Morningstar Magazine - February/March 2014 - (Page 29)

pension income increased for the first time in six years in 2013. After falling to an all-time low in March 2013, annuity rates rose 10% over the course of the year thanks to rising Gilt yields and increased competition in the annuity market. A report by Investment Life and Pensions Moneyfacts revealed that a standard level without guarantee annuity for a 65 year old rose by 9.1% based on a £10K purchase price and by 10.5% based on a £50K purchase price during 2013. This was the largest increase since the report began in 1994. But despite this increase, pension savers are being warned that a large gulf still exists between the best and worst annuities available on the market. Too many workers are failing to exercise their open-market option when purchasing an annuity. Pensioners who do not exercise their open market option and shop around for an annuity before fixing the rate at which they will receive retirement income could be penalized by 31%, according to figures from the Association of British Insurers (ABI) in August. Richard Eagling, Head of Pensions at Moneyfacts said: "When it comes to the annuity market it has become customary in recent times to report another disappointing year of falling annuity rates. However, 2013 proved to be an excellent year for annuity income with rates halting their historical decline and actually increasing. Given the extreme difficulties of securing a comfortable retirement income this increase in annuity rates is welcome news for retirees." The Financial Conduct Authority (FCA) is currently undertaking a thematic review into annuity pricing, which will hopefully reveal the true extent of consumer detriment in the annuity market. It is hoped the results will reveal how many people are actually buying annuities that are significantly worse than the best on the market. Tom McPhail, head of Pensions Research for Hargreaves Lansdown said that the report would have a positive effect on the annuity market. The best-performing stock markets of 2013 were not U.K. indexes however, but the U.S.-domiciled S&P 500 and Japan's Nikkei index. U.K. investor sentiment remains positive toward U.S. equities despite the announcement by the Federal Reserve that it would taper its quantitative easing program. According the Lloyds Index, sentiment toward the United States rose seven points. "With a bit of luck we'll see the FCA, Treasury and DWP finally get to grips with reforming the retirement shopping around process this year," he said. "A rise in interest rates could bring some relief for final salary schemes, as it would reduce their liabilities, as well as pushing up annuity rates." One region that investors still do not feel comfortable with-despite making economic headway-is the eurozone. European equities registered a sentiment of negative 21, although this is an improvement on April last year when the index registered sentiment toward the beleaguered countries at negative 59. Emma Wall is the web editor of Morningstar.com in the United Kingdom. Ashish Misra, of Lloyds Bank Private Banking, says it was encouraging to see investors placing more faith in the U.K. stock market, and good news for British companies ahead of the first earnings season of 2014. Investors Confident in U.K. Stocks By Emma Wall U.K. investors are feeling positive about home-grown stocks, according to the Lloyds Private Banking Investor Sentiment Index. The majority of investors predict further gains for U.K. companies, after a stock market rally in the second half of 2013. The FTSE 100 gained 14.4% over the course of the year, and with positive economic news widely expected to be on the way, many analysts and investors alike predict this bull run to continue. Last year proved the most successful year for the blue-chip index since 2009 when it rose 18.7%, and the FTSE 250 index of small and midsize companies rose to an all-time high of 15,935 at the end of the year. Last year marked the second successive year that small- and mid-cap stocks outperformed, proving the adage that smaller companies flourish during an economic recovery. "There has been a slew of positive economic data out of the U.K. throughout 2013, suggesting that the recovery is gaining momentum, and it's likely that investors' views towards the U.K. stock market are reflective of this," he says. "The increase in sentiment towards U.S. equities was perhaps surprising given the QE taper that began just before Christmas, although U.S. equities outperformed every other global equity market except Japan in 2013. We remain neutral toward the U.S. and see the best opportunities for equity investors currently in the U.K., Japan, and the eurozone." In November, Hargreaves Lansdown's Investor Confidence Survey revealed that investor sentiment was at a nine-year high, fuelled by the FTSE 100 rally which brought the index close to its all-time high recorded before the dot com bubble burst in December 1999. The Survey peaked in July 1999 and recorded its lowest level in May 2012. Emma Wall is the web editor of Morningstar.com in the United Kingdom. global.morningstar.com/Morningstarmagazine 29 http://www.Morningstar.com http://www.Morningstar.com http://global.morningstar.com/Morningstarmagazine

Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2014

Morningstar Magazine - February/March 2014
Contents
Contributors
Letter From the Editor
Preparing for the Next 50 Years
Morningstar Managers of the Year
Fixing the Trust Deficit
Rethinking the Path to Retirement
Trends
Same Old, Same Old
Global Briefs
The Economic Implications of an Older World
Banking on Performance
Is the Affordable Care Act Healing Health Care’s Woes?70
Baxter Has a Positive Prognosis
Leading Fidelity’s Charge for RIAs
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Moving the Goal Post

Morningstar Magazine - February/March 2014