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Should I accept pension transfer value?

Query: I left my former employer two years ago after working there for almost 20 years. I have an entitlement to a pension from that company’s defined benefit (DB) pension scheme. I have received a letter from my former employer, offering me an ‘enhanced transfer value’. Should I transfer my benefit entitlement out of that DB scheme. I have a defined contribution (DC) scheme with my current employer. What do I need to bear in mind when coming to a decision? John, Carrick-on-Shannon, Co Leitrim

Answer: There has been a big decline in the number of defined benefit (DB) pension schemes in recent years. For many schemes, a combination of increased longevity, low interest rates and changes in accounting rules have resulted in scheme liabilities outweighing assets – a funding deficit, and an increasing cost burden on sponsoring employers.

Many schemes are either closing to new entrants, closing to future benefit accruals or winding up altogether. An added problem for employers and trustees is that for many DB schemes, deferred members outnumber current active members. (Deferred members are former employees who still have a benefit entitlement in the scheme and have not yet retired.)

In an attempt to ease the administrative and financial headache associated with these scheme members, many trustees and employers have contacted former employees and reminded them of the option they have to transfer out to alternative pension arrangements. Sometimes a financial incentive to do so is offered.

There are a number of things to consider when deciding whether or not to transfer out of your DB scheme.

The first and most important factor to understand is that if you transfer out of the DB scheme of your previous employer, you will be transferring your DB benefit into a DC arrangement – either the DC scheme you have with your existing employer, or a buyout bond which you take out yourself. If transferring to a DC scheme, the investment risk in relation to the pension fund passes from your former employer to you personally.

On first impressions, a DB pension scheme is the best type of pension you can have – they’re often referred to as ‘Rolls-Royce’ pensions. A DB pension promises to pay you a pension based on a percentage of your final salary so planning for the future is easy. However, the ability of a DB scheme to pay you a pension based on your final salary depends on the scheme’s ability to fund its pension obligations for all members going forward. Benefits under DB schemes are not guaranteed. If a scheme’s assets are not sufficient to pay the benefits (liabilities) and the employer is not in a position to meet the shortfall, the pension promised to you may have to be reduced.

Therefore the current funding position of the scheme is an important consideration if you are offered a transfer value. If the scheme is not fully funded, this will be reflected in the transfer value provided to you.

That’s not to say that if a scheme is currently in deficit, it will remain so – or that an employer company will not be in a position to eliminate the deficit going forward. The opposite is also true. A currently fully funded scheme may not remain so. Consideration therefore needs to be given to the financial health of the scheme, and the future financial health of your former employer – in so far as this can be determined.

Some DB schemes offer enhanced transfer values – where you typically get a better transfer value than a shortfall in a DB scheme would typically allow for – to try to encourage existing members to leave the scheme.

If taking any transfer value to a DC arrangement, you would need to calculate the investment growth which you would need on that transfer value to provide you with the same – or a higher level of benefits – than the DB scheme was promising to pay. The required level of investment growth (which you would need to give you equal or higher benefits than the DB scheme) may well be accompanied by a level of investment risk which you are uncomfortable with. For this reason, many deferred members of DB schemes have in the past decided to remain in the scheme.

However, the financial pressures which many of the employers who provide DB schemes are under have made people reconsider.

Deciding on whether to take a transfer value from a DB pension scheme is an important decision and it cannot be reversed. It is important that all of the options available are reviewed and considered carefully.

If you stay in the DB scheme, the current financial health of the scheme may well improve or diminish over time.

Transferring out may well give you greater flexibility in terms of when and how to access your benefits, what the pension invests in, how much income to take in retirement (you would no longer be limited to a specific amount each year) and so on.

There are risks involved in staying in the DB scheme – or in taking the transfer value. However an enhanced transfer value does reduce the risks of taking a transfer value somewhat. Get independent financial advice before making your final decision.

