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the impact of climate change fears on ethical investing

As pressure mounts on governments and financial institutions to do more to combat climate change, the demand for ethical investment opportunities is on the rise. 

Triodos Bank’s annual impact investing survey has found that nearly half (45%) of investors say that they would be keen to move their money to an ethical fund as a result of news surrounding the environment. When asked, investors state that they would put an average of £3,744 into an impact investment fund, marking an increase of £1,000 when compared with 2018. 

53% of respondents believe that responsible investment is one of the best ways to fight climate change and 75% agreed that financial institutions should be more transparent about where their money is invested. 

Gareth Griffiths, head of retail banking at Triodos Bank UK, said: “Many investors are no longer waiting for governments to take the lead in our transition to a fairer, greener society – they are using their own money to back the change they want to see.” 

Ethical investing isn’t a new practice by any stretch. In fact, some ethical funds have been available for the past 30 years, though they still only make up 1.6% of the UK industry total, according to research carried out by Shroders. 

That then poses the question, why haven’t they earned popularity in the past?

The old consensus was that investing ethically meant you were sacrificing performance for morality. A thought which seems to be changing, however, as research conducted by BofA Merrill Lynch found that a strategy of buying stocks that ranked well on ethical, social and governance metrics would have outperformed the S&P 500’s yearly result for the past five years. 

Further to this, a survey conducted by Rathbone Greenbank Investments found that over 80% of the UK’s high net worth individuals are interested in investing ethically. Many want to back the fight against climate change and plastic waste reduction but say that due to a lack of choice they still end up investing in fossil fuels or mining companies.   

The investment industry has recognised the change in attitude, leading to more and more fund management companies including ethical, social and governance factors in their core investment strategies. However, with the movement only just beginning to gain true momentum, it seems that time will tell when it comes to the mass adoption of ethical investment practices. 

If you have any questions about ethical investment please feel free to get in contact.

Sources
https://uk.finance.yahoo.com/news/climate-fears-could-prompt-more-014547488.htm

https://www.independent.co.uk/money/spend-save/good-money-week-ethical-investing-blue-planet-environment-fossil-fuels-plastic-a9142446.html

Planning a ski trip? Try somewhere a little unusual

With so many different resorts out there, it’s easy to be so spoilt for choice that you just can’t decide where to go. But what if you want to try somewhere a little off the beaten track? Many skiers and snowboarders often opt for the most popular resorts, leading to inflated prices driven by demand. If you’re looking for a more unusual experience, keep reading… 

Mauna Kea: Hawaii 

With the snow season taking place between December and February each year, Mauna Kea offers a unique chance to glide along the slopes of Hawaii. The area is devoid of ski lifts, marked runs or ski-carved moguls. It’s an area for experts, as you’ll have to take an off-road vehicle on the roads between observatories on the 4,270 metre tall mountain. Although lacking in resort facilities, it’s a great example of how such comforts aren’t a necessity when it comes to alpine enjoyment! 

Ski Dubai: Dubai 

Moving on from a tropical island to the desert, Ski Dubai offers an all year round skiing experience at one of the world’s largest indoor ski areas. Ski Dubai houses five full ski runs, including the world’s first indoor black run and a freestyle zone. It’s the perfect opportunity for those who like to experience both climates while taking a holiday. 

Ben Lomond: Tasmania 

Ben Lomond allows skiers to experience snow in an area better known for its surfing and sandy beaches. Being located in the Southern Hemisphere, it means that it has a ski season between July and September, making it a great opportunity for those of you who want to head to cooler climates during the summer. 

Mount Etna: Italy

If the black diamond runs of Europe don’t quite scratch that itch, why not try carving some tracks along an active volcano? Mount Etna, based in Sicily, houses two ski areas in Provenzana and Nicolosi, both with accessible ski lifts. It has a longer snow season than most, running from November until April. The views from the summit of this mighty mountain are incredible, although skiing can occasionally be hindered by the odd bit of volcanic activity here and there. 

