Toxic Bio-fuels

It’s great being old or rather what I would have thought of as old when in my teens and twenties. My brother’s daughter is getting married so it’s over to Germany for the family gathering and as bro’s school term hasn’t finished yet, we are invited to an Open day. Germany is more keen generally on eco stuff than the UK and among the displays of class work is a project on bio-fuels which sadly for me is a bête noire. The advantages and disadvantages are listed and strangely the disadvantages list is longer? Using land for planting bio-fuels increases water usage and puts up food prices. OK for us maybe but not so good for the poorest people on this earth who live below the poverty line. Even worse is another story about the workers clearing the forest to make space for more bio-fuel crops encouraged by generous government subsidies. Entertainment in the jungle is pretty sparse but the local Indian women will do here, it seems – a classic example if there ever was one, of the law of unintended consequences.

Don’t expect many to protest here though. And a few thoughts for us if we ever have to start filling our tanks up with this wretched stuff. Does anyone really care what happens to the displaced indigenous tribes? Does anyone really care about the soil erosion which will happen in a few years’ time when the soil is depleted of nutrients? and who cares about a few Indian women being raped - we’re saving the planet.

Myths, myths and more myths

Related perhaps but in a more positive way is the power of some myths. One of the more endearing ones recalls a study done in 1953 at Yale or Harvard depending on where you heard it. Story goes that a university class was asked to write its goals. Many years later, the class members are tracked down and the 3 per cent that had clear written goals were worth more than all the rest. This example is used in motivational programmes by the likes of Zig Ziglar, Anthony Robbins and Brian Tracy but each one seems to think they heard it from one of the others….After posting this on ecademy sometime ago, there seems to be a definitive answer and the links are below. Usual bottle of plonk to anyone who can disprove or shed further light on this.

Raising the Bar on Retirement

Latest steps to sort out the UK’s pension mess have all the hallmarks of the early days of heart transplant surgery with widely varied opinions on the best way to do it. Raising the State Retirement Age is already on the cards with an increase to 66 planned for 2011 ahead of the already scheduled increases to 67 in 2024 and 68 in 2046. Now after different test cases which went one way then the other, compulsory retirement ages are to be banned from 2011 but with exceptions for the police and air traffic controllers. With life expectancy having increased so much since the introduction of the NHS in 1948, this makes sense but like many changes creates a whole new load of issues.

From my monthly pension surgeries, there have been two cases of employees wanting (having to) continue working which the employer has been happy to allow. But after 65, they no longer qualify for Death-in-Service benefit of 3x basic salary, nor do they get the other employee benefits like private medical insurance and permanent health insurance. Mentioned this briefly to an employment law solicitor who said that they were clearly disadvantaged compared to other employees. How long before the first test case?

Granny wants to help You!

Finally, an interesting referral from a colleague where a lady wants to do equity release – turn part of the value of her home into cash without selling it. She already has a small mortgage and would like to raise a capital sum on the remaining equity of her house. This would pay off the mortgage and leave something left over. Main driver here is that she wants to give the money to her four grandchildren now rather than wait until she is dead. But as she gets some state benefits, she may well lose these? Detailed knowledge of State Benefits is not something IFAs use much or bone up on. Nor is it something people generally go to IFAs for, especially with the slow but steady pressure to move away from commissions to fees, but I was able to think of some people who could help. Contact me for further info here.

See also: George’s original blog

Have a look at:  Stephen Kraus’s answer on the 1953 study

Some jokes never go out of fashion: why is abbreviation such a long word? why is there an S in lisp? and why is there only ONE Monopoly Commission? While the Monopolies & Mergers Commission is now http://www.competition-commission.org.uk/ the Royal Commission on Long-term Care for the Elderly http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_4008520  which reported back in 1999 is about to be resurrected as Commission on the Funding of Care and Support (no website yet) which might prompt another question – why so many care commissions?

The previous one started its work in 1997 and after much consultation, came up with the cop out conclusion “Somebody else should pay for it” or care should be free for all. This helped nobody, not least the government which had hoped for some brighter ideas. The members of the latest Commission have been announced and the coalition is actually now looking at Labour’s previous proposal of a one-off £20,000 tax to pay for it. Ideas like this may sound plausible, but as taxes are rarely ring fenced for one particular thing, the revenue just disappears into the great government money black hole. What comes out in benefits, is anyone’s guess.

