INTRODUCTION TO MANAGING YOUR PENSION
After the retirement, I wish to take the amount of EUR 500,000 to my home country England. I have to make comparison between two options for using my wealth of retirement, these include;
Managing wealth through Life Insurance Company
Company called XYZ Ltd. Life Insurance Company has prepared a pension plan called “Active Money Personal Pension” which helps in controlling the investment of people or customers. Features of this plan are;
- Customer can make single, monthly or yearly payments into the plan.
- Option of changing, stop or restart the payments.
- Easy access to (SIPP) Self Invested Personal Pension to expand the investment option.
- Pension plan can be managed and monitored online (McDowell, 2010).
The pension plan offers flexibility through;
- Deposit one-off payments of at least £800 with basic tax relief on top at any time.
- Save monthly from £80 with basic rate tax relief on top and one can transfer funds from another pension (minimum value £1000), making it easier to observe everything at one place.
When regular payments set up at once, save when you like, whatever you like subjected to minimum payments & HM revenue & Custom limits (Knox, 2004). Customer can make unplanned payments into the plan of any amount.
Plan can be managed online and over the phone calls.
It is a element of our Active Money Life plan so it is easily accessible and upgradable (Hammond, 2002). It will offer customers many additional benefits such as contest, prizes, discount coupons etc.
For the rest of their life customers can take up to 25% as a tax free lump sum with a guaranteed income which is known as annuity (Ramsey, 2007). Customer’s individual needs such as income for a partner or how often you want to receive that can be developed through this annuity. They don’t have to buy the annuity from the company and they can shop around to see if they can get more income (Brigham and Ehrhardt, 2011). This is known as the open market option.
Valuable tax relief
If the customer is a basic rate taxpayer, the government gives 20% tax relief on the pension payments topping the savings for the customers (Chan and Chan, 2011). Company can claim the tax relief on behalf of the customers and it will add automatically to the plan.
(Charges may apply and subject to terms and conditions)
Managing wealth on own
Wealth management is an offshoot of financial planning and its main objective is to hold and enhance the wealth (McDowell, 2010). There can be different methods of managing the wealth such as effective tax planning, managing the investments, risk management, business succession etc.
As per the scenario, Wealth of EUR 500,000 can be managed on my own through investing 400,000 out of it into the mutual funds. 100,000 EUR will be taken for my expenditure every year. Amount of EUR 400,000 will be invested into a portfolio of different mutual funds. Investing into different mutual funds will offer me more flexibility in generating the returns.
Tesco PLC is a multinational grocer and general merchandise retailer headquartered in UK having stores in 14 countries across several continents (Tesco PLC, 2013). The company was founded by Jack Cohen in 1919 and is the second largest retailer across the world in terms of profit. It deals in products like household appliances, food, electrical, furniture etc, and provides services like cash & carry, department store, hypermarkets, warehouse club etc. On the other side Marks and Spencer is a major British multinational retailer headquartered in London with over 100 stores all over the country (Marks & Spencer Group PLC. 2013). The company was founded by Michael Marks and Thomas Spencer and it deals in selling of clothes, luxury food products etc.
Significance of ratios
(1) Price Earnings Ratio – PE ratio is a valuation of equity multiple and can be described as the market value per share divided by earnings per share.
PE Ratio = Market value per share / Earnings per share
Tesco – The price earnings ratio of the company is 11.55 with the help of which market’s stock valuation of Tesco and its shares relative to the income which is generating can be analyzed. It will help the company in telling what the market is willing to pay for the company (Brigham and Ehrhardt, 2011). The ratio of 11.55 suggests that market is willing to pay 11.55 times its earnings for the Tesco’s stock.
Marks & Spencer – The price earnings ratio of Marks & Spencer is 13.55 which show that investments in the company are risky because high ratio signifies high expectations. Investor will expect higher earnings growth in the future as compared to other countries.
(2) Price / Book Ratio – It is a ratio used to compare a stock’s market value to its book value. It is computed by dividing the current closing price of the stock by the latest quarter’s book value per share (Ramsey, 2007). It will remain as the tried and tested method for identifying the low priced stocks that the market has neglected.
P/B Ratio = Stock Price / Total Assets – Intangible Assets & Liabilities
Tesco – The price book ratio for the company is 2.40 which shows that if Tesco trades for less than its book value, the investors will get two things – either the market believes that the asset value is overstated either the company is earning bad return on its assets.
Marks & Spencer – The price book ratio for the company is 4.45 which show that stock of the company is overvalued and investors are very positive about the growth capabilities of the Marks & Spencer in future.
(3) Price / sales ratio – It is a ratio which values the stock relative to its own past performance, market or other companies (Hammond, 2002). It is computed by dividing a stock’s current price by its revenue per share.
PSR = Share Price / Revenue per Share
Tesco – The Price to sales ratio of the company is 0.45 which shows that investments of the company are more attractive. From an investment perspective for the company the ratio indicates a good buy with a undervalued stock price.
Marks & Spencer – The price to sales ratio of the company is 0.75 which will provide a useful measure to the company in sizing up the stocks. But it is suggested that investors looking for investment in the company need to be mindful of the potential pitfalls and expected unsteadiness of the ratio.
(4) Price/Cash flow Ratio – The ratio measures the market’s expectations of future financial health of the company (Knox, 2004). It is concerned with impact of depreciation, cash inflow or outflow etc. Likely to price earnings ratio it offers an indication of relative value.
Price to Cash Flow = Share Price / Cash flow per share
Tesco – The price to cash flow ratio of the company is 9.88 which show that the company has better value in the market. It will help the Tesco in manipulating sales & inevitable earnings by adopting activities like aggressive accounting. The ratio will reflect more accurate financial position of the company.
Marks & Spencer – The price to cash flow ratio of the company is 7.69 which show that it is difficult for the company predict the future financial growth. It will also become complex to analyze the future sales and earnings of the company.
(5) Dividend % ratio – This ratio measures the percentage of earnings paid to the shareholders of the company (McDowell, 2010). The ratio offers an idea regarding the support of earnings to the dividend payments in the organization.
Dividend Ratio = Dividends / Net Income
Tesco – The dividend yield for the company is 4.13 which show that company follows a strong dividend policy. Shareholders of the company get a good amount of dividend every year.
Marks & Spencer – Dividend yield of the company is 3.86 which is lesser than Tesco and it reflects that company follows a reasonable dividend policy. The companies have to focus on its dividend yielding rate.
On the basis of the above ratio analysis it can be said that, the company which attracts me the most is Tesco because Tesco is larger group than Marks & Spencer and Tesco is having maximum retail stores in the world as compared to Marks & Spencer (Tesco PLC, 2013). Ratio rate of Tesco is better and effective and it has the speedier potential of future growth & development.
- Brigham, F. E. and Ehrhardt, C. M., 2011. Financial Management: Theory and Practice. 8th ed. Cengage Learning.
- Hammond, R., 2002. Practical Money Management & Wealth Creation for Youth and Young Adults. Xulon Press
- Investment research center, 2013.
- Knox, S., 2004. Financial Basics: A Money-management Guide for Students. Ohio State University Press.