Monthly Archives: February 2016

When the SPA makes you angry

I don’t know anyone who gets angry at a Spa, it always seems a nice relaxing place to be,  not that I have been to many!  In this instance however, SPA stands for ‘State Pension Age’ , a subject which is currently generating a lot of sentiment.

Of course, this is nothing new.  The Pensions Act 1995 started the equalisation process by bringing the SPA to age 65 for both men and women; although even this has been subsequently amended by further Pension Acts (namely 2007 and 2011).

So, when will you get your State Pension; and believe me, its not quite as straightforward as you might think?

Date of Birth
SPA Range
SPA Retirement Date Range
Who is Affected?
6 March 1953 – 5 December 1953
63 – 65
6 March 2016 – 6 November 2018
6 December 1953 – 5 October 1954
65 – 66
6 March 2019 – 6 October 2020
6 October 1954 – 5 April 1960
6 October 2020 – 6 April 2026
6 April 1960 – 5 March 1961
66 – 67
6 May 2026 – 6 March 2028
6 March 1961 – 5 April 1977
6 March 2028 – 6 April 2044
6 April 1977 – 5 April 1978
67 – 68
6 May 2044 – 6 April 2046
6 April 1978 onwards
6 April 2046 onwards


The Government confirmed that a regular review of the State Pension age, at least once every five years should be undertaken. The review will be based around the idea that people should be able to spend up to a third of their adult life drawing a State Pension. The first review must be completed by May 2017.

After the review has reported, the Government may then propose to bring forward changes to the State Pension Age. Any proposals to do so would, like now, have to go through Parliament before becoming law.

So what should I do?

Review your financial position, with a particular emphasis on the at retirement portion of your cash flow.

  • Obtain a forecast from the DWP to ensure you are due the full state pension
  • Check your private pension, or join your company scheme if you haven’t already done so
  • Estimate how much income you will need to live comfortably in retirement
  • Speak to us; we will help you get on the right path for the best chance of success

How do you get there?

We have written a number of blogs about what it is we do and how we do it, so I thought I would share with you a great sketch from our friend Carl Richards of Behavior Gap which illustrates perfectly the purpose of our guidance.

how do you get there

The first thing we need to find out is where you are today financially and then from there, determine; where do you want to go? Now the first bit is relatively easy, but the ‘where do you want to go’ part will be a little more difficult. For this we need to understand why money is important to you, particularly as this will guide every financial planning decision looking forwards.

Knowing where you want to go will also involve some element of “guess” work as none of us know what will happen over the next 20 to 30 years and therefore, we make predictions as to future investment returns, earnings, inflation, family and numerous other variables.

Once we know why money is important to you and what your goals are, then it is our job to tell you how to get there; I guess you could say that we are the financial sat nav! Now as I’m sure you are aware; sat navs are not always right and things such as traffic congestion mean that you occasionally have to go off course in order to get to your destination. This is exactly what will happen with your financial plan, but by working together we can get back on track.

Many of our clients are smart, and as successful people you might say that they are clever enough to manage their own finances. But, as Carl Richards often points out, you don’t employ a financial adviser because you are not smart enough to do it yourself, you employ one because they are not you!  Having a plan will help you to stick to your goals and we will remind you of this by getting between you and any potential slip-ups so that you can stay on track,  or certainly get back on track more quickly.




