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Pension changes cheeredbut high earners take a hit
BUSINESS leaders hailed the govern-ment’s plans for a “simple, under-standable, state pension” yesterday, but admitted that both employersand staff would have to take a finan-cial hit as part of the proposedreforms.“The introduction of a flat-ratestate pension, with an end to means-tested retirement income benefits, isessential if pension saving is to makesense for modest earners,” saidMalcolm Small, pensions adviser atthe Institute of Directors yesterday.“[This] will help give prospectivepensioners a clear idea of what thestate will provide – and just as impor-tantly, what it won’t.”ButTom McPhail, head of pensionsresearch at Hargreaves Lansdown, warned the new rules could meanhigh earners missing out on some of the pensions perks they have accessto today.“If you’re earning above-averageincome and are 30 you won’t have built up a pension of more than £144a week,” said McPhail. “You’re now not going to have a chance to buildthat – you’re going to pay the sameNational Insurance to get less.” At the moment there is a basicstate pension of £107 a week, whichcombines with various pension cred-its and earnings-related elements to
Junk-bond prices point to bulls return
The junk-bond market is sending a bullishsignal for the global economy in 2013,with investors in US high-yield securitiesearning higher returns so far this yearthan those who have bought investment-grade debt. High-yield bonds are an acutebarometer of risk appetite and rises intheir prices have often signalled a turn insentiment.
Austerity gives drinkers bitter taste
Britain’s favourite pint of bitter is beingwatered down as austerity continues tobite and taxes rise. John Smith’s ExtraSmooth, billed as “no nonsense beer” , isbeing reduced from 3.8 per cent alcoholto 3.6 per cent in response to rising costsand reduced beer consumption.
EU berates China over steel subsidies
The European Commission has concludedthat China is providing illegal subsidies toits steel manufacturers, paving the wayfor European companies to seek higherimport tariffs on a wide range of Chineseproducts. A report obtained by theFinancial Times said organic coated steelmakers could buy materials at a low rate.
Bold new era for capital shopping
From next month Britain’s biggest ownerof shopping centres would like to beknown as “Intu”. Capital ShoppingCentres is changing its name after a year-long project at a cost of £7m, aided byLandor Associates, a branding agencywith clients such as Smirnoff and Citroen.
Seven-runway airport at Beijing
China’s political and military leaders havegiven the green light to a new seven-runway international airport for Beijing.
British banks admit poor lending
Britain’s largest banks privately admitthey are in a “downward spiral” of poorlending decisions and have a “computersays no” attitude to small businesses,according to the former chairman of HSBCLord Green, who is now the government’strade minister.
Iberdrola shelves Scottish Power sale
Spanish power giant Iberdrola has shelveda plan to sell off part of its Scottish Powerdivision. Iberdrola had mulled a sale of astake in its UK regulated power business.
A blame game for forint’s fall
Hungary’s economy ministry blamedNouriel Roubini’s research firm forsparking a slide in the country’s currency.Roubini’s firm pointed to the minister’sown comments that hinted thegovernment would prefer a weaker forint.
France to pay EDF $6.57bn
The French government has agreed to paystate-controlled power utility Electricitede France €4.9bn (£4.1bn) to coversubsidies for green energy and the poor.
DAVID Cameron was dealt a blowlast night as peers voted to block a government plan for constituency boundary changes.By 300 to 231, the House of Lords voted to delay the boundary review until 2018, scuppering themove to cut the number of MPsfrom 650 to 600.The Prime Minister is also facingopposition on his plans for theUK’s relationship with Brussels.Cameron will set out his plan forBritain to repatriate powers fromthe European Union on Friday morning, it has been confirmed.Downing Street said the PrimeMinister will deliver his long-awaited speech on the UK’s futuremembership of the EU in Amsterdam, following a meeting with Dutch PM Mark Rutte.Cameron is expected to say theEurozone crisis and the resultingdrive towards closer fiscalintegration offers a chance forBritain to establish a more arms-length relationship with the bloc’s26 partners.The Prime Minister yesterday disappointed some of his Tory backbenchers by ruling out astraight referendum on the UK’scontinued membership of the bloc, though he strongly hintedthat the public would have theirsay on any renegotiated deal.
Blow to Cameronahead of crucialspeech on EU
Pensions minister Steve Webb said the current pension system is too complicated
BY JAMES WATERSONBY JAMES WATERSON
To contact the newsdesk email firstname.lastname@example.org
O that’s it, then: HMV has finally gone into administration, thelatest, most tragic victim of therevolution that is sweeping away erstwhile giants. This comes just daysafter Jessops, the camera firm, wasliquidated, and after the demise of Comet, the electrical retailer.So who’s responsible? Quite simply,all of us. Consumers are all-powerful,and shifting tastes and technologiesmean that fewer of us had chosen toshop in these stores. We are the mas-ters, and the capitalists our servants.It’s become easier to buy goodsonline, or pick them up (or arrangefor them to be delivered) from a super-market – and of course music is now primarily digital, with films followingsuit thanks to the likes of Amazon’sLove Film. HMV still controlled 38 percent of what was left of the physicalmusic market.
