Paul's Blog

Whilst the country takes in the latest developments in the ongoing saga that is contemporary British politics, one question that many will be looking for answers to, is how the result of the general election is likely to affect them financially. It’s inevitable that savings and shares will be impacted upon in some way by Theresa May’s failure to convert her confidence in April into a larger majority in June and the resultant Conservative/DUP deal, as well as the wider ramifications the election outcome might have for the upcoming Brexit negotiations.

Following the election and the slight fall in the value of the pound, shares in many of the largest British companies went up. As companies dealing in dollars and other currencies benefit from a weakened pound, the FTSE 100 initially rose. However, ‘local’ companies dealing in sterling, such as Lloyds Banking Group, housebuilders Crest Nicholson and retailer Next all came out worse off, as did smaller companies linked to the UK economy.

As such, those with diversified pensions and ISA funds are likely to be no worse off than before the election, and doing significantly better than this time twelve months ago. However, it’s worth remembering that the uncertainty and volatility that are likely to be seen in UK politics in the coming days, weeks and months could result in shares and investments shifting further.

Whilst interest rates on both savings and mortgages were at historic lows before the election, capital markets pushed these still further down the day after polling day in order to absorb some of the shock of a result most had not predicted. This is just the latest setback for savers in a period which has seen rates declining consistently since the Bank of England lowered the Bank Rate from 0.5% to 0.25% in August 2016. With little competition between lenders, it’s more likely that rates will fall further than begin to climb any time soon.

The housing market too has been slowing since well before the election, making it a good time for those looking for a great deal on a mortgage to find one – but only if they meet the increasingly fastidious lending methods being used by lenders. The economic instability the country could potentially see in the coming months mean that criteria may tighten further, so those hoping to benefit from a low mortgage rate should do so sooner rather than later in order to avoid missing out.

Sources
http://www.telegraph.co.uk/investing/funds/hung-parliament-nine-key-questions-personal-finances/
http://www.bbc.co.uk/news/business-40215152

 

The market reaction to Theresa May’s decision to call a snap general election to take place on 8th June was, thankfully, relatively minor. After reaching a record high in March 2017, the FTSE 100 dropped by 3% following the Prime Minister’s surprise announcement last month. Compared to the negative reactions experienced following both the 2012 eurozone crisis and the Chinese economy concerns at the start of 2016, this was reasonably slight.

Whilst the election period brings uncertainty, almost every general election in the last two decades has not caused the FTSE 100 to become more volatile in the weeks either side of election day. It’s therefore more than likely that the markets will continue without any major disruption, even if a new government comes into power. It’s usually only genuinely unexpected results which cause markets to rise or fall considerably, with the most recent example being the referendum vote for Brexit last year.

There are, however, still things you can do to minimise any impact of the election on your pension pot or savings accounts.

A well-diversified investment portfolio – a mixture of bonds, shares, property and cash across different sectors and countries – means you’ll be spreading risk and making it more likely that a rise in one sector will soften the blow of a fall in another. It’s likely that you’ll have a particular outcome in mind for your investments, whether that’s securing your retirement in the future or reaching a particular financial goal by a certain time, so sticking to this is the right thing to do rather than becoming distracted by any short-term ups and downs in the markets.

Look out for any investment perks that are brought in soon after the election result as in order to raise revenue, most new governments will introduce policies to help you grow your finances. Don’t forget about the benefits already available to you either, such as ISA and pension allowances, as these can also be a good way to protect your savings from any market volatility. Lastly, drip feeding your investments month by month can be a good way to combat uncertain markets – you might not capitalise fully on a market high, but you’ll avoid losing out during any sudden lows.

Sources:
http://www.which.co.uk/news/2017/04/how-will-the-general-election-affect-my-pensions-and-isa/

An asset class is a broad group of investments that have similar financial characteristics.  Traditionally, there are four main asset classes:
Cash
Shares
Property
Fixed-interest securities (also called bonds)

At its simplest, an asset class can be defined as a broad type of investment. The video below should help to explain it in visual terms.

Sources:
ClientsFirst
https://www.moneyadviceservice.org.uk/en/articles/asset-classes-explained

ISAs have long been regarded as a simple and effective way of protecting your savings from the taxman, with the increased limit now allowing you to shelter up to £20,000 of your savings a year from being taxed. Whilst this can be a great help in protecting your nest egg during your own life, you’ll also want to know that your hard-earned savings will be safe after the event of your death so that as much of the money you’ve accumulated as possible can go to those you leave behind.

Thankfully, in the case of a spouse, this need not be a worry. The government introduced legislation in 2015 which means that surviving husbands, wives or civil partners can inherit an ISA from their other half with the tax-free wrapper remaining intact. The ISA will also not be subject to inheritance tax (IHT) if it’s being passed on to your spouse.

