Latest news with #pensions
Times
4 hours ago
- Business
- Times
McDonald's, the only firm serving up income with a side of growth
How do you fancy having your standard of living cut in half when you are too old to do anything about it? That's the dismal prospect facing many who are preparing for retirement with life savings that lack protection against the insidious effects of inflation — and it's part of the reason why the government is on a drive to get more of us investing. Even apparently small reductions in the purchasing power of money can have big effects over the 20 years or so that the typical pensioner can expect to spend in retirement. According to the Office for National Statistics, the consumer price index (CPI) measure of inflation was 3.6 per cent over the year to June, while the retail price index (RPI) measure was 4.4 per cent. You can see why politicians and their public relations people prefer to quote CPI, while the gilt or bond markets — where governments borrow from international institutions — reckon that RPI is a better measure of what's really going on. Either way, if those rates of inflation remained unchanged, CPI would cause the purchasing power of your money to plunge 50 per cent in 20 years, while RPI would do so in just 16 years and four months. Politicians and everyone working in the public sector need not trouble their heads about any of this, because their defined benefit pensions have inflation protections subsidised by the good old taxpayer. But all of us in the private sector, who must pay for our own retirement with defined contribution pensions, had better think about how we can preserve — or even increase — the purchasing power of our savings. That's why this 66-year-old DIY investor, unlike most financial journalists, keeps banging on about dividends, or the income that some funds and shares can deliver. It is important to be aware that dividend yields — the income that shares pay, expressed as a percentage of their price — are not guaranteed and can be cut or cancelled without notice. High-yield investments often entail high risks, as demonstrated dramatically when Houthi rebels recently sank a bulk carrier ship in the Red Sea. Fortunately this was not one of the 20 vessels operated by Tufton Assets, formerly Tufton Oceanic Assets (stock market ticker: SHPP), but the inherent risks of investing in shipping are reflected in the rewards of this top yielder in my Isa, which pays 8.9 per cent income. It's only fair to add that Tufton shares I bought for 86p in August 2021 cost exactly the same today — so they have achieved no capital growth at all. But, more positively, income from the shares has increased by an annual average of 6.5 per cent over the past five years, according to the independent statisticians at LSEG, formerly the London Stock Exchange Group. The past is not necessarily a guide to the future. But a high and rising tax-free income does provide two reasons to be cheerful when many other economic indicators make me fearful. Much the same can be said about Greencoat UK Wind (UKW), a £4.4 billion fund that manages offshore wind farms. This is the second highest yielder in my Isa, delivering nearly 8.2 per cent income, with dividends rising an annual average of 7.6 per cent over the past five years. If that rate of ascent could be sustained it would double shareholders' income in less than a decade. Less happily, this is another example of the risk that seeking high dividends can lead to low or no capital returns; Greencoat shares I bought for £1.45 in August 2023 now cost just £1.21. • Is it worth buying shares in Greencoat UK Wind? That's why it could make sense to consider less income today in the hope of more capital growth tomorrow. For example, Ecofin Global Utilities and Infrastructure (EGL) is another self-descriptive investment trust — it yields 3.9 per cent, with dividends rising 5 per cent on the same basis as above. Neither number is quite as exciting for income-seekers as those mentioned earlier, but Ecofin shares I bought for £1.52 in September 2019, as reported here at that time, cost £2.20 at close of trade on Friday. That helped this fund, focused on a wide range of electricity and gas companies, become the fifth most valuable holding in my portfolio. Exchange traded funds (ETFs), investment and unit trusts may reduce the risk inherent in stock markets, which is a big worry for pensioners who cannot make up for losses with a bit of overtime or a pay rise. These pooled funds can diminish risk by diversifying our exposure over dozens of different companies, countries and currencies. That should mean they don't all go down at once. Investing directly in a single business might be more risky but can also be more rewarding. For example, the world's biggest fast food business, McDonald's (MCD), yields 2.4 per cent income, which has risen an annual average of 