Nearly two million Britons forced to delay retirement as pension funds hit by credit crunch

Nearly two million people have been forced to put off retirement after seeing their pension funds plummet.

More than a third of those in jobs and over 55 plan to keep working until the stock market recovers, pulling their retirement income back up with it.

Almost a quarter of this age group now expect to work beyond the state pension age of 65, while 32 per cent admitted they were not prepared at all for retirement.

The survey demonstrates the grim choice facing pensioners in the economic downturn - carry on working into old age or try to make do with a drastically reduced income.

The problem is compounded by interest on savings accounts being at a record low. Tumbling house prices have made equity-release schemes far less attractive.

And final salary pension schemes have been closing on an almost daily basis, forcing workers instead of companies to shoulder the risk of pensions losing their value.

Vicky Redwood, of Capital Economics, said: 'It's a bleak picture at the moment for those retiring and they are going to have to carry on working or accept that their incomes will not be as comfortable as they would hope.

'If you're relying on markets getting back to the level they were then it could take several years.

'One of the problems is that people are relying on equity-release schemes to top up their incomes but house prices have been going down so that is not as worthwhile.

Unfortunately the next year is going to be a time to make some hard choices.'

In March the FTSE 100 fell to its lowest level for more than six years and despite rallying it is still far below what many were counting on. According to financial data providers Moneyfacts, a pensioner who paid £200 a month into a pension for 20 years would have seen a 27 per cent drop in retirement income from August 2006.

A saver who had £50,000 in a savings account in August 2006 would expect £130 a month in interest, compared with just £40 now.

The picture is just as grim for those hoping to release equity from their home.

According to the Nationwide Building Society, house prices hit a low point in February when the average price of a property was £147,746, an annual fall of 17.6 per cent. some.html" target="_blank">continues here



Mistakes Happen

Just how did Goldman Sachs manage that?

Conspiracy theories abound as to how Goldman Sachs has spun record profits from global turmoil. Alistair Osborne reports



Just about everyone has heard of Goldman Sachs. Few, until recently, had heard of Mike Morgan, a Florida-based investment adviser, just recovered from heart surgery. Over the past few months, Morgan has become one of those shooting stars of cyberspace. He set up a blog, goldmansachs666.com, whose posts have included "Does Goldman Sachs run the world?" and "If Goldman Sachs robbed your house, what would you do?".

Aggrieved at being traduced under the devil's sign, the American investment bank ordered Morgan to take down his site. He refused. A legal spat ensued.

Now, the site appears with the following disclaimer: "This website has not been approved by Goldman Sachs. This website was designed to provide information about Goldman Sachs to demonstrate [in Mr Morgan's view] how destructive this company is to our lives and the hopes and dreams of our children."

Few companies generate such vitriol. But sometimes you wonder if Goldman doesn't actually want to be hated. Just look at this week's humdinger. Fresh from repaying $10 billion (£6 billion) of rescue funding from the American taxpayer, and amid the biggest economic crisis since the 1930s, Goldman turned in record second-quarter earnings of $3.44 billion – a 65 per cent rise year-on-year.

That's only half of it, though. The upshot of these monster earnings is that Goldman's 29,400 staff are set to rake it in as never before. As if the credit crunch had never happened, the Goldmanites are on course this year for average pay, bonus and benefit packages of an eye-watering $770,000 – or £475,000 – per head. That's almost twice what President Obama earns.

The looming largesse provoked the expected brouhaha on Capitol Hill. Senator Tester hit the mood, warning: "We're not out of the woods economically. Quite frankly, they [Goldman] need to look at it from a perspective that it's not business as usual any more, and they can't continue along these lines or there will be outrage."

It's lucky that Rolling Stone magazine had already published its views on the Wall Street bank. In an excoriating piece of gonzo-journalism earlier this week, Matt Taibbi likened Goldman to "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money".

In his highly readable diatribe, Taibbi took just about every conspiracy theory going and souped them up: that Goldman alumni populate every corridor of power, particularly Washington, so ensuring that government policy and financial markets are rigged in its favour; that its wizzo brains invented the dangerous financial products that exploded to cause the current crisis; and that even the banking bail-outs were fixed to favour Goldman. It's seductive stuff because there's no shortage of facts to support all manner of conspiracy theories. But there is also a more plausible and prosaic explanation for Goldman's success: it is damn good at what it does.

