As with Occupational Schemes, there are also many fund-based pensions with associated guarantees, especially older schemes that invested in With-Profit funds. In all these cases a thorough assessment is required, and the correct advice will ensure that you make the best decision.

Get pension advice if switching between pension funds

As a firm of Charetered Financial Planners, an accreditation given only to the highest-quality firms in the UK, we will carry out an analysis of the above  free of charge, prior to making any recommendations. If you need pension transfer advice, please contact us on 0800 678 5929

Click here for further pension advice

Figures published by the pensions consultancy part of Deloitte in July showed that the FTSE 100 companies (i.e. the top 100 companies on the London Stock Exchange) are, between them, some £300bn short on their pension provisions for employees.

The situation is building, and has again emphasised the wisdom of consulting your financial adviser to investigate setting up a personal pension scheme.

“This could be a demographic time-bomb,” said Gareth Flanagan, independent financial adviser at Principle First.

“It used to be the case that, for every two people working, there was one person retiring. In just a few years that could be reversed, with 2 people retiring for every one person working.”

“The era of the ‘nanny state’ is over. You are going to have to provide for yourself. Britain has always had the best pension schemes in Europe, but now, something must be done to encourage people to save on their own for their retirement,”  he said.

Flanagan noted that, while government has traditionally encouraged pensions saving and retirement planning, it now seems to be sending a mixed message. Politicians are taking a hard look at the cost of sustaining tax relief on pensions contributions, long the mainstay of the British pensions system.

“The government is already tinkering at the edges. The last budget limited tax relief t0 20% for high earners on salaries over £150,000, where they would have normally received tax relief at 40% before,” Flanagan said.

There is nothing copper-fastened about tax relief on pensions, in the current climate of aggressive belt-tightening in government spending. This major incentive underpinning employee motivation to save for retirement could well have only a few more years of life, and there are precedents a-plenty to show how such incentives can quickly disappear.

“There used to be tax relief on mortgages, and a tax relief of 15% on life policies. Both are now gone.

“With regard to tax relief on pensions saving, it may well be ‘buy now, while stocks last’”, Flanagan said.

An employer currently has no legal obligation to provide a pension scheme. However, if the company has more than 5 employees, it must designate a stakeholder pension scheme, that is, one run outside the company, typically by one of the large insurers.

The employer has no obligation to contribute to the scheme, but simply to facilitate employees making their own contributions.

There are two main types of company pension schemes.

The ‘final salary scheme’, also known as a ‘defined benefit scheme’, guarantees you a percentage of your final salary when you retire. Typically you would receive one-sixtieth of your final salary for every year of service to the company. By that measure, if you worked for your company for thirty years, you would receive a pension equal to half of your final salary in your retirement. This gives you a degree of guaranteed purchasing power, regardless of economic conditions and inflation. In final salary schemes, the company must stump up more money if the underlying investments are under-performing. As a result, companies are becoming more reluctant to set up or expand such schemes.

In a ‘group personal pension’ or ‘defined contribution scheme’, you define how much you contribute as you work, but there is no guarantee of the return you will receive at the end. That return depends on the performance of the funds where your pension has been invested.

If you as an employee change job, you can take your pension with you. A “Transfer Value Analysis” can be requested from a qualified tax expert, which will compare the value of your accrued benefits if left where they are, compared with their value if you moved them to your new company, or to another scheme. These are not exact calculations, as they must make certain assumptions, but can be helpful where, for instance, a person is considering moving his pension from a company scheme to a personal pension scheme.

Other ingredients in the employee benefits package might include income protection insurance, ‘death in service’ life insurance, and private medical health insurance.

Where income protection insurance is included, the cover might typically provide the employee with 50% of his salary in the event of incapacity, guaranteed until he reaches retirement age.

The  ’death in service’ life cover would pay out a lump sum, typically equivalent to  2 to 3 times the employee’s annual salary, in the event of his death. With group insurances you often have a free cover limit, which means that, up to a certain limit of cover, no medical evidence is asked for – the insurer calculates that the health of a group averages out better than the health of one individual. This is known as the ‘non-selection limit’ in the scheme. To qualify for the non-selection limit, you normally must have been at work for the previous two months.

Before doing so, however, you must identify your ‘risk profile’ as an investor. How much risk do you feel comfortable with? Certain products offer more promising returns than others, but the risk is higher as well, and many investment products carry a warning that ‘the value of investments can go down as well as up’. This means that, in a worst case scenario, you could be left with less than you put in.

There are five key questions you should ask yourself to identify your risk profile:

1. Am I comfortable with the value of my investments rising or falling by 25% or more in any given year?

2. If my investment fell significantly in value, would I see this as an opportunity to buy more at cheaper prices?

3. Would I prefer an investment which could not fall in value at all?

4. Do I prefer the security of bank accounts to more risky stock market-related investments?

5. Am I happy for the value of my investments to rise and fall quite rapidly in the short term?

Furthermore, your choice of investment might well evolve as you move through the various stages of your ‘financial life cycle’. For example, as you approach retirement you may wish to reduce the level of risk, moving your funds to more conservative products as any losses at this stage might be difficult to replace.

There are three principal routes to go when looking for a home for your cash: savings, stocks and shares, and bonds.

Savings accounts at the bank or building society are the standard option, with returns typically around 4% p.a. and relatively little risk. You can also avail of the cash Individual Savings Account (ISA) which enables you to place your money (up to a limit in 2009 of £3,500) in an account where it attracts interest tax-free. There are various ISAs available at varying rates of interest, which makes it sensible to take financial advice.

The next option is stocks and shares. Investment values rising and falling in cycles is a normal part of stock market activity, and can easily panic a novice investor. However, it must be borne in mind that, despite these cyclical fluctuations, what goes down generally comes back up, if you have the patience and flexibility to wait. Stock market investments tend to do better than cash over ten to fifteen years.

Share investments are more adventurous, and less predictable, than savings accounts. Your money buys shares in companies on the stock exchange and your investment value changes as the value of those shares rises or falls. While it is possible to invest directly in a large company like, for instance, BP, you would be ‘putting all your eggs in one basket’ and you would be at the mercy of the fortunes of the oil and gas industry for the term of your investment.

A more sensible option which allows you to spread your risk over many companies and industries is to invest through an equity fund. Here, together with many other investors, you pay an annual fee to a professional fund manager who invests the cash in a diverse range of companies on your behalf. Best advice is to use shares as a longer-term investment. They are a great way of saving for a pension in 25 years’ time, but not for a holiday or a purchase you are planning for next year.

The third option are bond products, which have been described as a hybrid between an investment and a savings account. Bonds still place your cash in the stock market, but also pay out fixed interest, like a savings account. A bond is a piece of paper issued by the government or by a private company, which comes with a promise to pay you back with interest at the end of an agreed investment term. However, bonds can be traded, and you are free to sell your bond at any time.

As of next April, if your salary is over £100,000, then you may wish to consider that you face a gradual loss of your Personal Tax Allowance, which is the portion of your salary the Revenue allows you to earn tax-free.

This happens at a fixed rate. For every £2 of income you have above the £100,000 threshold, you will lose £1 of personal allowance.

Effectively, your personal allowance will have disappeared completely if your salary exceeds £114,000.

In this case, you may wish to opt for a voluntary cut in wages. You can achieve this by making a contribution to your pension scheme. If this lowers your income to the £100,000 level, it is an efficient way to preserve your personal allowance.

Diverting funds into your pension in this way will give you effective tax relief of 60%.

Another option would be to reduce your taxable income by making a contribution to charity.