SEPTEMBER/OCTOBER 2014 e smart money SAVE SMART AND MAKE YOUR EXISTING MONEY GROW 5 tips to help you be more confident about your financial future PENSION REFORM: WHAT YOU NEED TO KNOW Further clarity on the new rules for pensions published by the Government WHAT’S IN YOUR BASKET? Diversifying your assets helps spread risk by lessening the potential for losses 8 STEPS TO A BRIGHTER RETIREMENT Make sure you can afford a comfortable lifestyle when you retire HOW BRIGHT IS YOUR FINANCIAL FUTURE? DO YOU KNOW YOUR INHERITANCE TAX NUMBERS? How to shelter your assets from unnecessary tax CLEVER RETIREMENT STRATEGIES How to influence the income you’ll receive in your retirement
Transcript
september/october 2014
esmartmoney
Save Smart and make your exiSting
money grow5 tips to help you be more confident
about your financial future
Pension reform: what you need to knowFurther clarity on the new rules for pensions published by the government
what’s in your basket?diversifying your assets helps spread risk by lessening the potential for losses
8 stePs to a briGhter retirementmake sure you can afford a comfortable lifestyle when you retire
How BrigHt iS your FINANCIAL FUTURE?
do you know your inHeritance tax numBerS?How to shelter your assets from unnecessary tax
cLever retirementStrategieSHow to influence the income you’ll receive in your retirement
Financial planning is our business.We’re passionate about making sure your finances are in good shape.
Our range of personal financial planning services is
extensive, covering areas from pensions to inheritance
matters and tax-efficient investments.
Contact us to discuss your current situation, and we’ll
provide you with a complete financial wealth check.
coNteNts
0608
SAvE SmART ANd mAkE yoUR ExISTINg moNEy gRow5 tips to help you be more confident about
your financial future
How bRIgHT IS yoUR FUTURE?Millions of over-40s expect to carry on
working until they physically can’t continue
PENSIoN REFoRm: wHAT yoU NEEd To kNowFurther clarity on the new rules for pensions
published by the Government
do yoU kNow yoUR INHERITANCE TAx NUmbERS?How to unlock your assets from
unnecessary tax
CLEvER RETIREmENT STRATEgIESHow to influence the income you’ll receive
in your retirement
wHAT’S IN yoUR bASkET?Diversifying your assets helps spread risk by
lessening the potential for losses
A NEw-Look NISA wAy To SAvE ANd INvESTHave you taken advantage of your larger tax-
efficient allowance?
PLUggINg THE HoUSEHoLd gAPUK adults forced to borrow money from
family members
PENSIoN dECLUTTERINgHave you considered tidying up your
arrangements?
wHAT NExT FoR INTEREST RATES?Why the days of ultra-low interest rates look
numbered
PART-TImE PENSIoNERSTaking a more gradual approach to
retirement
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06
08
09
10
12
13
15
16
17
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INSIDE THIS ISSUE
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The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.
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inSide thIS ISSUEWelcome to the latest issue of our financial magazine, crammed full of topical articles dominated by the recent pension rule changes and some significant challenges for investors in the form of geo-political upheavals, economic growth and monetary policy.
On 10 July this year, the Office for Budget Responsibility warned that many of us might not be eligible for a State Pension until we reach the age of 70. That’s the minimum age the Government will be able to afford to pay our pensions by 2063 if it is also to stop the national debt spiralling out of control. Read the full article on page 10.
Most investors are used to hearing the term ‘diversification’ – but it has a broader meaning than many realise. On page 12, we explain the importance of diversification as investors face new challenges this year and next.
The new Individual Savings Account (NISA) rules were introduced in July. On page 13, we explain how savers and investors now have more flexibility and a larger tax-efficient allowance than ever before.
Retirement should be an exciting time, and these days there’s more scope than ever to arrange your finances the way you want them. On page 08, we consider why the financial decisions you make need careful consideration.
A full list of the articles featured in this issue appears on page 03 and opposite.
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THE NATIoN’S FAvoURITE ovERSEAS RETIREmENT dESTINATIoNS Over 6 million UK adults plan to move
abroad in later life
gEo-PoLITICAL mATTERSSignificant challenges for investors this
year and beyond
EURoPE’S ECoNomIC SLowdowNIs there room for any further disappointment?
THE HIddEN CoST oF dIvoRCEUK couples are spending more than £44,000
on average when they divorce or separate
8 STEPS To A bRIgHTER RETIREmENTMake sure you can afford a comfortable
lifestyle when you retire
22 22
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26
13
1220
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1 Always have some money that you can access easily and quickly for emergencies, before looking to invest for the longer term. It’s reassuring to know you’ve got money set aside to cover your rent, mortgage, food and utilities for a number of months.
2 Avoid the risk of your savings losing real value. Regularly check the interest rate you’re getting to see if you can do better and beat inflation.
3 Once you’ve built up enough cash, consider investing to build up savings for the longer term. One tax-savvy option is a Stocks & Shares New Individual Savings Account (NISA). From 1 July, the annual NISA limit increased to £15,000, providing even greater opportunity to start to build your wealth. In the UK, hundreds of people are reported to have amassed NISA funds in excess of the magic million by squirrelling away the full limit each tax year since the early 1990s.
