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How can millennials get on the property ladder?

There’s been a lot of talk in the press recently about generational inequality, which has mostly been with good reason. Those currently in their twenties and thirties are earning far less than people the same age did 10 to 15 years ago.

The 2008 recession has put the millennial cohort far behind in terms of earnings and wages. Wages have never fully recovered since the recession and are still behind their pre-financial crisis peak. Many may be unable to ever afford to get on the property ladder, meaning they will have a lifetime of rent payments to fund.

Also, rising house prices have meant that the average deposit has risen from around £10,000 in the Eighties and Nineties to between £50,000-60,000 today, according to analysis by accounting firm PwC. Even when adjusted for inflation, the rise is dramatic.

Auto-enrolment in pension schemes has begun to address some of the long term issues around retirement funding but even still, these do not compare to the security offered by ‘gold-plated’ direct contribution schemes.

The younger generation are already aware that they will have to work far longer. Early retirement will likely be the premise of the rich, lucky or extremely frugal. Fortunately, millennials look set to be able to cope with the demands of a longer working life. The younger generation are fitter and healthier compared to previous generations with far fewer smokers and better diets.

Although a longer working life might be a path towards an eventual retirement, it does little to help young people get on the housing ladder. The fact of the matter is that many young people will need some kind of ‘leg up’ if they are to achieve the financial stability that many of the ‘baby-boomer’ generation managed.

The income gap between older and younger generations means that many young workers will have to rely on the wealth accumulated by their parents and grandparents if they are to sustain the same quality of life.

Family loans have become increasingly important for the financial wellbeing of young people. Many are giving younger generations so-called ‘early inheritances’ in the hope that such loans will enable them to get a foot on the property ladder. This is already so widespread that nearly eight out of 10 first-time buyers in London are receiving some sort of financial help from their parents.

Parents and grandparents are funding help through a variety of means. Almost three quarters of parents used their life savings to help out with the cash, while a third downsized or released equity from their homes. Another third accessed pensions cash; either cashing in lump sums through income drawdown or annual annuities. 7% remortgaged and 6% took out a loan themselves.

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Sources
Sunniva Kolostyak “Fireworks for millennials” in Pensions Age, November 2018
https://www.telegraph.co.uk/personal-banking/mortgages/baby-boomer-vs-gen-y-homebuying-in-1982-compared-to-2016/

Pension drawdown in an era of long life expectancies

Pension drawdown in an era of long life expectancies

Retirement planning means taking into account a whole host of factors. You have to navigate tough questions like, ‘What will the impact of inflation be?’ or ‘When will interest rates start to creep up?’

As well as these, there is another question that must be considered: ‘How long will you live?’

This question is unanswerable but figures suggest that some pensioners might be getting this figure very wrong when it comes to drawdown. Many are running the risk that their retirement pot kicks the bucket before they do.

Research by AJ Bell indicates that 50% of people aged 55-59 who’ve entered income drawdown say they have only enough savings to tide them over for 20 years. This might sound like a long time but when you consider that average life expectancy for this cohort of savers is 82 for men and 85 for women, many risk running out of money.

The reality is that none of us know how long we will live. When you factor in that there’s a fair chance that a few of AJ Bell’s respondents might live to 90 or even 100, it’s clear that many pensioners could be drawing from their savings at an unsustainable rate.

Withdrawal rates

AJ Bell also asked their respondents about their withdrawal rates. They discovered that 57% of people in the 55 to 59 age bracket are withdrawing more than 10% of their fund each year. This reduces to 43% of people in the 60 to 64 age bracket and 34% of people in the 65 to 69 age bracket.

While many use their early retirement to travel and embark on their larger plans, over-withdrawing early on could mean that they end up without the money to cover costs that arise in later life, such as care costs.

The average size of the fund in AJ Bell’s questionnaire was £118,000. Based on this, a 10% annual withdrawal of £11,800 would result in the income lasting just 12 years. However, if the withdrawal is reduced to 6% of starting value, the same fund might last for 29 years. These estimations don’t take into account the detrimental impact of inflation, which currently runs at 2.7%.