Monte Kaolino: Germany 

With our final entry, we’re doing away with snow entirely. Although it is still seasonal (April – October), Monte Kaolino gives skiers the unique opportunity to ski on beautiful, Quartz sand. There’s one lift to take you to the top of its flagship 200 metre run and it’s sure to provide a dazzling experience. You can even leave your thermal gear at home!

We hope you have enjoyed this break from our regular financial articles and that we’ve inspired you to try something a little more unusual for your next or first ski trip.

Sources
https://www.mountainwarehouse.com/community/unusual-places-to-ski/

You have a financial plan, but do you have a financial plan b?

“The best laid schemes o’ mice an’ men, gang aft agley”. So said Robert Burns in his poem ‘To a Mouse’, lyrically summing up the idea that no matter how well we prepare, there are always factors beyond our control that can cause our ‘best laid’ plans to unravel.

Whilst the same can be said for financial planning, there are a great deal of factors that are under our control, one of which is preparing for the eventuality that our plan ‘A’ might not come to pass. Making a plan ‘B’ is not admitting defeat, but pragmatically working on the assumption that nothing about preparing for the future is guaranteed.

When it comes to retirement planning, too many people give themselves a single plan without having an alternative they can turn to. This is most common amongst those who have made plans themselves without consulting an independent adviser. One of the most frequent mistakes made is planning for too short a retirement. It’s always better to be optimistic about how long your pension will need to last. That way, if you overestimate, your money won’t run out and can become part of your legacy.

An increasing number of retirees are planning to continue working in some capacity after they retire, either taking on a part time job or extending their previous career through taking on a consultancy role. Financial advisers, however, are increasingly recommending that any income from working in retirement should be factored in as additional income rather than something you rely on to ensure you have enough money each month. That way you have the freedom to reduce your hours or stop working altogether whenever you want.

Plan ‘B’ is not always about the worst case scenario, however. It could be that your main plan assumes a certain amount of savings in your pension, whilst your backup plan is more optimistic but less likely. If you find that you do reach retirement age with more money available than you expected, plan ‘B’ could be your way of ensuring you make the most of life after work. If you planned to move abroad, look at more expensive destinations that might offer you even greater benefits than your initial choice.

If you’re nearing retirement and would like help putting together your plans, please get in touch.

Sources
http://money.usnews.com/investing/articles/2016-08-03/whats-your-plan-b-for-retirement

The difference between using an accountant and a bookkeeper

You’ll often find the terms ‘bookkeeper’ and ‘accountant’ used interchangeably, a trend which is perhaps understandable outside the field of accountancy. But to a business owner hiring someone to look after their company’s finances, the distinction between the two roles is a crucial one.

Part of the reason many believe the roles of a bookkeeper and an accountant to be the same is that there is a level of crossover between the two roles. As bookkeeping involves keeping complete and accurate records of a business’ financial transactions, it is the first stage of any successful accounting process.

A bookkeeper’s role is essential in allowing a business to run efficiently through recording payments and receipts, as well as ensuring that the correct amounts are paid and received on time. Other bookkeeping tasks include the issuing of invoices and recording of cash receipts from customers, recording invoices from suppliers and making payments to them, recording inventory, and the processing of petty cash and payroll transactions. For very small businesses, this may be enough to fulfil their accounting needs.

However, as stated earlier, bookkeeping is just one part of accounting. It involves financial transactions to be recorded and handled properly, but doesn’t require any analysis on the bookkeeper’s part. This is where accountancy comes in. An accountant takes the information from the bookkeeping process and assesses the overall financial picture. This includes analysis and interpretation of the records, forecasting the business’ financial position, and evaluating how efficiently the business is running.

Accountancy can also become a much more specialised role than bookkeeping. An accountant might choose to specialise as an accountant in the financial, management, tax or auditing fields, amongst others.

As such, an accountant will hold more specialist qualifications than a bookkeeper, as their role is the more complex of the two. Many businesses will expect their accountant to fulfil bookkeeping duties as part of their role, although larger businesses will often employ people in separate bookkeeping and accounting roles in order to allow the accountant to focus on the analysis and interpretation of the business’ finances.

