Foreign Perspectives

Archive for the ‘Business’ Category

A long time ago, there used to be a single induction course for new entrants here but now that the induction seems to have been passed on, rightly, to the appropriate line manager, the subjects that would formerly have been covered as part of that are now taken up by courses in their own right.

The reason for that seems fairly clear: the personnel people want to be sure that the subjects are properly covered so that the company doesn’t get sued. However, that reasoning leads to the “flight safety” problem i.e. that the courses are just being done for the sake of saying that they’re being done.

So, we have the, clearly important, fire safety course which is generally seen as a chore to do when, of course, it could be rather important one day. We have a data protection / freedom of information course which skims over the information. We have a diversity course which is one that really seems, unfortunately, to fall into the “we have to do this, so we’re doing it” camp. Then there’s fraud awareness which seems mainly to have the message “we’ll catch you on”. Finally, for now, there’s the display screen awareness course which does have some useful points but which needs to come with a little manual as most of those points will be quickly forgotten.

As all of those except for the main fire safety course are online, personnel don’t seem to worry about targeting them in any way and, as they find their feet with the technology, it would seem that we can all look forward to a diet increasingly made up of mandatory courses, many of which may well be on the mandatory list because they can be put on it.

You usually expect companies to put a positive spin on their products, even when they’re not so good so I try to downplay such messages in my mind to see what the true picture is.

So, I was a bit thrown by the recent car insurance renewal from Axa. They had their main marketing message in big letters (“10% discount for renewing online” and the usual promotion of the insurances that you don’t yet have with them). However, the insurance renewal at £78/month seemed a bit expensive and when I checked it certainly was as it was only £25/month last year. Net effect of that being that I was getting together the information I needed to get a quote elsewhere. After all, tripling the insurance was a bit much.

They are just lucky that I read a bit further though. It seems that the £25/month was actually over 9 months with an initial deposit bringing the total to around £275 whereas the £78/month is over three months with an initial deposit bringing the total to almost exactly the same total.

Talk about bad marketing! I wonder how many customers they’re going to lose by presenting an insurance quote that appears to triple the cost but actually leaves the total almost exactly the same?

The changes in pensions announced in the recent UK budget were quite staggering in their scope and I suspect that it will be several years before the full implications of them dawn on most people.

Ignoring the minor, but quite significant, changes the biggie was that as from April 2015 your pensions savings effectively becomes a proper savings plan ie one where you can take the money out. Up to now, pensions often seemed to be an insurance company scam whereby you paid them money over your working life and when you retired they kept that money and paid you out an allowance from it. As of April 2015, so long as you are over pension age (usually 55), you can withdraw those savings.

That to me changes significantly how I consider my pension. Money put into it is no longer lost to some insurance company but is available to me just as my other savings are. One of the effects of that is that I’m much more willing to save money in the pension which can only be a good thing.

Another effect is that it somewhat muddies the waters as regards the difference in a pension and an ISA. In effect both are now fairly equivalent places to invest your money. With the pension, you get tax relief on the way in (ie put in £100 and it becomes £120 in the pension but income paid out is taxable) whereas with the ISA there’s no upfront tax relief but you don’t pay tax on any income paid out. This means that, for most people, a pension is a better savings vehicle as they are likely to be paying higher tax when working than when retired. Also, the limits are different with the pension being, largely, limited to your total income whereas the ISA is limited to £15,000 ie there’s, for most people, no practical limit on pension savings.

Combined with the new freedom, it would seem that it’s best to put your investments in a pension and your cash in an ISA.

A final point to note is that with pensions effectively becoming jumbo ISAs, there are likely to be a lot more investment companies offering them which, hopefully, will reduce the charges in due course.

What I suspect will throw many people is that all of a sudden their pension has become a, hopefully, large savings account. What you need to remember is the reason behind pensions which was always to create a large savings account which paid you an income for the rest of your days ie lifting the lot and spending it as soon as you retire could cause you considerable financial difficulty later on.

For a very long time, the social security payments scheme in Northern Ireland was more or less identical but separate from the scheme in the mainland. Thus, for example, if you retired in Northern Ireland and then moved to England, your retirement pension would be paid from the English system but the amount would be the same.

However, up until the early 1990s there were separate computer systems to do this in Northern Ireland and in England. Then with the replacement of the English system in the 1990s, the running of the systems gradually moved to England and the various computer teams supporting the old Northern Ireland systems were disbanded.

Roll that forward 20-odd years and the reform of social security that is taking place in England, Scotland and Wales hasn’t, yet, been accepted.

Options as to how to proceed are quite limited.

Firstly, NI could carry on with the old system for a while. There are penalties of, at present, £5 million a month being applied and that’ll have consequences for the non-social security money i.e. there would need to be substantial cuts to balance the books. However, there’s only one computer system now, run in a number of centres across the country but supported centrally and that’s rather a bigger problem. Once the mainland change over to universal credit, support for the old systems will stop and those support teams will disband. The NI computer system is actually in England and, in principle, NI could buy that but what they can’t buy is the support team as that will be moving on to the new system. Outcome of this option? Well, something like 2 or 3 years from now the social security payments in NI will simply stop being paid because the computer system which is paying them now will either be switched off or, if it’s not, it will develop a fault and the team that currently fixes faults won’t exist. In practice, this is likely to end in chaos.

Second, continue on with the old system but get a replacement to avoid the consequences of the switch-off above. Again, there are the penalties to contend with. However, more significant is that 2 to 3 year deadline: it just isn’t long enough to train up a new support team, even if the will to do that were there (which it isn’t) and the GB teams were able to train up a backup team (unlikely in the timeframe). It would also be seriously expensive as the GB systems were written with much larger IT teams than are usual in NI (around 10 times as large) so running costs would be much higher per capita.

Third, agree the changes in welfare in NI. Best option probably, but seemingly rather unlikely to happen.

Fourth, give back the social security to direct rule. Not that different from the previous option but probably a whole lot better from the point of view of the local politicians as they’ll be able to argue that the cuts are imposed directly by London.

So what’s likely to happen? The possibility of social security payments simply stopping should focus the minds of the politicians but they don’t seem to believe that the computer system would be switched off – what they haven’t allowed for is that without support, it’ll just stop working sooner or later. Neither of the first two options are great for NI given the penalties that will be applied and the consequences for public services. Options 3 and 4 aren’t great politically so unlikely to happen before the upcoming elections.

That’s the problem with the euro situation at the moment: it really is placing a bet on it surviving.

Spain is being given another 100 billion to bet on it’s banking system surviving the crisis. Greece, unless they elect a far left or right government, will probably be given a similar amount to bet on it’s banking system and not too long from now Italy and Portugal will follow with equally large bets.

All this is just fine if the bets win. If they don’t that money will need replaced and the amount remaining in the kitty will be rather low at that point. Moreover, if the bets don’t win there’ll be a whole bunch of real-world things needing financing at the same time that the bets are written off which is a nightmare scenario for everyone in Europe and none too good for anyone anywhere else for that matter.

Either way, it would appear that we’re in for an interesting second half of 2012.