The latest financial figures can be explained relatively simply. As the world emerges from the worst of the downturn, blinking into the daylight, the volumes of government bonds, currencies and commodities that are being traded has risen. Meanwhile, the equity markets are bouncing back, with investment banks able to earn vast fees from underwriting fundraisings for companies, banks and authorities desperate to rebuild their battered balance sheets. Goldman's underwriting work included HSBC's $19.6 billion cash call, a $4 billion capital-raising for steel maker Arcelor Mittal and a $6.9 billion fundraising by the State of California.

Not only is there more business, though. Goldman also has far fewer competitors because so many rivals are now out of the game, either bust or retired hurt. What's more, the lack of competition has also boosted fees. Just look at the carnage. Lehman Brothers failed, Bear Stearns collapsed and was rescued by J P Morgan, Merrill Lynch has been subsumed into Bank of America in acrimonious circumstances, while neither Citigroup nor Swiss bank UBS are the forces of old. Goldman has emerged as one of the winners of this crisis alongside others, including Barclays Capital and J P Morgan.

A bigger question – and one Taibbi raises – is whether Goldman deserves to be there. Or whether it owes its recent success to carefully cultivated political connections that have earned it the soubriquet "Government Sachs".

Top of the list is its former chief executive, Henry Paulson, the man who was George Bush's last Treasury Secretary and the architect of the Wall Street bank bail-out. Paulson was only following form. Another Goldmanite, Robert Rubin, was Treasury Secretary under Bill Clinton.

Paulson, it is widely known, could not stand Dick Fuld, the former boss of Lehman Brothers. So, the conspiracy theory goes, Paulson was happy to let Lehman go to the wall – the one major bank that America declined to rescue. Even so, it stretches it a lot to say that allowing Lehman to collapse was all part of a grand design to help Goldman.

As one Wall Street banker puts it: "Lehman almost brought down the entire financial system, forcing Goldman to go cap in hand to the Treasury for $10 billion of Tarp funds" – the bail-out under the US government's Troubled Assets Relief Programme. "If Paulson had been trying to help his old bank, he would have let Bear go rather than Lehman."

Two controversies feed the conspiracy theories. First, after Lehman fell, Goldman and the remaining US investment banks found it impossible to finance their businesses. So, the US government allowed chief executive Lloyd Blankfein to turn Goldman into a bank holding company, regulated by the US Federal Reserve – a move also followed by Morgan Stanley. This enabled Goldman, which was now constituted as a commercial bank, to gain access to fresh – and cheap – funding from the Fed.

The second is that, thanks to Washington's bailout of AIG, Goldman was able to recoup a $13 billion exposure to the failed insurer – though Goldman insiders insist the matter is much more complicated than it appears.

On top, there is the issue that without these leg-ups from the US administration, Goldman would not have been able to attract $5 billion of funding from the legendary investor Warren Buffett. It is Buffett's billions that partly gave Goldman the confidence to return its Tarp funds early – a move that technically removes the stick the Obama administration could have used to beat up Goldman over the looming mega pay-outs to staff.

It is debatable whether Goldman would be quite where it is today without this helping hand from its friends in high places. But it is not the whole story: something in the culture of the bank makes it fit and always likely to survive and thrive. The bank was founded in 1869 by a German immigrant, Marcus Goldman. He built it up with his son-in-law, Samuel Sachs, lending short-term money to Manhattan merchants in a forerunner of today's commercial paper market.

Their legacy is a partnership culture that survived Goldman's decision to list its shares on the New York Stock Exchange in May 1999. Bankers sweat 16-hour days to make it to the 400-strong band of partners, who have their own money on the line. They arrive some time in their mid-30s, but have an average tenure of only eight to 10 years as they are encouraged to make way for hungrier blood.

"By their mid-40s, they are encouraged to move on, which is why so many of them end up in powerful positions in politics, the arts or philanthropy," says Lucas van Praag, Goldman's corporate communications chief. "The structure exists because we want a culture that is collegiate not parochial, where people are working for the benefit of the firm. It also has the advantage of encouraging honest debate and dissension. In some other firms, nobody disagrees with the boss. Lloyd Blankfein would say that's not a luxury he enjoys."