Sources
http://www.aatcomment.org.uk/bookkeeping-vs-accounting-what-should-you-study/
https://www.babington.co.uk/blog/accounting-blog/difference-between-bookkeeping-and-accounting/#

4 steps to keeping track of your pension

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

Why reading is more ‘taxing’ for some

Books are zero-rated from VAT. Well, traditional printed books are.

If you wanted to read this year’s Booker prize shortlist in hardback, it would cost you approx £90 and there would be no VAT applied.   

A consumer tax of 20%, or VAT as we know it, is levied on all goods sold in the UK. There are some exceptions, however, which are zero-rated, such as children’s clothes, most food and, as mentioned, printed books.      

This is in line with the tradition that knowledge and learning should be accessible.

As Stephen Lotinga, the chief executive of the Publishers Association, explained, “It has been a long-standing principle that governments won’t seek to tax and provide a barrier to books, education and knowledge.” 

But it is not a level literary playing field.   

The zero-rating does not apply to audio books or e-books which can cost up to approx 50% more. Admittedly, while some of the extra cost of audio books is due to the recording costs and the hiring of actors, the levy plays its part in keeping prices high.     

To set this in context, the UK publishing industry generated £3.6bn in total book sales in 2018. Physical book sales accounted for £2.9bn and digital £653m.

The different tax classification discriminates against those who are blind, partially sighted and the elderly. With 2 million people in the UK classed as visually impaired, this is a significant issue. 

For people struggling to read, being able to listen to books or change the size of the font on the screen of their e-reader can have a huge impact.    

But the issue is also affecting the younger generation.The National Literacy Trust has said one in eight children from disadvantaged families do not own books. If books were available in digital formats at lower costs, it’s felt children from low income families would be more likely to access them on their phones or tablets.   

High profile authors and publishers, together with one hundred MP campaign supporters, are putting pressure on the Chancellor, Sajid Javid, to address this anomaly and bring an end to digital VAT in his Autumn Budget.

From a business perspective, the tax is also seen to be a barrier to encouraging innovation in digital formats. 

Let’s hope the story has a happy ending for all those disadvantaged readers and listeners who feel they are being unfairly penalised.

Protecting your home from care home fees

As you grow older, one of the things you might be most concerned about is the entire value of your home disappearing on paying care home fees.

Care from the NHS is free, but if you need social care because you are physically or mentally frail, you will have to pay for it yourself.

Over recent years, fees for care homes have risen rapidly. Research has found that Britons pay £10.9 bn of their own money into privately funded care a year. According to market intelligence provider, LaingBuisson, the average bill was £844 a week in 2018, compared with £445 a week in 1998.

If you have more than £23,500 in property, savings and investments, you will have to pay the full cost of care yourself during your lifetime and, if necessary, from your estate after you have died. This may not leave much for your family to inherit. Help from the local authority is available but it is strictly means tested, which results in very few people qualifying for financial help. (The value of your home is not considered in your means test if you or your spouse or a dependant is living there).   

To avoid paying for their social care in the future, some people take steps to get rid of all their assets but this may mean they could end up in a less luxurious care home than they had hoped for. 

Is using a trust an option?        

You may have heard of people protecting the value of their assets and property by putting them into a trust. If this is done before they go into care, the home is not part of their capital and they cannot be required to use it to fund their care fees. Great care needs to be taken, however, around the timing of this.The Local Authority can view such a step as ‘deprivation of assets’ if they feel the intention is to avoid paying care fees and refuse funding as a result.

If you are considering using a trust, it is vital to get professional advice from a solicitor and make sure it is suitable for your individual circumstances. In some cases, there might not have been much benefit. Your income might have been enough to pay most or all of your care fees anyway. The level of your other capital may have been enough to meet the shortfall between your income and the fees for the length of your stay in care.

There were plans for the government to bring in a cap of £72,000 for care home costs in 2020, but these have been scrapped. In the recent Spending Review, an additional £1 billion for adult and children’s social care was announced by Sajid Javid, although it is yet to be seen what that will mean in practice.

