Agecroft Predicts US Public Pension Funds to Increase Allocation to Hedge Funds at Greater Rate than Corporate Pension Plans
Richmond, VA (PRWEB) May 4, 2010
Agecroft Partners predicts that United States public pension funds will increase their allocation to hedge funds at faster rate than corporate pension plans due to sweeping new corporate pension legislation that is just beginning to take hold in the industry. The new legislation does not directly impact public pension funds. Corporate pension fund allocations have historically targeted a higher risk and return profile than public pension funds, but that may be changing due to the passage of the 2006 Pension Protection Act that became effective in 2008. This was the most dramatic pension legislation in the US since the passage of ERISA back in the early 1970s and the legislation will have major implications for corporate pension funds asset allocation, the structure of corporate pension plans and the retirement burden on society.
Historically a vast majority of defined benefit pension funds used a static discounts rate of approximately 7.5% to 8% to determine the present value of their future liabilities. By keeping the discount rate constant year after year and by amortizing unfunded liabilities over a 20 to 30 year period, it allowed for a fairly consistent required contribution to a defined benefit plan on an annual basis. In order for the pension fund to achieve investment returns equal to the discount rate, pension funds used modern portfolio theory to constructed diversified portfolios along the efficient frontier which allowed them to maximize return for a targeted level of volatility. Over the years, this efficient frontier was enhanced as more asset classes were utilized and through the adoption of alternative investments within their portfolios. Over long periods of time, this investment strategy was effective at reaching their return objectives. In addition, this strategy of maximizing long term returns had reduced the long term cost of funding these defined benefit plans.
The new extensive and complex pension legislation includes two provisions which will alter how many corporate pension fund assets are managed. The first provision effects how companies determine the present value of the future liability stream, which includes many variables, but is dominated by the discount rate. The new regulation states that the discount rate will be derived from a “yield curve” of investment-grade corporate bonds averaged over the most recent 24 months, which is updated on an annual basis. This has had major implications for corporate defined benefit plans. The average discount rate to calculate future unfunded liabilities has been significantly reduced from what corporations have used historically. This has caused their unfunded liability to increase significantly. It has also added significant variability to future pension fund contributions because of the unpredictability of future discount rates. The second provision reduced the time period that corporations could amortize these liabilities from 20 to 30 years down to half that time period. The effect of combining these two provisions has been to significantly increase annual funding for many plans over previous levels at a time when many corporations can least afford to incur additional liabilities.
As a result, many corporate defined benefit plans are moving away from maximizing return by utilizing the efficient frontier strategy of portfolio construction to a liability matching strategy for their portfolio which features a significant increase in their allocation to long duration fixed income securities in order to reduce the variability of annual contributions. Agecroft Partners believes that this increased allocation to long duration fixed income will be funded primarily through a reduction in corporate pension funds allocation to shorter duration fixed income and long only equity managers. Some of the more sophisticated corporate plans might match the duration of their assets to liabilities through the derivative markets which will allow them to continue to manage the underlying portfolio on a total return basis.
Unfortunately, this duration matching strategy for US corporate pension funds will reduce the long term expected returns of their portfolios from the 7.5% to 8% range down to 5% to 6.5% which will significantly increase the expense of these plans. This increased expense will enhance the speed of corporations terminating or freezing their defined benefit plans and replacing them with 401k plans. The problem with 401k plans is that they typically do not provide a large enough lump sum distribution to provide for retirement. Additionally, the average retiree lacks the discipline to spend these assets over their expected life span. The end result may very well be that many individuals will run out of their retirement savings and rely on government program for their retirement needs. Another unfortunate aspect of this new legislation is that many corporations are locking in long duration fixed income portfolios while interest rates are at their lowest point in decades. If the massive government deficient creates inflation causing interest rates to spike these long duration portfolio could lose a significant percent of their value.