Article Source: http://tinyurl.com/kbwqb42

Mortgage approvals jump by 11pc as values also increase

Mortgage approvals jumped in October, both in terms of volume and value. Read more

‘If you’re going to leave, leave, but don’t do this halfway house’ – Tony Blair on second Brexit referendum

Former UK prime minister Tony Blair said any second Brexit referendum should be a choice between remain and a hard Brexit. Read more

Hundreds of regional jobs to be created as €30m allocated to ‘food hubs’

A selection of ‘food zones’ are the big winners from the allocation of €30m in new funding for regional employers. Read more

Italian stocks lead Europe in recovery driven by banks, technology

European shares climbed modestly at the end of a volatile week, with banks and technology stocks, which have been hit hard by growth worries, leading the way, while Italian stocks rallied as bond yields fell.

The pan-European STOXX 600 managed a 0.2pc gain by 0830 GMT, while Italy’s FTSE MIB outperformed with a 0.8pc rise.

Italian banks climbed after a press report that Italy’s EU Affairs Minister Paolo Savona is considering resigning over the government’s decision to challenge European Union budget rules. Savona denied the report.

The banks index climbed 2pc as bond yields slid, boosting lenders who have large sovereign bond portfolios.

Banco BPM shares rose 3.1pc, while Mediobanca, Unicredit, UBI Banca, and Intesa Sanpaolo gained 1.3 to 1.8pc.

Renault shares climbed 3.2pc in a modest recovery after the carmaker dropped 8.4pc on Monday when CEO Carlos Ghosn was arrested over allegations of financial misconduct.

Ericsson shares rose 2.1pc and Nokia climbed 1.3pc as traders saw a positive read-across from a Wall Street Journal report that the US government is asking allies to shun telecoms equipment from China’s Huawei.

Earnings disappointments drove the biggest losses on the STOXX.

Shares in stone wool insulation maker Rockwool dropped 8.4pc after its third-quarter results.

German industrial machinery group GEA fell 8.6pc after it cut its outlook for 2018 cashflow margin.

M&A was a driver in the small-cap space where UK-listed regional airline Flybe surged 19pc after Sky News reported Virgin Atlantic is in talks to acquire it.
Article Source: http://tinyurl.com/kbwqb42

DAA bid to raise cap on airport fliers to 35 million

THE DAA has entered preliminary discussions with An Bord Pleanála about raising the cap on the number of passengers that Dublin Airport can handle, from 32 million to 35 million.

The construction of Terminal 2, which opened a decade ago, was subject to a planning condition that included the current maximum number of passengers that could use the airport.

But Dublin Airport is on track to handle more than 30 million passengers this year.

Even a 5pc rise in passenger numbers during 2019 would see it approach the current cap.

The DAA wrote to An Bord Pleanála earlier this year to initiate a pre-consultation process, which has now begun.

A DAA spokesman said the 32 million passenger condition was imposed largely due to surface transport limitations.

But he said that since the planning application for T2 was lodged in 2006, the number of passengers using public transport to access the airport has increased from 26pc to 37pc, while the percentage of people using cars has fallen from 44pc to 31pc.

The semi-State body probably hasn’t immediately sought to increase the cap beyond 35 million passengers a year. That’s because it is engaged in a consultation process about expansion plans, which are likely to give it a clearer indication at a later stage about its likely future growth pattern.

Passenger numbers have surged in recent years, as an improving economy, route expansion and a growing level of transfer traffic have boosted activity.

The airport handled 29.6 million passengers last year, which includes 1.8 million transit passengers who used it as a hub.

New services this year will have helped to lift the total figure to more than 30 million.

This year, the airport has benefited from new services to cities including Hong Kong, Beijing and Seattle. Next year, new destinations – including Dallas and Minneapolis-St Paul – will be added.

In tandem with seeking to increase the existing passenger cap, the DAA is also contemplating additional car parking facilities to accommodate the increase in numbers.

Recently, property developer Gerry Gannon sought permission to make a 41-acre site near Dublin Airport a permanent car park.

The site, which accommodates over 6,200 cars, has been operating on a temporary basis since it first opened nearly 20 years ago.

It is leased to QuickPark, the company controlled by John O’Sullivan, the founder and former owner of AirCoach.