The partners earn so much money that an abiding tale from the height of the boom was that of Joyti De-Laurey. She was the secretary who stole more than £4 million from three partners, spending it on UK property, a £750,000 sea-front villa in Cyprus, luxury cars and flying lessons for her husband. The partners – Jennifer Moses, Moses's husband Ron Beller and Scott Mead – were so rich that none of them noticed.

Even allowing for their riches, the partnership culture may explain why Goldman was relatively quick to spot the credit crisis, liquidating its exposure to sub-prime mortgages, for example, faster than some of its rivals. But neither has the culture impinged on an appetite for risk that is evident in the latest figures continues here

Worst financial crisis in human history': Bank boss's warning as pound suffers biggest fall for 37 years

• Economy outstrips forecasts to shrink by 0.5%

• Pound suffers worst fall against dollar for 37 years

• FTSE plunges 9% before rallying to close down 5%

• Asian markets tumble for a third day amid global fears
  
  Consumers face higher shop prices, dearer fuel and more expensive holidays after the pound slumped yesterday.
  
  Sterling took a hammering as economic figures showed the UK approaching full-blown recession.
  
  Bank of England deputy governor Charlie Bean warned that the pain is just beginning, calling the situation the 'largest financial crisis of its kind in human history'.
  
  
  
  On the 79th anniversary of the Great Crash of 1929:
  
  • Britain's economic output slid 0.5 per cent - more than twice the decline expected by the City;
  
  • Markets tumbled around the world, with leading UK shares losing almost £50billion;
  
  • Sterling had its worst-ever week against the dollar since 1971 and hit a record low against the euro;
  
  • The oil cartel Opec cut production, a move likely to increase petrol prices up to 5p a litre;
  
  • Experts warned that hedge funds are facing disaster, with billions likely to be wiped off savings and pension funds;
  
  • Hundreds of jobs were axed in the insurance, cosmetics, haulage and textile industries.
  
  The plunge was prompted by the worst set of UK growth figures for 18 years, recording the first time that the economy has officially contracted since 1992.
  
  The Office for National Statistics reported UK output dropping 0.5 per cent between July and September.
  
  Another fall in the final three months of the year would propel Britain into the first official recession since the days of John Major.
  
  Tory leader David Cameron declared: 'This is the day the recession became real.
  
  'We have had ten years of a Government saying no more boom and bust. We have had ten years of a Government not putting aside money for a rainy day. Well, that rainy day has now come.'
  
  At one stage, the pound was worth as little as $1.52, prompting speculation that the UK was on the brink of a currency crisis.
  
  Although it later rallied, it has lost a quarter of its value against the dollar over the past year.
  
  Foreign investors are less willing to finance the UK because of its record debt burden and slumping economic output. The rush to sell sterling means prices of imports like clothing and electronic goods will rise, holidays will cost more and overall living standards will suffer.
  
  The Tories said sterling's decline proves Mr Brown has left Britain ill-equipped to face the banking crisis.
  
  Shadow Chancellor George Osborne said: 'Once again, under Labour, the pound in your pocket is worth less. Indeed Gordon Brown has set a new record for Labour Governments, but it's not one he's likely to boast about.
  
  'The 25 per cent fall in the value of the pound over the last year is even greater than the devaluations under Jim Callaghan and Harold Wilson. It's a sign that international investors think Britain is badly prepared as boom turns to bust.'
  
  Analysts warned that the nation faces an extended period of austerity, as unemployment soars and families are forced to save on even basic essentials.
  
  Professor Andrew Clare, of Cass Business School, said Britain has amassed a record debt burden that must now be paid off.
  
  The economist added: 'We are going to have to wear a hair shirt as a nation. If this turns out to be recession lasting five or six quarters, which looks possible, we are not going to see the slightest upturn until 2010. And even then we can expect at least five years of muted growth.' continues here
  

Taxpayers' £37billion 'might not be enough' to stabilise banking system

The public money being injected into Britain's three weakest banks may not be enough to stabilise the banking system

The £37billion of public money being injected into Britain's three weakest banks may not be enough to stabilise the banking system, according to the Treasury Select Committee chairman. 