Working out a sustainable drawdown rate is difficult and depends on a whole range of factors. Your regulated financial adviser or planner should be able to give you your best chance of a good retirement outcome.

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Sources
https://www.retirement-planner.co.uk/232530/tom-selby-life-expectancy-guessing-game

4 ways to live a happy retirement



Retirement should be the time of your life. No more early alarm calls, no more commuting and no more carefully counting your holiday allocation. Instead, you have the freedom to do exactly as you please. Yet retirement might not always work out as the idyllic move to a cottage by the sea it’s billed to be. Some people, in fact, dread retirement and feel they’re being put out to grass. They fear they’ll miss the structure and companionship that work gives. Think of it more as ‘change’ not ‘old age’

Think of it more as ‘change’ not ‘old age’

Retirement is automatically associated with old age in people’s minds. The very word conjures up images of people sitting around in retirement homes in their slippers, watching daytime T.V. But this is far from the truth. Old age, today, encompasses a vast span of years, from 65 to 100. There are many active retirees living life to the full. And if you think how much the average person’s life changes between 25 and 60, just think how many possibilities could lie ahead in the same timeframe. Going from work to retirement is a huge transition – yet people cope with many other major transitions during the course of their lives; having a baby, changing jobs, going through a divorce, moving house. The key is to use your resilience and strength from previous times of change to help as you move into retirement. Don’t see it as entering old age, see it more as a time of embracing life’s opportunities.

Don’t just be concerned about the money side of things

That may sound a curious thing to read in a financial newsletter. And pensions will form a key part of any more retirement planning. There’s also no denying that pensions can be complex so it’s important to find the right solution for your situation whether it’s taking an income or accessing a lump sum. But the financial side of things is much wider than just your pension. So take time to think about what your ideal lifestyle would look like. Think about some proper financial planning. What are your goals and ambitions for retirement? Are your current finances on track to help you reach them? The money is just an ends to enable you to live a happy retirement and find a new purpose.

Be clear in your mind what you really want to do

In today’s world, where such value is placed on career status, retirement can be seen as an end rather than a new beginning. But you don’t have to be in paid employment to be happy and fulfilled. You may, in fact, find you achieve far more satisfaction in life after work. Why not do something you’ve always wanted to but never had time to? Learn to play a musical instrument, take up a sport, sign up for some volunteering, enrol on a course, get involved in a conservation project, travel the world… This is your time to do as you please. Remember, you don’t have to be constantly busy – sit back and reflect on your true values.

Adopt a proactive mindset

You often hear stories of people becoming ill, or even dying, within months of stopping work – a cruel twist of fate after they’ve laboured hard for years, looking forward to their retirement. According to the Office for National Statistics, though, health and wellbeing do actually increase in retirement while depression and anxiety often fall. This is as people have more time to adopt a healthy lifestyle and find new sources of fulfilment and exercise. The key seems to be to make a determined effort to stay sharp, be proactive and keep stretching your boundaries. It may sound surprising but workaholics often love retirement as much as they loved their careers.

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Sources

Sources
https://www.theguardian.com/lifeandstyle/2018/oct/06/life-keeps-evolving-six-ways-to-have-a-happy-retirement

3 pension changes you may have missed in the Budget

There was scarcely a mention of the ‘P’ word in October’s Budget speech (believe us, we were listening closely for it!). Instead, Hammond used the Budget speech as an opportunity to unveil his ‘rabbit in the hat’ changes to income tax thresholds, an increase in NHS mental health funding and a ban on future PFI contracts.

However, we had a good read of the accompanying ‘Red Book’ for any mention of pensions. At 106 pages, this was no mean feat. Fortunately, though, it was time well spent as we found some changes to pensions you may otherwise have missed:

The pension dashboard

HM Treasury confirmed that the Department for Work and Pensions (DWP) would look at designing a pension dashboard which would include your state pension. The pensions dashboard will be an online platform that will let you see all of your pension schemes in a single view. The average worker is nowadays expected to work eleven jobs during their career and keeping track of so many pension pots could prove confusing to say the least.

There was an extra £5 million of funding for the DWP to help make the pension dashboard a reality. Commentators see the dashboard as a welcome sign that the government is committed to helping savers keep track of their funds.

