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Pension Investment performance

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pension investmentWhen the state pension was first introduced following the last war the Government promised to look after its citizens from “cradle to grave” through the national insurance system. Working people who retired at 65 were expected to live for between 1 and 5 years on average. Since then due to lower industrialisation, cleaner air and better medical care people are living much longer lives which has increasingly put pressure on the state pension and this means that a typical 65 year old could expect to be retired for almost 15-20 years.

In more recent times people have been encouraged through tax incentives to invest in additional private pensions to give them a boost in pension income when they retire but the take up of these schemes and the amount people pay into them has been relatively low.

The Government has now introduced a minimum pension of £144 which abolishes a lower state pension topped up with additional benefits. For some people who have not made any additional provision this could be a significant drop in income given that the average UK wage is £509 per week and could amount to a drop of almost 70%. Clearly with such a drop of income in retirement new retirees can kiss goodbye to life’s luxuries like a car, eating out or holidays as the minimum State Pension is designed for subsistence living only.

Even where people do make provision, the average pension pot at retirement in the UK is just £30,000 and for a typical 65 this will produce an income through an annuity of only £1,770 per year, not a huge improvement! For those not fortunate to have access to a Final Salary pension scheme, which is increasingly the vast majority of people in the UK, the outlook is very bleak indeed.

Annuities are the investment that people buy with their pension funds at retirement, the income that a typical annuity pays has dropped significantly in recent years from a rate of around 16% in the 1990’s to less that 6% in 2013. One of the main reasons for this is Annuity Companies buy GILTS which are loans to the British Government to provide a safe means of income for their investors. When the Debt Office of the British Government issues new GILT it has to set a rate that will attract investment, but because UK bank interest rates are so low at present, the YIELD offered by GILTS has also fallen. In addition to this Quantitative Easing and the European debt crisis has also put additional pressure on UK GILT yields as they both increase demand.

Investment performance
Hard pressed retirees have also faced another significant disadvantage in recent times, investment performance. The majority of people who save for their retirement in the UK invest in UK Stocks and shares through their pension funds but the investment returns from this area of investing have been exceedingly flat over the past 15 years. The FTSE index which is the measure of the UK’s top 100 companies is at the same level in early 2013 as is was in 1998, a decade and a half later. During the intervening years the FTSE 100 index has on two separate occasions lost around 40% of its value through the recession of the years 2000-2003, with the technology bubble bursting and later in 2008 with the “Credit Crunch” a period of economic downturn that still exists to this day. With the majority of pension funds depending on equities to provide returns over the medium to long term it is hardly surprising that the average UK annuity is just £30,000!

Pension Fund Managers have also struggled to achieve meaningful returns from other forms of investments in recent years. Before the Credit Crunch commercial property funds would regularly return double digit annual growth for their investors. However since the Credit Crunch some property funds have fallen by as much as 40% and have languished ever since. In the past, Pension Fund Managers would move away from equities in times of market turmoil and move a higher proportion of funds into what is deemed as more secure forms of investment such as GILTS, cash and Corporate Bonds. However, as the Bank of England based rate has been slashed to just 0.5% these forms of investment have also struggled to achieve meaningful growth. With the cost of management fees, fund charges and the cost of ongoing advice being deducted from pension funds it is extremely unlikely that the more cautious forms of investments will produce any growth at all. With no growth, the ever present danger to pension funds is the effect of inflation which currently stands at 3.1%; this means that fund performance after charges must at least be this level just for the value to stand still in real terms.

Inflation could pose a higher risk moving forward as the new Governor of the Bank of England has indicated that future focus will be on the recovery of the UK economy rather that the traditional remit of keeping control of inflation. This indicates that UK interest rates will remain low for some time which will of course affect the more secure forms of pension investments; while at the same time inflation could soar meaning higher fund performance is needed just to keep pace with the higher rate of inflation.

There is no doubt that UK retirees are facing the perfect storm with low interest rates affecting pension fund performance and annuity rates, higher inflation eroding pension fund values and pension income and volatile stock markets giving already nervous investors the “jitters.”

By-line
Scott Mullen is a founding member and owner of My Pension Expert and has worked as a Financial Adviser for over 14 Years. From 2009 and with the creation of My Pension Expert Scott has specialised in pensions and the at retirement market becoming an authoritative figure around these areas of advice.

