Finding a title for a blog after an interesting meeting is usually straight forward. One tends to pop out during or after the occasion, but find myself stumped. Several possible titles present themselves after a talk about the Financial Services Compensation Scheme like: Thank your lucky stars! Here comes the cavalry or the old Chinese curse, May you live in interesting times!

Last 18 months have certainly been interesting with £21 billion paid out in compensation. Surrounded by pictures of the great & good in Lloyds Old Library, Loretta Minghella FSCS Chief Executive took us through her term. FSCS exists as a safety net to pay compensation to customers of firms regulated by the FSA and was formed December 2001 as the result of mergers of several compensation schemes under the Financial Services & Markets Act 2000. Limits are:  http://www.fscs.org.uk//consumer/what_we_cover/Eligibility_Rules/compensation_limits/  but compensation kicks in where the regulated firm is unable or likely to be unable to pay claims.

Being independent of the financial services industry and not a consumer group either, it is financed by a compulsory levy. The funding structure is complicated but when one level of compensation money runs out, other broader ones kick in giving it a capability of raising up to £4 billion in one year www://www.fscs.org.uk/industry/funding/  Working on a pay as you go basis with no pre-funding, the FSCS took out Government loans when it had to step in when four banks failed in two weeks in 2008. Number of phone calls to FSCS when Lehman went down – who did not have a retail branch network – was 10x the number received when it was all happening to Northern Rock.

When the question is “Where do you borrow £14 billion?” and it’s a weekend, the answer is Treasury/Bank of England. With Bradford & Bingley, a deal was arranged over the weekend, £14 billion transferred Monday morning with the main casualty being someone’s wedding anniversary. Interest is 30 basis points (0.3 per cent) over LIBOR the interbank/money market rate and when money comes in from recoveries and the sale of failed company assets, this is used to reduce the principal.

Part of the reason for the famous queues at Northern Rock was the lack of awareness of the FSCS. Only 21 per cent of the population were aware of it in a recent survey. Current work in progress of failed institutions includes: 27 General Insurance companies, 2 Life Insurance companies & 5 banks. Unsurprisingly, this includes paying compensation to customers of Payment Protection Insurance companies  http://www.georgeemsden.co.uk/2009/02/reasons-to-be-cheerful/  and my other bête noire Structured Products  http://www.georgeemsden.co.uk/2009/10/pica-pica-pica/

Development includes new IT systems for all banks to produce a so called “single customer view” so if one fails, the extent of the liabilities can be known instantly. Trawling through thousands of  complicated data sets would take forever and the loss of confidence would be terrible. The on-line system for Icesave compensation for example, was set up in three weeks and between the September and Christmas concerned, 190,000 Icesave customers got their money this way in a process lasting a few minutes. A paper-based system would have been a joke by comparison.

While the scope of the FSCS protection is much broader than any other EU state, it does have limits. Compensation is just for financial loss and only the Financial Ombudsman Service   http://www.financial-ombudsman.org.uk/ can make awards for distress and inconvenience. Some EU states have compensation schemes for deposits, other for investments, others for insurance &c. but the UK system is the broadest. A new EU Directive will make it necessary for all states to have depositor protection and will eventually cover all the other areas too. This might also stop the financial regulatory equivalent of asylum seekers or people from a poorly protected financial environment piggy-backing onto our more comprehensive one.

www.3cscommunity.org meeting at Simmons & Simmons is another vintage occasion. First speaker who has been there and done that, having set up and sold two companies, warns of the dangers of floating your company. Ordinary shares are not always popular with brokers as they might be unable to do some smoke and mirrors. The story tells of A warrants, B warrants, brokers’ warrants and Convertible Preference shares all which have advantages and disadvantages depending on whether the share price goes up/down and by how much. Moral appears to be “don’t always trust your broker!” which is difficult if he is handling the sale of your business. Other morals are keep the nominal value of your shares small e.g. .001p rather than say, £1 and keep control of the Board. Cliques can form and you might find yourself ejected from your own business.

