Joshua Morton

(Reuters) – World stocks inched up and U.S. bond yields steadied after almost three weeks of gains on Tuesday with Federal Reserve policy setters expected to end six years of aggressive monetary stimulus.

The Fed kicks off a two-day meeting later with markets betting on an announcement that it will stop its post-financial crisis high-intensity asset buying and reinforce that a softly-softly approach will be taken to raising rates.

With the euro zone running into turbulence again and China’s giant economy also struggling for pace, the prospect of a world without U.S. stimulus has troubled markets over the last couple of months, but they finally seem to be getting used to the idea.

European shares rose for the fourth time is six days, helped by better-than-expected results from pharmaceutical group Novartis and Swiss bank UBS, while the dollar, commodity markets and U.S. bond yields steadied.

“I think in the last few days we have had a reality check,” fund management group Hermes’ chief economist, Neil Williams, said. “The world is certainly not a happy place at the moment but it hasn’t got that much worse in recent weeks.”

“I’m expecting the Fed to re-assert its dovishness, they haven’t come this far including six years of QE (quantitative easing) to end it abruptly and leap towards a rate hike.”

London’s FTSE, Germany’s DAX and France’s CAC were up 0.5, 1.2 and 0.4 percent respectively and the euro, the pound and benchmark German government bonds all traded around recent levels.

Gold also recovered its footing after falling to its lowest in nearly two weeks, while emerging market stocks, which are also seen as vulnerable from reduced U.S. and global stimulus, rose 0.7 percent as hopes of more reforms of state-owned business saw Chinese stocks jump 2 percent.

CROWN SLIPS

Sweden’s crown slid to a four-year low against the dollar and a four-month trough against the euro after the country’s central bank, the Riksbank, surprised markets with a cut in interest rates to zero.

Most analysts had forecast that the bank would lower its main interest rate, the repo rate, to 0.1 percent from 0.25 percent to fight the risk of deflation. But it went a step further and forecast an even lower rate path for the future.

“Reading between the lines, it looks like Riksbank will keep rates low… This will weigh on the Swedish crown, with most losses likely to come against the dollar,” SEB’s chief currency strategist in Stockholm, Carl Hammer, said.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan added about 0.4 percent but Japan’s Nikkei dropped 0.4 percent after disappointing results from Canon offset positive retail sales data.

In the United States, data on Monday had been far from encouraging.

Services sector activity slowed in October to a six-month low, while manufacturing output in Texas decreased, providing more evidence that the Fed is likely to take things slowly in the coming months.

The dollar index, which tracks the U.S. unit against six major rivals, inched up about 0.15 percent in Europe to 85.629 as early Wall Street futures prices pointed to a solid 0.4-0.5 gain for stocks later.

Among commodities, U.S. crude was flat at $81.04 per barrel after dropping as low as $79.44 on Monday, its lowest level since June 2012, after Goldman Sachs cut price forecasts.

Brent crude shed 0.2 percent to $85.65, as concerns about weak global demand and ample supply kept a cloud over the market though growth-attuned metals — copper, nickel and aluminium — continued their recent rebound.

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After the end of the budget consultation on 11^th June, the Treasury issued its response on the 21^st July on pension shake-up, explaining pension changes, which offer a greater deal of freedom for both pension holders and providers.

These pension changes are generally all positive and the biggest for more than 100 years. Some of the changes are discussed here.

In order to ensure that all defined contribution schemes are able to offer greater flexibility to their members a permissive statutory override shall be introduced.  The benefit of permissive statutory override is that it allows schemes to ignore their scheme rules and follow the tax rules instead; in order to make payments flexibly or to provide a drawdown facility.

According to the government mandating these schemes provide flexible payments, which would be disproportionate. Even though some schemes would like to offer flexibility to their members but due to the legal and administrative costs involved, they would prefer not to amend their schemes.  The government under these situations would prefer that the schemes were in a position to provide flexibility without amending their rules.

On the other hand, if the schemes do not offer flexible access, the individuals would be able to transfer between defined contributions schemes up to the point of retirement.

It is also expected that the government would make various changes to the tax laws, in order to allow more freedom to providers to create new and innovative products, which meet the needs of the consumers more closely. These include; allowing lump sums to be taken from lifetime annuities, allowing payments from guaranteed annuities to beneficiaries as a lump sum, where they are under £30,000, removing the 10-year guarantee period for guaranteed annuities and decreasing lifetime annuities.

The real intention behind the new tax rules is to provide people with a greater access to their retirement savings. However, they also ensure that individuals do not use these new flexibilities to avoid tax on their current earnings by diverting their salary into their pension with tax relief and then immediately withdrawing 25 percent tax-free.

Those who choose to draw down more than their tax-free lump sum from a defined contribution pension will be able to benefit from further tax-relieved pension saving, and make further tax-free contributions to a defined contribution pension of up to £10,000 a year.

Under the current rules, those who are currently in ‘flexible drawdown’ are not able to make further pension contributions, having an annual allowance of £0. However, from April 2015 they will be subject to a new annual allowance limit of £10,000. This would allow individuals accessing a defined contribution pension worth more than £10,000 to contribute up to £10,000 a year with tax relief to a defined contribution pension, after their first flexible withdrawal.

Without being subject to a £10,000 annual allowance on subsequent contribution, individuals can make withdrawals from three small pension pots and unlimited small occupational pots worth less than £10,000.

Other proposed changes under the new tax rules include the increasing of minimum age at which people can access their private pension from 55 to 57 in 2028 for all pension schemes. However, this change will not be applicable to those in the public sector; which includes police, armed services and firefighters.

According to the government, when the new system is established in 2015; the 55 percent tax charge on pension savings in a drawdown account at death will be too high. As a result, in this year’s autumn statement; the government has intentions to announce the changes.

The government will introduce two new safeguards to protect individuals and pension schemes, but will continue allowing transfers from private sector defined benefit to defined contribution schemes, apart from pensions that are already in payment.

Prior to accepting a transfer; an individual would be required to take advice from a professional advisor, authorized by FCA and independent from the defined benefit scheme.

Currently, if the interests of the members of the pension fund trustee or the scheme are prejudiced by making the payments within the usual period, than they can ask the regulators for a longer time to make transfer payments. However, now there will be new rules for delaying the transfer payments for trustees and the scheme funding levels when deciding on transfer levels will also be taken in to consideration.

For those defined members who wish to access their savings flexible, the government has intentions to consult on removing the requirement to transfer first to defined contribution schemes.

Since, there is no money involved in transfers from unfunded public service defined benefit schemes; therefore, the government intends to consult on removing it. However, transfers from funded defined benefit to defined contribution schemes will be allowed, and safeguards similar to those in the private sector will be introduced where appropriate.

Under the trivial communication and small-pot rules, individuals are allowed to take up to £30,000 of total pension savings as a lump sum, or a £10,000 small pot as a lump sum regardless of total pension wealth. The age at which an individual can make use of these rules will also be lowered from 60 to 55.

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