Planners for Mr Gannon noted that QuickPark is one of three authorised long-term car parks serving Dublin Airport.

The DAA operates about 19,180 long-term car parking spaces at two such facilities.

Article Source: http://tinyurl.com/kbwqb42

Banks have become more profitable since the crash

BANKS in this country have become more profitable since the financial crash.

At the same time, other EU banks have seen their level of profits decline, a new paper from an economist based in the Central Bank has found.

Banks here are gaining from the low cost of funds, and from the fact they have very little competition for savings, and so pay some of the lowest rates in the EU.

Low levels of banking competition mean banks here do not have to compete for deposits, unlike banks elsewhere.

Separate studies have found that deposit rates paid by banks in this country are among the lowest in Europe.

Mortgage rates are so high the Central Bank has repeatedly found that home buyers are paying multiples of what is being charged in other countries in the eurozone.

Earlier this month, European Central Bank president Mario Draghi, speaking in Dublin, blamed a “quasi-monopoly” among banks here for the high mortgage rates.

AIB and Bank of Ireland dominate the mortgage market, accounting for 60pc of lending. AIB made profits of €762m in the first half of this year, with Bank of Ireland making €500m over the same period.

Central Bank economist Ciarán Nevin has found that banks here are highly profitable due to what he calls “historically low levels of competition” since the crash.

He looked at what is called net interest margins, a key measure of bank profitability. It is the difference between the interest income generated by banks on the likes of mortgages and the amount of interest paid on deposits.

Mr Nevin found: “In the post-crisis years, the net interest margins (NIM) of Irish banks has increased significantly, while the NIM for the sample of other EU banks declined.”

This may be because of greater competition for deposits in the rest of the euro area, pushing deposit rates up.

He said historically low levels of competition meant Irish banks here were in a position to capitalise on low funding costs and increase their margins substantially.

However, these benefits appear to be diminishing in recent years. The study looks at the period between 2003 and this year.

Banks may make even higher profits if European interest rates rise, as this would increase the return on loans.

The highly profitable nature of Irish banking may attract new entrants. This would likely lead to greater competition in the market, which may benefit consumers through reduced costs and increased choice, Mr Nevin said.

Article Source: http://tinyurl.com/kbwqb42

What do I do if my bank says projections for firm are not based in reality?

Q: I am at an advanced stage of business planning for a new food product and all the indicators are that it will be successful. My projections show I will be doing several million in turnover in the third year, however my bank has been highly critical saying my projections are over-ambitious and not based on reality. What should I do?

A: I don’t know enough specifically about your business but the problem that your bank is identifying is a common one. Sometimes the entrepreneur can get so close to the business idea that they end up overestimating the revenue. In most cases, they are correct in the figure that they project, however they can be years ahead of the actual time when this revenue will be achieved.

This sounds like the case with your projection. I am sure you have done extensive research that is backed with quite a lot of logic. However, if you are suggesting the business will be turning over several million after year three, unless you have discovered something totally unique and will have a brilliant route to market and marketing strategy, then I would tend to agree with the bank.

Think of any successful brand that has enjoyed recent growth and if you have access to any published figures from them, you will find growth is far more gradual than you anticipate. Building the correct supply chain alone could take a year or more, and creating awareness in the market place could take up to five years to get to a high enough level.

I praise you for developing what sounds like a fantastic project, but would urge you to revisit the pace of growth to cover a longer period. It might be an idea to talk with your Local Enterprise Office or Enterprise Ireland and secure the services of a mentor who would be familiar with sales patterns in this area.

Q: I have been running a drapery shop set up by my grandfather in the early part of the century. As much as I have tried new ideas, the sales in our small town are no longer viable and I am not taking a salary. Are there any credible options left open to me?

A: Emails like yours are ones I get all too often, and they cause me to worry about what advice to give. On one hand, I should be saying to you to have one last try and use all of the new marketing tools available to you, like digital media, fashion shows and other fun events to attract customers and generate lots of free PR. However, judging from the tone of your email, you have tried this already and what you may be dealing with is the reality of a diminishing population in a rural area, and the perceived attractiveness of nearby larger towns.