4 Don’t delay. The earlier you start investing for your future, the more chance your money has to grow.
5 Don’t miss out on free money. If you’re employed, chances are you’ve been auto-enrolled in a company pension, with employer contributions and generous tax benefits from the Government, so take advantage of this. If not, take advantage of a personal pension – don’t leave it to chance. n
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF
TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND
BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT
TO CHANGE.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE
PERFORMANCE.
wEALTH CREATIoN
Save Smart and make
your existing money grow
5 tiPs to helP you be more confident about your financial future
do yoU NEEd To do SomETHINg AboUT IT TodAy?To afford the lifestyle you want, you need to do something about it today. It’s never too early to start saving and investing in order to protect your future. To find out more about how we can help you plan, please contact us for a full review of your particular situation.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY
FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY
DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST
RATES AND TAX LEGISLATION.
06
RETIREmENT
How bRIgHT IS yoUR FUTURE?
Millions of over-40s expect to carry on working until they physically can’t continue
wHAT’S THE bEST CoURSE oF ACTIoN FoR yoU?Before you make any decision about your retirement planning, we strongly recommend you obtain professional financial advice. We will assess your personal circumstances and advise you on the best course of action for you. To discuss how we could help, please contact us for more information.
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onE In fIvE Britons admitted that they are planning to ‘work until they drop’ in order to have a comfortable retirement, a study
from Aviva has revealed. Worries about being able to afford their ‘ideal retirement’ means millions of over-40s are expecting to carry on working until they physically can’t continue.
dAy-To-dAy bILLSOthers are concerned about simply paying their day-to-day bills without the regular income from employment coming in. A further three in ten expect to continue working until at least a few years past the state retirement age.
Retirement should be a time to look forward to, whether it’s to get away from the pressures of work or simply to have more time on our hands. But worryingly, it seems there are a large number of people who are so concerned about what their financial situation is going to be like, they are beginning to consider the possibility that they will always be working.
gIvE UP woRkThere will be a number of people who simply will not want to give up work, but many would prefer to spend their retirement doing what they want to do, rather than continue to work. And while some will be working to ensure they have enough money to have the kind of retirement they are hoping for, it seems there are some who will still be getting up every day to go to work simply to pay the bills.
Your State Pension is unlikely to cover everything you want to do during your retirement and cover unexpected expenditure, so it’s important to have a financial plan in place to provide additional funds to give you some breathing space.
bUdgET 2014 CHANgESThe changes to pensions and annuities announced in Budget 2014 now mean you can spend your pension pot how you want, but given we’re all living longer too, it’s still important to make sure you have enough put by to cover your annual costs for the long term.
The study of 2,000 over-40s found that while the average adult would like to retire around the age of 60, one in five believe they will be working right until the bitter end.
No PLANS IN PLACEMore than three quarters said they are worried about being able to afford all they have planned during their retirement. Another 64% are concerned about simply paying for day-to-day living costs.
But despite these fears, around three in ten over-40s have no plans in place to fund their retirement. Even among those who have a financial plan, 64% admit it’s probably not going to be enough to do everything they want to do. And almost two thirds of those surveyed wish they had started to plan for their retirement much earlier.
ACTIvE FULL LIFESTyLEWorryingly, more than half don’t really have any idea what sort of sum they need to save in order to be able to achieve the kind of retirement income they are hoping for. It’s quite conceivable that people who retire at the State Pension age could live for 30 years in retirement, so it’s important that they have funds available to support them, especially if they want to have an active and full lifestyle.
Over two thirds of those surveyed do have plans in place to fund their retirement, even though some are concerned that it’s probably not going to be enough, but others don’t have any idea of how much they need to save in order to have enough in retirement. n
Source: Aviva. Methodology – 2,000 UK adults aged 40 and above were interviewed between 2–9 April 2014.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION
LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION
ARE SUBJECT TO CHANGE.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR
EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES
AND TAX LEGISLATION.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE
ORIGINAL AMOUNT INVESTED.
RETIREmENT
08
RETIREmENT
nEw rUlES for pEnSIonS have recently been published by the Government, with more details on the changes that will apply from
April 2015. This follows on from the initial announcement in the March Budget and gives a clearer picture of what these changes could mean for you.
FREEdom To TRANSFER yoUR PENSIoNPeople will now not face a ban on certain pension transfers. If you’re in a private sector defined benefit scheme (for example, a company pension that will pay an income linked to your years of service and salary), if appropriate you’ll still have the choice to transfer it to a more flexible kind of pension. That choice applies before you start taking the pension.
The option to transfer is also available for people who are in public sector schemes that are ‘funded’, which includes the Local Government Pension Scheme and Universities Superannuation Scheme.
obTAIN PRoFESSIoNAL AdvICE There’s an important safeguard here – before you proceed with this kind of transfer, you should obtain professional advice from an adviser who is not associated with the pension scheme and who is authorised by the regulator. There’s a lot to weigh up when considering whether to transfer your guaranteed pension.
As the Government has said, ‘for the majority of people, but not all, it will remain in their best interest to stay in their defined benefit scheme.’
ANNUAL ALLowANCE oF £10,000 oNCE yoU’RE TAkINg A FLExIbLE INComEThe new rules commencing from April 2015 will apply to people who are in a ‘give and take’ situation. In other words, people who are still paying into a private or workplace pension and who are also taking a flexible income from a pension (an annuity or State Pension will not count).
These rules don’t apply if you’ve just taken your tax-free cash – they apply when you start to take a flexible income beyond that. In this situation, the amount you’ll be able to pay into your pension will drop to £10,000 a year.