Patient capital funding

The government announced a pensions investment package which should make it easier for direct contribution pension schemes to invest in patient capital. Patient capital refers to investments that forgo immediate returns in anticipation of more substantial returns further down the line.

The government may review the 0.75% charge cap and there is widespread speculation that it will be increased to allow more investment in high growth companies.

Cold calling ban

The government has promised to ban pensions cold calling as part of a drive against pension scammers. Almost two years since the government’s initial proposals to combat pension scams were announced, pensions cold calling will finally be made illegal.

Research by Prudential indicates that one in 10 over 55s fear they have been targetted by pensions scammers since the introduction of pension freedoms in 2015. Cold calls, with offers to unlock or transfer funds, are a frequently used tactic to defraud people of their retirement savings.

As much as these measures go a long way to making people’s pensions more secure, the government will be powerless to enforce cold calls made from abroad and not on behalf of a UK company. It is unclear how and if the government will work with international regulators to mitigate the dangers of such calls.

Sources
https://www.moneyobserver.com/news/budget-2018-three-pensions-changes-you-may-have-missed

4 ways to save at Christmas without being a Scrooge

With your Christmas preparations, starting early is the key to saving money. If you leave your shopping to the last minute, not only do you have to face the 23rd December high street chaos, you’ll miss out on the excellent deals that many retailers offer early in the festive shopping season.

It’s incredibly easy to overspend at Christmas – doing your utmost to make savings where you can is the best way to avoid a festive hangover that lasts until that January paycheck finally arrives.

Here are our top four festive money saving tips:

Join a no-present pact

Do you ever find that your friends and relatives buy you Christmas gifts you don’t want? The sort that are used once on Christmas Day before being relegated to a dusty top shelf for a few years and then eventually given away to a charity shop?

We’re sure that most of us have been in this scenario at some point.

Joining a present pact is a great way of avoiding giving and receiving more than you need.

Not only will this save you money, it will also go a long way to reducing your environmental impact at a time where we buy and receive plenty that just ends up going to landfill. It can be a liberating revelation to admit to ourselves that others don’t really need ‘gimmicky’ Christmas gifts and neither do we.

Keep a Christmas present list

For people who don’t enter into your no-present pact, writing a list will give you a clear idea of what you need to buy. As well as avoiding traipsing through various shops by giving you a precise idea about exactly what you need, it means you won’t overspend by ‘panic-buying’ gifts at the last minute.

Keep an eye out for sales and bargains

Even when Black Friday and Cyber Monday have passed, there will still be opportunities to grab an amazing deal. Although starting your shopping early has its distinct advantages, keep an eye out for retailers who may bring forward their January sales into December in an attempt to beat any pre-Christmas slump. Sale signs usually start to go up as they get worried about shifting stock. It’s also worth getting savvy about which days stores (on the high street and online) change their Offer of the Week – Monday and Thursdays are often favourites.

Send your cards second class

Even small savings add up to make a difference. As the saying goes, ‘look after the pennies and the pounds will look after themselves’.

A standard first-class stamp now costs 67p, whereas a second class stamp costs 9p less at 58p. If you send 50 cards out at Christmas, this will add up to a £4.50 saving. This might not sound much, but trimming your Christmas spendings down in plenty of places will add up to a substantial amount.

Whatever you’re buying this Christmas, being thrifty never hurts. Thinking carefully about your choices and starting early are the easiest ways to make savings.

Sources
https://www.thisismoney.co.uk/money/guides/article-6283455/Save-fortune-Christmas-without-Scrooge.html

 

what do ESG and impact investing mean for investors?

Sustainable investing has grown rapidly over the last couple of decades. Investors are increasingly committed to the social and environmental impact of where they put their hard- earned money. Getting good financial returns and having a positive impact on the world are not mutually exclusive. Impact investing and ESG investments allow investors to ‘kill two birds with one stone’, as they say

American financial association SIFMA estimates the market size of sustainable investments to be $8.72 trillion. That figure was calculated in 2016, so it’s likely to be substantially larger than this now.

ESG and impact investing are two terms frequently confused in the world of sustainable investing. They’re often used interchangeably, which is a shame because it risks obscuring what the different terms actually mean; they are quite different. ESG is a framework for determining the impact of an investment whereas impact investing is an approach.