Public pension funds will not be affected by this legislation and will have no incentive to move away from the efficient frontier structure of investing. Given most state and local government’s shaky budgets and large unfunded liabilities they need to maximize their investment returns on their portfolios in order to reduce the financial burden on their constituencies. As a result of this we will see a significant divergence between the asset allocations of corporate and public pension funds. The current hedge fund allocation by US pension funds to hedge funds is approximately 3% of their portfolios which is up substantial from a decade ago when it stood at less then 1%. Public pension funds will steadily increase their allocation to alternative investments over the next decade, where hedge funds may represent as much as 20% of their portfolio while corporations will also increase their alternative portfolio, but at a slower rate due to their growing allocation to longer duration fixed income.
# # #
View full post on Pensions and Pension Information
Categories: Pension Tags: Agecroft, Allocation, corporate, Funds, greater, Hedge, Increase, Pension, Plans, Predicts, Public, Rate, Than
Latest Pension Auctions
Hey, check out these auctions:
Pension Planning by Mahoney, Rosenbloom, 9e
 | US $45.00 End Date: Tuesday Feb-07-2012 6:25:05 PST Buy It Now for only: US $45.00 Buy it now | Add to watch list |
Cool, arent they?
Six Things You Should Know About Pension Income Splitting
Six Things You Should Know About Pension Income Splitting
If you’re currently retired or nearing retirement, pension income splitting may be a smart way for you to significantly save on taxes. Amendments made to the Income Tax Act in 2007 have given Canadians an effective way to lower their household’s overall tax bill, but you need to read the fine print before you can collect.
“With tax season looming, pension income splitting could be an option for you and your spouse to consider,” said Investors Group tax and financial planning expert Christine Van Cauwenberghe. “But to ensure an optimal split, you need to look at the fine points carefully.”
Van Cauwenberghe provides these five pension income splitting facts to help you make the most of this opportunity:
1. Income that qualifies for splitting is different if you are under 65 or over 65 years of age. For example, income from a registered pension plan can be split irrespective of the age of the person who receives the pension income. However, RRIF income can be split only if the person receiving the income has attained age 65.
2. Pension income splitting could have an impact on several other tax calculations and credits including OAS benefits, medical expense credits, spousal credit, age credit clawbacks, and quarterly tax installments.
3. You don’t have to split pension income 50 – 50, and split amounts can change each year based on your personal tax situation.
4. Pension income splitting does not require the physical transfer of funds.
5. Pension income splitting is not new. CPP/QPP income splitting (or income sharing) has been allowed for several years.
“Pension income splittingcan be a good option for many households to reduce their annual taxes – but other tax-saving opportunities need to be factored as well,” adds Van Cauwenberghe. “A financial advisor can work with you to ensure that your overall financial plan is on track with your plans for retirement.”
This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contacta financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.
For over 25 years, News Canada has been providing the media with ready-to-use, timely, credible and copyright-free news content. Editors, broadcasters, web and video content providers rely on News Canada for newsworthy content to effectively enhance their websites, newspapers and broadcasts. Content is made available to you, the media, in the format you need, when you need it.
Article from articlesbase.com
View full post on Pensions and Pension Information
Latest Pension Auctions
Hey, check out these auctions:
Pension Planning by Mahoney, Rosenbloom, 9e
| US $45.00 End Date: Tuesday Feb-07-2012 6:25:05 PST Buy It Now for only: US $45.00 Buy it now | Add to watch list |
Cool, arent they?
East Africa Report – The Symbiotic relationship between Pension Funds and The Property sector
(www.abndigital.com) The Symbiotic relationship between Pension Funds and The Property sector in East Africa has in recent years grown exponentially, and with attractive growth rates across the region the property sector is experiencing a boom, creating an even bigger opportunity for Pension Funds to invest in. Terryanne Chebet caught up with Anthony Mwithiga, Chief Investment Officer at Stanbic Investments, for more.
View full post on Social Security Network
Categories: Social Security Tags: Africa, Between, East, Funds, Pension, Property, Relationship, report, Sector, Symbiotic
Latest Pension Auctions
Hey, check out these auctions:
Pension Planning by Mahoney, Rosenbloom, 9e
| US $45.00 End Date: Tuesday Feb-07-2012 6:25:05 PST Buy It Now for only: US $45.00 Buy it now | Add to watch list |
Cool, arent they?
Latest Pension Auctions
Hey, check out these auctions:
Pension Planning by Mahoney, Rosenbloom, 9e
| US $45.00 End Date: Tuesday Feb-07-2012 6:25:05 PST Buy It Now for only: US $45.00 Buy it now | Add to watch list |
Cool, arent they?