55% PENSIoN dEATH bENEFIT TAx CHARgEThe Government has made it clear that it intends to reduce this tax rate. We’ll have to wait until the Autumn Statement later this year to find out the exact figure. This applies when a pension lump sum is passed on to your loved ones if you die aged 75 or older or where you’ve started to take an income from your pension.
AgE 55 bEComES AgE 57 IN 2028Under the new tax rules, the Government will increase the minimum age at which people can access their private pension from age 55 to 57 in 2028. This affects those born from March 1973 onwards and means people will need to wait until their 57th rather than 55th birthday to take money out of their private pension.
This change is also being extended to public sector schemes, except the Police, Fire Service and Armed Forces pension schemes, where the qualifying age isn’t changing.
RETIREMENT
SHOULD BE AN
EXCITING TIME,
AND THESE DAYS
THERE’S MORE
SCOPE THAN EVER
TO ARRANGE YOUR
FINANCES THE WAY
YOU WANT THEM.
FOR EXAMPLE, YOU
COULD CONTINUE
TO WORK AND
TAKE YOUR
PENSION BENEFITS.
THAT FLEXIBILITY
IS GREAT, BUT IT
DOES MEAN THAT
THE FINANCIAL
DECISIONS
COMING UP
NEED CAREFUL
CONSIDERATION.
wHat you NEEd To kNowFurtHer cLarity on tHe new ruLeS For penSionS puBLiSHed By tHe government
pEnSIon rEforM:
THE RIgHT To TAkE 25% TAx-FREE CASH HASN’T bEEN AFFECTEd – THERE HAd bEEN SomE SPECULATIoN EARLIER THIS yEAR THAT IT woULd bE ImPACTEd.
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do you know your INHERITANCE TAx NUmbERS?
£325,000The first £325,000 value of your estate is called the ‘Nil Rate Band’ because although it is taxable to Inheritance Tax (IHT), it is taxed at 0% (tax year 2014/15).
40%Currently, IHT is payable on death at this rate on the value of your net assets over £325,000 (tax year 2014/15). 7 The number of years you must survive if you give away large amounts of money or valuable assets while you are alive, otherwise HMRC will tax you for IHT as if you still owned them when you die (tax year 2014/15).
£3,000Everyone has an ‘Annual Exemption’ for IHT of this amount every tax year (tax year 2014/15).
£5,000If your children get married, you can give them or their new spouse a lump sum up to this value completely free of IHT (tax year 2014/15).
£650,000When a married couple or registered civil partnership estate exceeds this amount, IHT will usually only be paid on the excess, provided the necessary claims are made to HMRC within the appropriate time limits (tax year 2014/15).
£2,500If your grandchildren get married, you can give them or their new spouse a lump sum up to this value completely free of inheritance tax (tax year 2014/15).
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE INHERITANCE TAX PLANNING OR TAXATION ADVICE.
how to unlock your assets from unnecessary tax
kNow yoUR NUmbERS
25% TAx-FREE CASH CoNTINUESThe right to take 25% tax-free cash hasn’t been affected – there had been some speculation earlier this year that it would be impacted. n
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
STAy oN TRACk FoR THE RETIREmENT yoU wANTSaving for your retirement is one of the most important things you can do, and it’s essential to make sure you review your pension regularly and stay on track for the retirement you want. To review your situation, please contact us for further information. We look forward to hearing from you.
10
CLEvER retirement StrategieS
How to inFLuence tHe income you’LL receive in your retirement
ON 10 JULY THIS YEAR, THE OFFICE FOR BUDGET RESPONSIBILITY WARNED THAT MANY OF US MIGHT NOT BE ELIGIBLE FOR A STATE
PENSION UNTIL WE REACH THE AGE OF 70. THAT’S THE MINIMUM AGE AT WHICH THE GOVERNMENT WILL BE ABLE TO AFFORD TO PAY
OUR PENSIONS BY 2063 IF IT IS ALSO TO STOP THE NATIONAL DEBT SPIRALLING OUT OF CONTROL.
rEtIrEMEnt
thIS MIlEStonE could be reached as soon as 2037 – meaning that some people in their late 40s today
may have to work to age 70. And if the population ages more quickly than currently forecast, the State Pension age could increase to age 75 in 2064. By then, the UK’s official budget watchdog says there could be more than one million people aged over 100 in the UK.
LIFE ExPECTANCy INCREASINg With life expectancy increasing at a rapid rate, you will probably live for longer than you think and, as such, your pension income will need to last longer. Therefore, it is essential to eke out as much income as possible from your retirement savings and, with interest
rates at historical lows, this is no easy task.
It is important to remember that your pension income will not just be a function of the pension vehicle you choose – whether this is an annuity, income drawdown or another arrangement. You can also influence the income you receive in retirement by making clever use of different retirement strategies.
THREE RETIREmENT STRATEgIES To CoNSIdER
1dEFER yoUR STATE PENSIoNRetirement should be a gradual phasing in of income to free up spare time – it does not
necessarily have to mean that you stop
working or earning. There is no reason why you have to stop working or claim your State Pension when you reach State Pension age – currently 65 for men and 62 for women.
If you put off claiming your State Pension, you can either earn extra State Pension or benefit from a one-off lump sum payment. If you have not yet claimed your State Pension and you want to put off taking it up, you do not need to do anything. Those already drawing their State Pension, but wanting to stop claiming it to earn more income, will have to contact their pension centre.
