Category: Financial Planning

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The UK is struggling to save; what are the implications?

study found in 2018 that one in four adults have no savings. Many residents in the UK wish that they had cash to save, however high monthly outgoings and debt clearance seem to take priority. Saving for the little curveballs that life throws your way is a good way to maintain a sound mind, but poor money management and large monthly payments can get in the way. So is this issue localised to the UK, or is the struggle to save an international issue?

Across the pond

Households in the US are currently able to save 6.5% of their disposable income, down from the previous figure of 7.3% after estimates were made by Trading Economics. However, earlier in 2018 a report was made, finding that 40% of US adults don’t have enough savings to cover a $400 (est £307) emergency.

The current UK savings figure sits at 4.8%, one of the lowest since records began in 1963. The Office for National Statistics has come up with an even lower figure of 3.9%, which actually is the lowest recorded. Further to this, a report was also made by the Financial Conduct Authority in 2017 that millions of UK residents would find it difficult to pay an unexpected bill of £50 at the end of the month, and little has changed since then.

Closer to home

In France and Germany, the savings ratio sits at 15.25% and 10.9% respectively, that’s triple the UK’s value for France and over double for Germany! The Managing Director of Sparkasse bank points to cultural ideals as the main influencers for the high German saving rate, saying that: “Saving is seen as the morally right thing to do. It is more than simple financial strategy.” This stance seems typical for the country that’s home to the first ever savings bank, opening in Hamburg in 1778.

Why do we not save as much as we used to?

The idea of saving for a rainy day in the UK may not be totally lost but for many, the rainy days are happening as we speak. Another reason relates to the tendency of UK households to borrow more money in order to maintain lifestyle choices. For all quarters in 2018, households were net borrowers, drawing on loans and savings to fund spending and investment decisions.

Comments have been made referring to current Brexit uncertainty as a reason for the change, alongside rising rental prices and increased costs of living. Whether this new change in spending and saving is wholly due to current cultural or economic factors is yet to be confirmed. Another case has been made for poor interest rates making it a less lucrative option for savers to save.

Be it cultural or economic, it is undeniable that the country has lost faith in the ethos of saving their pennies. In the end, as more and more studies come to light, it seems that only time will tell.

Sources
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/bulletins/familyspendingintheuk/financialyearending2018
https://www.independent.co.uk/news/uk/home-news/british-adults-savings-none-quarter-debt-cost-living-emergencies-survey-results-a8265111.html
https://eu.usatoday.com/story/money/personalfinance/budget-and-spending/2018/09/26/how-much-average-household-has-savings/37917401/
https://www.bbc.co.uk/news/business-46986579
https://www.ft.com/content/c8772236-2b93-11e8-a34a-7e7563b0b0f4

6 bad habits to avoid during retirement

Planning for retirement can be complicated, as anyone approaching the end of their working life will tell you. However, navigating the myriad of choices, both financially and socially, doesn’t have to be such an enigma. Here are a few tips to help you avoid common bad habits that retirees often fall into:

1. Spending your pension fund money

Yes, that’s right. If you delay spending your pension and spend other available cash and investments first, you could keep your money safe from the taxman. Not spending your pension fund money until you have to may also help the beneficiaries of your estate avoid a large inheritance tax bill.

2. Taking the full brunt of inheritance tax

Inheritance tax can cost your loved ones vast sums if you were to pass away. There are plenty of ways to protect them from losing a large portion of your estate. Strategies such as making gifts or leaving assets to your spouse are an effective way to avoid the tax, among other valuable strategies.

3. Failing to have a plan

Many retirees have multiple avenues of income to provide for them during retirement. Making the most out of those streams of revenue is key to a stress free retirement, as unwise investment or poor planning can lead to unnecessary worries. We recommend contacting a financial adviser in order to set out a plan that’ll let you focus less on worrying about income and more on enjoying your well-earned retirement.

4. Not taking advantage of the discounts

There is an absolute boatload of price slashes available to retirees over a certain age. This ranges from discounts on train fares to reduced prices of cinema tickets. We recommend that all pensioners takes full advantage of these discounts as every penny saved provides more financial security for yourself and your loved ones.

5. Thinking property is the only asset worth having

Property can be a valuable source of retirement revenue, but it’s not the only way to create more income. Property can often incur maintenance expenses for landlords and take up time to resolve that could be spent making the most out of your retirement (though there are many pros and cons to the pension vs property discussion).

6. Buying into scams

When you retire, it seems that all kinds of people come crawling out of the woodwork to give you a “great” investment opportunity or insurance policy. Tactics can include contact out of the blue with promises of high / guaranteed returns and pressure to act quickly. The pensions regulator has a comprehensive pensions scam guide that’s definitely worth a read.