John McFall called on the rescued banks to provide much more detail of their exposure to derivatives and other complex assets, many of which have been plunging in value. He said: “It's a minefield we are tiptoeing through. That £37billion might not be enough.” 

Yesterday the committee announced an inquiry into the banking crisis and invited Alistair Darling, Mervyn King, the Governor of the Bank of England, and Lord Turner of Ecchinswell, chairman of the Financial Services Authority, to give evidence. 

“Taxpayers are very concerned about the scale of this investment,” Mr McFall said, and he invited members of the public to send in questions to be put to the witnesses. 

While welcoming the rescue package, Mr McFall pointed to the huge exposure of the banks to credit default swaps, describing it as a big concern. He said: “We are seeing a process of de-leveraging. We don't know what problems that might throw up.” 

Royal Bank of Scotland, which is receiving up to £20 billion of government funds in return for a stake of up to 60per cent, has outstanding derivative trades of about £480 billion on each side of its balance sheet. 

These include positions taken in the equity and commodity derivatives markets and in credit default swaps - in effect insurance policies promising to protect bondholders against default. 

In addition to the investment risk, these derivatives pose counter-party risk, the danger that the bank or investor on the other side of the trade may not be in a position to pay. 

RBS has played down the risk posed by derivatives, arguing that many of the positions cancel each other out and that it hedges positions and requires collateral to minimise the danger. 

RBS shares slipped 1per cent to 65p yesterday, just below the 65.5p at which the bank is planning to raise £15billion in ordinary equity. 

That suggests the Government as underwriter will be left with much or all of the stock. RBS is also raising £5 billion through a preference share issue. 

Lloyds TSB and HBOS, its takeover target, both sank sharply, down 7 per cent and 5 per cent respectively to 151.3p and 85.3p - both well below their planned issue prices of 173.3p and 113.6p. 

If these levels persist, the Government looks certain to be landed with all the new shares, giving it 40per cent of the combined group. 

Lloyds was understood to be lobbying to be allowed to pay dividends to ordinary shareholders before it has fully redeemed the preference shares sold to the Government. 

Lloyds and HBOS originally agreed at the weekend to the dividend ban but the Lloyds share price has been badly hit as investors who have come to rely on the Lloyds dividend started to bale out. 

Under the current terms of the bail-out and takeover, HBOS will have to repay £3billion and Lloyds £1billion of preference shares before ordinary shareholders, who include more than two million small investors, will receive any dividend. 

Some traders are still betting the takeover will fall apart or will have to be renegotiated a third time. The HBOS share price is trading at a 7per cent discount to the revised Lloyds offer. 

Together the two banks are raising £17 billion. Shareholders from both can vote down the deal. 

Barclays, which is hoping that it can raise £6.5 billion of capital without tapping the Treasury, leapt 30.75p to 246p as it was seen as being less diluted and able to resume dividends sooner than its peers. 

Barclays is also expected to go from half-yearly to quarterly dividends. The bank has agreement in principal from one of its existing shareholders, thought to be the Qatar Investment Authority, to invest £1billion in ordinary and preference shares. 

Barclays is being sued in New York over allegations that it shifted loss-making investments on its own books into accounts held by outside investors. 

A French client accuses the bank of putting toxic mortgage-backed assets into two investment vehicles, Golden Key and Mainsale, which were promoted to outside investors. Barclays said the action had no merit and denied any wrongdoing. 

Share traders started to turn their attention to non-financial stocks after the US confirmed its plan to invest $250billion (£143billion) to boost bank balance sheets. Wall Street dived last night, the Dow Jones industrial average falling by 76.62 points to 9.310.99. continues here

Interest rate cuts overshadowed by spectre of recession

IMF says world is heading for major downturn

Interest rates across the world were slashed yesterday as central banks took unprecedented emergency action in an effort to contain the worst economic threat since the Great Depression. 

Hours after the Government unveiled a £500 billion rescue package for the British banking system, the Bank of England joined forces with its counterparts across the Western world to cut rates by half a percentage point. 

The extraordinary level of coordination was designed to demonstrate resolve in the face of financial panic but failed to restore confidence in the stock market. Share prices rallied briefly in London but the FTSE 100 index closed down 239 points at 4,367, its lowest point for four years. 