Staying with the tricky subject of long-term care, there are no pre-funded long-term care products in the UK now after Partnership Assurance (formerly Pension Assured Friendly Society) suspended its Care Prepared product last week after selling 21 policies in the previous year http://www.citywire.co.uk/new-model-adviser/partnership-shelves-last-remaining-pre-funded-care-product/a413056 Bit strange as these products are big business in the USA where care for over 65s is paid for under the Medicare program. For the uninitiated, pre-funded care plans are taken out while you are healthy and pay benefit for physical or mental disability with the assesment being done independently of the insurance company.

Immediate Needs plans which are basically a special kind of annuity, are still available and selling steadily as they enable you to cap and plan for the cost of care. Here you pay the insurance company a hefty lump-sum, and they pay a specified level or escalating amount each month to cover the cost of care, taking on the risk of how long the person receiving care will live. Just the sort of thing you have insurance companies for.

If benefit is paid direct to the care home, then this is tax-free and can save tax for the person in care. If they received money from their portfolio and then paid for care, their income would be taxed and they would have to pay for care out of net income.

The scenario of “What happens if they die after a few months?” can be insured separately at modest cost. This in turn enables you to do some financial planning with the rest of your money before it runs out. Sadly, this happens regularly as people sell their home, move into a care home, put the often six-figure sum on deposit and hope the money lasts longer than they do.

The bright side here almost becomes the dark side. People settle in to their new home but the cost of care tends to escalate at more than the rate of inflation and current interest rates. Capital dribbles away and the beneficiaries and family member wonder if there will be anything left to pass on. Once the assets are down to around £22,000 the local authority should start chipping in, but different councils apply the rules in different ways and the upper and lower “notional capital” limits are slightly different in the four parts of the United Kingdom

Worth mentioning the boundary here – in hospital the cost of treatment is borne by the local health authority. Pass through the hospital doors and care is the responsibility of the local authority who apply a means test before paying for anything. Exception here is if treatment continues outside the hospital. Care Home Selection could be a useful link here: http://www.carehomeselection.co.uk

For years, solicitors have had people marching in through their doors saying “I want to give my house away so the local council won’t get it!” People who have nothing, get their care paid for while better off people may not – until the assets have been used up. Care costs can also wipe out any Inheritance Tax liability. One hears of trust arrangements which will protect assets and life insurance bonds for example, are excluded. An insurance bond is technically a life insurance policy rather than an investment although it may contain a huge portfolio of investments. Hiding assets is called deliberate asset deprivation and is definitely a growth industry. The assesment questionnaire asks about disposals made in the previous 6 months, but case law suggests otherwise and disposals made years before have sometimes been ruled ineffective, so the picture can be almost as clear as mud.

Get the right advice from someone with specialist knowledge, and the chances are that the care needed for yourself or your loved one will be paid for in a home that they like, plus there will be something for the beneficiaries.

A major turn-off for people investing in private pensions, is having to buy an annuity and there are two good reasons behind this. Firstly, many people don’t know what an annuity is and the pre-retirement seminars I do as a www.pensionsadvisoryrservice,org.uk volunteer are being rewritten to address this. Another reason is that annuity rates are rubbish compared to income rates obtainable with other forms of investment.

For example,  if your pension fund is worth say, £100,000 when you take your benefits, then you can take £25,000 as tax-free cash - renamed under Pension Simplification rules as Pension Commencement Lump Sum!  YCMIU*. You cannot get your hands on the other £75,000. You can get the income from it but not the capital. In practice, what this means is that you sell the £75,000 to the insurance company that gives you the best rate.  In a recent example, the LEVEL annuity rate obtainable for a male aged 65 was 6.9 per cent p.a. so he would have got this money for the rest of his life but inflation would have eroded its value over time. The problem here is that this rate is only slightly more than what you can get via an IFA in a low risk income fund where you keep you capital. So if you have the choice of say, 5 per cent a year where you keep your £100,000 and 6.9 per cent a year where you lose your capital, which one would you choose?

The income from both is taxable, albeit in slightly different ways but that detail can be left for now.