However, if you’re leaving an ISA to another family member, such as a child, the amount held in the account is still considered to be part of your estate. It could therefore be a contributing factor in pushing your assets over the amount that can be left to someone else without incurring tax, known as the ‘nil rate band’. As IHT is payable at a rate of 40%, this could put a serious dent in the amount your loved ones will actually receive after you’re gone.

If your savings are likely to push your estate above the nil rate band, there are options available to reduce the amount taken by the taxman. It’s now easier to safeguard your pension from IHT, no matter who you’re planning to leave it to. Those hoping to leave their money to someone other than a spouse or partner might consider keeping their money in a pension and live off their ISA income as far as possible, thereby being able to pass on their pension pot to a loved one without incurring tax upon it. It’s important to remember that not all pensions are set up to allow this, so it’s normally a good idea to seek professional advice about the best way to protect your estate from being taxed before making any plans for your savings.

Sources
http://www.telegraph.co.uk/money/special-reports/can-i-transfer-an-isa-on-death-without-penalty/
http://www.telegraph.co.uk/financial-services/investments/inheritance-tax/isa-tax-rules/
http://www.which.co.uk/money/savings-and-isas/isas/guides/cash-isas/can-you-inherit-an-isa

It wasn’t all that long ago that investment in buy-to-let property was seen as a straightforward way to generate an income for yourself. However, recent changes made by the government mean that turning a profit through buy-to-let in today’s property market is set to become much more difficult. Each case is individual, and the profitability of a property isn’t as simple as looking at the price of the property and the amount of rent it generates each month, but for many, buy-to-let will soon no longer be the attractive investment opportunity it once was. So what has changed?

From the start of April 2017, the amount of tax relief that can be claimed by a landlord on the interest on their buy-to-let mortgage has fallen. Higher rate taxpayers used to be able to offset all of their mortgage interest against their rental income before they calculated how much tax they owed, but this year they will only be able to offset 75% of the interest. This percentage is then set to reduce again to 50% in 2018 and 25% in 2019. No interest at all will be eligible to be offset in 2020, with a 20% tax credit being introduced instead.

Not only does this mean that investors are set to face growing tax bills over the next few years, even if their income has not increased, but it also means that some taxpayers currently on the basic rate will be pushed into the higher rate tax bracket when their rental income is taken into account. It will also have an impact on means-tested benefits, with some set to lose out on these through the new system.

For existing landlords, there are options to soften the blow of the new tax arrangements. Some buy-to-let owners, particularly those in the priciest areas of the country, such as London, are selling their properties in order to reinvest in multiple properties elsewhere. As companies are not subject to the new tax laws, purchasing these properties through a company will prove to be a better choice financially even taking into account potential capital gains tax.

As residential mortgages are usually at a lower rate than buy-to-let mortgages, another option for landlords is to remortgage their main residence and use the money raised to reduce their buy-to-let mortgage. A buy-to-let offset mortgage is also possible, although this option will only be open to those who meet the eligibility criteria. However, the option that around two thirds of landlords have said they plan to go for is raising rent, with the average increase expected to be between 20% and 30%.

Sources
http://www.thisismoney.co.uk/money/buytolet/article-4313456/Where-invest-buy-let-yield-beat-tax-hike.html
http://www.telegraph.co.uk/investing/buy-to-let/new-buy-to-let-tax-works-andhow-beat/

Tuesday 28th March 2017 saw the Royal Mint release 300 million new £1 coins. The updated design is dodecagonal (that’s the fancy word for twelve-sided), bimetallic like the £2 coin and, perhaps most importantly, impossible to fake according to the Mint, thanks to a closely guarded security feature.

The old £1 coin will remain in circulation until Sunday 15th October, when it will be consigned to history along with the many other obsolete forms of UK currency that have gone before it. The round pound has been with us since 1983 when it was introduced to replace the £1 note. But what could one of the first pound coins have made you in the twenty four years since they were first introduced?

Imagine that £1 coin had been left in a drawer, a piggy bank or (perhaps most likely of all) slipped down the back of a sofa in 1983 and done nothing since then. Inflation up to 2017 would mean that the £1 would have had its buying power weakened by approximately 32p.

Had the £1 been invested in gold or in a cash savings account, the return would be healthier, but nothing to write home about, delivering a real value of £1.05 and £1.33 respectively by the end of 2016. Putting the £1 into UK residential property would have seen its real value at the end of 2016 rise to £2.42 – although this calculation doesn’t assume monthly reinvestment, which makes it difficult to compare to other forms of investment calculated.