7.5 per cent over the past five years. Even more remarkably, it has increased shareholders' income every year since 1976. That makes it what Americans call a 'dividend aristocrat' — a Standard & Poor's share that has raised dividends for more than 25 years. • My six sovereignty shares can help you and the UK at the same time Never mind the macroeconomics, I invested 2 per cent of my life savings in McDonald's when I paid $95 in July 2014, as reported here at that time. They cost $298 on Friday, supersizing this shareholding to become the second most valuable among 50 constituents of my forever fund. This just goes to show that income-hungry investors can have our burger and eat it. Either way, with or without fries, I'm lovin' it. Short-term share price shocks can create opportunities for long-term investors, and it's better still when dividends pay us to be patient. Consider the world's biggest chocolate maker, whose share price plunged by 13 per cent on the day it unwrapped bad news earlier this month. Few folk in Britain have heard of the Swiss business called Barry Callebaut (BARN) but many enjoy its produce, which it sells to better-known retail brands including the Cadbury owner, Mondelez, and the KitKat maker, Nestlé. High cocoa prices following a poor harvest have hit all the above, as more expensive ingredients eat into profits. Just two countries, Côte d'Ivoire and Ghana, produce nearly 70 per cent of the world's cocoa. Barry Callebaut shares traded above 1,600 Swiss francs last year but I bit into them at SwFr766 in April, as reported here at that time. They had bounced back to SwFr950 earlier this month before another profits warning prompted that double-digit meltdown, when I doubled my stake at SwFr858 on Monday. They traded at SwFr1,016 on Friday. These shares yield 3 per cent gross dividend income, which has risen by a measly average of 2.2 per cent a year over the past five years. Similarly, Nestlé shares I bought for SwFr65 in March 2014 cost SwFr77 last Monday and yield 4 per cent income, rising by 2.5 per cent a year. I have no idea what will happen next to cocoa farmers in west Africa, and my sticky fingers may get burnt, but I suspect current share prices will look cheap in future. Short-term volatility is baked in but so is the long-term craving for chocolate. • Full disclosure: Ian Cowie's shareholdings
Times
4 hours ago
- Business
- Times
Will you pay the price for the chancellor's pension shake-up?
A shake-up of pensions is imminent amid concerns that we are all chronically undersaving for retirement and that the state pension is about to go bust. Rachel Reeves is expected to announce a pensions review tomorrow before parliament breaks for summer recess. One change on the table is an increase to the minimum amount saved into workplace schemes under the auto-enrolment rules. This is unlikely to go down well with businesses, which have already shouldered a £25 billion increase in national insurance contributions. Reeves will also address another elephant in the room — the survival of the state pension. It is on track to become completely unsustainable by 2036 due to the triple lock, which promises that the pension will go up by the highest of inflation, average wage growth or 2.5 per cent every year — whichever is higher. Liz Kendall, the work and pensions secretary, said last week that she was very concerned about how much savers were putting aside for later life. But overhauling private retirement pots or the state pension will not come free, and someone must foot the bill. So who will pay for pension reform, and how much will it cost you? We analyse the changes. The government spent £138 billion, about 5 per cent of GDP, on the state pension in 2024-25 — the second largest chunk of the government budget after health, according to the Office for Budget Responsibility (OBR). The new state pension, worth a maximum of £11,973 for this tax year, is paid to those who reached state pension age after April 2016. You need at least 35 years of national insurance contributions to get the full amount and ten years of contributions to get anything. Labour has committed to keeping the triple lock, but the sums do not add up. The tactic used by successive governments to prop up the state pension system has been to increase the age at which workers qualify. This will increase from 66 to 67 by 2028, and again to 68 between 2044 and 2046. The Institute for Fiscal Studies (IFS) has calculated that the state pension age would need to rise to 74 by 2068-69 to keep funding the triple lock. Steve Webb, a former pensions minister and partner at the consultancy LCP, said: 'There has to be a review of state pension age by law once each parliament, and the next is due shortly.' The government must give ten years' notice of any changes to the state pension age, so there is enough time for it to increase it to 68 sooner than planned. But Webb said such a move would be politically damaging. 