It is, however, worth noting that the terms for deferring your State Pension are very different for those who reach State Pension age before 6 April
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2016 compared to those who reach it afterwards. For those who reach State Pension age before 6 April 2016 (men aged 64 or more at April 2015 or women aged 62 or more at April 2015), the rate of deferral is very generous – 10.4% per annum plus the inflationary increases. In comparison, the lump sum alternative may be poor value for money.
For people reaching State Pension age after 6 April 2016, the rate of deferral at the time of writing this article had not been set but is expected to be 5% per annum plus inflation, and there will be no lump sum alternative.
2 USE EmPLoymENT To ToP UP yoUR PENSIoNIf you are employed, there are a number ways in which you can
top up your pension:
SALARy SACRIFICESalary sacrifice involves giving up some of your salary in exchange for payments into your pension. This will not only increase your pension contributions and overall pension fund but can also mean savings on income tax and National Insurance. You will receive tax relief, depending on the tax band you fall into. It is, however, worth remembering that a reduction in your salary could impact your ability to secure a mortgage, as banks and building societies use income to decide on loan eligibility.
boNUS SACRIFICEIn a similar way to salary sacrifice, you can make potential tax savings by using bonus sacrifice to pay into your pension plan. If you are a high earner, chances are that you receive a basic salary as well as bonus payments. Typically, you will be offered the chance to sacrifice some of this bonus and instead have that money paid into your pension scheme.
This is arguably one of the most tax-efficient ways of getting extra money into your pension plan, since you are not taxed on the amount of bonus that you give up. Your total income is reduced and therefore you are only taxed on the income you actually receive. The part that goes into your pension is not taxed as it is instead an employer contribution. This means you save on income tax and National Insurance.
Furthermore, your employer will not pay National Insurance on the amount of bonus given up – usually at 13.8% – and if they wish, they can pass some or all of this saving back to you.
ComPANy SHARE PENSIoNSThose who hold shares in employer share schemes can place these within a self-invested personal pension (SIPP) and benefit from the tax relief. You can either sell the shares and invest proceeds into your SIPP or move the shares into the SIPP. Once the shares are transferred into a SIPP, any future growth and dividend payments will be tax-efficient.
3 bUILd IN INFLATIoN PRoTECTIoNIf you are still saving for retirement, it is important that
you keep increasing the amount you pay into your pension each year. If you don’t, inflation means that your monthly contributions will be worth less every year.
If you expect inflation to rise, then consider investing your pension fund in higher-risk assets such as equities, as rising inflation will eat away at the more cautious investments such as cash, fixed interest and low-risk funds. You will have to take into consideration how many years it will be before you retire and whether you can afford to take the risk of investing in these assets.
Once you reach the point of retirement, you can inflation-proof your income by opting for an inflation-linked annuity,
although these usually have a low starting level of income.
Alternatively, you can look at using a drawdown arrangement, usually making use of a multi-asset approach to investment that aims to allow income to be withdrawn while maintaining the real value of your investments.
Under this approach, you won’t have a guaranteed income, but you retain ownership and control of your assets while staying abreast of inflation if the investments perform well. However, it is sensible to make sure your essential expenses are covered with a source of secure income where possible.
CLoSER To RETIREmENT Retirement may be a long way off for you at the moment, but that doesn’t mean you should forget about it, and as you get closer it makes sense to have a clearer idea of what you’ll need to live on in the future and what your income might be. n
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
ENjoy THE LIFE yoU wANTThe sooner you start to plan for your future, the easier it is to build up the kind of money you need to enjoy the life you want. To discuss your options, please contact us for further information about how we can help you build the pension income you want.
RETIREmENT SHoULd bE A gRAdUAL PHASINg IN oF INComE To FREE UP SPARE TImE – IT doES NoT NECESSARILy HAvE To mEAN THAT yoU SToP woRkINg oR EARNINg.
rEtIrEMEnt
12
INvESTmENT
SPREAdINg INvESTmENT RISk You can also invest in assets that have a negative correlation. This means that the assets will move in opposite directions to each other. Diversifying your assets helps spread risk because you’re lessening the potential for losses. If you had all of your money invested in one asset, sector or region and it began to drop in value, your investments would suffer.
By investing in assets that aren’t related to each other, while one part of your investment portfolio is falling in value, the others aren’t going the same way. Some assets may actually go up in value when others could decrease. It is also possible to diversify through investing in different markets, countries, companies and asset types.
AdvERSE mARkET CoNdITIoNS Diversification is an essential part of building your investment portfolio. It can give you peace of mind that your investments will sustain in adverse market conditions and cushion losses. But it will not lessen all types of risk.
Diversification helps lessen what’s known as ‘unsystematic risk’, such as drops in the value of certain investment sectors, regions or asset types in general. But there are some events and risks that diversification cannot help with. These ‘systemic risks’ include interest rates, inflation, wars and recession. This is important to remember when building your portfolio. n
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
dIvERSIFy by ASSETSHaving a mix of different asset types will spread risk because their movements are either unrelated or inversely related to each other. it’s the old adage of not putting all your eggs in one basket.
probably the best example of this is shares, or equities, and bonds. equities are riskier than bonds and can provide growth in your portfolio, but, traditionally, when the value of shares begins to fall, bonds begin to rise, and vice versa.
therefore, if you split your portfolio between equities and bonds, you’re spreading the risk, because when one drops, the other will rise to cushion your losses. other asset types, such as property and commodities, move independently of each other, and investment in these areas can spread further.
dIvERSIFy by SECToRSay you held shares in a uk bank in 2006. this investment may have been very rewarding, so you decide to buy more shares in other banks. when the credit crunch hit the following year sparking the banking crisis, the value of your shares in this sector (financials) would have tumbled.
