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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/

New Pensioners Bond – Now available

The Pensioner Bonds are now available

See previous post with information

Link to NS&I website – be warned the service might not be available – keep trying !

The new Bonds at a glance;

What are the Bonds?
• Lump sum investments providing capital growth
• Choice of terms – 1-year and 3-year
• Designed to be held for whole term, but can be cashed in early with a penalty equivalent to 90 days’ interest

When do they go on sale?
• January 2015 – exact date to be announced
• Available for a limited period only

Who can invest?
• Anyone aged 65 or over
• Invest by yourself or jointly with one other person aged 65 or over

How much can I invest?
• Minimum for each investment £500
• Maximum per person per Issue of each term £10,000

What about interest?
• 1 Year Bond 2.80% gross/AER* (2.24% after basic rate of tax)
• 3 Year Bond 4.00% gross/AER* (3.20% after basic rate of tax)
• Fixed rates, guaranteed for the whole term
• Interest added on each anniversary

The tax position
• Interest taxable and paid net (with basic rate tax taken off)
• Higher and additional rate taxpayers will need to declare their interest to HM Revenue & Customs (HMRC) and pay the extra tax due
• Non taxpayers, and those eligible to have any of their interest taxed at the new 0% rate (which starts from April 2015), can claim back the tax from HMRC
• NS&I are not currently part of the R85 scheme so we can’t pay the interest gross on these Bonds

 

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The Future of Annuities

What role are annuities likely to play in retirement planning in the light of pension freedoms coming into effect from 6 April 2015? There has been much debate about annuities, particularly since Chancellor George Osborne announced a number of changes to pensions from April 2015, welcomed by Standard Life in a recent bulletin.

Those changes mean pensions are becoming more flexible, with savers being given the freedom to control the pension funds they’ve worked hard to save – it is their money after all! They can take those funds as and when they choose to from the age of 55. This means people will have more options than simply buying an annuity at retirement, as was the case for many previously.

According to Standard Life, that doesn’t mean we have seen the last of annuities – far from it. True, you can’t change your mind when you buy one, but they do have the advantage of giving the security and certainty of a guaranteed income for life, or for a period of time of your choosing. In addition, as annuities work like insurance, if you have serious health issues you’ll benefit from enhanced rates. There’s also the added attraction that some annuities guarantee an income for your spouse too, in the event of your death.

On the other hand, they don’t offer much in the way of flexibility. What if you needed a lump sum to cover an unexpected event, a new car, or wanted to help pay for one of your grandchildren to go to university? For that reason, and with the pension changes now giving savers many more options, we’re likely to see annuities becoming part of a more varied pensions mix, alongside lump sum withdrawals and flexible income, or what is known as drawdown.

So using some, not all, of your pension funds to buy an annuity would give you a guaranteed level of income and peace of mind that life’s essentials were covered. The remaining funds could be kept invested in a pension to provide a flexible income and lump sum withdrawals when you need them.

Another trend we could see emerging is savers keeping their options open for longer by choosing flexible income and buying an annuity in their later years when they’ll get a better annuity rate – and the reassurance of a guaranteed income. One thing is certain – the way we look at our retirement planning is likely to never be quite the same and taking into account individual circumstances and requirements has never been more important!

 

building your financial future

NS&I – New Pensioner Bonds – 65 Plus Bonds

 

In January 2015 NS&I are launching new Bonds for investors aged 65 and over. These are the Bonds announced by the Chancellor in his March 2014 Budget statement.

Full details of the Bonds will be available when they go on sale in January 2015.

The new Bonds at a glance;

What are the Bonds?
• Lump sum investments providing capital growth
• Choice of terms – 1-year and 3-year
• Designed to be held for whole term, but can be cashed in early with a penalty equivalent to 90 days’ interest

When do they go on sale?
• January 2015 – exact date to be announced
• Available for a limited period only

Who can invest?
• Anyone aged 65 or over
• Invest by yourself or jointly with one other person aged 65 or over

How much can I invest?
• Minimum for each investment £500
• Maximum per person per Issue of each term £10,000

What about interest?
• 1 Year Bond 2.80% gross/AER* (2.24% after basic rate of tax)
• 3 Year Bond 4.00% gross/AER* (3.20% after basic rate of tax)
• Fixed rates, guaranteed for the whole term
• Interest added on each anniversary

The tax position
• Interest taxable and paid net (with basic rate tax taken off)
• Higher and additional rate taxpayers will need to declare their interest to HM Revenue & Customs (HMRC) and pay the extra tax due
• Non taxpayers, and those eligible to have any of their interest taxed at the new 0% rate (which starts from April 2015), can claim back the tax from HMRC
• NS&I are not currently part of the R85 scheme so we can’t pay the interest gross on these Bonds

 

The government has set the total limit of subscription to £10 billion –  Applications will be dealt on first come, first served basis and investors will be able to apply by post, online and by phone.

 

building your financial future

Beware of Early Pension Release

Pension release is when you agree to transfer your pension savings to an arrangement that will allow you to access your funds before you reach the age of 55. In rare cases, such as terminal illness, it’s possible to access pension funds before the age of 55.

