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Should I worry about “buy now, pay later”?

Buy now, pay later schemes are becoming increasingly popular as firms such as Klarna and ClearPay partner with large online retailers ASOS and JD Sports, as well as many others. According to Statista, the usage of the Klarna app more than doubled between March and July of 2020, hitting over 460.000 monthly active users in the UK alone. 

The promise of try-before-you-buy allows consumers to make their order and send back any items they wish to return before making any payments, which reduces the need to wait for refunds to clear before making further purchases. With Klarna in particular boasting zero interest, customer fees or late charges and making their money through merchant transaction fees it’s understandable that customers are flocking to use the service. 

If it sounds too good to be true, that may mean that it is. What some consumers may not realise is that if they fail to clear their balance not only will their credit score be adversely affected but their debt can be passed on to debt collection agencies. 

The consequences of missed payments vary wildly between different lenders, and as this specific type of loan is so new to the market, the lack of regulation means that the associated fees and rates don’t need to be presented up front in the same way as with credit cards. 

Which? is calling for full regulation of these firms, as people are driven to spend more than intended, and more than they can afford, subsequently falling into debt. 

Research from Which? showed that nearly a quarter (24%) of users of these plans paid more than they intended to, and over one in 10 (11%) reported that they suffered late charges as a result. 

Interestingly, 26% of users reported that they had not planned to use a buy now, pay later plan at all until it was presented to them as an option at checkout. 18% claimed they used the plan as a result of being offered a discount for doing so. 

While these services do have their benefits for consumers, it’s important for consumers to also be aware of the risks associated with accruing debt.

Sources
https://www.creditstrategy.co.uk/news/news-top-stories/which-calls-for-full-regulation-of-buy-now-pay-later-firms–18601

https://www.theguardian.com/money/2018/nov/17/klarna-buy-now-pay-later-system-that-is-seducing-millennials#:~:text=Klarna%20allows%20people%20who%20shop,pay%20for%20their%20online%20order.

https://www.statista.com/statistics/1137411/klarna-monthly-active-users-uk/

https://www.cnbc.com/2020/12/14/buy-now-pay-later-plans-are-booming-in-the-covid-economy.html

https://pittsburgh.cbslocal.com/2020/12/15/coronavirus-pandemic-buy-now-pay-later-plans/

Worrying about saving for retirement is more common than you may think

Determining how much you need to save for the retirement you want can be difficult enough without actually having to save the money. Your requirements and desires will change over time in the same way that your income is likely to fluctuate.

You can’t be expected to know exactly what you’ll need in 5 years time, let alone 20 or 30, depending on where you are in your journey towards retirement 

As we’ve seen from the events of 2020, even the safest predictions can be subject to unexpected outcomes. It appears that this uncertainty is reflected in the minds of savers, according to Schroders 2020 Global Investor Study.

The study is an independent survey of over 23,000 investors from 32 different locations globally, and responses were collected between 30th April and 15th June 2020. The study suggests that 41% of investors across the world fear that they will not have enough savings to fund their retirement. The time at which the survey took place may be a factor itself as to why some respondents feared a savings shortfall. Whilst responses were being collected the Coronavirus pandemic was in full swing, subsequently upheaving previously held notions of job security and general stability. There were, however, specific answers within the survey which point to more definite reasons as to why people are worried about their retirement savings.

When asked if they believe that the state provided pension in their country was not enough to live off, 55% agreed. In fact, only 19% thought that it was sufficient. 

This view can likely be attributed in no small part to constantly shifting pension rules, which leave many expectant retirees stumped as to what they should prepare for. In fact, 41% of investors agreed that the adapting of rules by governments led them to the conclusion of not seeing the point in trying to save specifically for their retirement. 

Having a plan can be helpful. If you have any concerns about your own pension or retirement savings, you may benefit from seeking the advice of a professional. 

Sources
https://dfm.moneymarketing.co.uk/posts/savings-shortfall-41-worry-they-won-t-have-enough-to-retire

The challenge of maintaining healthy habits in lockdown

It can be difficult for anyone to maintain good habits and easy to fall into less helpful ones at the best of times. Those challenges are only made more difficult by the added pressures we all feel while navigating our way through a pandemic, and particularly in lockdown. 

In fact, a study published in Frontiers in Psychology recorded that after 3-4 weeks of nationwide lockdown, more than 8 in 10 respondents reported an increase in unhealthy changes in lifestyle, particularly concerning physical activity. In the same report, less than 4 in 10 respondents reported an increase in healthy lifestyle activities.

But those 4 in 10 are out there, and the best place to start to push that number up is by getting an understanding of the positive things you can be doing.

