Monday, 29 September 2014

Pensions turned on their heads

The end of the 55% tax charge will be a significant gain for some.
But the question Mr Osborne will have to answer is whether he is creating a way for better-off savers to escape tax.
They will have an incentive to use money stored in bank accounts and investments before dipping into the pension pot.
The reason? The pension will become a way of protecting up to £1.25m from some or all tax after death.
Those on lower incomes, who can't save much, and need the money during retirement, have not been in danger of paying the 55% and are unlikely to benefit from its removal.
Some experts, including the well known pension consultant John Ralfe, say the Osborne reforms turn pension saving on its head.
The point used to be to spread your income over your lifetime.
In future, pensions could become a method of preserving savings beyond the grave.

Friday, 26 September 2014

House prices up yet again

House prices are rising at their highest rate for nearly seven years according to the Land Registry for England and Wales.

Prices increased by 8.4 per cent in the year to August, the fastest rate since September 2007 and up from 7.5 per cent the month before.

The Nationwide and the Office for National Statistics have both released figures recently indicating that prices across the UK are continuing to move upwards.

However, research among estate agents published today and recent evidence from surveyors both suggest the market may be reaching a plateau.

Wednesday, 24 September 2014

Clamp down on comparison websites

The growing clout of price comparison websites like Gocompare, Comparethemarket and has stirred the UK authorities into trying to stop them abusing their power.

This is a new front a battle to contain the influence of internet sellers who gain easy access to millions of shoppers by advertising on TV and promising better choice and value.

This time the sites stand accused of charging us too much for car insurance by forcing insurers to accept agreements preventing other players from offering discounts.

The result, the Competition and Markets Authority is saying today, is that we are paying too much. The AA puts it at £20 too much per policy.

So how powerful are these websites? If you look at the detail of the CMA's report, you see how they have crept into a position from which they can force some of our biggest companies to do their bidding.

Although only 23% of motor policies are sold through the sites, 56% of new business -- not renewals, that is -- goes through them.

Of those policies, between 80% and 90% have been sold with the aid of special price agreements which defend the price comparison sites from being undercut -- agreements which insurers signed because these internet operators are the main way of winning customers.

Their operating margins are a very healthy 25%. That's a rate of profit which most financial firms would view with envy.

The CMA is banning agreements under which insurers concede that no one else will be able to charge less the the price comparison site.

This isn't the first attempt by the UK authorities to clamp down.

Over the summer the financial watchdog, the FCA, fired a shot across the bows of price comparison websites, accusing them of giving users insufficient information to choose products.

What happens is that you are lulled into thinking price is everything and don't check what you are buying. With insurance, you might get a cheap policy, but the level of cover might be totally inadequate.

And earlier this year, the Office of Fair Trading -- now part of the FCA -- had a go at the hugely influential websites which book hotel rooms and had deals in place with hotels to stop other online agents from offering discounts., Expedia and Intercontinental Hotels gave undertakings to permit the discounts, giving people the opportunity to shop around.

All these are skirmishes in an ongoing contest which pits regulators against a growing army of internet giants, who tell us they are on our side but can't always be relied upon.

The main problem with the price comparison and hotel booking sites is that they could rightly claim to be offering the cheapest deals - but that was only because other deals had been excluded.

Can they be contained? The CMA is showing that they can be, to an extent.

It is banning price agreements which cover the whole market. However, it won't prevent comparison sites from stopping the insurer offering a better price for cover on its own website.

These businesses are highly profitable, cheap to run and enjoy significant market power. It won't be long before they lock horns once again with those bodies whose job is to protect us from being overcharged.

Monday, 15 September 2014

Scottish homes tottering?

There is quite a lot of talk among Scottish estate agents and surveyors, and among mortgage brokers, about the potentially serious impact of a Yes vote.

There would be uncertainty, of course, but there is also speculation that mortgage lenders would be reluctant to lend and that house prices could fall sharply.

The reasoning is that the the possibility of Scotland adopting its own currency would raise the spectre of customers earning their wages in that new currency -- which might fall in value -- but having to pay back their loans in sterling.

Their monthly payments could go up. Hence banks might shy away from offering new mortgages.

One broker suggested the consequence could be a 25% fall in house prices in Scotland.

However, a top manager in one of the lenders tells me that this scenario is most unlikely, at the moment.

His bank has no plans to restrict mortgage lending in the event of a Yes vote, partly because they don't see the currency problem as a serious issue yet.

The view is that an independent Scotland would choose to stick with the pound, even if the UK government refused to allow a full monetary union.

"We'll still lend," is the reassurance I heard, "and we'll see what happens."

Tuesday, 9 September 2014

Watchdog's phones at ready for Yes

The UK's financial watchdog, the FCA, is bracing itself for a rush of questions if Scotland votes Yes to independence in next week's referendum.

The chairman of the FCA, John Griffith-Jones, told MPs that contingency planning included "such things as making sure our phone lines are properly manned, and making sure we have appropriate advice on Day One."

On disentangling the regime to protect consumers, he warned that "it will be complicated to work out the detail".

He said it would be the responsibility of the Scottish parliament to decide how regulation should work in future.

Mr Griffith-Jones, speaking to the Treasury Select Committee in Westminster, added that setting up a new system would provide regulators with "a lot of work".

Monday, 8 September 2014

Your money and a Yes

How would Scottish independence affect savings, mortgages etc held by people in Scotland?

The worries people seem to have hinge on the big question over which notes and coins might be used.

If an independent Scotland managed to keep the pound, then it might be easier to keep things much as they are at the moment - unless a new government in Edinburgh decided it wanted to change the rules.

But if not? If Scotland had a different currency, what then?

Would homeowners be in the worrying position of paying interest and paying back their sterling loan in a different currency to their wages?
Would new borrowers, using a new Scottish currency, find they pay higher interest because Scottish interest rates are higher than in England?
In fact, could Scottish savers find that they are earning higher interest for their nest eggs?

*Bank accounts
The Scottish Government has reassured savers and current account holders that they would have the same deposit protection that they enjoy now in the event of a bank failure, up to £85,000 per bank - a guarantee which is underpinned by EU rules.
So customers would hope that the guarantee would hold even if Scotland had neither the pound nor the euro.

Future pensioners are being promised a better state pension in an independent Scotland.
As for those with additional private pension savings, built up in sterling, might they be able to hope for a more substantial pension income if the pound proved stronger than a new Scottish currency?

Would the impact of a new or different currency on insurance be less significant?
Car insurance is already cheaper in Scotland for other reasons.
Car and home policies come up for renewal every 12 months anyway, so might this be less of a worry?

*Tax free savings
The Scottish Government has said it would continue to support tax-free savings, through products like savings and investment ISAs, after a Yes vote.
If Scotland had a difference currency, would old ISAs remain in sterling? Would transfers between old and new products be possible?

Lots of questions - and, as things stand, they are hard ones to answer.