The Cost of Investment

Remarkably it is quite difficult, even for us, to get a firm handle on what the true cost of investing is.
First you need to understand what the components of cost actually are; for simplicity let us just focus on investment costs here (rather than the broader costs associated with obtaining financial planning advice, portfolio administration etc.).
 1.Ongoing Charges Figure (OCF):
For anyone who has invested money I am sure they will have heard about the ‘Annual Management Charge’ (AMC) for the chosen fund(s).  More recently investors will have heard about the ‘Total Expense Ratio’ (TER).  Both of these measures include certain expenses and exclude others – accordingly the ‘new’ measure is known as the ‘Ongoing Charges Figure’ (OCF).
This measure is the explicit cost that investors incur by investing in a fund. This is usually the sum of the AMC / TER and the other direct costs incurred by the fund, which can be offset against the fund’s performance. As such, the OCF is nearly always higher than the AMC / TER. OCFs can be found in the Key Investor Information Documents (KIIDS) that each fund is required to produce.
2.Turnover (dealing) costs:
These are the concealed costs incurred when stocks within a fund are bought and sold. The costs relate to the proportion of the fund that has been turned over (i.e. traded) and the costs of the transaction. Currently funds do not have to reveal the turnover costs that they incur when managing your assets within the fund.
Costs in practice
The figure below provides a summary of the estimated cost differential based on the latest research, capturing both the explicit and concealed costs. The figures relate to a 60% growth assets (equity) and 40% defensive assets (bond) mix, for an actively managed and a passive portfolio.  

60  40 costs matter chart

Figure 1: Cost comparison – costs matter (Source: Albion Strategic Consulting)
The cost differential may not seem that large but, due to the power of compounding over time, it is!
Obtaining value for money
The most important thing about incurring costs is that they should, each in turn, represent value for money. It could, perhaps, be argued that using active funds in a portfolio is likely to be poor value for most.  Over the past few years, passive fund costs have fallen significantly along with wrap platform fees, which is great news for investors.
Difference in terminal wealth
Figure 2: The relative difference in terminal wealth over different time periods (Source: Albion Strategic Consulting)
It is impossible to overstate how important it is to manage costs. It is something that we continue to do on behalf of our clients, through our systematic, low cost, scientific approach to investing.
As the legendary Jack Bogle once said:
‘In investing, realise that you get what you don’t pay for. Whatever future returns the markets are generous enough to deliver, few investors will succeed in capturing 100% of those returns, simply because of the high costs of investing—all those commissions, management fees, investment expenses, yes, even taxes—so pare them to the bone.’
We agree!

Landscape – Simple Pensions are just a dream…………..

The 2006 ‘A –day’ was meant to be the start of pension simplicity; its purpose was to reduce the high level of legislation and complexity built up over the years which was often seen as a barrier for people when planning their retirement.

The last 10 years has shown very little evidence to suggest that these changes have been successful in making pensions simple. In my view, pensions have become even more complicated, and to be honest, even I am becoming a little fed up with the constant changes.

From this April (2016), the amount that can accrue in pension arrangements is £1m and savings in excess of this level will be taxed at a penal rate of 55%. The impact of the change penalises the prudent saver, business owners, doctors, teachers, civil servants and senior executives in occupational pension schemes.

There will be some protection available to help shelter funds that have accrued to date for those who have funds above and below the current maximum of £1.25 million. If you stop making pension contributions or leave your final salary pension scheme by April 2016 you may retain the £1.25 million limit by applying for fixed protection.

Alternatively, individual protection is available for pension pots between £1 million and £1.25 million. This protects the value of the fund at 5th April 2016 and this fund value becomes your lifetime allowance up to a maximum of £1.25 million. This option enables further contributions to be paid however there could be a tax charge at a later date.

A further possibility is to draw benefits early or opt out of the scheme if you are at least 55 years of age. For some individuals, this may be a better option as it gives a higher lifetime allowance and allows you to continue making contributions. This would involve withdrawal of the full 25% tax free cash allowance.

In addition to these changes the government has tapered the annual amount that can be paid to pension schemes and this reduction can in the worst case reduce contributions from £40,000 to £10,000 for those earning over £210,000 (see  our previous blog which covers these changes).

In addition to this, there is a very good chance that the government will reduce tax relief to a flat rate of up to 30% which will be a large reduction for higher and additional rate tax payers. We await the detail on this but the current chancellor has to raise more tax revenue.

The combination of all of these appear to make pensions less attractive for some, when the opposite should be the case. It is clearly important to maximise opportunities now so that you can have a dream retirement …   leaving us to battle with the ever changing pension landscape.