The Queen's Speech

Amid the traditional pomp and ceremony Queen Elizabeth II announced today, June 4, in the House of Lords, the Conservative coalition government’s agenda for the coming session. The Queen’s speech to parliament, her 63rd in total, had an unmistakably blue Tory theme to it with a few social issues being addressed. Prime Minister David Cameron and Deputy Prime Minister Nick Clegg underscored this when they said in a joint statement that the Queen’s speech would be "unashamedly pro-work, pro-business and pro-aspiration." The rationale for following this political trajectory in the forthcoming session is that, “countries rise when their people rise,” said the two leaders of the coalition government.

So for small business there will be less red tape and more access to finance, according to proposal being put forward. Moreover, the Small Business and Enterprise Bill and Employment Bill will be put forward to parliament with the aim of providing small business owners a fairer, more level playing field to compete for £230bn worth of annual public procurement contracts. The proposed bill was endorsed by the deputy director-general of the CBI, Katja Hall. “Changes to make it easier for small businesses to tender for public sector contracts were much needed,” she said.

Additionally, because small business are more susceptible to short term liquidity problems a bill will be put forward to ensure that larger companies settle their outstanding debts promptly with smaller business owners. This move was also applauded by the deputy director-general of the CBI. "Growing businesses rely on cash flow and are too often hampered by late payers, so we back a 'comply or explain' system for payment terms of more than 60 days," said Ms. Hall.

More upbeat tones came from Terry Scuoler, chief executive of EEF, the manufacturers' organization welcomed the battery of pro business policies. The organization “welcomes these pro growth pro work policies,” said Mr Scuoler. "The government must now keep momentum going for the next 11 months and not stall just as the economy is beginning to motor,” he added.

However, perhaps the most controversial part of the coalition’s program is to continue supporting the exploration of shale gas by fracking under private property without the need for being granted permission. There is a consensus amongst geologists around the world of a causal link between theprocess of fracking and small earthquakes.

Also in the spot light was reform to pensions with changes to annuities, which would allow people to totally withdraw their retirement income in one transaction. Recently, the Pension Minister Steve Webb came under fire from the opposition Labour party for saying they should be free to buy Lamborghinis if they wanted to. There was also a separate bill allowing employees to pay into collective pension funds shared with other workers.

In a move to help people back to work there was both the carrot and stick approach. The latter being a benefits cap, which would determine a limit on the amounts the Government could pay out in benefits with the view of making it financially worthwhile to find paid work, rather than remain on benefits. The carrot; working parents would get up to £2,000 of tax-free childcare vouchers and extension of free nursery hours for more disadvantaged two-year-olds has also been outlined. There was a further change to child care arrangements; known as the “Cinderella law”, where parents could be jailed for up to 10 years for subjecting their children to emotional cruelty, including withholding affection.

Onto more social issues there would be free school meals – every infant will get free school meals under Deputy Prime Minister Nick Clegg’s piloted scheme. Regarding the growing problem of modern slavery there would be tougher sentencing under a proposal spearheaded by the Home Secretary Theresa May. Furthermore, do-gooders who step in to help others in trouble will be exempt from prosecution in the event that outcome of their bona fide action is unfavourable.

Workers will be given more rights in a move to tackle the unfairness of zero hour contracts, higher penalties would be inflicted on employers who failed to pay the minimum wage.

With respect to Britain’s relationship with the European Union (EU) the government will be lobbying for reform in Europe and greater autonomy of member states in the union.

Other proposals included voters being given the right to sack their MPs if they have fallen foul of the rules. Golden goodbyes in the public sector will be “limited.”

Nevertheless, Labour opposition leader leader Ed Miliband has criticised the coalition's programme by saying that it did not live up to the scale of the challenges faced by Britain. The proposals fall short of addressing needed reforms on banking, consumer rights, housing, communities and immigration, said the labour leader.

As I write this piece MPs are currently debating the coalitions program in the lower House of Commons.

Retirement Plan For Today's Twenty & Thirty Somethings

If you're currently in your twenties you might not have 'plan for my retirement' at the top of your to do list. The event itself is so far in the future that it may seem of minimal importance. But as we're all living longer healthier lives these days, there's more than a good chance you'll get there. No more work and a life of leisure. How will you pay for it? 