ESG
ESG stands for environmental, social and governmental. It’s a framework that can be integrated in the risk-return analysis of different investment opportunities. By drawing from a variety of data, some gathered from company and government disclosures among other sources, it allows investors to examine how companies manage risk and opportunities in three key areas:

Environmental

This refers to a company’s impact on the environment. It looks at certain aspects of a company’s operations, such as how they dispose of their hazardous waste or how they manage carbon emissions.

Social

Does the company take measures to have a good social impact? This can include philanthropic and community focused activities or any measures the leadership takes to promote diversity in the workplace.

Governance

This deals with the leadership and strategy of a company. It addresses aspects such as staff pay and communication with shareholders.

An ESG framework is a valuable tool that may be used to evaluate how certain behaviours can affect a company’s performance. However, it’s not an investment strategy in and of itself. With ESG, the wider impacts of investments are considered but financial performance still takes precedence.


Impact Investing
Impact investing means using investments to cause positive social or environmental change. Examples include supporting access to clean energy or working to improve social mobility by investing in companies operating in underprivileged areas. In contrast to ESGs, in impact investing financial performance is secondary to the overall social or environmental impact.

The financial return of impact investments varies between cases. Some investors intentionally invest for below market rate returns in line with their strategic objectives. Others pursue competitive, market-rate returns. According to GIIN’s 2017 Annual Impact Investor Survey, these account for the majority, with 66% of impact investors aiming for market rate returns.

Because maximum returns are sacrificed in favour of investing for a particular social or environmental agenda, there’s the possibility that certain opportunities may underperform relative to other widely available options. When maximum profit isn’t the goal, sometimes the financial returns can suffer.

This said, impact investing shouldn’t be confused with charity. The objectives of impact investing are financial as well as social and environmental. There are many companies whose operations have a positive impact on the world and investing in these is an effective way of contributing towards long term social and environmental progress.

The shift towards impact investing and ESG highlights a growing desire among investors to do well by doing good. They are increasingly a core offering, rather than something that is ‘nice to have’. However, as with any investment decision, it’s a good idea to do plenty of your own research and seek financial advice to see how ESG and impact investing could fit with the rest of your portfolio.


Sources
https://www.investmentnews.com/article/20180220/BLOG09/180229985/esg-and-impact-investing-do-you-know-the-difference

the longevity challenge and how to tackle it

In the UK, we are faced with the challenge of an ageing population. Many of us will live longer than we might have expected. Already, 2.4% of the population is aged over 85. Because of improvements in healthcare and nutrition, this figure only looks set to rise.

The Office of National Statistics currently estimates that 10.1% of men and 14.8% of women born in 1981 will live to 100. A demographic shift to an older population brings unprecedented change to the way the country would operate, from the healthcare system to the world of work.

In addition, a long life and subsequently a long retirement, bring challenges of their own from a personal financial planning perspective.

Firstly, it means you have to sustain yourself from your retirement ‘nest egg’ of cash savings, investments and pensions. You need to ensure that you draw from this at a sustainable rate so you don’t run the risk of outliving your money.

Secondly, there’s the question of funding long term care. If we live longer, the chance that we will one day need to fund some sort of care increases. Alzheimer’s Research UK report that the risk of developing dementia rises from one in 14 over the age of 65 to one in six over the age of 80.

Of course, there are many different types of care, ranging from full time care to occasional care at home, with a variety of cost levels. All require some level of personal funding.

The amount you pay depends on the level of need and the amount of assets you have, with your local council funding the rest. This means that it’s definitely something that you need to take into account in your financial planning.

Having the income in later life to sustain long term care really does require detailed planning. Because of the widespread shift from annuities to drawdown, working out a sustainable rate at which to withdraw from your ‘nest egg’ is essential.

There is no ‘one-size-fits-all’ sustainable rate at which to draw from your pensions and savings. Every person has their own requirements, savings, liabilities and views on what risks are acceptable.