Fascinating but scary presentation from THOR Photomedicine who specialise in LLLT or Low-level Laser Treatment. Can remember a TV programme years ago when someone said that “Lasers were a solution looking for a problem!” LLLT used in treatment of neck-pain for example, avoids the use of NSAIDs or Non-steroidal anti-inflammatory drugs which seem to have some horrifying effects. They are the 15th largest cause of death in the USA, can inhibit healing for other conditions not to mention reducing erectile function. Cure worse than the disease? Other areas of treatment are cancer sufferers who have had chemo - apparently they lose the lining of their mouth & intestines making eating painful and shingles sufferers whose skin can become ultra sensitive. Results appear to be confirmed by several cross-over placebo studies i.e. the real treatment and a dummy treatment are swapped halfway through the trial. 200 papers have been published about LLLT i.e. more than some prescription medicines including the ones given for AIDS. Presenter doesn’t know how much funding is required yet but there are plenty of people at 3Cs to help here. The potential is in the future delivery of the LLLT treatment e.g. knowing the right wavelength to have the best healing effect.

The idea is almost ancient being first mentioned in 1967 by an iron curtain country which did not have the resources to develop it. In other words, inventing a new medicine doesn’t seem to be a way to get rich quick, as the development time from discovery to mainstream is 40 years!

It’s November. Remembrance Day and most recently the Lord Mayor’s Show. Rained on like last year, a 3 mile procession  squeezed onto a 1.7 mile route celebrates an office created in 1215 where the most famous Mayor was Dick Whittington - real historical character although probably better known as a pantomime one these days. Primogeniture rules where the eldest son has the right to inherit the whole estate with his siblings getting little or nothing. Dick is a younger son so he has to get a trade, resulting in his being apprenticed to be a Mercer. The Worshipful Company of Mercers are traders in fine cloth, being one of the twelve  first or “great companies” of the City of London and part of the respectable business community. In contrast, Southwark across London Bridge is where you went if you wanted a good time or do something shocking like visit the theatre http://www.georgeemsden.co.uk/2007/08/all-the-worlds-stage/ History buff tells me that Queen Elizabeth I would never have actually visited the theatre as shown in Shakespeare in Love http://www.imdb.com/title/tt0138097/quotes (ladies didn’t do that sort of thing) but bear baiting would have been OK.

But today the action is very much on the north side of the river and with 15 wet minutes to spare, I am at the Royal Courts of Justice where the Mayor-elect arrives on time at 12.38 hrs in his magnificent golden coach just after the various masters of the Livery Companies in many carriages. Time for a pint and lunch in The George opposite and the exit of the red-coated Lightermen signals the return of the new Lord Mayor who has taken his oath of office before the Lord Chief Justice and Judges of the Queen’s Bench Division. Alas am too tired to partake in the free guided walks starting at Poultry at 3pm. Sir Richard Whittington held the office 3 times: 1398, 1406 & 1419 and was prosperous enough to lend money to the king Henry IV – this was before the Bank of England, see my recent visit there - http://www.georgeemsden.co.uk/2009/10/they-dont-like-it-up-em/ As the City has always promoted commerce it has at times been quite forward looking, with the first lady Lord Mayor elected back in 1970s.

13 marching bands take part plus 2,000 servicemen & women and is interesting to hear a reservist saying  that it is difficult to form a group to take part as so many are away on active service. This brings me to my most recent read Curveball by Los Angeles Times journalist Bob Drogin (ISBN 978-0-09-192303-7) winner of several awards including the Pullitzer.

Helen of  Troy’s beauty was said to be “the face that launched a thousand ships” and the ten-year Trojan War. But the 21st century equivalent in Iraq and now Afghanistan is sadly less pretty, if no less bloody. Curveball is the cover name given to an Iraqi taxi-driver who has been fired from previous jobs, has debts, is a compulsive liar and applies for political asylum in Germany November 1999.

All he really wants is to get his family out of Iraq, have a nice house in the West and of course, a big Mercedes. Might as well make the best of it so two months later as his application is being processed, he mentions he has information about Iraq’s biological weapons.