Investment in shares would have done a lot better. Had the £1 been invested and tracked the rise in the FTSE all-share index, by the end of 2016 and after allowing for inflation, its value would have risen to £11.66, assuming that any income would have been reinvested every month to make the most of compounding over time.

The above calculations offer a neat reminder of both the corrosion to value caused by inflation and of the potential rewards of investment. Whilst investing will always include an element of risk, if you’re in a position to do so then an investment is the best way to help your money grow. It’s not all about return, but doing nothing with your savings means they’re almost certainly going to be losing value over time.

So when you get your hands on one of the new £1 coins, think about what it could be worth twenty four years from now and what you need to do to make sure it works hardest for you.

Sources
http://www.bbc.co.uk/news/business-39306247

During a surprise announcement outside Downing Street on the morning of 18th April, Theresa May set the date of the next UK general election as the 8th June 2017, almost three full years before the previously expected date of May 2020.

Delivering the statement revealing the move, Mrs May said that the early general election would further deliver the ‘certainty, stability and strong leadership’, which she said the Conservative party had offered since the referendum on Britain’s EU membership. The Prime Minister elaborated to say that, ‘the country was coming together, but Westminster was not’, a reference to the fact that, despite the referendum result, the Conservatives still face opposition within Parliament on what so-called ‘Brexit’ should look like, or even whether it should still take place at all.

The Prime Minister addressed this point directly, saying that she was ‘not prepared’ to let those who oppose Brexit ‘endanger the security of millions of working people across the country. What they are doing jeopardises the work we must do to prepare for Brexit at home.’ Mrs May went on to say that, ‘we need a general election and we need one now, because we have at this moment a one-off chance to get this [a general election] done whilst the European Union agrees its negotiating position.’

Addressing the fact that she had previously said the next general election would not be before the May 2020 date, Mrs May said that she had ‘only recently and reluctantly come to this conclusion.’ The Prime Minister said that she now felt that a general election was ‘the only way to guarantee certainty and stability for the years ahead… and to seek your support for the decisions I must take.’

Speaking directly to her political rivals, the Prime Minister said that she had a simple challenge to them: ‘this is your moment to show you mean it… let the people decide.’

Analysts were quick to point out that the election gives Mrs May the chance to increase her party’s majority in the House of Commons. The Conservative’s majority has been slim for some time now, which is causing Mrs May a level of discomfort when it comes to shaping Brexit. Though the general election does give her party the chance to make gains – against opposition which currently trails in the opinion polls – it also gives Labour and the Liberal Democrats the chance to shape their own arguments around Brexit. Many of the seats held by Labour, in particular, are still considered ‘safe’ seats which may limit the gains available to the Conservatives, though whether anything is truly ‘safe’ in political terms any more is a matter for some debate!

In the run up to the announcement, the pound fell against the dollar which helped the FTSE 100 to rise from losses made earlier in the day. After the announcement, however, the FTSE fell again, whilst the pound recovered, showing that not only is a week a long time in politics, but a fifteen minute announcement is a long time for the markets!

We will be sure to keep you fully informed of all of the details in the run up to the election and how the outcomes could impact you and your financial planning, both now and into the future.

Sources
http://citywire.co.uk/money/pound-falls-ahead-of-theresa-may-statement/a1008930?utm_source=Twitter&utm_medium=Feed&utm_campaign=Social
http://www.bbc.co.uk/news/uk-politics-39629603

Whilst the pay gap experienced by women in comparison to men is most likely a problem you’ve heard about, another gender gap has emerged which is just as concerning. Recent figures suggest that, on average, women are receiving smaller pension contributions from their employers than men. Between 2013 and 2016, women benefited from pension contributions at a rate of 7% of their yearly salary, considerably less than the 7.8% received by men.

The gap between men’s and women’s average annual pension contributions also widens as the age bracket increases. Men under 35 received £217 more towards their pension than women of the same age, a figure that increases to £594 for those aged 35 to 44. This then increases again to £1,287 between men and women aged 45 to 54, and again to £1,680 for those between 55 and 64.

Over the four year period examined, the average woman therefore received £2,489 from their employer towards their pension, over £1,000 less than men who received an average of £3,495. Worryingly, if these figures remained constant throughout a typical woman’s working life, this could result in a shortfall of £46,689 compared to the pension typically earned by a man. This figure becomes even more worrying when factoring in the statistic that women on average are still living longer than men, meaning that most women will be faced with making a smaller pension stretch over a longer period of time than many men.

