THIS MORNING'S papers seem to be dominated by the effects of the new pensions regime which comes into force today.
According to The Financial Times, experts expect record lump sum contributions to be invested in pensions this tax year as employers channel City bonuses into their employees' pensions and highly paid staff make use of the more generous A-day rules to increase sharply the amounts they set aside to fund their retirement.
Under the A-day regime investors will be able to make lump sum investments into their pensions of up to £215,000. This is far higher than the old pension regulations, which restricted contributions to a small percentage of individuals' annual earnings.
Financial advisers and pension companies report strong interest from wealthy clients keen to make use of the new freedoms to fund their pension over much shorter periods.
Robert Reid, a chartered financial planner with Syndaxi Financial Planning, a London firm of financial advisers, says some of his clients are preparing to pay the maximum allowable limits into their pensions.
The paper quotes him as saying: "For the average individual, there won't be big annual lump sums going into pensions. But for high earners it will become an annual ritual. I have three or four clients who will pay the full £215,000 limit into their pension this year. I think we'll see the level of contributions increase and the frequency of contributions decrease."
Some experts are also predicting investment banks as well as law and accountancy firms will pay City bonuses straight into pensions, although investment banks and accountancy firms refused to reveal whether they were considering paying next year's bonuses into pensions.
However, one bank executive indicated to the paper, the new rules were likely to attract significant interest. Insurers also said the new regime was likely to lead to bigger lump sum investments as wealthier investors made use of the new freedoms to accelerate their retirement funding.
MEANWHILE, PROPERTY investors are lining up to exploit controversial pension rules that take effect today after a climbdown by the government over allowing direct investment in buy-to-let flats and holiday homes, reports The Guardian.
It says the move will intensify criticism the government's pension rule changes are a boost to wealthy investors able to use pension allowances to avoid paying millions of pounds in income tax.
One study argued the reforms, dubbed the most radical overhaul of Britain's pension system in the past 50 years, will have little impact on people with middle or low incomes. The research group Datamonitor said: "The immediate impact will be felt most by those at the wealthier end of the market."
Ministers believe simpler tax rules and greater flexibility will encourage more people to save in a pension. But critics argue the so-called A-day rule changes will do little to spur lower income groups to save.
They say rule changes allowing personal pensions to invest in residential property for the first time will only benefit the rich. Reports of a reluctance among employers to implement the rules is also hampering uptake.
It is expected more than £500m extra pension savings will be channelled into Self Invested Personal Pensions (Sipps), which savers can buy as either their main pension vehicle or to supplement occupational pension schemes. To underline the growing popularity of Sipps, Standard Life recently announced its 10,000th customer, bringing the amount of Sipp money under management by the mutual insurer to £1.1bn.
Ros Altmann, a former pensions adviser to No 10, has dubbed the A-day rule changes a "scandal" and a "bonanza for the rich". The paper quotes her as saying: "At a time when the government says it cannot afford to pay workers on low incomes who lost their pensions when their companies collapsed, it is prepared to pay millions of pounds in tax relief to the rich."
Datamonitor also claims ministers could find themselves in trouble if they failed to address concerns about pension saving among low-income groups. "A-day does not address the problem of lack of demand for pensions in the market. The issue needs to be tackled urgently to increase uptake of voluntary pensions going forward," a spokeswoman said.
JONATHAN BLOOMER, the former chief executive of Prudential, has become one of the highest profile British businessmen to enter the private equity world by joining New York-based Cerberus, reports The Daily Telegraph.
Bloomer has been working for some time as a senior adviser to Cerberus, one of America's largest private equity outfits that led the $14bn deal to buy General Motors' finance arm GMAC.
The projects Bloomer is understood to be looking at include the closed life insurance funds sector. Several people, including entrepreneur Hugh Osmond, believe this market can be highly profitable for specialist companies that can buy books of business and cut costs.
There was speculation in the City at the end of last year that Bloomer was looking at buying the closed life books owned by Lloyds TSB with Cerberus. He could not be reached for comment but sources confirmed he had joined Cerberus, adding: "He is spending a lot of time on a plane to New York."
Cerberus, which has about $15bn (£8.6bn) under management, invests in many sectors. Bloomer is the highest profile move from the plc world to private equity. Bloomer has been keeping his new job under wraps after a bruising departure last March after he paid the price for Pru's £1bn rights issue. He incurred further ire when it emerged Pru had given him a £1.6m pay-off.
AND HSBC PLANS to boost its distressed debt funds by $1bn (£570 million), joining the growing ranks of banks and venture capitalists seeking to take advantage of companies in financial difficulty, reports The Times.
The UK’s biggest bank said that it already had about $150m invested in distressed assets, but believed there was a real opportunity to grow the business over the next 12 to 18 months as companies overloaded with debt ran into trouble.
The move by HSBC comes as other turnaround specialists, such as Alchemy of the UK, are setting up funds to invest in distressed assets. Distressed debt investors specialise in buying bonds of ailing or bankrupt companies, hoping to profit from a turnaround or by taking control of a company through a debt-for-equity swap.
Bill Maldonado, chief executive of Alternative Investments at HSBC Halbis Partners, an HSBC unit with about $75bn of assets under management, told the paper: “Everybody thinks that the story is over for distressed debt. We don’t think so. What we see is a lot of supply coming into our market.”
Maldonado said that the biggest opportunity would come from the US, where there has been a big supply of debt issued at below-investment grade during a time when the economy has been relatively healthy. Rising interest rates and increasing inflationary pressures could mean that companies will face difficulties, he said.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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