Issue24

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Issue 24 of my ezine. Articles on the changing face of employer pension schemes, insuring against long term illness and investing in Iraq.

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Issue24

  1. 1. Ross Naylor +48 (22) 389 65 70 (w) +48 512 275 706 (m) ul. Królewska 27 lok 411 Warszawa 00-060 PolandSign of the Times - TheChanging Face of EmployerPensions I had the opportunity to review a client s employer Expensive Pup pension scheme In March a Chinese the other day. businessman paid a world Fortunately I find record USD1.5 Million for a this subject dog. A Red Tibetan Mastiffpretty interesting (I know, lucky Mrs. Naylor). called Hong Dong.Having done so, I think it provides a classic case study of As a rule I still believe thethe way that employer pension schemes are changing. whole China growth story.Let me show you. However, stories like this scare me. I fear that there will beThe scheme used to be a final salary or defined benefit tears somewhere not too farscheme. The w ay that this type of scheme works is that down the road.your employer guarantees to pay you a set percentage ofyour salary in retirement, based on the amount of timethat you worked for them. The longer you work for them,the more they pay you. Usually up to a maximum of 2/3of your final salary.An additional perk, is that the income that you receive is
  2. 2. normally index linked, i.e. it increases in line with the costof living.Now this type of scheme is awesome. Why? Because theemployer takes all the risk. It doesn t matter how marketsperform, as long as you clock up the years then youremployer is obliged to pay you a set amount inretirement.The problem, from an employer s perspective, is that theyare also hideously expensive. That is why manyemployers are replacing them with something else.This is what has happened in this instance. After 20years of service, my client has been moved to a new typeof pension scheme. The new scheme is known as a A Closer Lookmoney purchase or defined contribution scheme. The The Fund Manager: FMG. Adifference here... boutique Scandinavian fund manager specializing in[The rest of this article can be found here.] frontier/emerging market funds. The Fund: Iraq SpecialLong Term Illness A Case Opportunities Fund.Study The Rationale: Iraq sits onA few weeks ago, I top of the 3rd largest provenwrote about the oil reserve in the world. Yeteffect that ill health the Iraqi stock market is acan have on ones fraction of Saudi Arabia andincome and Russia.consequentiallyones future Currency: USDfinancial plans(here). The Fees: 2% annual management fee, 20%I promised that I would write a follow up with details of a performance fee, 5% entrysolution. fee.The solution is an insurance policy called Income Liquidity: Deals once aProtection Benefit (also known as Permanent Health month.Insurance). Past Performance: TheyThe best way to explain how this type of insurance works only have actual figures goingis with a case study. So here goes. back to May 2010. So not a
  3. 3. Mr Smith is a 43 year old expatriate working in Poland. lot to go on.He has a wife and 2 children. They do not own anyproperty. The rent on their property in Poland is covered My View: These guys areby his employer, as are the fees for the children to go to good at emergi ng markets.the British School. They have modest savings. They were one of the first to get involved in Russia back inAs the family s sole bread winner, Mr Smith is worried the 1990s when it was stillabout what will happen to his income if he is unable to viewed as cowboy territory.work due to illness. He knows his employer will pay his They are currently one of thesalary and maintain his other benefits for 6 months. He very few offering exposure toalso believes that he has a suffi cient emergency fund to Iraq for retail investors.cover him for another 6 months. After that he is on hisown. Obviously very high risk, but an interesting prospect.He therefore sets up an Income Protection Benefit policywith XYZ Insurance Company. The details of the plan areas follows. He pays a premium of EUR87 per month. Heis in good health so there is no medical increase.In return XYZ commit to paying him EUR4,000 per monthcommencing after he has been unable to work for 12months.[The rest of this article can be found here] Sign UpDisclaimer If you have been forwarded this ezine by someone elseThe views expressed here are my own. They are not and wish to sign up to receivenecessarily shared by AES International. They are subject to future issues automati cally,change at any time based on market and other conditions. just enter your e-mail address here.This is not an offer or solicitation for the purchase or sale of anysecurity and should not be construed as such. References tospecific securities are for illustrative or informational purposesonly and are not intended to be, and should not be interpreted And finally...as, recommendations to purchase or sell such securities. As always, a big thank you forMy day job is as a qualified financial planner. This entails me reading. Your time isgiving my clients advice on maximizing the returns on their appreciated.investments within their specified risk parameters. This may ormay not involve me recommending some of the securities listed Ross.above.
  4. 4. Call me: +48 (22) 389 65 70 (w) +48 512 275 706 (m)

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