Latest Pension Auctions
Hey, check out these auctions:
Pension Planning by Mahoney, Rosenbloom, 9e
| US $45.00 End Date: Tuesday Feb-07-2012 6:25:05 PST Buy It Now for only: US $45.00 Buy it now | Add to watch list |
Cool, arent they?
QROPS Pension Transfer
QROPS Pension Transfer
A QROPS Pension Transfer is a transfer of a UK Pension, or a “frozen” UK pension into another HMRC approved pension scheme, in a jurisdiction outside of the UK. QROPS means Qualifying Overseas Recognised Pension Scheme, and is a fantastic option if you have left the UK or are planning to leave the UK within 12 months.
If you have the option and qualify for a QROPS Pension Transfer, it is something that you should definitely consider as the benefits far exceed the costs, and it is an easy way to increase the value of your estate.
The reason that a QROPS Pension Transfer is such an attractive option is due to the limitations and restrictions placed upon an existing UK Pension or “frozen” UK Pension. Most people have a minimal understanding of UK pensions, and as a result are ignorant of the limitations. Once they understand the limitations of their current pension scheme and how a QROPS works, it becomes apparent why 90% of people who qualify for a QROPS Pension Transfer, utilise the option.
Each existing scheme is limited both by UK Pension Regulations, as well as the specific regulations of the individual pension scheme. These regulations can be summarised as follows:
You have to take an annuity by age 75, or face an 82% tax charge! Annuity rates in the UK are very low (between 2 to 3%) and this annuity is taxable. It can be taxed at 21%! You can take a tax free lumpsum of 25% at age 50 (or 55 depending on when you were born) Pension fund managers try to grow the pension funds, by slightly more than inflation. Thus, before you retire, you can expect minimal growth on your pension value. In recent years many funds have lost over 20%, meaning that people are unable to retire when they wanted to. There is a pension crisis in the UK, and due to the ageing population and more people withdrawing funds, than contributing, many pension funds run the risk of being depleted before you retire. Thus, you may not have any pension at all. What most people don’t realise, is that if you die, 50% of the funds will go to your spouse, and the remaining 50% will return to the pension company. In many instances pension company’s even add the clause that it will pay 50% to your first spouse. (i.e. if you have remarried, your spouse will get nothing if you die) If you and your spouse die (i.e. in an accident), 100% of the funds will go to the pension company. Nothing will be in your estate to pass to your beneficiaries.
In 2006, the UK Government introduced QROPS Pension Transfer legislation. If you qualify, this allows you to transfer your UK Pension to another jurisdiction with greater flexibility and less restrictions. For the first five tax years (6 Apr to 5 Apr), the QROPS Trustees are required to report any withdrawals or contributions to the HMRC. However, after these 5 years, they are no longer required to report to the HMRC and you will now have effectively 100% control of your pension.
One of the most important considerations of a QROPS is the jurisdiction of the QROPS Pension Transfer. You need to ensure that it is safe, secure and has similar financial principles to the UK. Many individuals have moved their UK Pension to a jurisdiction such as Thailand or New Zealand, and have found that they have lost much of the value, due to a weak currency. Other jurisdictions have a higher tax charge, or even more restrictions than the UK. Thus, you need to carefully consider the jurisdiction that you want to transfer your UK Pension to, and this should be discussed with an adviser.
One of the most popular jurisdictions is Guernsey, due to their strong investor principles, established financial security, and the fact that they have worked closely with the HMRC to ensure a robust QROPS framework.
Guernsey was recently voted the top financial jurisdiction in the world, even ahead of the UK! If you do a QROPS transfer to Guernsey, you can keep your pension in a safe, neutral jurisdiction, in a currency of your choice. Thus, wherever you are in the world, or how often you may move, you know that your pension will be safe.
Who Qualifies for a QROPS Pension Transfer?
If you are between the age of 18 and 75, and are a non-UK tax resident, or are planning to leave the UK within the next 12 months, you can qualify for a QROPS Pension Transfer.
If you are a citizen of either Canada or the US, you will require specialist financial advice and will need to discuss this specifically with your financial adviser.