Building your financial future

Sources
https://moneytothemasses.com/saving-for-your-future/pensions/buying-property-with-your-pension-everything-you-need-to-know
https://finance.yahoo.com/news/15-things-not-retirement-090000553.html
https://miafinancialadvice.co.uk/14-retirement-planning-mistakes-that-you-dont-know-that-you-are-making/
https://miafinancialadvice.co.uk/spend-your-pension-last/
https://www.investorschronicle.co.uk/managing-your-money/2018/10/04/want-an-easy-retirement-avoid-this-common-mistake/

The popularity of Equity release is growing, but is it a good move?

Equity release is no longer the niche lending area it once was. More and more homeowners over 55 are choosing to release cash tied up in their homes and there are few signs of this trend subsiding.

Lending in 2018 increased by 27% compared to the previous year and is now nearly double what it was in 2016. It’s likely that the UK’s growing elderly population, where many don’t have the pension security of generations past, is partly behind this expansion. The growing variety of equity release products on the market could also be a factor. Newer products mean that homeowners are able to gradually release money from their property, rather than taking it as a lump sum.

Is it a risky option?

Equity release doesn’t exactly have a squeaky clean reputation. There have been past accusations of mis-selling and there are occasions where relatives find themselves receiving less inheritance than they might have expected.

Because of the way interest accumulates over the years, people can end up owing a large amount of money that is paid back from the value of the property when a person dies or goes into care.

Whether equity release is a suitable solution really depends on a person’s individual financial and personal circumstances.

As well as getting sound financial advice beforehand, it’s always best to be open with loved ones about releasing equity from your property. Two in three complaints to the Financial Ombudsman about equity release come from relatives of people who have died or gone into care. It can save a lot of upset later on to be open about releasing cash from a property when you do it, rather than further down the line.

The bottom line is that equity release can play a crucial role in supporting a full retirement, alongside pensions, savings and other assets, for the right homeowner. Since homes are most people’s largest asset, it makes sense to at least consider how this asset can be used to fund retirement. Downsizing in later life is another way of releasing money from your home.

Sources
https://www.mortgagestrategy.co.uk/feature-the-rise-and-rise-of-equity-release

Expert Advice: Diversify your ‘life Portfolio’ for a happy retirement

It goes without saying that being in a strong financial position in later life is important for a happy retirement. After all, it’s hard to be truly happy if you’re constantly worrying about money and having to devise new ways to make ends meet.

However, money isn’t everything. Even if you have your finances under control and adequate resources, a happy retirement isn’t a given. This means when retirement planning it might be worth coming up with a strong ‘Life Portfolio’, as well as a financial one. Looking at your ‘Life Portfolio’ can help guide you through the important decisions you must take in the run up to retirement, as you’ll have made a record of the key things you want from later life.

What makes a ‘Life Portfolio’?

For the purpose of the Life Portfolio, it makes sense to break down your lifestyle planning into four areas:

Health

This refers to activities that help you remain in good health. Health here shouldn’t be limited to just physical health. It’s also important to think about activities that keep you happy and mentally active.

People

Existing family and friends aren’t the only things that make up the ‘People’ category. You should also think about community organisations you could get involved in to make new friends.

Places

Where do you see yourself living in retirement? Do you have any travel plans or dream holidays? Will you be close enough to see your loved ones?

Pursuits

What will you do in your retirement? What hobbies or interests do you have which you’d like to pursue in retirement? Does volunteering appeal to you? This also relates to whether you’d like to retire fully or stay professionally active in some capacity.

In the run up to retirement, it’s important you think about the meaningful activities that will keep the zest in your post-retirement life. Retirement is a big change, and despite the prospect of much more free time, it’s not always a seamless transition. Many experience a feeling of lacking the direction they once had through their careers.

If you develop a ‘Life Portfolio’ with a partner, you need to think about what goals you share and what goals are individual. Coming up with a set of shared goals for retirement while meeting your individual needs is important to ensure a happy retirement together. Whether you choose to write a formal ‘Life Portfolio’ or not, devising and working towards goals outside of work is key to being happy after you leave full time work.

Sources
https://www.kitces.com/blog/anna-rappaport-phased-retirement-life-portfolio-health-people-pursuits-places/

4 Key takeaways from the Spring Statement


The Spring Statement is an opportunity to hear the latest updates on the state of the UK economy and what to expect of its growth over the coming months and years. With most people setting their focus firmly on the amorphous hokey-cokey of Brexit negotiations, it’s something of a breath of fresh air to take a moment to look at concrete upcoming strategies and measurable realities.