'Because of the ten-year lead time any government which makes a change gets no extra revenue to spend in the current parliament or the next — but all the political flak.' • The exact year that the triple lock will bankrupt the state pension Reeves may have no choice, however, if she is to keep her party's promise to maintain the triple lock — which the OBR said will add £23 billion a year to the cost of the state pension. The last review of the state pension age suggested its increase to 68 should be brought forward to 2037. By then the state pension could be worth roughly £16,000, assuming it rose 2.5 per cent each year, so anyone still wanting to retire at 67 would need to find this amount from other savings to keep their income on track. Putting aside an extra £1,000 a year until 2037, assuming 4 per cent growth after fees, would give an extra £15,600, according to the investment firm AJ Bell. Rachel Vahey from AJ Bell said: 'Any cash-strapped government will have no choice but to find a way to curb its spending on the state pension as the pensioner population keeps growing.' One of the nuclear options would be to scrap the triple lock promise and make increases less generous. Webb said: 'The manifesto commitment to the triple lock seems likely to hold; the fact the triple lock was used repeatedly last year in defence of the winter fuel payment changes, and it would further undermine government support among pensioners if it was now watered down.' • David Willetts: The triple lock has been far more damaging than I ever feared But he said all political parties would be looking at ways to drop the triple lock commitment beyond the next election, which will be no later than 2029. 'It would be a brave chancellor who grasped the nettle of rising state pension costs given that any change is likely to be highly politically contentious while generating little additional revenue in the short term,' he said. The government is already clawing back pension income through a deep freeze on income tax thresholds. These have not changed since 2021 and will stay the same until at least 2028, dragging more people into paying tax, or higher tax brackets. Sir Keir Starmer has refused to rule out extending the freeze on tax thresholds. The full state pension is forecast to exceed the £12,570 personal allowance (the amount you can earn a year before paying income tax) within three years. Webb said: 'Every time allowances are frozen, the government gets a bigger share of its state pension spend back through more people paying tax on their income in retirement, and more of those people going into higher tax bands. 'But the government will see this as a tax change which increases tax revenue, not a way of cutting public expenditure, and so it won't alleviate the pressure to break the triple lock or raise the state pension age.' Increasing minimum pension contributions under the auto-enrolment rules are expected to be a key part of the government's review. Under auto-enrolment, which was introduced in 2012, all salaried workers over 22 who earn more than £10,000 a year are automatically signed up to workplace pension schemes. Employees must contribute a minimum of 5 per cent of qualifying earnings between £6,241 and £50,270, and employers pay 3 per cent. Outside qualifying earnings, contribution rates are up to the employer. But workers are still not saving enough for their retirement. A survey by the pension firm Scottish Widows found that half the workers who saved the auto-enrolment minimum would only have the £14,800 a year needed for a basic lifestyle in retirement while more than a third were at risk of having less. This differs from the public sector, where generous taxpayer-funded contributions ensure bigger pension pots and a higher living standard in retirement. Teachers get employer contributions of 28.7 per cent, and contribute between 7.4 per cent and 12 per cent themselves. NHS workers get 23.7 per cent contributions, adding between 5.2 per cent and 12.5 per cent themselves. The pensions minister Torsten Bell has promised that there will be no change to auto-enrolment rates until at least 2029. The government has been lobbied by the pension industry to set the minimum contribution at 12 per cent. The industry body Pensions UK, formerly the Pension and Lifetime Savings Association, has suggested that this should happen by the early 2030s and that the contributions should be evenly split between employers and employees. • Rachel Reeves poised to force firms to pay more into staff pensions This would match the minimum rate in Australia, which has already inspired Reeves's pension policy. Earlier this year she unveiled plans to create Australian-style pension megafunds by merging 86 local government pension schemes into six. In Australia employers pay the