What are the Benefits of a QROPS Pension Transfer?
The benefits of a QROPS Pension Transfer are numerous, and depend upon the jurisdiction chosen. These benefits can be summarised as follows:
No need to purchase an annuity. (although you can if you want to) Tax-efficiency (this saving alone, will generally cover all the QROPS costs) Higher investment flexibility. (instead of beating inflation, you can now target higher returns, with more stable investments) Consolidate multiple pension funds into one. All assets within the QROPS are distributed to your Named Beneficiaries on death. 100% control after 5 years.
Thus, if you consider the benefits, as opposed to keeping your Pension in the UK, you can now understand why a QROPS is so popular.
What are the Costs of a QROPS Pension Transfer?
The costs of a QROPS Pension Transfer depend on the value of your UK Pension. If you consider costs as a percentage of the pension value, then the higher the pension value, the lower the costs.
Each specific QROPS scheme varies and has different costs and flexibility. Generally, costs are comprised of three components:
A fixed setup cost. An annual management cost The underlying fund charges. (these depend on the funds chosen)
If you consider the benefits of a QROPS Pension Transfer, the costs should not be the consideration. However, there are many advisers who advise schemes with extortionate costs, that aren’t necessary. The key thing that you need to consider is the flexibility and restrictions of the QROPS scheme that you are transferring your UK Pension or “frozen” pension into. These restrictions depend on the jurisdiction, and we have found Guernsey to be the most favourable. Due to the fixed setup costs, it is generally advisable that pensions in excess of £25 000 be considered. If you have multiple pensions you can combine these to reach this figure, and if your value is a little less, you can make an additional contribution. Remember, that you will now have a tax-efficient, structure with diverse funds and flexibility that are generating a better return. This structure is a good savings vehicle and adding additional funds, would be putting those funds to good use.
How do I go about a QROPS Pension Transfer?
The process of a QROPS Pension Transfer is a lengthy one, and one that you can’t do by yourself. You will need to be in contact with an authorised provider.
The first step of the process is to obtain a Pension Valuation, and the specific details of your pension plan. To do this you can complete a very simple form that provides authority to obtain a valuation. This form is completely safe, as it does not authorise for any transfers, but merely authorises the pension company to provide the information. The Pension Company will respond to this within 90 days.
You can either get your financial adviser to do this (which is expensive), or you can utilise the services of http://QROPS-Pension-Transfer.co.uk. They will obtain this information on your behalf and provide it to you or an accredited financial adviser of your choice. They offer you two options:
You pay £100 Or, you send an email to 10 friends informing them of the site.
Due to the fact that they are global and assist financial advisers around the world, they can also introduce you to an accredited financial adviser in your region/city, if you don’t already know one.
Once your adviser has this information, they can asses your specific situation and decide if it is in your best interests to utilise a QROPS Pension Transfer. If it is in your best interests, they will assist you to choose a jurisdiction, and setup the QROPS scheme/structure. Once this is complete, you can then discharge your existing pension and transfer the funds into the new structure.
90% of the time, it is in a client’s best interest to transfer their UK Pension or “frozen” UK Pension to a QROPS. However, some of the defined benefit, or final salary schemes were set with higher interest rates, and it may not be advisable to transfer in this instance. This however, is something you will need to discuss with your accredited financial adviser.
In Conclusion
If you have a UK Pension or “frozen” UK Pension and qualify for a QROPS Pension Transfer, it is important that you understand how it works, what are the pro’s and especially, what are some of the costs and restrictions. Most of this information is on the internet and if you spend a few evenings you should have a rudimentary knowledge. This article offers a high-level overview and is by no means comprehensive. Unfortunately, there are far too many sites with less information than this article on a QROPS Pension Transfer, and the only information they really provide is how to contact their adviser. The site that we mentioned above (QROPS Pension Transfer), that offers to obtain the information on your existing pension, also offers a wealth of knowledge, in an easy to understand and simple layout. They strive to be the most comprehensive QROPS Pension Transfer resource on the internet, and have either achieved this goal, or are extremely close. For those who have the time and inclination to delve further into a QROPS Pension Transfer, they have also offer a wealth of detailed information.