So once you’ve decided on the assets you want in your portfolio, you can diversify further by investing in different sectors, preferably those that aren’t related to each other.
if the healthcare sector takes a downturn, this will not necessarily have an impact on the precious metals sector. this helps to make sure your portfolio is protected from dips in certain industries.
dIvERSIFy by gEogRAPHyinvesting in different regions and countries can reduce the impact of stock market movements. this means you’re not affected by the economic conditions of just one
country and one government’s fiscal policies. many markets are not correlated with
each other – if the asian pacific stock markets perform poorly, it doesn’t necessarily mean that the uk’s market will be negatively affected. By investing in different regions and areas, you’re spreading the risk that comes from the markets.
However, you need to be aware that diversifying in different geographical regions can add extra risk to your investment.
developed markets like the uk and uS are not as volatile as some of those in the Far east, middle east or africa. investing abroad can help you diversify, but you need to be comfortable with the levels of risk that come with them.
dIvERSIFy by ComPANySpread your investments across a range of different companies. the same can be said for bonds and property. one of the best ways to do this is via a collective investment scheme. this type of scheme will invest in a basket of different shares, bonds, properties or currencies to spread risk around. in the case of equities, this might be 40 to 60 shares in one country, stock market or sector.
with a bond fund, you might be invested in 200 different bonds. this will be much more cost-effective than recreating it on your own and will help diversify your portfolio.
bEwARE oF ovER-dIvERSIFICATIoNHolding too many assets might be more detrimental to your portfolio than good. if you over-diversify, you might not end up losing much money, but you may be holding back your capacity for growth as the proportions of your money in different investments will be too small to see much in the way of positive results.
diversifyinG your assets helPs sPread risk by lesseninG the Potential for losses
wHat’S in yoUR bASkET?
MOST INVESTORS ARE USED TO HEARING THE TERM ‘DIVERSIFICATION’ – BUT IT HAS A BROADER MEANING THAN MANY REALISE. DIVERSIFICATION IS THE PROCESS OF INVESTING IN AREAS THAT HAVE LITTLE OR NO RELATION TO EACH OTHER. THIS IS CALLED A ‘LOW CORRELATION’.
you could transfer your existing Cash ISA to another provider that will allow top-ups. You’ll need to check first whether there are any penalties for transferring to another provider.
Another alternative if you’ve opened a Cash ISA and not fully utilised your allowance at the start of this tax year is to open a Stocks & Shares NISA to use the rest of your allowance. Remember, you are only allowed to open one Cash NISA and one Stocks & Shares NISA in one tax year. n
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
13
wEalthcrEatIon
A new-look nISA wAy to SAve And InveSthave you taken advantaGe of your LARgER tax-efficient allowance?
‘FoUR oUT oF TEN PEoPLE ToLd THE CoNSUmER oRgANISATIoN wHICH? THAT THEy woULd SAvE moRE AS A RESULT oF
THE ANNUAL LImIT INCREASINg To £15,000, UP FRom £11,880.’
mAkE THE moST oF AN INCREASEd NISA ALLowANCE oF £15,000
HELPINg yoU mAkE THE RIgHT CHoICEWhether you’re putting money away for a rainy day or saving for something special, find out what you’ll need to think about so that you make the right choice – to find out more, please contact us.
ThE nEw Individual Savings Account (ISA) rules were introduced in July, giving savers
and investors more flexibility and a larger tax-efficient allowance than ever before. Four out of ten people told the consumer organisation Which? that they would save more as a result of the annual limit increasing to £15,000, up from £11,880.
Over the previous 15 years, more than 23 million people have opened ISAs, totalling over £440 billion, according to HM Revenue & Customs.
The increase in the total amount you can save and invest in what are now called New Individual Savings Accounts (NISAs) is not the only change since July.
NEw FLExIbILITy ANd HIgHER LImITS nYou pay no tax on the
interest you earn in a Cash NISAnWith a Stocks & Shares NISA, you pay no capital gains tax on any profits and no tax on interest earned on bonds. The dividends paid on shares or funds do have the basic rate of 10% tax deducted. This means that higher and additional rate taxpayers don’t have to pay their higher rate of tax on their dividend payments.
IT’S NEvER Too LATE To START SAvINgIf you’ve already paid into an ISA in this current tax year, you can top it up to the new limit if your provider allows – each account provider will have different deadlines by which date all requests to increase amounts must be processed.
If you want to add more money and your provider doesn’t allow it, if appropriate
dId yoU kNow?nYou can decide how you want to split the £15,000 between the Cash and Stocks & Shares parts of a NISAnOr you can allocate the whole £15,000 into either a Cash or Stocks & Shares NISA. Previously you could only put up to half the annual ISA allowance into a Cash ISAnYou can move your money from a Stocks & Shares NISA into a Cash NISA, or vice versa. Previously you couldn’t move money from a Stocks & Shares ISA into a Cash ISA
You’ve protected your most valuable assets.But how financially secure are your dependents?
Timely decisions on how jointly owned assets are held, the mitigation of inheritance tax, the preparation of a will and the creation of trusts, can all help ensure your dependents are financially secure.
Contact us to discuss how to safeguard your dependents, wealth and assets, don’t leave it until it’s too late.