There are some things which you will be able to more accurately plan when working out the sustainable rate to draw from your pension. These include your portfolio asset allocation, the impact of fees and charges and the risk level of your investments. Speaking with your financial adviser will help you on your way to working out the right withdrawal rate for you.

There are, however, some unknowns. These include the chance of developing a health condition later in life and exactly how long you’ll live. It is best to withdraw leaving plenty of room for these to change unexpectedly, improving your chances of having a financial cushion to cope with what life throws at you.

Sources

Prevalence by age in the UK


https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/july2017

Defining and evidencing Sustainable Withdrawal rates

the top 4 places to buy a home abroad in 2018

It’s not difficult to see why Briton’s find buying a property abroad so attractive. High house prices, a temperamental climate and long working hours in the UK can make buying a property abroad seem like a highly desirable option.

Whether for a holiday property or somewhere to live long term, here are our top places to buy a home abroad in 2018.

Spain
Although buyers have fallen over the last few years, Spain remains Britain’s favourite place to buy property abroad. Spain has a well-established expat community and a warmer, drier climate than the UK (although central Spain is surprisingly cold in the winter), making it an attractive destination.

Affordability is a big driver for Britons going to Spain. In 2008, Spain’s property market crashed and the market only began to recover in 2014. Even though the pound is down on its pre Brexit referendum highs, Spain is still remarkably cheap.

What’s more, prices in Spain are on the rise. Spanish bank BBVA forecasts house prices to rise by 5% in 2018.

Buying in Spain is relatively simple. There is no requirement to be a Spanish resident to buy property – the only requirement is a Spanish NIE tax identification number.

One thing to be cautious of is that, in recent years, many homes have been built across the country without proper planning permission. Using a reputable property agency familiar with the area gives you your best chance of avoiding these.

Portugal
Our next country, lying on the Western edge of the Iberian peninsula, is a similarly ‘hot’ option for foreign buyers. Since 11%, on average, was wiped off the value of Portuguese property between 2011 and 2012, prices have recovered well.

From the Algarve and the Costa Da Prata to Porto and Lisbon, the country has a wide range of attractive options for foreign buyers. Lisbon and the Algarve are substantially more expensive than the rest of the country – bear this in mind when looking for options in Portugal.

France
Although more expensive than Spain and Portugal, France is an incredible place to buy a property. If you look in the right place, the country is still temptingly affordable. And, as the largest country in Western Europe, France has no shortage of variety.

Sunny Mediterranean beaches, chic cities, rolling hills, thick forest, dramatic mountains… you name it, France has got it. The Dordogne, the Charente and the Haute-Vienne in the south-west remain the most popular places for Brits.

However, north France is incredibly accessible. If you live in the south of England, it’s just a short ferry across the Channel. This means you can experience that alluring Gallic lifestyle, without straying too far from your life in the UK.

Croatia
Spain, Portugal and France are old favourites for Brits looking for a home abroad. Now it’s time for something a little less predictable.

This former Yugoslavian country is on the rise as a popular place for Brits to buy abroad. Its Dalmatian coast is among the most stunning in the world and the country is home to many quaint towns, as well as its lively capital Zagreb and beautiful Dubrovnik. The Dalmatian coast is a well-established centre for yachting.

The best time to look for properties is at the end of the main tourist season in the Autumn, when prices are lower than they are at peak times.

However, there are some restrictions for foreigners buying property in Croatia. If you hold only Swiss or Italian citizenship you are prohibited from buying a house in the country unless you intend to live there permanently. In addition, foreign buyers are required to seek approval from the Croatian Ministry of Foreign Affairs to attain the necessary documentation to buy a house.

Sources
https://www.telegraph.co.uk/money/transferwise/buying-property-in-spain-guide/
https://transferwise.com/au/blog/buy-property-in-portugal
https://www.aplaceinthesun.com/articles/2018/08/top-10-best-places-to-buy-a-home-abroad-in-2018

Buying Property in Croatia

Kids off to Uni? Congratulations – but have you been saving enough?

The Institute of Fiscal Studies suggests that the average total debt incurred by today’s university students over the duration of their studies will amount to £51,000. This figure comes as those in higher education saw the interest rate on student loans rise to 6.3% in September. Total student debt in the UK has now risen to £105 billion as of March 2018, a figure £30 billion higher than the nation’s total credit card debt.