Sources
https://www.ftadviser.com/pensions/2019/09/03/warning-of-care-fee-discrepancy-for-self-funders/

https://www.thisismoney.co.uk/money/guides/article-7278063/How-protect-wealth-care-fees-black-hole.html#targetText=The%20Dilnot%20Commission%20recommended%20the,abandoned%20the%20plans%20in%202017.

https://www.carehome.co.uk/news/article.cfm/id/1591631/should-care-fees-home-trust

Would more people actually like to retire a little later?

This may seem a surprising suggestion. Surely most people are eagerly looking forward to early retirement, not thinking about postponing it? More time to travel the world, spend on the golf course or help out with the grandchildren sounds an enticing prospect rather than more years at work.

But times have changed significantly since the state old age pension was first introduced in 1909. In those days, it was paid to those aged 70 or more and people weren’t expected to live many years beyond that.           

The UK Government is in the process of raising the state pension age to 66 (from the current 65), with an expected completion deadline of October 2020. These rises in the state pension age roughly correlate with the rise in life expectancy. People live on average at least another fifteen years beyond their ‘three score years and ten’.

Back in 1948, a 65-year-old would expect to take their pension for about 13.5 years, equating to 23% of their adult life. This has risen steadily. Figures in 2017 showed that a 65-year-old would expect to live for another 22.8 years, or 33.6% of their adult life.

A significant number of people even live to 100 these days. So much so that the Queen has had to expand her centenarian letter writing team to cope with the number of people requiring a 100th birthday message from the Palace.       

According to the Office of National Statistics, the number of centenarians in the UK has increased by 85% over the last 15 years.This trend is set to continue so that by 2080 it is anticipated there will be over 21,000.

In recognition of the fact that people are living longer and spending a larger proportion of their adult life in retirement, a government review will consider increasing the state pension age to 68 between 2037 and 2039.  

Currently, if someone retires at 65 and lives to 100 it makes for a long retirement. Not only is it  expensive for the state to maintain, the individual is worried about outliving their finances rather than being able to get on and enjoy their retirement. The state pension was not designed to support a long period of limbo. 

Against such a backdrop, it makes sense for some individuals, if they are fit, healthy and capable, to consider working beyond their pension age. There is no longer any default retirement age at 65, so it is perfectly possible to do this.  

The older generation also have a great deal to contribute to an employer in terms of experience and commitment. In addition, it’s well known that going to work each day gives some people a reason to get up in the morning and also to keep young. There are many unfortunate cases where someone has worked all their life, looking forward to their retirement, only to fall seriously ill or die the moment they stop work.    

The number of 70 year olds in full or part-time employment has been steadily increasing year on year for the past decade, according to data from the Office for National Statistics. This hit a peak of 497,946 in the first quarter of 2019, an increase of 135% since 2009. 

So rather than just worry about whether you will have enough for your retirement, maybe it makes sense to keep working a little bit longer.

Sources
https://www.telegraph.co.uk/news/2019/08/19/not-raise-pension-age-people-would-rather-retire-little-later/

https://www.gov.uk/government/news/proposed-new-timetable-for-state-pension-age-increases

https://www.theguardian.com/money/2019/may/27/number-of-over-70s-still-in-work-more-than-doubles-in-a-decade

https://www.ons.gov.uk

Own a second property? Here’s some changes you need to be aware of

There have been several changes relating to Capital Gains Tax (CGT) over the past few years. The coming years are set to bring more. Here’s our summary of some of the more important changes coming that might be coming into effect from April 2020. 

If you are thinking about selling a residential property in the next year or two, you need to know about proposed changes to the capital gains tax rules for disposals from April 6th 2020. 

If you only own one property and have always lived there, you should not be affected. However, if you own more than one property or you moved out of your only property for a period of time, you might face a capital gains tax bill. 

The two main changes you should be aware of are: 

Final period exemption 

The last period of ownership counting towards private residence relief will be reduced from 18 months to just nine. Currently, the final period exemption allows individuals a period of grace to sell their home after they have moved out. However, the government feels that individuals with multiple residences have been taking advantage, hence the reduction.   