15
IN THE NEwS
Family Generations & Financial Pressures is the title of the new report from Scottish Widows think tank Centre for the Modern Family and shows that 23% of family borrowers need this support just to cover day-to-day household costs.
In addition to borrowing from family members, more than a quarter (26%) of people have raided their savings in order to cope with higher living costs, and the same percentage has cut back on saving for the future. Showing no improvement on 2012 levels, almost one in ten (8%) people were found to be skipping meals just to keep on top of household costs. The same number were also selling valuables in order to get by.
RISINg HoUSEHoLd CoSTSIdentifying eight different generations* within the modern family, the report finds that rising household costs are still the biggest and most immediate pinch point for UK families across the generational spectrum, according to 41% of adults, overtaking long-term goals such as mortgage repayments (26%) or paying off debt (10%).
Of the family generations, grandparents and parents of children under 18 are the groups being disproportionately squeezed. One in three grandparents who are providing childcare for family members has spent their savings to keep up with day-to-day spending. A third of parents with children under 18 have had to cut down on vital living costs, such as groceries, to cover
household spending, compared to one in four overall. Meanwhile, one in five parents of children under 18 has taken out a loan, spent on credit cards and gone overdrawn – double the average of one in ten for the total population.
boomERANg kIdSThe report finds that the generations are pulling together to help each other out financially in the post-recessionary climate. Parents and grandparents were found to be the most generous lenders, with 39% of parents with adult children living at home and 36% of empty nesters having lent to their children. More than a third (37%) of grandparent child carers have also lent money to their children.
Single renters are the most likely to have borrowed from the Bank of Mum and Dad, with 43% having done so. This is compared to just over one in four (27%) ‘boomerang kids’ – adults under the age of 34 living back at home with their parents.
Despite high levels of intergenerational lending and borrowing, only one in ten family lenders said that they resented having to lend money to family members, with over half (55%) saying they were pleased to do it. This rises to 63% among parents with adult children still living at home. One in four family lenders never expect to get back the money they have loaned, and one in five family carers and grandparents say they expected to have to lend money to family members and budgeted accordingly. n
Source:*For the purposes of this research, the Centre for the Modern Family identified eight generation groups that exist in the modern family today:
1) Individuals living with friends in rented accommodation 2) Under-34s living at home with parents3) Co-habiting/married couples without children4) Parents with children under 185) Parents with grown-up children (over 18) who are still at home (full nesters)6) Parents with grown-up children (over 18) who have left home (none still at home) (empty nesters)7) Grandparents providing childcare for family members (grandchildren or otherwise)8) Providing regular care and support for a relative
The research was completed by YouGov, and the findings are based on 2,082 online interviews with a nationally representative sample of adults aged 18 and over living in the UK. The interviews were conducted between 28 April and 1 May 2014.
uk adults forced to borrow money from family members
Plugging the household gaP
MORE THAN ONE IN FOUR (28%) UK ADULTS HAVE BEEN FORCED TO BORROW MONEY FROM FAMILY MEMBERS, ACCORDING TO NEW RESEARCH. WITH THE AVERAGE AMOUNT BORROWED BY INDIVIDUALS STANDING AT £2,123, THE COLLECTIVE FAMILY LENDING ECONOMY IS NOW WORTH AROUND £31BILLION.
TImE To gET AN ExPERT PERSPECTIvE?Whatever your hopes and goals for you and your family, you’ll need enough money to make them happen. To get an expert perspective on what options are available to you, please contact us for a review of your situation.
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RETIREmENT
PenSIon declutterIng whAt next for
IntereSt rAteS?have you considered tidyinG uP your arranGements?
mAkINg IT EASIER Research from YouGov has found that over half of us are now doing this, with reasons ranging from making it easier to keep track of costs, to keeping on top of admin. Easily the most popular thing to combine was energy, with a third of us choosing to combine gas and electricity, followed by home and contents insurance. Just behind that comes TV, phone and broadband. But the consolidation trend hasn’t taken off in all areas. The research showed just 9% have combined their car insurances and only 3% have combined their mobile contracts to make use of mobile phone family tariffs.
PRovIdINg A CLEARER vIEw Interestingly, just 3% of those surveyed have consolidated their pension. However, this trend might change because of the reforms in the Budget announced earlier this year, giving people even more reason to consider tidying up their pension arrangements. Many of us have more than one pension, and almost two thirds of us with pensions don’t know their total value. Some pension decluttering could also make our finances simpler to manage and provide a clearer view too.
If you’re thinking about a spot of pension decluttering, it’s always good to have a plan in place first. n
Source:All figures unless otherwise stated were from
research for Standard Life conducted by YouGov Plc among 2,059 GB adults. Fieldwork was undertaken
between 17–19 December 2013. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION
AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO
CHANGE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND
UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
HERE ARE 5 TIPS THAT CoULd HELP wITH yoUR PENSIoN PLANNINg:
1. create a list of all your pension plans and check you receive an annual pension statement – Billions of pounds worth of pension funds is going untraced as a result of people losing contact with their pension. The Government provides a free pension tracing service which allows you to find lost pensions using your national insurance number.
2. Make contact with each provider to check the value of your pension and find out what it is likely to provide at retirement – This will help you assess whether your plans are on track.
3. Understand your benefits – If you’re considering consolidating your pensions, check you’re not giving up valuable benefits such as guarantees or enhanced tax-free cash. It’s important to speak to an expert to get information on your own situation, as you may want to keep these.
4. check how your money is invested – Make sure your money is invested in funds that reflect your attitude to risk. Keep this under review, particularly as you get closer to the time you plan to retire.