My Pension Expert

 

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Shares rise as cyclical stocks provide support; yields climb

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Shares rise as cyclical stocks provide support; yields climb 1

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.

Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.

The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.

On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”

The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.

The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.

European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.

U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.

The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.

Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.

Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.

Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.

Spot gold XAU= was down 0.58% at $1,785.71 an ounce.

The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.

Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.

(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)

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Oil falls after surging past $65 on Texas freeze

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Oil falls after surging past $65 on Texas freeze 2

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.

Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.

U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.

Brent had gained for four straight sessions before Thursday, while WTI had risen for three.

“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”

Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.

The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.

Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.

“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.

OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.

(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)

 

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GameStop frenzy sparks fresh investment in stock-trading apps

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GameStop frenzy sparks fresh investment in stock-trading apps 3

By Jane Lanhee Lee

OAKLAND, Calif. (Reuters) – The recent trading frenzy centered on GameStop Corp and other “meme” stocks is sparking a wave of investor interest in start-ups aiming to mimic the success of Robinhood Markets Inc, whose no-fee brokerage app has helped drive a trading boom.

Public.com, a direct competitor to Robinhood that boasts a host of blue-chip backers, said on Wednesday it had raised $220 million, valuing it at $1.2 billion on the private market. Another well-heeled rival, Stash, said earlier this month it had raised $125 million, while Webull Financial LLC, backed by Chinese investors, is also raising fresh funds after enjoying an influx of new users.

Robinhood, meanwhile, raised some $3.4 billion in the midst of the GameStop furor to assure its stability amid rapid growth and demands by its trading partners that it post more collateral.

The fresh investments are coming even as government regulators ramp up scrutiny of Robinhood and others involved in the GameStop trading. A U.S. congressional committee on Thursday grilled the chief executive of Robinhood and a YouTube streamer known as “Roaring Kitty,” among others, as it probes possible improprieties, including market manipulation.

Robinhood came under stiff criticism from some quarters for restricting trading in GameStop and other shares at the height of the frenzy, a move the company says it was forced to make due to requirements of partners that settle trades. It has also drawn scrutiny for a business model that relies on payments for sending trading business to partner brokerages, a practice Public.com and some other rivals are pledging to avoid.

Investors see rich opportunity in bringing easy stock trading to smartphone users globally, though the companies say they are also cognizant of the risks.

Stash, which doubled its active accounts to over 5 million by the end of last year, operates with only four trading windows a day to discourage rapid speculative trading, it said.

U.K.-based Freetrade.io told Reuters by email that its user numbers last year grew six-fold to 300,000 and by mid-February had reached 560,000. It said it had raised a total $35 million, including from crowd-funding rounds from over 10,000 customers.

But it does not offer margin trading or riskier offerings. “These products encourage investors to behave as if they are gambling or speculating rather than investing,” a Freetrade.io spokesman said.

Interest in trading apps is soaring globally. In Mexico, trading app Flink launched seven months ago and already has a million users, according to co-founder and chief executive Sergio Jimenez. He said Mexicans can buy fractions of U.S. stock through the platform, but not Mexican stocks – yet.

“Ninety percent of them are investing for the first time,” said Jimenez.

Flink raised $12 million in a funding round in February led by Accel, an early investor in Facebook. Accel is also an investor in Public.com and Berlin-based Trade Republic Bank Gmbh, which allows European retail investors to buy fractions of U.S. stocks, according to Accel partner Andrew Braccia.

“The bigger story here is there’s just this global trend of… accessibility,” he said.

Start-up investors also see opportunity in the infrastructure behind the trading apps. DriveWealth, which serves Mexico’s Flink and 70-plus other online trading apps around the world, has hundreds more partnerships in the pipeline, according to founder and chief executive Bob Cortright. DriveWealth provides the technology to power digital wallets and trading apps, and also provides clearing and brokerage service to its business partners.

“This is this is only beginning,” said Cortright. “The fact that you could have a smartphone in your hand in India, for instance, and buy $10 worth of Coca-Cola stock at an instant, that’s pretty game-changing.”

Venture capital investments in U.S. fintech companies hit a record last year with $20.6 billion invested, according to data firm PitchBook. Globally, around $41.4 billion was invested in fintech companies in 2020.

(Reporting By Jane Lanhee Lee in Oakland; Editing by Jonathan Weber and Dan Grebler)

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