On the other hand, I should be saying to you that it is probably time to close the business and see if you can utilise the property’s asset to either sell or convert into a revenue stream by using it for accommodation or other commercial purposes.

That has worked for many in a similar position.

There is another emerging option. In the UK, hundreds of towns and villages were left with no shop at all. Through a series of innovative projects, they now have quite a long list of community-operated shops, staffed with volunteers with perhaps a paid manager. These community shops tend to be in some of the more main street categories and it’s unlikely drapery alone would work.

Obviously interest would be more as a support for your town, than a profitable commercial venture. It is worth exploring and there is endless reading on UK research. It might give you an in-between option that you have not considered so far, provided it meets your own requirements with regard to an income stream from other sources, etc.

Article Source: http://tinyurl.com/kbwqb42

Ecommerce explosion: online cross-border sales boom in China offers Irish exporters opportunities

Ecommerce has exploded in China – on current trends half of all of the world’s online transactions will take place in the economic power house this year.

Local Chinese tech champions such as Alibaba, Tencent and JD.com dominate a rapidly-growing ecommerce ecosystem, mostly within China, according to a paper from the World Economic Forum (WEF).

Cross-border sales are increasing, and with an increasingly wealthy population of 1.4 billion, international businesses are keen to crack the market.

Already a number of Irish companies looking to access China are tapping into online channels. Earlier this month, wet wipes maker Irish Breeze signed an agreement to sell through JD.com, one of the largest business-to-consumer online retail platforms in the country and, in July, Larry Goodman’s ABP Food Group entered an agreement with Beijing Hopewise to sell Irish beef through its ecommerce website.

According to the WEF paper, there are five main trends to look out for in China’s ecommerce landscape. One is the growth in cross-border ecommerce between China and the rest of the world. In 2016, cross-border retail ecommerce sales in China were worth $78.5bn (€69bn), a figure set to rise to more than $140bn by 2021.

This is being driven by increasing numbers of Chinese people travelling abroad and being exposed to more international brands and products.

Once they return, they use cross-border eshopping to purchase international products that are either not available in China or are too expensive in local outlets.

In addition, and key for Irish agri-food exporters, the WEF paper finds that Chinese consumers are turning to cross-border eshopping as a way to access international brands due to concerns around consumer and food safety.

Other trends that are emerging in China are the establishment of ecommerce ‘special trade zones’. Since 2015, the country has been setting up pilot trade zones.

The zones provide a streamlined system for cross-border online shopping, with simplified regulations for the faster examination of goods, and easier information-sharing for cross-border ecommerce imports and exports.

Meanwhile, the rise of influencers is also boosting the ecommerce market.

Another trend that is benefiting the Chinese ecommerce economy is the rise of ‘digitally-connected experiential shopping’, a system being used by JD and Alibaba, both of which are opening outlets throughout the country.

Consumers can use technology such as smartphones to scan the barcode of an item in a shop and learn about its source, nutritional information, and price. Delivery to the store can be as fast as 30 minutes. Finally, the paper finds that more and more ecommerce will take place in rural areas.

Article Source: http://tinyurl.com/kbwqb42

Adrian Weckler: ‘Beware of Black Friday ‘sales’

In five days, ‘Black Friday’ will occur. You’ll see and hear lots of ads appearing about this. Sadly, it’s a time of the year when retailers spoof a lot about price cuts with no consequence from any regulatory body.

Discounts are exaggerated and recommended retail prices – ‘RRP’ – are quoted that have not been true for months.

Every year I cover this. Every year, I find examples from almost all the big retailers of creative sales claims.

It happens with TVs, laptops, headphones, cameras and all sorts of other tech goods.

And bodies such as the Competition, Consumer and Protection Commission (CCPC) say that they are either toothless or can’t find cases that are bad enough to act on.

Typically, a retailer announces that a TV ‘now costs’ €699, a ‘saving’ of €300 on its ‘RRP’ of €999.