Keeping structure

For many of us, working from home has become the norm, and even if it hasn’t, our regular routines have been impacted in some way. Not having the structure to your day that you’ve become accustomed to can make it very difficult to keep up a productive daily routine. 

While you may no longer have commutes or fixed break times to keep your day in order there are things you can do to make your life easier. Simply producing a to-do list or daily plan will keep your objectives front of mind so you can focus on what needs doing. Keeping your work environment tidy will help you to focus too, as will preparing for your next day the night before, to reduce any unnecessary stresses in the morning.

Get some fresh air

It’s easy to miss out on the benefits of being outside when you wake up in the same building that your ‘office’ is in. Especially in the winter months, you wake up, start working and before you know it, the sun has set. Make time for yourself to be outside, even a half hour walk can be fantastic for clearing your head and getting some exercise.

Try something new

If you’re finding yourself stuck at home with too much time on your hands, or you’re struggling to separate your work life from your home life and need a way to switch off after work, try picking up a new hobby. Is there something you’ve been meaning to try out for years and just never had the chance? Now could be the time! Perhaps you want to pick up a new language so you can show off your skills when you finally get to go on holiday again. Maybe it’s time to get in touch with your creative side and pick up some paintbrushes. Could you see yourself on next year’s Great British Bake Off? The possibilities are really endless, but the important thing is getting started.

Sources
https://www.psypost.org/2020/11/lack-of-fear-control-linked-to-unhealthy-lifestyle-changes-during-the-covid-19-pandemic-58610

https://lesroches.edu/blog/healthy-habits-during-lockdown/https://www.pybhealth.com/news/article/12-lockdown-health-habits-to-make-or-break.html

Are premium bonds still worth it?

With the NS&I adjusting the premium bond prize-fund rate to just 1% in December of 2020, down from the previous 1.4%, around 21 million people saw their chances of winning fall. An impressive £99 billion worth of savings are currently held in NS&I premium bonds, and the interest change has brought into the spotlight the question of whether premium bonds are even worth buying.

What are premium bonds?

Premium bonds are effectively an instant access savings account. Rather than each individual earning interest on their savings, the interest across all premium bonds is given out in a monthly prize draw, similar to a lottery. Most people, on most months, will get zero interest, but there is a chance of winning up to a million pound prize, if luck is on your side. Each bond costs £1 and has an equal chance of winning, so the more bonds you own the higher your chances. The minimum purchase is £25 and one person can hold up to £50,000 worth.

What are the benefits over a regular savings account?

Premium bonds are operated by the NS&I rather than a bank, and so are backed by the Treasury. As such they are as safe as can be. Any capital in premium bonds is at zero risk, and can be withdrawn at any time. Any interest gained in the form of a prize is also paid to the winner tax free, but these benefits are not as attractive as they once were. 

The level of safety supplied by premium bonds is no longer unique. Thanks to the savings safety rules and the Financial Services Compensation Scheme, all UK-regulated savings accounts are protected up to a value of £85,000 per person, per institution. With the maximum amount that you can put into premium bonds being £50,000 there are few occasions where that safety cannot be found elsewhere. 

Thanks to the personal savings allowance (PSA) launched in 2016, all savings interest is now automatically paid tax-free unless you are a basic 20% rate taxpayer earning more than £1,000 interest a year, a higher 40% rate taxpayer earning more than £500 interest a year, or a top 45% rate tax payer. 

Where premium bonds do become useful is for those with larger amounts of savings who will already be paying tax on their interest, as premium bond prizes don’t count towards the PSA. It’s also something to consider for those who are feeling lucky, because although the odds of the larger prizes are enormously stacked against you… somebody does win them. 

Whether or not premium bonds are right for you will depend on the wider context of your financial situation. Before acting either way, it’s recommended to take professional advice. 

Sources
https://www.hl.co.uk/news/articles/ns-and-i-interest-rates-slashed-how-to-get-more-from-your-savings

https://www.moneysavingexpert.com/news/2020/12/martin-lewis-reveals-who-should-have-premium-bonds/

https://www.moneysavingexpert.com/savings/premium-bonds/

https://www.moneysavingexpert.com/savings/personal-savings-allowance/

Why bookkeeping is so important for your business

Keeping on top of financial records is integral to the success of any business, and each business will have a unique ideal outcome in terms of perfect bookkeeping. Larger organisations may have their own finance departments to handle these concerns, but many businesses and sole traders simply aren’t equipped to deal with bookkeeping internally. While hiring a dedicated bookkeeper is certainly an option for some, for many it may be more efficient and effective to outsource those tasks to an external professional.

What’s so important about bookkeeping?