Feel free to send me an email at: qrops.pension (**at**) gmail.com
Article from articlesbase.com
View full post on Social Security Network
Categories: Social Security Tags: Pension, QROPS, Transfer
QROPS Pension Transfer
QROPS Pension Transfer
A QROPS Pension Transfer is a transfer of a UK Pension, or a “frozen” UK pension into another HMRC approved pension scheme, in a jurisdiction outside of the UK. QROPS means Qualifying Overseas Recognised Pension Scheme, and is a fantastic option if you have left the UK or are planning to leave the UK within 12 months.
If you have the option and qualify for a QROPS Pension Transfer, it is something that you should definitely consider as the benefits far exceed the costs, and it is an easy way to increase the value of your estate.
The reason that a QROPS Pension Transfer is such an attractive option is due to the limitations and restrictions placed upon an existing UK Pension or “frozen” UK Pension. Most people have a minimal understanding of UK pensions, and as a result are ignorant of the limitations. Once they understand the limitations of their current pension scheme and how a QROPS works, it becomes apparent why 90% of people who qualify for a QROPS Pension Transfer, utilise the option.
Each existing scheme is limited both by UK Pension Regulations, as well as the specific regulations of the individual pension scheme. These regulations can be summarised as follows:
You have to take an annuity by age 75, or face an 82% tax charge! Annuity rates in the UK are very low (between 2 to 3%) and this annuity is taxable. It can be taxed at 21%! You can take a tax free lumpsum of 25% at age 50 (or 55 depending on when you were born) Pension fund managers try to grow the pension funds, by slightly more than inflation. Thus, before you retire, you can expect minimal growth on your pension value. In recent years many funds have lost over 20%, meaning that people are unable to retire when they wanted to. There is a pension crisis in the UK, and due to the ageing population and more people withdrawing funds, than contributing, many pension funds run the risk of being depleted before you retire. Thus, you may not have any pension at all. What most people don’t realise, is that if you die, 50% of the funds will go to your spouse, and the remaining 50% will return to the pension company. In many instances pension company’s even add the clause that it will pay 50% to your first spouse. (i.e. if you have remarried, your spouse will get nothing if you die) If you and your spouse die (i.e. in an accident), 100% of the funds will go to the pension company. Nothing will be in your estate to pass to your beneficiaries.
In 2006, the UK Government introduced QROPS Pension Transfer legislation. If you qualify, this allows you to transfer your UK Pension to another jurisdiction with greater flexibility and less restrictions. For the first five tax years (6 Apr to 5 Apr), the QROPS Trustees are required to report any withdrawals or contributions to the HMRC. However, after these 5 years, they are no longer required to report to the HMRC and you will now have effectively 100% control of your pension.
One of the most important considerations of a QROPS is the jurisdiction of the QROPS Pension Transfer. You need to ensure that it is safe, secure and has similar financial principles to the UK. Many individuals have moved their UK Pension to a jurisdiction such as Thailand or New Zealand, and have found that they have lost much of the value, due to a weak currency. Other jurisdictions have a higher tax charge, or even more restrictions than the UK. Thus, you need to carefully consider the jurisdiction that you want to transfer your UK Pension to, and this should be discussed with an adviser.
One of the most popular jurisdictions is Guernsey, due to their strong investor principles, established financial security, and the fact that they have worked closely with the HMRC to ensure a robust QROPS framework.
Guernsey was recently voted the top financial jurisdiction in the world, even ahead of the UK! If you do a QROPS transfer to Guernsey, you can keep your pension in a safe, neutral jurisdiction, in a currency of your choice. Thus, wherever you are in the world, or how often you may move, you know that your pension will be safe.
Who Qualifies for a QROPS Pension Transfer?
If you are between the age of 18 and 75, and are a non-UK tax resident, or are planning to leave the UK within the next 12 months, you can qualify for a QROPS Pension Transfer.
If you are a citizen of either Canada or the US, you will require specialist financial advice and will need to discuss this specifically with your financial adviser.
What are the Benefits of a QROPS Pension Transfer?