With the trend in life expectancy continuing to accelerate, the state pension age will probably be 70 by the time your generation is nearing retirement. A private pension will give you the opportunity to retire earlier (currently 55, but this is also predicted to rise), so in a sense this increasing timescale gives you more time in the workplace, and hence more time to contribute to a company pension. You may have to wait for the state pension, but in the meantime you can take solace in the thought of how much strain you're taking off the government's coffers.

But here's the rub: - your employer's pension scheme is probably a defined contribution scheme. The money you pay in (along with your employer's contribution) goes into investment funds. When it comes to retirement date your pension depends on the performance of those funds. You have some choice about which funds to invest in, but you're still subject to the whims of the market. Not exactly predictable then.  

It was easier for your parents' generation, most of them had a final salary scheme, which guaranteed them a percentage of their final salary on retirement. This could be as high as 70%, and remained unaffected by market performance. A final salary scheme produces substantially more income, but they are seen to have become increasingly expensive to employers, many of whom have switched to the defined contribution model. By the time you're 70 final salary schemes will be history.

So there are two elements here: -  the certainty of knowing that if you're working and contributing to a pension it will almost certainly not provide you the same standard of living your parents will enjoy in retirement. And the uncertainty of knowing that you won't be sure just how much you have to look forward to until the time is almost upon you. It may sound a little daunting and depressing, but if you are interested in having a financially stress free retirement, it's a wake up call and an opportunity.

The responsibility to plan for a secure retirement is much more pronounced for this generation than the one preceding it. The onus is firmly on you. But help is at hand. William Bernstein, who is an American investment advisor, has recently written a short e-book specifically for young people in their 20's. According to him there is a strategy even a seven year old could understand, that if followed will beat the professionals and ensure your comfortable retirement.

The book is called 'If You Can: How Millennials Can Get Rich Slowly'. It's available for free on his website at www.efficientfrontier.com. Before you rush off and read it, let me summarize its approach for you.

In a nutshell, all you need to do is save 15% of your salary every year. You then divide this money between two stock index funds and one bond index fund. You spend 15 minutes a year reviewing and re-balancing these funds so they're equal, and voila - at retirement you'll have a comfortable amount of money to live on. All you need to do is stick to the plan. And this is where it gets tricky.

There are certain things you need to do and know to be successful, or as Bernstein describes it, five hurdles to overcome. 

 1: - you must curb the urge to overspend, or to put it another way you must ensure you keep putting away that 15% every month. Don't be tempted by impulse buys that cut into that money, even by a little bit. Make getting rid of current debt your most pressing priority. It's costing you more to be in debt than it is to save regularly (debt interest outweighs savings interest rates, but when you're saving it's you that's accruing interest, not your lender).

2: - Learn to understand finance. How do stocks and bonds work, and what's the associated risk? What kind of return can you expect? The more you understand the better - information is power.

3: - Understand the history of the market. Whatever's happening now, you can be sure it's happened before. There will be times when your portfolio is flourishing as stocks hit the heights, and times when it goes the other way. This is nothing new, and it can inform your rebalancing strategy. Selling stock when the market is high and getting in cheap when it's low will be easier for you. Understanding history will inform your decision making. It's like a movie you've already seen.

4: - Defeat the enemy, namely yourself. This strategy is a long term effort and you don't want to derail it by making stupid decisions. Don't be swayed by the guy at work who tells you 'Acme Tech' is the next best thing. Maintain your discipline in the long term and you'll be rewarded.

5: - Avoid financial professionals like the plague. They are there to serve their own interests, and have no professional obligation to put your interests above theirs. And it can be difficult to avoid them too, according to Bernstein. One of them may be your brother in law or an ex college mate. You'll need to learn to say 'No' when they turn the talk towards investment. Yes, you'll be invested in funds, and these funds have managers, but ensure as much as you can that you get a fair deal. Remember that if the management fee goes up from 1% to 1.5% the fund manager has just increased his income by 50%. And that's coming out of your wallet. Bernstein doesn't seem to have a lot that's good to say about advisors. It's a bit ironic, as he's one himself.

  

So, that's all you need to do to build your retirement pile. Bernstein also gives you a couple of relevant books to read at the end of each hurdle. If you do your homework not only will you probably know more than most investment professionals, but you'll end up outperforming them too.