First and foremost, bookkeeping allows you to keep the reins on your finances. Without a clear picture of where your investments sit and when your invoices are due, you can lose control of all of the processes that are impacted directly and indirectly as a result. 

Confidence that your bookkeeping is up to date also brings with it a peace of mind that allows you to focus your attention on the places it’s better used. You have enough to keep you busy when running a business, bookkeeping needn’t be the thing that keeps you up at night. 

It isn’t just about peace of mind, however, there are practical advantages to good bookkeeping. When you know how your finances stand today, you can strategise where they should be next week, and a year down the line. Planning ahead for the growth and development of your business is made much more difficult by not knowing where it currently sits. Tracking your profit (or loss) leading up to the current moment also allows you to learn the impact of past business decisions, influencing whether you change your tactics or repeat previous successes. 

Why could outsourcing bookkeeping be the answer?

For some businesses, using a quality third-party bookkeeping service is an attractive option. For businesses that are in the process of growing, the workload relating to bookkeeping may be at a stage that doesn’t warrant the attention of a dedicated employee but has become a time-sink for an existing employee whose ability is better spent elsewhere; by using the services of an external bookkeeper, you can maximise your internal resources. External bookkeepers can also provide extensive experience that could not realistically be attained through the training of existing employees in a short timeframe. 

Requirements differ greatly from business to business, so if you’re thinking about how best to approach your bookkeeping, it’s recommended to speak to a professional for advice before acting.

Sources
https://www.newsanyway.com/2020/11/11/bookkeeping-a-solution-to-your-problem/

Are ESG funds set to become the new normal?

The adoption of Environmental, Social and Governance funds has been rising steadily for some time now, and yet the question has lingered of whether they are to be a flash in the pan or the centre of our financial future. 

With ESG funds reportedly attracting net inflows of $71bn, just between April and June of 2020, there is no denying their significance. Their usage is seeing a rise that is, relative to previous years, meteoric. The transaction network, Calastone, reported data that suggests that the amount of new money invested into ESG funds between April and July is greater than the combined figure for the five years previous. 

Having been described by the Head of ESG Investments at Canaccord Genuity Wealth Management, Patrick Thomas, as a “structural trend, highly unlikely to be reversed,” at present, it would appear that that a u-turn is looking increasingly unlikely.

Why the sudden increase in ESG adoption?

Like many things, the growth of investments into ESG Funds has been accelerated by the pandemic. The impact of COVID-19 has brought into clear focus that the communities worst affected are also those that could be helped most directly by positive environmental, social and governance investment. The real life impacts of climate change, income inequality, and lack of diversity and representation are in the spotlight and investors are becoming increasingly aware of the impacts their investments have.

It’s not only the pandemic, however, that has caused the interest in ESG funds to grow. Some historically popular and profitable industries were already suffering from a fall out of favour. Oil, in particular, had been experiencing a crash on a spectacular scale even before its growth and demand on a global level was impacted by Coronavirus. It seems that investors are looking for more sustainable long term funds, and ESG funds come with the possibility to offer exactly that, with the added bonus of a boost to their reputation as progressive and ethical investors.

But, of course, it’s unlikely that ESG funds would be anywhere near as popular as they are becoming if they didn’t also offer their investors an attractive possibility of return on their investment. 

Looking forward

What can we expect to see in the immediate future of ESG funds and is the trend of their growth sustainable? The professional services firm PwC certainly seems to think so, at least in the coming years. 

Referring to ESG funds as ‘the growth opportunity of the century’ is no small prediction, and they put this prediction down to four factors: the regulatory overhaul that sees non-compliant sectors penalised, ESG’s marked outperformance, the increasing demand from investors and the fundamental societal shifts outlined by the current social, environmental and health circumstances.

Sources

https://www.fidelity.co.uk/markets-insights/investing-ideas/esg-investments/demand-esg-set-surge/
https://www.ft.com/content/e5518f78-0371-4946-b4a6-17addf7143ae
https://citywire.co.uk/wealth-manager/news/pwc-over-50-of-europe-fund-assets-to-become-esg-by-2025/a1414968/print?section=wealth-manager
https://www.ft.com/content/27025f35-283f-4956-b6a0-0adbfd4c7a0
https://www.pwc.lu/en/sustainable-finance/esg-report-the-growth-opportunity-of-the-century.html e

Cash is on the decline in the UK

Is cash still king? As contactless payment options have grown dramatically in availability and popularity in recent years, we have seen a reduction in the use of cash as a result. While there has been a steady decline in cash withdrawals, and the use of cash transactions in general was to be expected as new technology becomes more widespread, the unprecedented events of 2020 have resulted in a marked acceleration in this decline. The UK in particular provides a stark example of this trend, with the use of cash declining faster than the European average.