HMV’s demise shows why even giant firms have feet of clay
TUESDAY 15 JANUARY 2013
It is always sad to see ancient busi-nesses die, and it is terrible news forthe staff, whose livelihoods have sud-denly evaporated. The governmentmust do more to liberalise the econo-my to make sure more entrepreneurscreate more firms and hence jobs.But that’s capitalism and theprocess of creative destruction: itensures ruthlessly that we get what we want, and that resources thatcease to be used in an economically rational manner are reallocated swift-ly. New models have emerged; they have displaced the incumbents by providing goods and services moreconveniently and cheaply. Those whomoan at HMV’s demise should look atthemselves in the mirror. There were also some cyclical fac-tors: the economy is not doing wellenough. But that wasn’t the real rea-son – and neither was the fact thatsome firms have a tax advantage overothers. No, the recent spate of bank-ruptcies – unlike some earlier ones – was almost entirely caused by theaccelerating technological revolution.Several other stories in today’s paperare also directly the result of this tech-nological revolution. Global PC salescollapsed 3.5 per cent last year, thefirst drop since 2001, according toGartner, despite strong global eco-nomic growth, thanks to the rise of tablets. And while Apple, whosetem is simpler. But there are prob-lems. Contracting-out, introduced inthe 1980s, was originally meant to bethe precursor for a system of fully-funded private savings accounts.Sadly, this never happened.But its abolition will hike thenational insurance (NI) paid by many employers and employees; this willdestroy some private pension provi-sion and hike taxes on labour. NI isnow officially meaningless, merely asecond tier of income tax. But at leastthis has the benefit of honesty – andit will make radical tax reform andthe merger of the two taxes much eas-ier to achieve. Now for the hard bit:the public will need to save much,much more in the years and decadesahead.iTunes helped kill HMV, is doing wellfrom this shift – its Macs are thriving,not just its iPads – even it is suffering:its share price tumbled as other, nim- bler competitors such as Samsung aregaining ground in smartphones. Thefallout from this endless technologi-cal revolution triggered yet anotherstory: Dell’s share price shot up afterrumours the firm may be taken pri- vate. There is no more brutal combi-nation that those of technologicalchange, globalisation, and consumerpower. Corporations may seem unbe-lievably powerful but in reality they are giants with feet of clay.
Many of the government’s pensionreforms are good – but some aren’t. The end to means-testing is excellent;saving will always pay. The contribu-tory principle remains. The new sys-produce a final payout. As a result twomillion retirees currently receive astate pension of over £150 a week, while others receive far less. The new plan combines the basicstate pension and the earnings-relatedelement. Everyone who pays NationalInsurance (NI) for more than 10 years –or is registered as carer or on qualify-ing benefits – will now receive somestate pension payments when they retire. The exact amount will increaseproportionate to how long they paidNI, with every year of contributions upto 35 years increasing the individual’spension until it hits a universal rate of £144 a week.People who have already built up anentitlement of more than this will beallowed to retain the higher sum. Butchanges will not come into effect until2017 at the earliest, meaning somepeople about to stop work will receivea pension well below £144 a week. All contracting out of pensions willcease when the new system is intro-duced, meaning a rise in NI paymentsfor those who still enjoy defined-bene-fit pension schemes. Critics say theincrease in contributions –whichcould see an employee on £40,040 a year pay an extra £481 in NI –may bethe death knell for the remaining finalsalary schemes in the private sector.
The new jobs website for London professionals
WHAT THE OTHER PAPERS SAY THIS MORNING
HOW ARE YOU AFFECTED?
The 25-year-old City worker
“Young people who expect to earnmore than the average person duringtheir career have missed out on thepotential to receive more than thebasic state pension,” explains PeterMcDonald, a PwC partner. “But theyface greater certainity as long as thegovernment’s promise not to meanstest the pension stays in place.” Allworkers will require 35 years ofcontributions before collecting theirstate pension, rather than 30 today.
High earners in their 30s and 40s
“Somebody nearer 40 who isearning around £40,000 a year willbenefit,” says McDonald. “But this isthe group that has been most affectedby closures to defined-benefitschemes.” People who have alreadybecome eligible for a weekly statepension of more than £144 will keeptheir advantage. But around 700,000contracted-out high-earners in privatesector defined-benefit schemes willpay more in National Insurance.
The 65-year-old about to retire
The reforms announced yesterdaywill not be implemented until 2017,after the next general election. As aresult those are due to retire in thenext few years –and people who arealready pensioners –will have theirpayments calculated under the oldsystem throughout their retirement,even if the sum is below the new flatrate of £144. “The cliff-edge nature ofthe policy is one thing for governmentto consider,” admits McDonald.