With that in mind, here are 4 key points you can hang your hat on while what’s on or off the table continues to be debated in the background.

1) Taxes, Taxes, Taxes

Employment is up and that means more tax receipts for the Government’s coffers. 2018 ended with 440,000 more people in work than 12 months prior, with 60,000 fewer people relying solely on zero-hours contracts. Government borrowing fell in January to the lowest we’ve seen since 2001 and £21bn of income and corporation tax was raised, leaving a healthy monthly surplus of £14.9bn.

2) Even more taxes

The Making Tax Digital scheme is set to come into effect on April 1st 2019. Looking at it broadly, it’s an effort to modernise the tax system. The first step comes in the form of mandatory digital record keeping for VAT, for those businesses which find themselves above the VAT threshold. It’s undoubtedly a strong example of intent for the future.

3) You guessed it… taxes

No Safe Havens is an initiative that was introduced in 2013 to crack down on those who seek to evade their tax through hiding their income and assets overseas, and those who advise them on how to do so. The Spring Statement brought with it a declaration of further commitment to this cause by investing in the latest technology and enforcing tough new penalties while, at the same time, making sure it’s easy for law abiding taxpayers to handle their tax correctly.

4) Growth is good

Okay, it’s not all about taxes. The Office for National Statistics’ January figures demonstrate the UK Economy has grown to the tune of 0.5%, blowing the economists’ predictions of 0.2% out of the water with the biggest monthly increase we’ve seen since 2016. Construction saw notable growth of 2.8%, with the service sector up 0.3% and manufacturing up 0.8%. We saw inflation fall to 1.8% in January and the general consensus is that we can expect to see UK growth of between 1.3% and 1.4% this year.

That’s your breath of fresh air over. You can get back to talking about Brexit now. If you have any questions surrounding any of these topics or the Spring Statement in general, please feel free to get in touch with us directly.

A guide to self-employed pensions

Running your own business can give you the opportunity to follow your passion and enjoy the ultimate flexible lifestyle. However, it does also mean taking on additional responsibilities. One of these is your pension.

Why moving abroad can affect your state pension



Retiring overseas is a dream for many Brits. After all, who wouldn’t be tempted by the better climate and the amazing travel opportunities found abroad. Where you choose to spend your retirement, however, will affect how much state pension you get.

State pensions are frozen if you decide to move abroad to certain countries, such as Australia, New Zealand, Canada or India. Whilst normal state pensions rise according to the triple lock, in these countries your pension would be frozen. The triple lock means that pensions currently rise by the highest of inflation, average earnings or 2.5% Whether or not your state pension is frozen depends on whether the Government has struck individual deals with the country you move to. As it stands, the Government has only made deals with the EU, the US, Switzerland, Norway, Jamaica, Israel and the Philippines. It has been decades since any new deals have been made.

To illustrate what this freeze means, an expat who retired when the basic rate was £67.50 a week in 2000 would still get that, rather than the £125.95 received by those whose pensions have not been frozen. Likewise, if you qualify for the full state pension of £164.35 and already live in or move to one of the ‘frozen’ countries, the amount you receive will not increase while you stay abroad.

This freeze currently reduces the pensions of approximately 550,000 British pensioners.

However, upon returning to the UK, pensioners are eligible to get their state pension uprated back to the full amount by applying directly to the Department for Work and Pensions service centre.

What about Brexit?

As it stands, nothing is certain until we get a final deal (or no deal!). However, it’s likely that state pensions in the EU will not be frozen. An update on Brexit talks published jointly by the EU and UK indicated they had ‘convergence’ of their positions on state pension increases.

If you’re planning on moving to a ‘frozen’ country like Australia, it’s best to consider the implications of a frozen state pension on your finances sooner rather than later. It will be easier to mitigate the effects when you’re younger and still have greater financial ties to the UK.

Sources
https://www.thisismoney.co.uk/money/expat/article-6278449/Will-state-pension-retire-abroad.html

A snapshot of average weekly household spending

In January, the Office for National Statistics (ONS) released their latest Family Spending Survey, revealing the intimate details of British spending habits. In its 61st year, the report provides an insight into family spending habits, as well as showing how they differ between areas of the country.

The average British household spent £572.60 per week in the financial year ending March 2018. After adjustments for inflation, this was the highest weekly expenditure since 2005. Increases in transport and housing costs were chiefly responsible for this rise in expenditure.

Households are spending £18.40 more than they did a year ago, despite splashing out less on dining out and buying fewer clothes than they did 12 months ago.

Transport was the category with the highest average weekly spend. Brits spent £80.80 a week on transport, 14% of their total expenditure. This was followed by spending on fuel, power and housing, which came to £76.80 per week.