However, for most people, promises of early cash are false and are likely to result in serious tax consequences. Transferring your pension early to release money can result in tax charges and penalties of more than half the value of your pension savings, and those being targeted are usually not told about these potential tax implications.

You need to understand the risks of releasing or ‘cashing in’ your pension before 55, when it’s fraud, how you might be targeted with illegal pension transfer or pension loan offers and who to contact if you suspect it.

Some pension transfer schemes that offer to release your pension before the age 55 can be illegal if you are misled about the consequences of entering into one of these arrangements. This could be because you’re not informed of the tax consequences, fees involved or how the remainder of your pension savings are invested.

An increasing number of companies are targeting individuals claiming that they can help them release their pension cash early. You may be targeted through websites, mass texting or through cold calls offering pension loans or opportunities to cash in your pension.

You should be very wary about giving out information in response to a text or cold call. You should always make sure that you know who you’re dealing with. You should always take appropriate financial advice before using pension release websites and be aware of the potential for charges being imposed by HMRC.

Converting your pension into cash before the age of 55 might sound very attractive if you urgently need money. However, if something sounds too good to be true, it often is. The risks of cashing in your pension early include:

  • You may be poorer in retirement. You can only use your pension fund once. If you release your pension, there will be much less (or no) income from it when you retire.
  • You may be hit by unexpectedly high fees. As part of the release transaction, you will probably have to pay the organisers a ‘commission’ or ‘arrangement fee’ and these can typically range from 10–30%.
  • You may be misled as to the consequences of the transfer. You may not be informed or misled as to the huge tax consequences of making such a transfer.
  • You may be hit with significant charges by HM Revenue and Customs (HMRC). If you release your pension, you need to tell HMRC and will have to pay tax. If you fail to tell HMRC and HMRC contacts you first, you may be charged penalties and interest in addition to the tax.

It is important to also watch out for the alternative names given for forms of pension release, including pension loans, pension transfers and pension liberation.

Pension release should not, however, be confused with ‘Pension Unlocking’. With pension unlocking, a person aged 55 or over can release up to 25% of their total pension as a tax free lump sum. Unlocking your pension will almost certainly mean you will have less income in retirement and, as a result, unlocking is only suitable for a very limited number of people and circumstances.

In the event of any early pension release approaches, you should consider taking advice from a professional and make sure that you take unbiased advice from someone who isn’t associated with the offer you’ve received.


Sources: www.thepensionsregulator.gov.uk

 

 

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Financial Planning – What is it? Our video explains …

Meet Jim and Jane, who go through the financial planning process … it’s about understanding, having objectives, cash flow forecasting – NOT about products …

Visit our site for information www.conceptfp.com from an award winning, British Standard certified financial planning firm.

building your financial future

School Fees – Planning is Vital

According to a survey undertaken by the Independent Schools Council in 2010, average fees at an independent day school are now £3,571 per term. If you opt to send your child to a school which also offers boarding those fees rise to £4,186 per term – and if your child does board, you will find yourself paying an average of just over £8,000 per term.

Remember too, that these fees are just for the basics – they don’t include the almost mandatory extras such as sports equipment, music lessons and school trips.

Despite these figures, parents are still opting to send their children to independent schools, even though this decision can place a huge strain on family finances.

With school fees coming out of taxed income – meaning a 40% taxpayer needs to earn £20,000 to pay £12,000 of school fees – it’s not unusual to find couples with two children in private education devoting the whole of one income to paying the school fees.

So if it’s possible that your children will be privately educated it makes sense to start planning now – and a good way to start is by talking to your independent financial adviser.

Traditionally, school fees have been funded by regular savings, by investment of a lump sum or by a combination of the two. A good IFA will be able to prepare you a financial plan, projecting future school fees and advising you how much needs to be saved or invested to meet the fees. In addition, he’ll make sure that the money is invested as tax efficiently as possible. With staff salaries making up a significant proportion of school fees they are likely to rise faster than inflation, so the earlier you can start planning the better.

Many families turn to the grandparents for help with the school fees – again, it’s a good idea to take independent advice, particularly if existing trusts are being used or new ones set up.

School fees can place a real burden on a family, and no-one should underestimate the commitment in paying for a child’s education. However, the right advice taken at the right time can not only make a significant difference to the overall cost of the fees – it can provide you with peace of mind as well.

Please do not hesitate to contact us should you wish to go through a cash flow forecasting exercise on school fees and understand how to put an action plan in place.

01737 225665 or advice@conceptfp.com

What’s with Cash flow modelling ? The Fundamentals

So what is all this with cash flow modelling ? …….

George Horace Lorimer once said: “It’s good to have money and the things that money can buy, but it’s good too, to make sure you haven’t lost the things that money can’t buy.”

Creating a balance in life is important and core to this is knowing how to achieve your financial goals. With every financial corner you turn it’s important to ‘run through the numbers’, which will help you make the right financial decisions.

Cash flow planning is vital if financial goals are to be achieved. It’s important to be specific; for example, it’s not enough to say “I want to have enough to retire comfortably,” you need to think realistically about how much you will need. The more specific you are, the easier it will be to come up with a plan to achieve your goal.