The rising cost of higher education perhaps makes it unsurprising that 40% of parents are now beginning to save towards future university costs before their children have even been born, with one in five hoping to have saved £2,000 by the time the baby arrives. Frustratingly, however, around two thirds of those who are saving are doing so by simply placing the funds in an ordinary savings account, meaning their money is earning them very little in interest.

An alternative option to consider is a Junior ISA (JISA) in the child’s name, which they can then access when they turn 18. The account currently allows £4,128 to be saved every year, and the best rate market rate for a cash JISA offers 3.25%. Saving the maximum amount at that rate for ten years would result in a nest egg of £49,427 tax free to cover university fees with plenty left over for other expenses.

Whilst a cash JISA offers dependability, a stocks and shares JISA is also worth considering as the potential reward on your investment can be higher. Both types of JISA can be opened at the same time with the allowance shared between them, so spreading your savings between the two can pay off in the long run.

Using your pension to save towards your child’s university education is also an option, thanks to the pension freedoms of recent years. With the ability to take a lump sum to put towards fees and other costs when you turn 55, pensions offer a tax-efficient way of putting away for both your child’s future and your own. This is an option which needs careful planning, however, as you’ll need to make sure you have enough for your retirement before paying for your child’s education.

For those able to do so, it may also be worth speaking to your own parents about helping towards their grandchildren’s university costs. Rather than leaving money to a grandchild in their will, a grandparent might consider gifting towards fees and other expenses or placing the money in a trust, reducing their inheritance tax liability and allowing their grandchild to benefit from their legacy when they really need it.

http://www.independent.co.uk/money/spend-save/parents-university-fees-saving-children-born-student-loans-college-fund-tuition-51000-a7895951.htmlhttps://www.moneysavingexpert.com/news/2018/04/student-loan-interest-rates-expected-to-rise-in-september—but-dont-panic/researchbriefings.files.parliament.uk/documents/SN01079/SN01079.pdfhttps://www.moneyexpert.com/debt/uk-personal-debt-levels-continue-rise/

 

ideas for October half term

Incredible, isn’t it? It seems only a few week since the kids went back to school and already October half term is approaching. Thankfully, the coming of Autumn means that you have a whole new range of activities you can do with your children or grandchildren that are better in the October half term than the summer holidays. Here are a few of our favourites:

Visit an arboretum
Autumn is the best time of year to visit an arboretum. By the time the school holidays are upon us, the trees will have exploded into an array of vibrant colours. Children love playing in the woods, and younger children and toddlers will be delighted running through the fallen leaves and finding all sorts of exciting animals lurking in their midst.

Go to the Dorset coast
The Dorset coast takes on a moody brilliance when the summer crowds leave its beaches. The South West coastal path has some of the finest cliff top walks in the world. These are best with a brisk breeze and a heaving sea, as well as the prospect of a cosy pub lunch at the end of it (good motivation for children who only have little legs!). From Hengistbury Head in the east to Lyme Regis in the west, Dorset has a wide selection of beautiful beaches and coves. Over the half term, there’s plenty for kids at the spooky Corfe Castle on the Isle of Purbeck near Poole and if you’re willing to drive an hour or so north into Somerset, Wookey Hole has an extensive cave network and its annual Halloween event.

Try glamping
For most of us, by October the weather is too cold and wet for a normal camping holiday with the kids. Factor in that it will be getting dark from around 5.30pm and children will need to be entertained for long hours in the dark under wet canvas, and family camping in October seems best left to the brave (or foolhardy!) few.
Glamping is a great alternative. Premium tents and lodges have a range of luxuries – from heating to jacuzzis. In October, glamping offers the outdoorsiness of camping without the dirt, glumness and overall discomfort of pitching a six man tent in a windy and wet field.

Go pumpkin picking
An alternative to the traditional conker collecting which has long been a feature of British children’s October half terms. If you’re in London over half term, there are a number of farms near to London offering pumpkin picking days for families as well as many farms dotted around the rest of the country. This is an amazing way to get your kids into the Halloween spirit! Remember to take your wellies – you’re likely to get muddy!