whole 12 per cent minimum contribution, and experts suggest that businesses here could also cover the majority of any increases to auto-enrolment rates. Karen Tasker from the accountancy firm RSM UK said: 'I think the plan will be for the increase to be funded by the employer. Some in the pensions sector are calling for employers to pay 7 per cent, and the employee the rest. Pensions UK has suggested an equal split.' For employers, doubling the pension contribution rate makes only a small difference to the cost of employing someone. For someone earning £37,000, the 3 per cent rate costs employers £1,110 a year, compared with £2,220 if they contributed 6 per cent. This is equivalent to spending 2.5 per cent of the total cost of an employee salary on pension contributions, versus 5 per cent. But it comes on top of higher taxes for businesses — employer national insurance contributions rose from 13.8 per cent to 15 per cent in April — and higher salary costs thanks to an increase to the minimum wage. Higher costs for employers could ultimately be borne by employees in the form of lower pay and less generous bonuses. Matthew Percival from the Confederation of British Industry said: 'If you look at what happened when auto-enrolment was introduced, the share of money spent on employing people stayed the same, but less of it ended up in people's wages because more of it ended up in pensions and other benefits.' A survey of more than 900 firms by the Federation of Small Businesses, a trade body, found that 29 per cent would reduce bonuses or overtime if minimum pension contributions increased to 6 per cent. An alternative could be to split the contributions more evenly and also increase the minimum amount saved by employees. But anything that reduces disposable income would be unpopular for hard-up workers. • I know my public sector pension is great, but I can't afford it Jonathan Cribb from the IFS said: 'We think you can target middle and higher earners with higher contribution rates, and this will ensure people are saving more when it is easier to do so, rather than when they are on really low earnings and struggling.' For someone earning the average salary of about £37,000 at age 25, putting 12 per cent of their salary away every year in a pension could give them £1.1 million on retirement. This assumes they maintained that salary and that their pot grew at the average rate of 7 per cent a year. If they had made pension contributions of 8 per cent, they would have £733,000 in their pot at 67 — £367,000 less.
Times
6 hours ago
- Business
- Times
Pensions review aims to get the young saving
Businesses could be forced to pump more cash into their employees' pensions in the coming years under proposals that will be considered by a pensions commission launching this week. The commission will review auto-enrolment, which was set up in 2012 and requires 8 per cent of wages to be saved for a pension — 3 per cent from employers and 5 per cent from workers. It will also look at how the poor savings rates of the young, the lower-paid, women and the self-employed can be improved. One of the members of the commission is likely to be Sir Ian Cheshire, the veteran business executive who was most recently chairman of Channel 4. The commission is expected to report to the government in 2027. The launch of the commission is thought to be one of a number of reviews into pensions due this week, including a review into the state pension age, which is 66. The government is required to review the state pension age every six years and must do so by 2027. While the pensions industry argues that the auto-enrolment rate should increase to 12 per cent, the government has made clear this will not happen in the current parliament. The commission is expected to consider whether auto-enrolment should start earlier than the present age of 22. To be eligible, a person also has to be earning more than £10,000 a year. Government research shows that only 21 per cent of 18 to 21-year-olds are saving into pensions. For 22 to 29-year-olds, the figure rises to 86 per cent. Lower-paid workers, on between £10,000 and £20,000, are also proportionately saving less than higher earners because of the way auto-enrolment is constructed, which means that they effectively save only 5.5 per cent of their earnings. Auto-enrolment was one of the recommendations of a pensions commission set up by the previous Labour government. Without auto-enrolment, retirees would have to rely on a state pension of £10,000 a year. Torsten Bell, the pensions minister, said that under auto-enrolment, ten million more people were saving than in 2012. 'But the work isn't finished, with too many missing out on saving towards retirement. By reviving the pensions commission 20 years on, we will finish the job and build a pensions landscape that delivers decent retirements for the many, not the few.'