Where did the decline begin?

According to the banking trade body, UK Finance, debit card payments overtook cash payments for the first time in the UK in 2017. This moment was indicative of a wider trend, with cash payments falling steadily since 2012 and debit card payments rising at a similar rate. Contactless payments, too, have seen a steady increase in their usage since their introduction in 2007. They broke the £1bn in annual transactions landmark in 2013, seeing a further boost in 2014 when Transport For London introduced Oyster card readers that accept contactless bank cards. By 2018, over 60% of people over the age of 65 were reported to use contactless payments, which is a considerable number of the, historically, least tech-savvy portion of society. In the last three years alone, cash usage has effectively halved. In September 2017, there were 170 million withdrawals from cash machines; in September 2020, there were just 88 million. 

That is all to say, the decline in cash withdrawals and transactions, and particularly relative to the use of other forms of payment, comes as no surprise. The speed at which that decline has accelerated, however, is something of note.

Covid Acceleration

The data from Link, who operate the largest network of free-to-use ATMs in the UK, suggests that weekly ATM withdrawals since the first lockdown was lifted are a third lower than they were before the lockdown began. Accenture has reported that between 17th and 25th March 2020, cash usage in the UK declined by 50%. The report has forecast that across the whole of 2020, compared to 2019, the decline will look more like 40%. With the rest of Europe forecast to see a 30% decline in cash usage, that’s a considerable number. That reduction may well be here to stay. As consumers change their behaviours, and opt to avoid handling cash to avoid physical interaction with others throughout the pandemic, they may not return to older habits as time goes on. Time will tell what lasting impact the pandemic has on the UK’s preferred methods of transaction, but as it stands, the future looks largely cashless.

Sources
https://www.paymentsense.com/uk/blog/cash-is-declining-in-the-uk-quicker-than-any-other-country-in-europe/
https://www.bbc.co.uk/news/business-48544695
https://www.fintechmagazine.com/digital-payments/barclaycard-flash-history-uk-contactless-payments
https://www.telegraph.co.uk/news/2020/10/10/cash-usage-halves-three-years-amid-fears-coronavirus-has-accelerated/

6 important tax deductible purchases for small businesses

As a business owner, it’s important not to miss any opportunities to streamline your business and make the most of your revenue. A well managed cash flow is a crucial aspect of every business, and managing a cash flow requires attention to your expenses.

It can be difficult to determine what you can and can’t consider tax deductible purchases, especially for the uninitiated. When you’re running a business, you’re busy enough dealing with your other responsibilities and it can be hard to keep yourself clued up when it comes to making the most of the books. It is, however, an integral part of keeping the business running efficiently, so let’s take a look at some things for you to keep in mind.

What to claim as expenses

Staff Costs
Salaries, bonuses, commissions, pensions and nearly all compensation for employees. Whether they’re full time, part time or contracted you can likely claim for it.

TrainingIf training of employees incurs a cost then you can generally claim it as tax deductible. This covers courses relevant to the business, and is a great opportunity and encouragement to keep your staff engaged, motivated and up to date with relevant training.

Childcare costs
Tax relief for childcare costs can be extremely generous. For example, for payments to registered childminders and nurseries, also out of hours clubs run on school premises or by local authorities.

Marketing and Advertising
Costs incurred through the promotion of your business can often be considered tax deductible expenses. Brochures, flyers, web hosting charges, domain registration fees and much more.

Office Costs
You can find tax relief for a variety of costs relating to your office. That includes rent, supplies and utilities. Software subscriptions, postage, ink cartridges and more all fall under this category.

Your Home
If you’re working full time from a home office, as many of us now are, or you work from home on occasion, you may find significant costs that can be considered expenses. You may be surprised how much of your monthly bills could be tax deductible, including lighting, heating and council tax.

This is not an exhaustive list, and there are plenty of other areas and purchases which can be utilised to minimise your tax liabilities. There may also be areas which you believe to be deductible but which,  in fact, are not. For this reason, you should always seek professional advice before making any final decisions. 

Sources
https://www.taxcafe.co.uk/resources/toptentaxdeductions.html
https://bedfordaccountant.com/top-nine-tax-deductible-purchases
https://www.thefriendlyaccountants.co.uk/can-company-claim-tax-relief-childcare-costs/

What will 95% mortgages mean for potential first time buyers?

At the virtual Conservative Party Conference on 6th October, Prime Minister Boris Johnson gestured towards a plan in the pipeline to introduce 95% Loan To Value mortgages in an attempt to reinvigorate home ownership and in his words, “help turn generation rent, into generation buy.” 