Other expenditures have fallen. As a nation, we are drinking far less than we did in the past. This is reflected in our expenditure. 10 years ago, the average amount we spent on alcoholic drinks “away from home” was £10.90 a week. Adjusted for inflation, this has fallen to £8 a week.

Good news for our liver, bad news for pubs. In fact, more than a quarter of British pubs have closed their doors since 2001.

Younger people tend to spend far more on takeaways than the elderly. Households headed by someone under 30 spend on average £7.80 a week on takeaways. By contrast, over 75s spend just £1.80 on takeaways a week.

Northern Irish families, however, spent the most on takeaways. An average of £8.60 per household. Analysts suggest that this is likely to be because families in Northern Ireland are larger than elsewhere in the UK.

Overall spending, too, varies regionally. The average weekly household spending was highest in London, at £658.30, while in the North East of England it was more than £200 less at £457.50. In Wales, the average weekly spend was £470.40 and the Scots spent an average £492.20. The ONS survey paints a diverse picture of the UK’s spending habits that are just as varied as its people.

Sources
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/bulletins/familyspendingintheuk/financialyearending2018
https://www.theguardian.com/business/2019/jan/24/spending-by-uk-households-rises-to-13-year-high

As a parent, could you be missing out on your state pension?

There’s no reason why being a parent, and particularly being a non-earning parent with commitments to their children, should put you at risk of decreasing your state pension entitlement. Currently, however, there are potentially hundreds of thousands of people in this exact position – although thankfully, there are steps to take so that it can be avoided.

Figures supplied to the Treasury by HMRC suggest that there could be around 200,000 households missing out on these pension boosting entitlements. If the child benefits are being claimed by the household’s highest earner, and not the the lower earner or non-earner, these potential national insurance contributions can fall by the wayside. Treasury select committee chairman and MP Nicky Morgan says; “The Treasury committee has long-warned the government of the risk that for families with one earner and one non-earner, if the sole-earner claims child benefit, the non-earner, with childcare commitments forgoes National Insurance credits and potentially, therefore, their entitlement to a full future state pension.”

With 7.9 million UK households currently receiving child benefits, there is potential for a large number of people to be affected. Thanks to data from the Department for Work and Pensions, it’s suspected that around 3% of those (around 200,000) may be in this situation. It’s worth noting that the family resources survey covered 19,000 UK households and as the estimate is sample-based, there is some uncertainty on the exact numbers of those at risk. Nicky Morgan continues, “Now that we have an idea of the scale of this problem, the Government needs to pull its finger out and make sure that people are aware of the issue and know how to put it right.”

Sources
https://www.moneymarketing.co.uk/over-200000-parents-may-be-missing-out-on-their-pension-says-hmrc/

https://www.mirror.co.uk/money/200000-parents-missing-out-state-13895884

From the Adviser-Store

Mary Poppins returns: Can a tuppence really save the day?

Since the release of the film Mary Poppins Returns in December, it’s taken over $250m, making it a financial success. The story of the film itself however seems to recommend a few ways of making your own personal finances successful too. With the original set in 1910, the sequel takes us to 1935 where Michael, just a boy in the first film, is now a man with children of his own. Unfortunately, due to him being unable to repay a loan, he finds himself face to face with the frightening possibility of having his home repossessed.

Thankfully for Michael, in the original film his father gives him shrewd advice to invest his pocket money of a tuppence, rather than giving it to the women selling bird food. Quick reality check; even over the course of 25 years, the compound interest on a mere tuppence is extremely unlikely to have been enough to help Michael out of his rut in the real world. Realistically, with an average interest rate of 6%, saving two pennies wouldn’t even bring you in a single pound. Perhaps his father invested it particularly wisely, finding the unicorn company of his day, perhaps putting it into oil stocks, but even then it would require a huge return. It’s a film, after all, and the overriding message of being responsible with your finances is a noble one, so we can allow them a bit of creative licence.

Beyond taking the advice of investing two pence too literally, there are some positive messages and useful takeaways from Mary Poppins Returns. Ultimately, the tone is optimistic; the suggestion being that even if you’re in a particularly difficult financial position, there’s always a solution. It also suggests that these solutions are easier to come by with a bit of forward planning.

Sound investments are as beneficial now as they were in 1910, so seeking and listening to advice about how and where to put your money can be as helpful for you as it was for young Michael. Keeping on top of your financial situation and making conscious efforts to plan for the future will put you on steady ground and allow you to plan for a future that, in the words of Mary Poppins herself, is “practically perfect, in every way!”

Sources
https://www.bbc.co.uk/news/business-46741343