But the good news? Annuity rates generally improve as you get older. Latest age for buying an annuity from a pension  is 75 which has been unchanged for decades. Life expectancy has probably increased by 10 years since it was first introduced. The tax rate payable upon death after age 75 for unused funds was an eye-watering 82 per cent under the previous government – generously reduced to 55 per cent with the coalition. A new consultative document is out for you to have your say on this rather important matter or you might wish to ask your own adviser what he/she thinks? http://www.hm-treasury.gov.uk/press_28_10.htm

You may be wondering why bother saving for a pension at all? Well there are still several good reasons:

1) If you are self-employed, your own pension pots are likely to be safe from creditors in the event of bankruptcy or having an IVA – Individual Voluntary Arrangement

2) the tax-free growth can be very valuable over the long term compared to a fund where the income/capital growth is taxable

3) your pension funds are not liable to Inheritance Tax. Unless you are daft enough not to nominate any beneficiaries – contact me or your adviser for an explanation here.

4) Accessibility to your pension funds can be a two-edged sword. Very tempting to dip into your pension pot to: have a second honeymoon, help your children, do a loft conversion or a hundred other worthy things.

If you think you home is your pension, go and lie down in a dark room until the feeling goes away. Eating your home is only practical IF your home is much bigger than you need when the children have flown the nest. After selling up and moving to a smaller home, you can then invest the lump-sum left over for income. Equity Release to give eating your home its proper name, is based on annuity rates which is where we came in. Unless you are in your 80s or in poor health, you may find the rates or terms offered disappointing.

* YCMIU = you couldn’t make it up

The Worst School in Britain

Suddenly there’s a rush with three www.thepensionsadvisoryservice.org.uk pre-retirement presentations in two days in Hackney. Second day finds me at http://www.mossbourne.hackney.sch.uk/ on Hackney Downs a brand new academy on the site of the former Hackney Downs School. The latter was originally founded in 1876 by one of the City of London’s Livery Companies, The Worshipful Company of Grocers. It became a grammar school for a while with some distinguished alumni including: playwright Harold Pinter, actor Michael Caine, tycoon John Bloom who brought us cheap washing machines in the 60s and darts professional Eric Bristow. Come 1974 this successful school went comprehensive and standards went down the toilet resulting in the school being dubbed “the worst school in Britain” by the government eventually forcing it to close in 1995.

Out of the ashes stands a brand new school in a very modernist building now a thriving sixth form academy and I am asked to give a pre-retirement presentation to about 90 teaching staff and afterwards, about 70 support staff. Everything is set up when I arrive in the huge auditorium which can seat 300 people. The audience is the largest I have ever presented to and the average age is by far the youngest. My gut instinct tells me that quite a few are ex-City people as they are a bright lot and the interaction is great fun.

Next presentation for the support staff is less interactive, easily visible from the passive body language. Many are foreign and English may not not be their first language. No point in using funny anecdotes if these go over their heads, so I have to simplify things a bit. Main point is that both the Teachers’ Pension Scheme and Local Government Pension Scheme are final salary schemes (or Defined Benefit Schemes) where the investment risk or cost of maintaining the value of the pension the employees earn is carried by the employer meaning government meaning the tax payer. The effective contribution to do this is around 18 per cent of earnings a year with a third from the employees and two thirds from the employer – ruinously expensive and unsustainable. For the members concerned, best make hay while the sun shines and earn these lovely pensions while they are available.

With both audiences, about one quarter are not receiving any benefit statements at all and one member had opted out as she completely misunderstood how the scheme worked. My talk apparently results is a rash of phone calls to the schemes offices and the above-mentioned lady opts back in.

Just Do It!

Plenty of questions after the presentations and it occurs to me that the school might benefit from a visit by someone from www.3Cscommunity.com as the school must include a few would-be entrepreneurs? One of the staff mentions that his son has done this already with  http://www.green-oil.net/ starting his eco-friendly bike lube business from a garden shed! Perhaps the Just do It! slogan now adopted by Nike helped here? Next 3Cs meeting is in September.

The Feeling is Mutual

An insurance company or in this case Friendly Society announcing that it is not taking in any new business is usually ominous especially when the society says it has “nothing to do with solvency”. This is about as believable as an obese person saying that their excess pounds are nothing to do with their diet. The coalition’s sensible early announcement to scrap Child Trust Funds http://www.childtrustfund.gov.uk/ has affected several Friendly Societies who depended on them for much of their new business. Largest of them is http://www.thechildrensmutual.co.uk/ formerly Tunbridge Wells Equitable Friendly Society with about a third the the Child Trust Fund market, announced this week that it is not taking any new business?