Daily Mail
6 hours ago
- Business
- Daily Mail
Start saving for your pension at 18, says Legal & General boss
The boss of Britain's biggest money manager has called for the age at which workers are automatically included in company pensions schemes to be cut to 18 to help them save more for retirement. Antonio Simoes, chief executive of Legal & General, said lowering the threshold from 22 would also boost the economy now and lessen dependency on state benefits in the future. Hundreds of thousands of young people in their first jobs, apprenticeships or in temporary or holiday work would also develop the savings habit early. The boss of the £14.4 billion FTSE 100 giant said: 'The challenge of pensions adequacy – making sure all of us have enough to live on in later life – is urgent and pressing. 'Adequacy depends on three things: how much people are putting in, what returns they get and, crucially, when they start. 'The best financial gift we can give young people is time. A pension opened at 18 may not seem much now, but in 30 or 40 years it could mean everything. So let's stop wasting time. Let's start saving it. 'Currently, auto-enrolment schemes, which cover millions of workers at companies without their own pension funds, are only open to those aged 22 and over.' He pointed to countries such as Australia and Canada where the auto-enrolment age is already 18, showing that it was possible. The controversial call from Simoes, who heads a business that manages £1.2 trillion of pensions and other savings, comes ahead of tomorrow's launch of the long-delayed Government review of Britain's grossly inadequate level of retirement provision. The study, to be led by Pensions Minister Torsten Bell, will investigate the significant inequalities between retirees with generous company pensions and those who are reliant on the basic state pension, having accumulated little or no other savings. As well as trying to find solutions to retirement poverty, the review may also allow people to dip into their pension pots at any age if they are short of cash. Also on the agenda will be the thorny issue of raising auto-enrolment pension contributions. These currently stand at 8 per cent and are split between the employer, who pays in 3 per cent of a member of staff's earnings, and the employee, who pays in 5 per cent of their earnings. There is pressure to raise the total contribution to 12 per cent. But such a measure is likely to be delayed against the background of the furore over the increase in employers' National Insurance contributions in April, which Chancellor Rachel Reeves announced in her Autumn Budget. The Federation of Small Businesses has already voiced its opposition to a rise in auto-enrolment contributions. Simoes' plan to extend auto-enrolment to 18-year-olds is also likely to meet resistance, as this would impose even more of a burden on businesses. But the L&G boss said the benefits would be likely to outweigh the costs. 'It would be a win-win. Those at retirement would be in a stronger financial position, less reliant on the state,' he said. 'And when more people save, more capital is available for the UK economy, supporting jobs, infrastructure, and national resilience. 'Bigger pension pots could be channelled into productive investment, helping to fund growth and regeneration. And retirees would have more to spend. 'This matters, given that consumer spending drives 63 per cent of UK gross domestic product and retirees already account for a quarter of that total.' The L&G boss's intervention comes after Labour announced last week that the voting age is to be cut to 16 from 18 by the time of the next general election, fuelling an ongoing debate about at what age people should assume responsibility for decisions, including over their finances in later life. ...but Mayor's plan 'could leave majority worse off' A plan to grow workplace pension pots faster by taking more risk has been slammed as 'truly bizarre' by a leading consumer campaigner this weekend, in a move that could leave retirees 'worse off'. Tesco, BT, and NatWest are among more than 20 firms that have signed up to an 'employer pension pledge', which prioritises maximising returns for savers over charging them low fees. The move is led by City of London Mayor Alastair King, who says hiring more expensive fund managers to invest in riskier 'alternative' assets – such as private equity and infrastructure – will deliver better long-term returns for pension savers than only investing in the stock market. Boosting the size of pension pots matters because most of the population is not saving enough for even a modest retirement. But experts say King's plan is flawed because high fees devour investment returns over time. 'When it comes to investing, the only certainty is cost,' said James Daley, head of the Fairer Finance campaign group. 'The assertion is that pension funds which are keeping costs low are delivering worse returns, but I've not seen any evidence to support that.' Most 'active' pension fund managers, who pick their own investments rather than track the stock market, underperform in the long run, he added, saying: 'The new employers' pledge is truly bizarre. I am surprised so many serious firms have put their names to it. If this pledge results in more firms investing more of their employees' money in more expensive funds, the stats tell us the majority will be worse off.' Critics say the pledge also fails to tackle an even bigger problem – the lack of cash going into workplace pension schemes, especially from employers. Under auto-enrolment, 2.4 million firms pay a minimum of 3 per cent of a worker's salary into their occupational pensions, which are then invested on their behalf without any guarantee of a set income when they retire. More than 11 million private sector workers chip in at least 5 per cent of their salary to save for their golden years in this way. These minimums could rise in a long-delayed Government review of retirement savings, which is due to be announced by Pensions Minister Torsten Bell tomorrow. Fees are capped at 0.75 per cent a year of a fund's value for default funds, driving some schemes to opt for cheaper, 'passive' forms of stock market investing. 'The knock-on impact of this heavy focus on fees has been shrinking allocations to UK equities, starving UK companies of capital,' said Jason Hollands of wealth manager Evelyn Partners. The Government has no plans to lift the fees cap, but hopes to keep costs down by encouraging more pension funds to merge into larger schemes to invest in private companies, Hollands said. King, who founded his own fund management firm, also called for the cash Isa allowance to be cut from £20,000 a year to boost investment in UK firms. That idea is on hold after a backlash by building societies, which rely on savers' cash deposits to fund home loans and other lending.