The study, one of the largest ever conducted into workplace savings and taking in over 250,000 pension plans, has revealed three key factors in the significant difference between men’s and women’s pension pots. The first is that women are still more likely than men to opt for a break in their career to raise a family. Secondly, men still typically work in sectors where pension schemes are either more generous or better established. The third is linked back to the issue of the gender pay gap: as women are still earning less than men on average, this leads to employer contributions as a percentage of salary being lower.

The fact that there were significantly more men (154,999) than women (95,262) in the UK-wide study also suggests that a larger number of men are receiving pension contributions at all than women. The Department for Work and Pensions has responded to this figure stating that auto-enrolment will help to redress the balance; but has also conceded that, in light of the study’s findings, more needs to be done to bring pension contributions for women in line with those enjoyed by men.

Sources
http://www.mindfulmoney.co.uk/mindful-news/women-facing-pension-contributions-gap-as-well-as-pay-gap/
http://www.moneywise.co.uk/news/2017-02-22/mind-the-gender-gap-women-
facing-47000-pension-shortfall

The latest Financial Wellness Index has revealed that people with very little savings and those who are struggling to pay their bills are also those who are suffering from poor health. Conversely, those enjoying good health are more likely to experience a higher level of financial wellness. The findings raise the question of whether working to improve your financial situation could have a positive impact on your health, or indeed whether a healthier lifestyle might also lead to healthier finances.

The Financial Wellness Index from Momentum UK is put together by the Personal Finance Research Centre at the University of Bristol. It examines a number of fundamental elements of subjects’ financial lives, as well as the macroeconomic state of the UK, to generate the country’s overall Financial Wellness score out of 100.

The latest report has revealed that 17% of people who consider their health as being ‘poor’ have also missed at least one bill payment over the course of the last year, considerably more than the 5% of those who class their health as being ‘excellent’. Similarly, only 5% of those who have a healthy diet have missed a bill payment, compared to 11% of those who eat unhealthily.

The trend can also be seen in the amount of savings held by healthy and unhealthy people. 15% of people in poor health have no savings, compared to just 8% of those in excellent health. There are also considerably more unhealthy (29%) than healthy people (19%) with less than £100 put away. This in turn has an impact on standard of living, with 42% of people in poor health having to reduce their lifestyle expenses such as socialising and holidays, compared to just 23% of people in excellent health.

“The link between financial and physical health is strong in this year’s index, which is not wholly surprising when you start to analyse the similarities in behaviour needed to achieve both”, says Momentum UK’s managing director Samantha Seaton. “Whether you’re improving your fitness or trying to improve your financial picture, success will be found by taking small steps to achieving your longer-term goals”.

Sources
http://www.mindfulmoney.co.uk/mindful-news/new-research-finds-clear-link-between-healthy-living-and-financial-wellness/

A recent study has revealed the worrying statistic that over a fifth of all people with multiple pensions have lost track of at least one, with some admitting to have forgotten the details of all of them. With around two thirds of UK residents having more than one pension, this amounts to approximately 6.6 million people with no idea how much they’ve put away for their retirement. Double the amount of people admit to not knowing how much their pensions are worth.

It’s an undesirable side effect of the modern working world. Whereas in previous generations someone might stay at a single employer for their entire working life, the typical worker today will hold eleven different jobs throughout their career, which could potentially mean opting into the same number of pensions through as many different providers. The new legal requirement for all employers to offer a pension scheme through auto-enrolment is likely to add further complexities.

As a result, the Pensions Dashboard is set to launch in 2019 in the hope that it will make it easier for savers to keep track of their pensions in one place. Until then, however, there are four relatively simple steps to help you track down information on any pensions you’ve forgotten about:

  1. Find your pension using the DWP Pensions tracing service at www.gov.uk/find-pension-contact-details. Start by entering the name of your former employer to discover the current contact address for them. You’ll then need to write to them providing your name (plus any previous names), your current and previous addresses and your National Insurance number.
  2. In the case of a pension scheme which hasn’t been updated for a while, you’ll be required to fill out an online form to receive contact details. You’ll be required to give your name, email address and any relevant information to help track down your pension details. This could include your National Insurance number and the dates you worked for the company.
  3. You can also receive a forecast of your State pension either online or in paper format by going to www.gov.uk/check-state-pension. After entering a few details to confirm your identity, you’ll be told the date you can access your State pension and how much you’ll receive.
  4. Finally, and most importantly, once you’ve managed to track down all of your pension information, get some advice. Consolidating your pensions might be tempting to make managing your savings easier, but you also want to make sure you don’t lose out on any benefits by doing so. Before you make any decisions regarding your pensions, seek professional independent advice on what to do next.

Sources
http://www.independent.co.uk/money/modern-careers-risk-billions-in-lost-retirement-savings-a7545091.html