Lettings relief

Lettings relief is set to be removed, unless you live in the property with the tenant. For UK property, HMRC must be notified and tax paid 30 days after completion rather than the January following the end of the tax year in which the disposal took place. Failure to pay on time will result in HMRC imposing interest and potential penalties. 

With no transitional measures in place, this means that higher-rate taxpayers previously expecting to benefit from the maximum potential relief of £40,000 could be lumped with £11,200 extra tax overnight. 

Here’s an example of how the new taxes could influence a sale:

Steve, a higher rate taxpayer, bought a flat in April 2009 for £100,000. He lived there for 6 years until April 2015 before moving out to live with his partner. He let the flat until 2020 when he sold it for £300,000. The sale was completed on 4th June 2020. 

If the contracts were to be exchanged before the April 2020 changes, a CGT of £6,618 would be due. However, after the deadline a CGT of £21,636 would be due, payable seven months earlier – this is due to there being a lower period of private residence relief and a lack of lettings relief. 

The next steps

The two above changes are set to be enacted as part of the 2020 Finance Act and at the moment are not definite. The consultation to these steps closed on 5th September 2019. Assuming that draft provisions reach the Finance Bill 2019-20, we will have to see if any changes are made to either after it is debated in Parliament. 

Sources

https://www.accountancyage.com/2019/09/16/prr-how-will-your-clients-be-affected/https://www.bdo.co.uk/en-gb/insights/tax/private-client/further-tax-changes-for-non-residents-holding-uk-propertyhttps://www.killik.com/the-edit/how-capital-gains-tax-on-property-will-change-from-april-2020/

The retirement mistruth

If you pay much attention to the media and advertisers, you may think that retirement is all about riding jet skis, sipping sherry on the French riviera or cuddling grandchildren. No doubt you’ve seen one, if not all, of the images on many of the retirement articles out there. Though those sorts of activities are an important part of retirement, a recent study has revealed retirement to be more of a double-edged sword. For many, the first few months can involve a lack of purpose leading to something somewhat akin to a later life crisis, according to Harvard Business School professor Teresa Amabile. 

It’s certainly hard not to lie about retirement because of the social norms associated with it. It’s meant to be the best time of a person’s life, that they’ve been working hard for. But it causes people to say one thing, and feel another. Professor Amabile interviewed 120 professionals about their views of retirement, at different stages of their careers. 

“People think of planning for retirement as a financial exercise, and that’s all. It also needs to be a psychological and relationship exercise as well.

“We need to think about who we will be – who we want to be when our formal career ends. The people in our study who do that, tend to have a smoother transition.” 

Revelations also arose when it came to how respondents described themselves. People often used their previous job title as a suffix to their retired status, usually saying that they were a ‘retired librarian’ or a retired ‘research chemist’ and the like. Though it’s important to be proud of what you’ve achieved during your career, it’s still important to prepare yourself for retirement as making sure you’re of sound mind as well as sound wallet will lead to better wellbeing after you draw the curtains on your career. 

However, this doesn’t mean that work has to come to an end. There are plenty of retirees out there who still consult in their previous profession – some even take the opportunity to pursue other avenues of employment that they’ve always been interested in. There are plenty of remedies to the retirement riddle that don’t need to resort to a kind of ‘forced leisure’ that is often associated with retirement. The truth is, you don’t have to relax or slow down if you don’t want to – as long as you remain realistic. 

It’s something that a retirement plan can help with tremendously as, more often than not, you’ll have to think about what you’re going to do when the time comes. It’s not all just financial saving strategies and tax mitigation, it’s about getting yourself into the mindset that retirement is on the horizon, and when it comes to the day that you draw your pension, you’ll be all the more prepared to make the most of it in a way that’s true to yourself and who you are. 

Sources
https://www.bbc.co.uk/news/business-48882195
https://www.forbes.com/sites/robertlaura/2019/06/13/will-retirement-turn-you-into-a-liar/#67e84b6b73de