Yahoo
8 hours ago
- Politics
- Yahoo
Granderson: Eliminating national holidays is a promising idea. Start with the racist ones
Believe it or not, France has had a form of social security since the 1600s, and its modern system began in earnest in 1910, when the world's life expectancy was just 32 years old. Today the average human makes it to 75 and for the French, it's 83, among the highest in Europe. Great news for French people, bad news for their pensions. Because people are living longer, the math to fund pensions in France is no longer mathing, and now the country's debt is nearly 114% of its GDP. Remember it was just a couple of years ago when protesters set parts of Paris on fire because President Emmanuel Macron proposed raising the age of legal retirement from 62 to 64. Well, now Prime Minister Francois Bayrou has proposed eliminating two national holidays, in an attempt to address the country's debt. Read more: Granderson: Where's the music that meets this moment? Black artists are stepping up In 2023, before Paris was burning, roughly 50,000 people in Denmark gathered outside of Parliament to express their anger over ditching one of the country's national holidays. The roots of Great Prayer Day date all the way back to the 1600s. Eliminating it — with the hopes of increasing production and tax revenue — brought together the unions, opposing political parties and churches in a rare trifecta. That explains why a number of schools and businesses closed for the holiday in 2024 in defiance of the official change. This week, Bayrou proposed eliminating France's Easter Monday and Victory Day holidays, the latter marking the defeat of Nazi Germany. In a Reuters poll, 70% of respondents didn't like the idea, so we'll see if Paris starts burning again. Or maybe citizens will take a cue from the Danes and just not work on those days, even if the government decides to continue business as usual. Here at home, President Trump has also floated the idea of eliminating one of the national holidays. However, because he floated the idea on Juneteenth — via a social media post about 'too many non-working holidays' — I'm going to assume tax revenue wasn't the sole motivation for his comments that day. You know, given his crusade against corporate and government diversity efforts; his refusal to apologize for calling for the death penalty for five innocent boys of color; and his approval of Alligator Alcatraz. However, while I find myself at odds with the president's 2025 remarks about the holiday, I do agree with what he said about Juneteenth when he was president in 2020: 'It's actually an important event, an important time.' Indeed. While the institution of slavery enabled this country to quickly become a global power, studies show the largest economic gains in the history of the country came from slavery's ending — otherwise known as Juneteenth. Two economists have found that the economic payoff from freeing enslaved people was 'bigger than the introduction of railroads, by some estimates, and worth 7 to 60 years of technological innovation in the latter half of the 19th century,' according to the University of Chicago. Why? Because the final calculations revealed the cost to enslave people for centuries was far greater than the economic benefit of their freedom. In 1492, when Christopher Columbus 'discovered America,' civilizations had been thriving on this land for millennia. The colonizers introduced slavery to these shores two years before the first 'Thanksgiving' in 1621. That was more than 50 years before King Louis XIV started France's first pension; 60 years before King Christian V approved Great Prayer Day; and 157 years before the 13 colonies declared independence from Britain on July 4, 1776. Of all the national holidays around the Western world, it would appear Juneteenth is among the most significant historically. Yet it gained federal recognition just four years ago, and it remains vulnerable. The transatlantic slave trade transformed the global economy, but the numbers show it was Juneteenth that lifted America to the top. Which tells you the president's hint at its elimination has little to do with our greatness and everything to do with the worldview of an elected official who was endorsed by the newspaper of the Ku Klux Klan. If it does get to the point where we — like France and Denmark — end up seriously considering cutting a holiday, my vote is for Thanksgiving. The retail industry treats it like a speed bump between Halloween and Christmas, and when history retells its origins, it's not a holiday worth protesting to keep. YouTube: @LZGrandersonShow If it's in the news right now, the L.A. Times' Opinion section covers it. Sign up for our weekly opinion newsletter. This story originally appeared in Los Angeles Times. Solve the daily Crossword