At first the information is considered priceless but begins to tarnish through lack of verification. Additionally Curveball’s Arabic is mangled in translation into German then English by people who do not have degrees in biology or weapon manufacture. Putting biological weapons in an explosive warhead is easier said than done, as the energy and heat from the explosion detroys the nasty stuff inside. And as one disillusioned WMD-believer American said, the only way one these weapons would kill you was if it landed on your head! The whole fiasco is only publicly admitted to be fabrication in May 2004 – long after the invasion. Before then, people who questioned the perceived wisdom that Saddam must have had WMDs (Weapons of Mass Destruction) are harshly treated – shooting the messenger. Curveball’s influence is a classic case of being in the right place at the right time and people hearing what they wanted to hear.

Curveball likes internet cafés and most of his information is gleaned from the UN website aided by careless questioning by the Germans which show him what he needs to bone up on. When standard background checks are finally done by the Americans in Iraq with his family, school friends and former colleagues, nothing stands up.

Fundamental to the whole scenario is deep mistrust by the Americans of the BND http://www.topspysecrets.com/bnd-bundes-nachrichten-dienst.html the German Intelligence Service. While the West may have won the Cold War, one might think that the Russians won the espionage one. With many agents in Germany, they brought about the resignation of West German Chancellor Willy Brandt after his close aide Gunther Guillaume, was exposed as a KGB agent. Imagine someone like Alistair Campbell or Peter Mandleson being unmasked as a Russian spy while serving with Tony Blair?

The legacy of distrust prevents the Americans from seeing much of the intelligence which is only shared when it suits. The Americans never show anything to the Germans, so why should the Germans be helpful? Interestingly, MI6 get on better with the German BND and voice suspicions earlier than their American cousins. Interesting account of the turf war at the CIA between the analysts and the field people who run agents – is Curveball genuine or not? Plus a new insult for my phrasebook in one heated meeting “You can kiss my a*** in Macy’s window” said by one lady to another!

By the time middle-ranking CIA officials are really worried, the billion dollar war machine is on the road with people’s reputations, budgets and pensions on the line. Comic moments include the discovery of traces of ammonia in two battered mobile germ factories first hailed as proof of WMDs. For once, the Saddam’s regime told the truth and the containers were for producing hydrogen – not germs. Checking with friendly Iraqis previously involved with WMDs yields a simple explanation for the ammonia – urine! and if you will pardon the awful joke, they were not taking the …….. And Colin Powell’s famous speech to the UN in February 2003 turns out to be fiction.

All in all, a good read with plenty of sources quoted which makes James Bond a bit dull. The reviews on Amazon for this book if you wish to read them, are under the paperback edition http://www.amazon.com/Curveball-Spies-Lies-Con-Caused/product-reviews/1400065836/ref=cm_cr_pr_link_next_2?ie=UTF8&showViewpoints=0&pageNumber=2

Finally and for the uninitiated perhaps, the English equivalent of a curveball (from baseball) is a googly which any cricketer might be happy to explain.

Everyone is talking about Lottery winnings. Great fun last week to be on the Big George Show on BBC Radio London 94.9 FM talking about a lucky couple who have won £4 million and want to keep their council flat. Research shows that the happiest Lottery winners tend to be those do not cut themselves off from their roots. Nice thing about this story is that the winners are doing exactly this and are basically making the money work for them rather than the other way round. Depressing number of Lottery winners have little or nothing left after a year or two. Winning a huge amount (or maybe inheriting it) doesn’t sound much to do with pensions but unless you do win a decent amount, chances are that your pension funds are the largest pool of money you will ever have.

