WORK WORK WORK
All over the world people are being told they will have to work longer – and they don’t like it. From France to New Zealand, Austria to the USA pension ages are rising.
Norway and Iceland already make men and women wait until 67 for their pension. In the USA pension age will rise from 65 to 67 by 2022. In Austria, where men can retire at 61½ and women five years earlier, and in France – 60 for men and women – there have been strikes against government plans to raise the pension age to 65. New Zealand introduced that change a few years ago. And in Italy – where many stop work in their fifties – a new system is being phased in to encourage people to work until 65.
In Japan they face a rather different problem. With the oldest population in the world and the lowest birth rate, Japan’s pension crisis is just beginning. They already retire at 65 – so this year the government is cutting the pension by 1%. The excuse is that the cost of things in Japan has been falling for four years – and a pension that follows prices up when there’s inflation should also follow them down if there is deflation. Protests are planned.
In the UK our pension age has been 65 for men for nearly 80 years and that will soon extend to women – those born in April 1955 or later will retire at 65. When the change was announced in 1993 there was not a murmur of dissent. But it is different now that the Government is planning to raise the age at which teachers, nurses, and civil servants can claim the pension from their job. At the moment most public sector workers can retire on a full pension of half their salary at 60. But the Government wants raise that to 65. The change will probably begin in 2006, but only for the pension earned from that date.
Private companies are also raising pension ages. Woolworths recently announced all new employees would have to work until 65 to get a full pension. Two out of three company schemes are considering similar moves. Some have already made them – including insurance group Axa and the aircraft engine-maker Rolls Royce. And Government plans to scrap compulsory retirement ages – at least until 70 – have been widely seen as a ‘work til you drop’ policy. The Government denies that – and says the state pension age will not rise above 65.
Turkey holds the young retirement record in Europe with a pension age of 55 for men and 50 for women. Several European countries allow women to retire at 55, including Serbia and Albania. In Slovenia men can retire at 58 (women at 54) and eight other European nations allow men to retire at 60, including San Marino and, at the moment, France.
These official pension ages hide a widespread practice of retiring up to five years earlier, normally on a reduced pension. Luxembourg allows that at 57 as does Croatia for men, but women can retire there at 52. Portugal and Romania allow men and women to retire at 55.
Further afield, Indonesia and India fix 55 for retirement and some Pacific Islands specify 50 – the Solomon Islands allows early retirement as young as 40 even though locals live to around 70. Kuwait, a wealthy country where people live as long as we do, retires at 50 – or 45 with a reduced pension.
THE INDEX
It is a cheap time to go to the United States – and costly to visit Europe. For more than two years the dollar has got cheaper and the euro more expensive. If you go to the USA this year you will get more dollars for your pound than you did one or two years ago, making US trips cheaper. But if you go to Europe you will get far fewer euros. For example, if you change £250 you will get nearly $60 more – but €57 less than you would have done in 2001.
With the Government inching towards joining the euro, the rate is unlikely to get better. And with the US government happy to see the dollar weaken, America will continue to be a cheap place to visit – especially if you book hotels and car hire yourself.
Source: www.oanda.com. These are bank rates – tourists will normally get less.
FOOTBALL CRAZY
Chelsea football club’s new owner, Russian oil billionaire Roman Abramovich, is spending money like water to snap up big players. But even if he achieves success on the pitch, buying shares in Chelsea Village plc, which owns the club, may not be a good idea.
John Moore is a football specialist with investment managers Bell Lawrie White.
"There is a balancing act between business and pleasure. You have to hit balls into the back of the net. But you also have to make money apart from the 30,000 or so that turn up on a Sunday afternoon".
So far only Manchester United has managed that. It is a consistent performer producing income of £20 million a year. Hence the club’s value of around £400 million. Its close rival Arsenal is worth barely a fifth of that despite similar football success.
The Russians are coming to Chelsea with a vengeance. The new boss of the London club, oil billionaire Roman Abramovich, has been pouring money into new players. But does that mean shares in Chelsea are worth buying?
You can buy shares in nineteen English and four Scottish football clubs. The problem with investing in football is that they try to do two separate things, as John Moore, director of investment managers Bell Lawrie White explains.
"There is a balancing act between business and pleasure. You have to get it right hitting balls into the back of the net. But you have to make money apart from the 30,000 or so that turn up on a Sunday afternoon".
And making money means branding and a hard headed business sense. Only Manchester Untied really has that. It is valued at around £400 million. Its close football rival, Arsenal, is a mere £75 million. And that is just because they have not got the branding right.
"Manchester United has brought in an income of around £20 million a year every year for five years. That is £100 million – a lot of money and a lot of consistency."