As we all know reaching financial goals won’t simply happen on its own and requires careful planning. The good news is that with our financial plan and integrated cash flow modelling tool, meeting your financial goals can be stress-free.

Our cashflow modelling is aimed at individuals who wish to:

• Become and remain financially well organised.
• Determine lifetime goals.
• Create a lifetime cashflow plan
• Control tax liabilities

Our Financial plan and Cash Flow models will enable you to:

• Produce clear and detailed summary of your financial arrangements.
• Define your family’s version of the ‘good life’ and begin working towards it.
• Work towards achieving and maintaining financial independence.
• Ensure adequate provision is made for the financial consequences of the death or disablement of yourself or your partner.
• Plan to minimise your tax liabilities.
• Produce an analysis of your personal expenditure planning assumptions, balancing your cash inflows and your desired cash outflows.
• Estimate future cashflow on realistic assumptions.
• Develop an investment strategy for your capital and surplus income in accordance with risk/reward, flexibility and accessibility standards with which you are comfortable.
• Become aware of the tax issues that are likely to arise on the death of yourself and your partner.

Cash Flow Modelling is just one of the financial planning tools we use and is an integral part of constructing your financial plan.

To find out further information, please do not hesitate to contact us and we will be happy to demonstrate the difference a plan can make.  01737 225 665 or advice@conceptfp.com

FSA to raise consumer awareness of deposit protection

The Financial Services Authority (FSA) is making it obligatory for all banks, building societies and credit unions in the UK to prominently display, in every branch and on every website, how much compensation savers could claim in the event of an institution failing. This is part of a continuing effort by the FSA and the Financial Services Compensation Scheme (FSCS) to improve confidence around compensation by increasing awareness of deposit protection.

Proposals published in December 2011 require each FSA-authorised bank or building society based in the UK to state that: ‘Your deposits are protected up to £85,000 by the Financial Services Compensation Scheme, the UK deposit protection scheme.  Any deposits you hold above this amount are not covered.’

Banks with branches in the UK, but headquartered and authorised in the European Economic Area (EEA), will have to state that deposits held with them ‘are not protected by the UK Financial Services Compensation Scheme.’ They will also have to state which other national scheme is providing the protection so that customers again know which compensation scheme they are relying on, which country it is based in and how it would work – for example how long it would take them to get their money back.

The proposed changes are designed to reinforce existing deposit protection measures and to ensure that every customer can clearly see how much of their money is protected, how much is not and whether they are covered by the UK compensation scheme. Recent research conducted by the FSCS to measure consumer awareness of the scheme, found customer knowledge continues to be extremely poor, and has in fact dipped since the crisis.

These proposals are the latest step in improving the deposit protection arrangements for consumers. A year ago all national compensation schemes across the entire European Economic Area were harmonised to offer cover at €100,000, or the local currency equivalent, and ensure eligible consumers are paid within 20 working days. At the start of 2011, the UK introduced faster payout rules, with a target of a seven day payout for the majority of claimants and the remainder within 20 working days.

 

Undersaving Britain

Pension saving is at its lowest level for 10 years according to recently published Department of Work and Pensions (DWP) analysis by the Family Resources Survey (FRS), a key source for pension information. The analysis came from interviews with around 25,000 private households across the UK in 2009 and 2010.

Only 38% of working-age people, 11.6 million out of 30.4 million people are saving into a private pension. In reporting the analysis, the DWP highlighted that this shows exactly why automatic enrolment into pension schemes being introduced from October 2012, is so critical.

The figures show a steady decline in pension saving between 1999/2000 and 2009/10, with the decrease being most dramatic among men and the under 40s. While the overall number of people saving into a private pension fell from 46% in 1999/00 to 38% in 2009/10, pension saving among men fell from 52% to 39%. And among people aged between 20 and 39 years old pension provision fell from 43% to 31%.

The analysis also reveals a map of pension provision across the UK in 2009/10, with higher pension provision in the South East (43%), Scotland (42%), the South West (41%) and the East (41%), and lowest pension participation in Northern Ireland (33%), London (34%) and the West Midlands (34%).

Minister for Pensions, Steve Webb, said: “These are alarming figures and they underscore exactly why our pension reforms will be so vital. With fewer people saving into a pension, lower annuity rates and an average of 23 years in retirement, many people could face a poorer future in their later lives.

“We simply must put a stop to this trend and get people saving. Automatic enrolment, beginning for the largest employers later this year, will get millions of people saving, many for the first time.”
Automatic enrolment in a nutshell

  • Beginning in autumn 2012, many more people will have access to a pension at work, to help them save for their later years.
  • Employers will have to enrol all eligible employees into a pension and make minimum contributions into the scheme.
  • If you are eligible, your employer will enrol you automatically into a pension.
  • You will be able to opt out if you want to but will therefore miss out on an employer contribution of around £600 a year once minimum contributions are established – 3% of average earnings of £26,200 for full-time workers (ONS 2011 Annual Survey of Hours and Earnings)

 

Should you want more information please do not hesitate to contact us on 01737 225665 or advice@conceptfp.com

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Guide to making the most with savings

Guide to planning for retirement

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