Before knowing if you have enough pension or how far ahead or behind you are, do an audit and here is a layman’s guide so you can do the exercise yourself.

a) make a list of all the places you have worked and find any correspondence from this. If you have worked somewhere for 2 years, you may have earned a small pension.

b) if the employer is still in existence, write to them asking what pension benefits you may have. Try and make it easy for them with dates, job title, department, location etc. Pensions may be administered by another firm so you may have to write more than once

c) if the employer doesn’t exist anymore, there would have been a receiver if they went bust, or if they were taken over, try Companies House http://www.companieshouse.gov.uk/

d) if the insurance or pension company doesn’t exist anymore, try the Association of British Insurers http://www.abi.org.uk/CompanyList/or contact Unclaimed Assets Register http://www.uar.co.uk/ where there are £15 billion of unclaimed assets or the Goverment’s Pension Tracing  Service  http://www.direct.gov.uk/en/Pensionsandretirementplanning/PlanningForRetirement/AboutToRetire/DG_10027189e

e) once you have located the benefits, make sure you receive a benefits statement annually and chase them if you don’t receive one. Chances are that your Nominated Beneficiaries - the people who would inherit your pension fund if you die before taking them, will need changing. Usual reasons are: marriage, divorce or children.

f) when you have the values which will be: a current transfer value or fund value, make a note of all them along with your current pension arrangements. Add them up. Leave out any non-pension money.

g) NOW you can go to a pensions calculator and see how much pension you will get for a given level of contribution. Google will show up many of them, but here is an FSA one http://www.moneymadeclear.fsa.gov.uk/tools/pension_calculator.html

Have some fun here:

i) firstly, do the exercise just with your pensions adding in the total from f) above and see what pension a particular contribution will give you.

ii) then do it adding in your other savings and investments, as if they were in your pension fund too. This should reduce the contribution required

iii) then do the exercise pretending that the value of your home is in the pension fund

iv) see how changing the retirement age affects the figures

Be prepared for some surprises. If you want a “ball park” figure for how much to put away each month – 15 per cent will do. Save less and you are probably going to be working beyond 65. And in 2024, the State Pension Age will go up to 67 anyway. As a friend put it recently, “Soon ‘retirement’ will be something our grandparents did!”

Second media appearance this week is on www.jnetradio.com talking about long-term care in a programme fortuitously sponsored by http://www.freemanssolicitors.net/ as long-term care and inheritance tax planning are areas where the skills of IFAs and solicitors overlap. Common question here is “Surely my private medical insurance covers this?” but the answer is No! Private medical insurance (BUPA et al) only covers acute or curable conditions e.g. hip replacements – something that can be fixed or cured.

Chronic or incurable illnesses are covered by long-term care insurance. With only two providers in the market, it can be expensive, but perhaps not as expensive as waiting to see what runs out first – the person in care or their money. It can be used to cover the cost of care in a nursing/residential home or at home. For info on the latter see http://www.caringandsharing.info

If you have private medical insurance, you might wish to get the handbook out and check this point. Can’t find it? call the provider and get them to send you a new one. If you have none and are employed, see if you can get it through your Employee Benefits package, as it will be probably be cheaper than buying directly. If you haven’t got it and want some, do it via a broker rather than just buying some off the net – there is a difference between price and value.

To conclude, let me step out of my comfort zone of pensions &c. and put myself on the side of our dear Prime Minister who seems caught like the proverbial seagull in an oil slick over his handwritten condolence letter to the mother of a dead soldier. Goodness knows there are plenty of things to sink the good ship Gordon with e.g. Northern Rock and other examples of sparkling financial management of the economy, but not this matter. No Prime Minister is going to want to upset a mother of one of our dead soldiers and while the letter does not look the tastiest or tidiest missive ever sent (he is blind in one eye apparently?) it is crass to feel that there were anything other than good intentions behind it.

Perhaps I am feeling a bit embarrassed here. My History master at school, former Spitfire pilot and Headmaster too, gave fascinating accounts of the Regency period and Industrial Revolution. Subjects included Beau Brummell, Robert Owen, and Crop rotation – with plenty of homework. One of my history essays was handed back with a respectable mark, but illegible comment on the footer. After literally 10 minutes of deep thought, the message is clear………….

Would have been more acceptable ………….if neatly written.

Sometimes you can’t win.

Funny thing advice. Seems to be too much of it or perhaps too little, but which or whose advice do you follow? Trust your own intuition? Often this is right, but can be spectacularly wrong. Early in his career, actor Michael Caine threw up and rushed from the viewing room after seeing himself for the first time on a big screen in colour in the rushes of the feature film Zulu and seriously thought  he would be sacked. Previous acting parts had been small and in B&W including playing a Pakistani gentleman in Dixon of Dock Green, but Zulu made his name leading to the The Ipcress File and many other films. This led to his living in Los Angeles for a while with its clear blue skies but eventually the sight of this every morning ended up making him depressed rather than uplifted, so it was back to Blighty – too much of good thing it seems.