Friendly Societies are a bit of a relic from pre-Welfare State days and have the advantage that some of their funds grow tax-free. Even with this tax break, high charges make them expensive investments and not brilliant performers and since many are with-profit funds, even worse. With-profit funds have been poor performance for a while, even when the FT-SE 100 index has gone up by 40 per cent in a year. Friendly Society names throw an interesting light on our history. Some were respectable while some were not being basically drinking clubs where if someone was hard up, a hat was passed round and people put in what they could (see below). More history here http://www.historyshelf.org/shelf/friend/12.php but for me, the cutest one perhaps is http://www.shepherdsfriendly.co.uk/

An old Christmas song:

Please put a penny in the old man’s hat.

If you haven’t got a penny, a halfpenny will do,

If you haven’t got a halfpenny, then God bless you!

The day starts badly…

Friday comes, and all set up to work from home saving two hours of commuting, when the phone rings. It’s the office – have I read METRO magazine? Since you only get this free mag when travelling in on bus or tube, answer is negative. Was Gena a client of yours? Yes, but no contact for sometime. The article* is a report of the inquest after she threw herself off a train in February. Normally one would not make a feature of a suicide by a client, but if you are still reading this, it is thanks to her kindness and initiative.

Back in 2003 we were both members of BNI Islington where I cut my teeth as far as social networking is concerned. BNI more or less invented early morning networking and we would meet in Upper Street early Wednesday morning. Format of the meetings is that after a quick breakfast, we stand up in turn and give a 60 second pitch stating the kind of business we do and what we are looking for. Most 60 second pitches are awful as people seem ill prepared, nervous or mean. The philisophy is givers gain and the idea is that you give details of people that fit the referrals asked for. Best if the referror checks with the referree that a particular service is required. People who never give referrals tend to leave of their own account or are asked to leave – no one likes someone who takes and never returns.

A few 60 second pitches are good where people take the trouble to prepare, but many are not. Gena’s were probably the best ever as she used to sing them, not really surprising as here business was called Yes you can sing! Sitting next to her was great company but fatal from a presentation point of view, as it really was a case follow that! Stand up afterwards and do your bit and no one really noticed if you merely spoke. Having been in a very good choir as a child, I treated myself to a few singing lessons with her at her home in Islington. At  some point, we must have talked about writing a book – about swimming in my case, since I seemed to have a talent for teaching nervous adults and children. Months go by and she phones to tell me she has done the book http://yesyoucansing.com/books/ with the help of Tony Parry, formerly of Reuters and now a writing coach – I must call him, she said  http://www.coachwords.com/contact.html Cut a long story short, this happened in 2005 and here we are.

Gena’s entry into singing coaching was a direct result of 9/11. Being in New York at the time, the event was one of those moments when you ask yourself ”What am I doing with my life?” The penny finally drops when she realises that coaching people in singing is more fun than being a pop star, which she was with the band Colour Noise http://www.youtube.com/watch?v=h3qF4_VQ3wU 

* http://www.metro.co.uk/news/832700-singer-leapt-from-high-speed-train-to-her-death

How to deliver a great 60 second presentation

Your presentation has four parts:

Intro - Personal name, biz name (if applicable) and what you do (if not in the biz name)

Content – have four or five bullet points. DO NOT WRITE THE FULL SCRIPT. If you do, this will come out in  flat monotone unless you have had voice training or are an actor. Case histories are great, rather than saying “We do ******” every week. Get excited! It’s seven-o-clock in the morning. The two people who consistently delivered the best 60 second presentations were Keren Lerner at BNI Islington www.topleftdesign.com and Lewis Malka at BRX Bond Street http://www.joseph-sterling.com/about_us.html Another memorable contributor was litigator Paul Marmor http://www.sherrards.com/page_partnerprofiles11.asp whose deadpan delivery about the business of suing people was very entertaining. Putting this another way, a good 60 second presentation is basically a story.

Be Specific in the kind of business or introduction you want. The more specific, the more referrals you get and better quality too.

Outro – Personal name, biz name (if applicable) and what you do (if not in the biz name) – same as the Intro but very important, especially when it is a large meeting with 30+ people competing for your attention.

Public speaking is number one horror for many people, but 60 second presentations are the easiest way to start. Practise with your spouse or partner, who can be very helpful here. In my experience, most 60 seconds are only around 30-40 seconds so valuable time is often thrown away. With a huge meeting, the Chairman may reduce the available time to this amount so everyone gets a chance to deliver, but no need to throw away a third of your time in the spotlight, when you don’t have to.

Finally, to avoid the cardinal sin of social networking, don’t forget your business cards.