5. Get online – See if you can view your pension savings online – that way you can keep track and see how your pension is doing more easily, so you feel more in control.
IT WOULD APPEAR WE ARE NOW INCREASINGLY BECOMING A ‘CONSOLIDATION NATION’, WITH MANY PEOPLE COMBINING THEIR DIFFERENT CONTRACTS AND SERVICES TO MAKE THEM EASIER TO MANAGE. IT’S A GROWING TREND, AND NEW INNOVATIONS ARE COMING INTO THE MARKET ALL THE TIME TO TEMPT CONSUMERS. THE RECENT LAUNCH OF ‘qUAD-PLAY PACKAGES’, WHICH NOW COMBINES MOBILE, HOME PHONE, BROADBAND AND TV, ARE A GOOD EXAMPLE.
TImE To TAkE THE SAmE APPRoACH wITH yoUR SAvINgS
We all want an easier life, not one cluttered with paperwork and crowded with concerns about our money. So, as we as a nation get used to combining our utility bills and insurances, if appropriate maybe it’s time to take the same approach with your savings. To discuss your requirements, please contact us today.
17
IN THE NEwS
whAt next for IntereSt rAteS?
why the days of ultra-low interest rates look numbered
‘SmART’ moNEyUntil recently, the ‘smart’ money has been on a November rate rise. However, given the Bank of England’s weaker outlook for wages, the current consensus among economists is now that rates will only rise in the first quarter of 2015.
Expectations are for a February rate rise, when the inflation report is published, although some argue that interest rates could stay low until after the general election.
The Bank is wary of increasing borrowing costs before households are better able to afford them, with Bank of England governor Mark Carney emphasising the UK’s feeble wage growth as a major concern in the latest quarterly inflation report.
bREEdINg CoNFUSIoNAs the future path of interest rates becomes murkier, is the Bank of England’s concept of ‘forward guidance’ working? Many argue that this policy, designed to give certainty on the direction of interest rates, is instead breeding more confusion.
Turn the clock back to August 2013: Mr Carney had recently taken over the reins as Bank of England governor and introduced the concept of forward guidance as a reliable way of indicating the Bank’s thinking on the direction of interest rates. The idea was to help consumers and
businesses plan for the future.Under Mr Carney’s first version of
forward guidance, ultra-low interest rates were here to stay unless the unemployment rate dipped to below 7%. This was not expected to happen until 2016. But then the economic growth picked up and the jobless rate fell much quicker than anyone had expected. So, six months after first implementing forward guidance, Mr Carney overhauled his forward guidance policy.
wAgE gRowTHUnder forward guidance 2.0, the focus shifted to ‘slack’ in the economy – the amount of additional growth that can be delivered without putting upward pressure on inflation. This would be measured by a broader range of indicators.
We recently appeared to have moved to yet another version of forward guidance. With unemployment falling sharply and UK growth likely to pass the 3% mark – double the average rate since the financial crisis – Mr Carney’s focus has shifted to wage growth, with the governor highlighting the feeble growth in earnings as the Bank’s main concern and a significant factor in deciding when to raise interest rates.
AvoIdINg THE ISSUEAs Mr Carney moves from one measure to another, he seems to
avoid addressing the issue of whether the UK’s recovery is unbalanced. Growth in the economy has been centred on the housing market and consumer spending, while improvements in manufacturing, business investment and exports have been unspectacular.
As such, it is perhaps unsurprising that British workers aren’t seeing the improving economy and labour market being reflected in their pay packets.
FINANCIAL bUbbLEThe unbalanced nature of the recovery is important for a number of other reasons. As a start, such unbalanced growth makes the UK particularly vulnerable to higher interest rates. Even just a small rise in the Bank of England’s base rate could mean a disproportionate deterioration in the household finances of many, particularly those who have borrowed large sums.
On the flipside, if we are heading towards another financial bubble driven by excess borrowing, there is a case to be made for increasing rates to stop such a bubble from inflating even further. It could be that the Bank of England is caught in a classic catch-22 situation – damned if they do, and damned if they don’t. n
INFLATION FIGURES RECENTLY SHOWED A SHARPER THAN EXPECTED DROP IN PRICES, CEMENTING EXPECTATIONS THAT ANY RISE IN INTEREST RATES WOULD BE DELAYED UNTIL NEXT YEAR.
Isn’t it timeyou had a financial review?We’ll make sure you get the rightadvice for your individual needs.
We provide professional financial advice covering most areas of financial planning, including, tax-efficient savings, investment advice, retirement planning, estate & inheritance tax planning, life protection, critical illness cover and income protection.
To discuss your options, please contact us.
19
RETIREmENT
According to research from LV=, many people are taking a more gradual approach to retirement and are working beyond the State Pension age, slowly cutting back their hours and reducing the number of days they work. Just one in three (38%) UK adults at State Pension age[1] no longer work – with working longer becoming the new norm.
RETIREmENT PHASINgUK adults who are in employment in their sixties[2] are working an average of 24 hours, having cut down their hours over the years. Of those over 60s who are still working, a third (35%) want to phase their retirement, which could lead to them working part-time[3] or taking on consulting and voluntary roles to ease themselves into retirement.