One can almost feel sorry for people in positions of power as advice is one thing they are often not short of. How many advisers does Barack Obama have to talk to every day? David Cameron has his share of advisers and has announced that he is not supporting the consensus on Personal Accounts anymore. These are the new compulsory pensions originally designed to come in 2012 for which a quango http://www.padeliveryauthority.org.uk/has already been set up. But enrolling everyone in is going to be a lot of work so implementation looks like 2015. Total contributions are planned to be 8 per cent of earnings including employer’s, employee’s and tax relief. This will help but is not enough to fully fund any pension scheme even with 7 per cent growth, so will help the problem but not solve it. Australia which is far ahead of the UK where financial services are concerned as well as having a younger population, makes people invest 8 per cent of their own earnings NET or before tax relief.

Most curious is the deafening silence over the public sector pensions cost of £1.2 trillion where we pay higher and higher taxes so 17 per cent of the workforce can have their pensions insulated from the economic problems the rest of us have to put up with. In 7 months time, the election should be out of the way and the bad news can begin – and Michael Caine is voting Conservative this time.

On a happier note, it is nice to have an enquiry from a client about Child Trust Funds. These are a strange new idea introduced by this Government where parents of children born after 31 August 2002 get a £250 voucher while poor families get £500 which their child can have at 18. Families can contribute  up to £1,200 a year and the Government pays a further £250 when the child is 7.  At 18, the scheme can be rolled into an ISA if the child has not spent it already but with so many financial products around, one wonders why ISAs were not used in the first place. If you haven’t decided on your CTF provider yet, here is a list: http://www.childtrustfund.gov.uk/templates/Page.aspx?id=1246

Thanks again to www.mycompanypension.co.uk for highlighting the latest Pension Protection Fund report http://www.pensionprotectionfund.org.uk/news/pages/details.aspx?itemID=136 which shows:

• 104 schemes are now in the PPF
• 31,465 people are receiving or will receive compensation in the future
• The PPF paid out more than £6 million in compensation between 1 September 2009 and 30 September 2009
• The average yearly compensation is around £4,000 per person
• The oldest recipient is 104, and the youngest is seven years old
• The PPF now has a total of 342 schemes in the assessment period representing a total of 196,118 members
  

Note that the PPF is for members of the increasingly rare Defined Benefit Pension schemes (employer carries the investment risk). Members of Defined Contribution schemes (employee or you carry the investment risk) are covered by the Financial Services Compensation Scheme – limits here: http://www.fscs.org.uk/industry/about_us/limitations/compensation_limits/

Have finally found the website http://www.pica.org.uk for the PICA Pension Income Choice Association mentioned in last week’s blog http://www.georgeemsden.co.uk/2009/10/pica-pica-pica/

Let me finish on long-term care again. Further developments in my enquiries show a huge disparity in capital required to provide a given level of benefit – £43,000 and £113,000. Getting a “rough quote” is basically a waste of time. The questions involved in getting a proper quote run for 3 pages and mean talking to the client directly or maybe their nurse/carer but at least the figure given means something. If the case goes to a formal application, then the proper long-term care underwriting is done with information supplied by the elderly person’s GP rather than a medical. There will be a cognitive test too i.e. do they know what day it is? but this is done sensitively by a nurse and takes 5 – 10 minutes.

To find a specialist adviser here, go to: www.societyoflaterlifeadvisers.co.uk where members will have passed specialist exams in long-term care and equity release. At the LaterLifeSymposium09 mentioned in my blog two weeks ago http://www.georgeemsden.co.uk/2009/10/they-dont-like-it-up-em/ only 1 person in 7 in a care home, had received financial advice.

And if you are doing nothing this Sunday lunchtime 8th November 2009, I will be discussing this matter on www.jnetradio.com from 1 – 2 pm.