The benefits of a QROPS Pension Transfer are numerous, and depend upon the jurisdiction chosen. These benefits can be summarised as follows:
No need to purchase an annuity. (although you can if you want to) Tax-efficiency (this saving alone, will generally cover all the QROPS costs) Higher investment flexibility. (instead of beating inflation, you can now target higher returns, with more stable investments) Consolidate multiple pension funds into one. All assets within the QROPS are distributed to your Named Beneficiaries on death. 100% control after 5 years.
Thus, if you consider the benefits, as opposed to keeping your Pension in the UK, you can now understand why a QROPS is so popular.
What are the Costs of a QROPS Pension Transfer?
The costs of a QROPS Pension Transfer depend on the value of your UK Pension. If you consider costs as a percentage of the pension value, then the higher the pension value, the lower the costs.
Each specific QROPS scheme varies and has different costs and flexibility. Generally, costs are comprised of three components:
A fixed setup cost. An annual management cost The underlying fund charges. (these depend on the funds chosen)
If you consider the benefits of a QROPS Pension Transfer, the costs should not be the consideration. However, there are many advisers who advise schemes with extortionate costs, that aren’t necessary. The key thing that you need to consider is the flexibility and restrictions of the QROPS scheme that you are transferring your UK Pension or “frozen” pension into. These restrictions depend on the jurisdiction, and we have found Guernsey to be the most favourable. Due to the fixed setup costs, it is generally advisable that pensions in excess of £25 000 be considered. If you have multiple pensions you can combine these to reach this figure, and if your value is a little less, you can make an additional contribution. Remember, that you will now have a tax-efficient, structure with diverse funds and flexibility that are generating a better return. This structure is a good savings vehicle and adding additional funds, would be putting those funds to good use.
How do I go about a QROPS Pension Transfer?
The process of a QROPS Pension Transfer is a lengthy one, and one that you can’t do by yourself. You will need to be in contact with an authorised provider.
The first step of the process is to obtain a Pension Valuation, and the specific details of your pension plan. To do this you can complete a very simple form that provides authority to obtain a valuation. This form is completely safe, as it does not authorise for any transfers, but merely authorises the pension company to provide the information. The Pension Company will respond to this within 90 days.
You can either get your financial adviser to do this (which is expensive), or you can utilise the services of http://QROPS-Pension-Transfer.co.uk. They will obtain this information on your behalf and provide it to you or an accredited financial adviser of your choice. They offer you two options:
You pay £100 Or, you send an email to 10 friends informing them of the site.
Due to the fact that they are global and assist financial advisers around the world, they can also introduce you to an accredited financial adviser in your region/city, if you don’t already know one.
Once your adviser has this information, they can asses your specific situation and decide if it is in your best interests to utilise a QROPS Pension Transfer. If it is in your best interests, they will assist you to choose a jurisdiction, and setup the QROPS scheme/structure. Once this is complete, you can then discharge your existing pension and transfer the funds into the new structure.
90% of the time, it is in a client’s best interest to transfer their UK Pension or “frozen” UK Pension to a QROPS. However, some of the defined benefit, or final salary schemes were set with higher interest rates, and it may not be advisable to transfer in this instance. This however, is something you will need to discuss with your accredited financial adviser.
In Conclusion
If you have a UK Pension or “frozen” UK Pension and qualify for a QROPS Pension Transfer, it is important that you understand how it works, what are the pro’s and especially, what are some of the costs and restrictions. Most of this information is on the internet and if you spend a few evenings you should have a rudimentary knowledge. This article offers a high-level overview and is by no means comprehensive. Unfortunately, there are far too many sites with less information than this article on a QROPS Pension Transfer, and the only information they really provide is how to contact their adviser. The site that we mentioned above (QROPS Pension Transfer), that offers to obtain the information on your existing pension, also offers a wealth of knowledge, in an easy to understand and simple layout. They strive to be the most comprehensive QROPS Pension Transfer resource on the internet, and have either achieved this goal, or are extremely close. For those who have the time and inclination to delve further into a QROPS Pension Transfer, they have also offer a wealth of detailed information.
Feel free to send me an email at: qrops.pension (**at**) gmail.com
Article from articlesbase.com
View full post on Social Security Network
Categories: Social Security Tags: Pension, QROPS, Transfer