But this is what really happens. It is first listed at €999 in February. Then it is reduced to €899 in May, then to €849 in August and to €749 in October. (This is very normal in the pricing life of a TV.)

Now, as it comes to the end of its shelf life in November, it is advertised at €699.

So your ‘discount’ – if you can even call it that – is €50 on its last regular price of €749.

It’s not even that hard to check, either. In some cases, a quick search using Google’s cached results (which often gives a snapshot of the page two weeks back or so) shows the most recent price before the sale price was posted.

So when the retailer puts a huge sticker on the web page proclaiming that it’s an amazing new discount of €300 off the ‘RRP’ of €999, it’s completely misleading.

Retailers I’ve put this to say that they’re entitled to use, as marketing material, the length to which a product’s price has come down from its original level.

But they appear utterly unperturbed by any worry of being disciplined over it. And why would they be?

“The CCPC has engaged with traders in relation to promotion pricing but we have not taken any enforcement action on this specific issue,” a spokesman for the regulatory body told me.

The spokesman said that the organisation has taken “numerous enforcement actions against traders for various breaches of pricing legislation, which are detailed in our annual Consumer Protection List”.

But a search through five years’ worth of editions of this list shows no complaint or enforcement action relating to misleading sale price notices of the type we see around Black Friday. Part of the problem is rooted in Irish law.

“When running price promotions or ‘special offers’, it’s against the law for businesses to give a false or misleading previous price,” says the CCPC, referring to the Consumer Protection Act of 2007.

“For example, if the business crosses out one price and replaces it with another, lower, price, the goods in question must have been on sale in the same place, or a significant number of outlets, in the case of a chain, at that previous price for a reasonable time.”

The big problem here is what is meant by “a reasonable time”.

Common sense would suggest that if a product is being advertised as being ‘on sale’ at a discount from a previous price, then that previous price should have been in place directly before the sale started, and for at least a month.

But the law doesn’t actually define it, leaving a giant loophole.

“Generally we are not in a position to provide a definitive view on whether a particular commercial practice breaches any legislation,” said the CCPC spokesman.

“Factors such as the context and the significance of the information provided are important factors which need to be considered. However, in relation to your query, the law isn’t specific in relation to the reasonable time.”

One retailer, to be fair, makes some effort to be transparent. On its website, PC World-Currys lists a date range when its ‘reduced from’ price was in place.

(For example, it has a Samsung 55-inch telly for sale at €579. The previous price of €899, it says, was in place “from 19/10/2018 to 08/11/2018”.)

But most retailers don’t bother. Right now, Harvey Norman is advertising a Sony 55-inch 4K HDR television for €949, with a claimed ‘Black Friday’ reduction of €700 from its stated regular price of €1,649.

But 10 days ago, it was being sold by Harvey Norman for €1,299.

That’s still a decent reduction of €350. But it’s half the discount claimed.

Television prices, in particular, decrease at a steady and predictable rate, not once a year. This reduction may be in the normal course of business, Black Friday or no Black Friday.

It appears that the CCPC may be reliant on the public to report errant behaviour, as the Advertising Standards Authority of Ireland (ASAI) is.

And at this stage, it’s likely that many people are simply cynical about the whole thing, expecting that shops will always bend the truth a little.

Does that mean it’s okay?

As for the retailers who are engaging in creative advertising, they may argue that they’re simply trying to stay alive in a critically tough environment.

It’s true that they are under unprecedented assault. Just look at the hollowed-out main streets of Irish towns and cities. What used to be a lively, thriving retail landscape is now populated with bookies, thrift shops and chippers.

It’s no coincidence that city streets in Dublin are now increasingly populated with cafes, boutiques, hairdressers and other ‘service’ spaces.

That’s what people see cities for, now, not buying things they can get slightly cheaper – and with less restriction on stock – online.

So retailers might say: ‘cut us a break, here. We’re trying to survive.’

That’s understandable, but a hard argument to make.

An advertised discount should be transparent and contextual. Too many touted deals around ‘Black Friday’ are elastic.

Article Source: http://tinyurl.com/kbwqb42