In its bleakest forecast for years, the International Monetary Fund said that the world was entering a major downturn in the face of “the most dangerous shock . . . since the 1930s”. The US and Europe were either on the brink of or already in recession.

The Chancellor’s plan to part-nationalise the worst-hit banks, guarantee some of their debts and flood them with fresh supplies of cash drew a mixed reaction. There were accusations that he was favouring bank shareholders over ordinary taxpayers and breaching fiscal rules. 

The Government has earmarked up to £50 billion to inject into banks in return for preference shares and possibly ordinary shares. It has also offered to guarantee all short-term borrowings made by participating banks in the wholesale markets, a potential liability of £250 billion. A further £200 billion is being provided to money markets to allow banks to swap risky assets for Treasury bonds. 

Robert Chote, of the Institute for Fiscal Studies, said that the package could push the Government’s debts towards 50 per cent of national income. continues here

£16,000 EACH: That's what every one of us could have to pay for the Great Bank Nationalisation

The colossal £500billion rescue package for the banking system could cost every taxpayer £16,000.

That figure is the share of the bill we all face should Gordon Brown's gamble not pay off.

The devastating prospect, and the fear of tax rises, emerged after a day of astonishing developments in which:

Mr Brown announced the Government would pump an extra £200billion into stalled money markets, buy a £50billion share of major High Street banks and offer them a £250billion guarantee on their debts.

The Bank of England cut base rate by half a per cent as part of coordinated action by world banks.

Four major mortgage lenders immediately passed on the cut to their borrowers.
But the markets reacted badly to the changes, as the FTSE continued its downward spiral with a fall of 238.53 points to close at 4366.7. The Dow Jones was also down, by almost 200 points.



In a symbolic blow to the Prime Minister's reputation, the London stock market finished lower than the day Labour came to power in 1997.

And the prospect of a £50billion state investment in bank shares led to concern that pension funds - already 15-20 per cent down in the past year - could see their value fall further as dividends are diverted to the Government.

Mr Brown pinned his hopes on a record injection of public cash to stem a financial meltdown.

He tore up his economic rulebook to offer banks the rescue plan. But the action came in for sharp questioning as MPs and analysts predicted it was 'too little, too late'.

What Mr Brown hoped would be seen as a decisive move was dogged by accusations that the Government has 'dithered' in the face of global turmoil.

He acknowledged the scale of the task he faces but refused to put a price tag on what it will cost the taxpayer.

The Treasury suggested it could eventually make a profit from the venture, with some analysts suggesting it could rake in £4billion a year from the scheme.

But there were fears that the Government had woefully underestimated the price tag for his unprecedented financial rescue.

The move marked the death knell of Mr Brown's 'golden rules' on borrowing by pushing the Government's overdraft to nearly 50 per cent of gross domestic product - way above the 40 per cent limit he had laid down.

Experts predicted that the true cost of supporting the banking system will continue to escalate as Britain enters an increasingly painful recession.

Rising debt defaults and sinking property values could carve yet bigger holes in top banks' balance sheets, forcing the Treasury to pour yet more cash into the City.

A report yesterday showed Britain had sunk yet further in global competitiveness rankings, from 9th to 12th, as the economic backdrop darkens.

And the highly respected International Monetary Fund warned that the world faces the most dangerous financial crisis for 70 years as global stock markets slide.

Mr Brown and Chancellor Alistair Darling revealed the unprecedented package of measures in an emergency statement as the stock exchange opened. continues here

FTSE falls by 200pts despite Darling's desperate £250bn semi-nationalisation of Britain's banks

Darling announces £250billion rescue deal

FTSE tumbles 200 points on openingAsian markets tumble overnightRoyal Bank of Scotland shares plunge a massive 40%British savers frozen out by Icelandic internet bank

Shares slumped today after the Government announced a £250billion state rescue of Britain's crumbling High Street banks in the biggest nationalisation of modern times.

The FTSE-100 opened down more than 200 points shortly after Alistair Darling confirmed the drastic rescue plan that heralds a new era for the banking system.

He and Gordon Brown were forced to act amid fears that without the injection of taxpayers' money, household names in banking could vanish in days, if not hours.

The Treasury will buy stakes in the Royal Bank of Scotland, Barclays, Lloyds TSB and Halifax Bank of Scotland, it confirmed today.