And that is why Manchester United remains the one club that investment professionals would put their money in. Others have potential. The risk is – will they fulfil it? Last year he says the star was Sheffield United which behaved like a proper business, cutting costs and perfectly balancing those two goals of business and football performance. As a result its share price grew by 50% - from 6p to 9p a share. Overall the stock market fell by 25% in that period so it was a stunning performance.
John Moore now backs Newcastle with its strong brand of the black and white striped strip. But share performance will depend on the skills of the managers in developing and cashing in on that Geordie appeal. He also sees potential in both top Scots clubs – Celtic and Rangers, especially if plans to allow them into the of
And what about Chelsea Chelsea may buy success on the pitch, and its new billionaire owner? John Moore is not convinced. but John Moore says that that may not mean good news for shareholders.
"Football is an emotional business and that can mean bad decisions. It needs to cut its huge debts and turn around its losses. I wouldn’t do that by spending heavily on new players. Club owners like Abramovich risk their own money – but also yours as a shareholder."
As with any investment, timing is everything. Shares in Chelsea Village have shot up this year since hitting a new low of 13p in early April. Towards the end of July they stood at 34.5p, a rise of 180% in les than four months. But remember that in the long term they have done badly – in January 1998 they stood at around 100p. So you would still have lost two thirds of your money.
Manchester United by contrast has been much more consistent. Over the last 12 months they have risen from 112p to 160p despite falls in the stockmarket in general. Among smaller clubs, Sheffield United shares were 6p a year ago and are now trading at 7.75p, having reached a high of 13p in May.
So if you are fast on your feet, there are still ways of meeting your financial goals with football shares.
FAILURE MORE CONSISTENT THAN SUCCESS
How do you predict which investment funds will do well? That debate has been reignited recently after a vicious attack on fund managers by one of their own. The outspoken John Duffield who runs the New Star investment fund called his rivals’ performance "diabolical" and "bloody awful" and claimed his own funds consistently performed well. But he only measured performance over the past two years, which his rivals say is far too short a time to judge.
The use of past performance figures in advertising investments will soon be strictly controlled.
Research by the powerful City regulator the Financial Services Authority found that past performance "information is of little or no value in itself as an indicator of future performance." There is one exception to this general rule – bad funds tend to remain bad. But no fund is consistently a top performer.
Funds refer to their performance by saying what ‘quartile’ they were in. A lisat is drawn up of every fund and how much it has increased in value. The top quarter are called ‘top quartile’ in other words they performed from better than average to much better than average. Second quartile means they are in the next quarter – performing from average to above average. No-one admits being in the bottom two quartiles, in other words they performed worse – or much worse – than the average. Research shows that if you invest in funds that have been ‘top quartile’ in the past, they are no more likely than other funds to be top quartile in the future.
At the moment funds can choose the period they take to tell you about their performance. Needless to say they choose the period that shows them in the best light. In future they will have to show their growth over specified and comparable periods.
The controls on the use of past performance data in adverts will come into force sometime in 2004. After that, John Duffield and his fellow fund managers will have to be very careful about the claims they make.
CHEQUE YOUR WEALTH
What does your cheque book say about you? If it has the words Coutts & Co. on it then you must have at least £500,000 to spare – or £5 million if you include your house. And it is best to keep the balance of your current account above £3000 or you get stung with charges. Founded in 1692 and now owned by Royal Bank of Scotland, Coutts has been the bank of politicians and aristocrats as well as Charles Dickens and Arthur Guinness; it was also the custodian of the Queen Mother’s overdraft.
Probably the oldest independent private bank in Britain is Hoare & Co, founded in 1672 it is still owned by the Hoare family and it still trades from offices on the same Fleet Street site. It claims to have introduced paper money and cheques to England. Hoare does not set a wealth hurdle for new customers, but wants highly successful people who share its values of service and conservatism who want a long-term personal relationship with their bank. You must also have recommendations from two other people – preferably existing Hoare customers.
Perhaps the most exclusive current account of all is one with the Bank of England. But don’t bother applying. Only members of staff and those who retire while at the bank can write cheques which begin with those three magic words ‘Bank of England’
SELFASSESSMENT DEADLINE
Do you want to spend a day with a wet towel round your head working out your own income tax? If not and you are one of the 1.2 million people over 65 who get a self-assessment tax form, then you must act by the end of the month. You should have been sent your form in April. If you fill it in and return it to the Inland Revenue by 30 September they will work out your tax for you in time for you to make your payment by the end of January next year. If you miss the deadline, then get the towel out! Or pay an accountant. Either way getting the form in now could save you time – or money. The Revenue does make mistakes so do a quick check to see if you think the tax is about right before you pay next January. Blink and you’ll miss it!
September 2003
e-mail Paul Lewis on paul@paullewis.co.uk