While the details of this plan remain unclear, the PM declared that there were up to 2 million potential homeowners who would be able to afford repayments but do not currently have access to a mortgage. His proposed solution is to give young, first time buyers the option of fixed rate, long term loans of up to 95% of the value of the home.

Why is this new?

Up until the pandemic, there were many lenders who were providing 95% LTV mortgages, albeit generally requiring a guarantor. Due to the economic uncertainty and job insecurity accelerated by COVID-19, those lenders have chosen to rescind these products which require lower deposits. The result of this is that would-be first time buyers who have been saving for their first home, no longer have a large enough deposit to secure their mortgage.

The lenders, then, will need good reason to return these low deposit mortgages to their offering. The PM has suggested reducing the ‘stress tests’ that have been in place since the 2008 financial crisis, meaning would-be buyers would have to tick fewer boxes to be considered eligible and able to afford repayments.  

This relaxing of stress tests exposes the lenders to a risk of bad debts, should the economy take a downturn. To combat this, the PM has suggested a state guarantee to lenders. This would most likely come in the form of underwriting the debt; with the average home in the UK costing £220,000, underwriting 10 per cent of a deposit for 2 million buyers would leave the government and the taxpayer liable for £44billion.

The potential knock on effects

A side effect of the temporary reduced rates of stamp duty and the subsequent inflated house prices is that first time buyers are currently hesitant to commit to high LTV mortgages, where they are able to. They fear that they’re at risk of finding themselves in negative equity upon the return of full rates of stamp duty, and the possibility of reduced property value that may come with it. With reduced checks to validate who’s eligible for these mortgages, we could also see a larger portion of new buyers unable to afford their repayments, turning generation buy into generation foreclosed. 

While the state guarantee to lenders could incur a potential risk of £44billion of the public purse, experts believe this to be a high end estimate, and unlikely in practice.

95% LTV mortgages were available before the pandemic, and yet owning a home remained a pipe dream for many. Why this would be different now is up for debate, but time will tell.

Sources

https://www.thisismoney.co.uk/money/mortgageshome/article-8810561/How-Prime-Ministers-plan-offer-95-mortgages-work.html

https://www.ftadviser.com/mortgages/2020/10/06/industry-cautious-about-pm-s-95-mortgage-plans/

Unemployment brings new career challenges for the over 50s

Whilst the furlough scheme continues to be extended, there are reportedly around 377,000 older workers who are at risk of losing their employment, according to the Centre for Ageing Better and the Learning and Work Institute. That constitutes one in ten male, and eight in ten female workers in their 50s and 60s who will likely have to find alternative employment or make their income elsewhere.

Rising unemployment

This is not the first indicator of people in that age bracket being economically affected by the pandemic. In March there were around 304,000 over 50s claiming unemployment-related benefits. This number almost doubled to 588,000 in June, meaning that there are more over 50s claiming universal credit than there are under 25s. This may, in part, be linked to the UK’s ageing population, as within 20 years we can expect one in four people to be over 65. 

While 35% of those over 50 who lose their job are recorded to return to work “quickly”, according to an analysis of data from the Department for Work and Pensions by the Centre for Ageing Better, this places the over 50s as the least likely of all age groups to find fast employment after being made redundant, with 29% finding themselves unemployed for over 12 months. These figures paint a particularly stark view of events as the current labour market problems come on the back of a trend of extremely high employment rates for older workers. 

What can be done

There is, thankfully, something that those over 50 have to their advantage. Experience within the workplace is an invaluable asset, and while the job market is particularly strained at the moment, there are roles available and opportunities for starting new businesses exist. Despite the broader circumstances, there are sectors that are still hiring, specifically retail, farming, financial services, care and tutoring. Your experience can be used in your favour by positioning yourself as a mentor and teacher.

Now may be the time for those with decades of working experience to take their employment into their own hands and consider the path of entrepreneurship. In fact, businesses started by those aged over 45 have proven to be more likely to achieve success than those started by those in the 18-25 age range. 

The opportunity to embark upon a second career of your choosing can be daunting, but also liberating. For those in this position, focussing on their acquired talents and skills and pinpointing a specialisation is a good place to start.

Sources
https://www.theguardian.com/business/2020/oct/05/how-newly-unemployed-over-50s-can-start-up-again
https://restless.co.uk/career-advice/job-ideas/10-industry-sectors-still-hiring-now/
https://www.ageing-better.org.uk/publications/mid-life-employment-crisis-how-covid-19-will-affect-job-prospects-older

https://www.ft.com/content/183a52a6-d9b6-11e6-944b-e7eb37a6aa8e