This recapitalisation will cost £50billion. A further £200billion will be offered to banks in short-term loans in a bid to try and improve liquidity and kick start the market.

Mr Darling said this morning that the measures were 'absolutely critical' to helping Britain through these 'extraordinary times'.

'It is a process that inevitably will take time. It is not an instant change but it is a restructuring, it is stabilising the system, and that is very important,' he said.

The banks involved are: Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.

The bail-out will cost each taxpayer up to £2,000 but the Chancellor insisted their interest was being protected.

'I'm very clear that in return for all this, the taxpayer has got to see some upside. In relation to lending to small businesses, in relation to mortgages... that's important too,' he said.

The rescue plan was confirmed shortly before the markets opened. Investors were expecting yet another bloodbath over the day after Asian stocks tumbled overnight

Japan's Nikkei fell nearly 10 per cent at one stage, Hong Kong's Hang Seng was down 5.5 per cent. In Australia, the key index lost five per cent.

The slump followed a huge sell-off on Wall Street which saw the Dow Jones index close down more than 500 points.

Analysts were not optimistic the Government bail-out would ease the turmoil. CMC Markets dealer Matt Buckland: 'For the time being, it looks as if the impact is going to be minimal.

'As we've seen in the US, government intervention isn't freeing up credit markets and that is the key point - if it's difficult for companies and individuals to get hold of credit, it's going to be difficult to stimulate growth and break out of this recessionary mindset.'

Though the Chancellor and Prime Minister were desperate not to present the rescue as a crisis measure, it was clear that another day of panic and chaos on the stock market yesterday had left them with no other option.

The alternative was to allow the Royal Bank of Scotland - one of the world's ten largest banks with a £1,900billion balance sheet - to collapse, dragging down large sections of the economy with it. continues here

Squeeze on family budgets and savings is 'worst since 1958'

Family budgets are more squeezed than at any time in five decades, according to official figures out yesterday.

The amount households have saved up fell in the first three months of the year - the first time it has done so since 1958.

The blame was put on the rising costs of mortgages, energy, food and other basics.



The figures from the Office for National Statistics also showed that the economy stagnated in the second quarter of 2008, raising fears of a full-scale recession by Christmas.

It is the first time since 1992 that growth has been at zero.

City analysts say budget pressures, loss of confidence and costlier credit have conspired to curb consumer spending.

Shops and manufacturers are bracing themselves for a spiral of falling sales and job losses.

City analysts predict falling economic output in the second half of 2008 in a recession that will last through 2009.

Charles Davis, of the Centre for Economics and Business Research, pointed out that households were 'dissaving' - spending their savings rather than adding to them.

'UK households failed to save in the first quarter,' he said.

'Previously, the savings ratio had been estimated at 1.1 per cent, but has been revised down to a dissaving of 1.1 per cent.

'The last time overall dissaving occurred in a quarter was in 1958 - when Harold Macmillan was prime minister.

The squeeze on real disposable-incomes is clearly impacting households' capacity to put money aside.'

He said the world economic crisis would change consumer behaviour.

A buy-now-pay-later philosophy was being replaced by belt-tightening and strict controls on spending that will hit firms hard.

Howard Archer, economist at Global Insight, a financial analysis firm, said declining savings reflected meagre growth in disposable incomes.

'This reinforces the belief that consumer spending is set to be reined in for an extended period,' he added.

'We expect the economy to contract in the second half of 2008 and the early months of 2009.'

The firm is predicting that economic output will contract by 0.2 per cent in 2009, after growth of just 1.1 per cent in 2008.

Paul Dales, of Capital Economics, another consultancy, said the figures 'paint a worrying picture of a very unbalanced UK economy'.

He said the inability of households to save 'shows just how stretched households' finances are'. continues here

Banks 'cancel good payers' cards'

Banks may be taking cards from reliable customers and giving them instead to riskier ones in order to boost their profits, a senior MP has suggested.

The chairman of the treasury select committee, John McFall, says companies may be withdrawing cards from people who pay their bills on time.

The suggestion is they are being given instead to people who pay interest because they cannot clear their debts.

Such practices "have to be called into question", says Mr McFall.

He has previously complained that credit card companies were not being transparent. Now he says they may not be being fair to their customers......Article conts (-)