There are many reasons for the rise in ‘part-time pensioners’. For some, there is a financial element that impacts on their decision to work past state retirement age, with almost half (49%) remaining in the workplace to boost their retirement income. However, the key reasons people choose not to retire are because they enjoy working (52%) and feel that they are far too young to stop (46%). In fact, when asked how old they feel, three quarters (75%) of those aged 60+ felt much younger than they are.
gRANd-TREPRENEURSIt would seem that over 60s refuse to be constrained by their age. The research revealed a particular group of modern day ‘grand-trepreneurs’ – adults of State Pension age who are choosing to use their new-found freedom to set up or invest in businesses. Over a quarter (28%) of those who are working into later
life run their own business, with one in five (21%) of these starting up when the entrepreneur was in their sixties. At the same time, since semi-retiring, close to a third (32%) have switched careers to try something new.
In fact, wanting to ‘have something to do’ (45%) and a desire ‘to feel useful’ (25%) are the key drivers behind the UK’s ‘grand-trepreneruial’ spirit, suggesting this is an ambitious group who believe they still have a lot to offer.
PoSITIvE CHoICEIt would seem that when it comes to work, the over 60s are the real ‘boomerang generation’. The findings show that there is a trend to ‘un-retire’, with many retirees returning back to work. One in six (15%) of those in their 60s have returned to work after retiring – equating to one million workers[4]. Although some over 60s come out of retirement to give their retirement income a boost (49%), there are many who go back to work to avoid boredom (39%).
Interestingly, while many are working longer, returning to work or delaying taking their private pension to boost their retirement income, very few consider taking their State Pension later. Just one in 20 (5%) of those working past retirement age have deferred their State Pension, despite the fact that this would increase the value of their State Pension by 10.4% a year[5].
For many people, working for longer is a positive choice. Many people in their sixties and seventies enjoy their jobs and are keen to remain active in later life. However, for others their financial situation means they have to continue
working – or even go back to work after retiring – because they simply cannot afford to stop. n
Source:[1]The State Pension age is currently 65
for men and 61 and 9 months for women[2]By late sixties, we are referring to those
aged 65–69[3]A part-time worker is someone who
works fewer hours than a full-time worker. There is no specific number of hours that
makes someone full- or part-time, but a full-time worker will usually work 35 hours
or more a week, according to https://www.gov.uk/part-time-worker-rights
[4]According to Opinium, 1,047,690 adults aged 60 and over who had previously
retired had to return back to work. There are 6,984,600 adults aged 60–69 according
to ONS, and of these 15% returned back to work after retiring – 15% of 6,984,600 =
1,047,690.[5]Pensions Minister, Steve Webb MP,
has announced that for those retiring after April 2016, deferring when they take their
benefits will increase the value of their State Pension by 5.8% a year.
takinG a more Gradual aPProach to retirement
part-time PensionersTHE NATURE OF RETIREMENT HAS CHANGED – IT IS NO LONGER A MATTER OF LEAVING THE WORKPLACE WITH A GOLDEN CARRIAGE CLOCK AND ENTERING A qUIET LIFE OF LEISURE.
mAkE SURE yoU SELECT THE bEST RETIREmENT INComE oPTIoNS
With the nature of retirement changing, it is important that you have the income flexibility you need in your later life. With this in mind obtaining professional financial advice will ensure that you are able to make the most of your savings and pension funds and select the best retirement income options for your individual circumstances. For more information, please contact us.
20
RETIREmENT
AN EvEN SPLITIn total, over 6 million UK adults are planning to retire abroad, with an even split between Europe and the rest of the world. Of the estimated 3.2 million UK adults planning to retire in Europe, Spain is the most popular destination with 26% of the vote. France follows in second place with 17% of votes. Italy comes in third place with a 10% popularity rating.
Looking further afield, an estimated 3.2 million UK adults are planning to retire outside Europe. The most popular destination is America, with 16% of votes. Australia follows in second place with 14% of votes. Coming in third place is the Far East, which pulled in 13% of votes.
THE RIgHT PLANNINgAs is evident, a huge number of people harbour a desire to retire abroad. Thoughts of better weather, cheaper living costs and potentially cheaper property than the UK can be a strong draw. But, thinking that your regular holiday destination can also be your ideal retirement home might be hit with flaws. Without the right planning, savings and advice, you can quickly get caught out by local tax laws, exchange rates and other financial arrangements, turning a retirement dream into a potential nightmare.
You might also get a nasty shock later in retirement when you find your UK State Pension does not increase annually because the country you choose to retire to does not have a reciprocal agreement in place with the UK. As an example, if you retired to Canada ten years ago, your UK State Pension would now be worth 42% less than if you had retired across the border in the US. Or, put another way, your pension would be worth £1,742 more a year by simply choosing the US as a retirement destination rather than Canada. n
Source:MGM Advantage research among 2,028 UK adults aged 18+, conducted online by Research Plus Ltd, fieldwork 17–22 October 2013.
The UK full basic State Pension for a single person was worth £79.60 in 2004. From April 2014, it is now worth £113.10 a week, an increase of 42%. If the country you’re retiring to has a reciprocal agreement in place with the UK, then the UK State Pension will be paid and increase as normal. However, where there is no agreement, and that includes Australia and Canada, your State Pension will be frozen and won’t increase.
over 6 million uk adults Plan to move abroad in later life
tHe nation’S Favourite ovERSEAS RETIREmENT dESTINATIoNS
NAvIgATINg THE ComPLExITIES oF RETIRINg AbRoAd To help you navigate the complexities of retiring abroad, professional financial advice can make the world of difference between the retirement of your dreams or an altogether more challenging experience. To find out how we can help you, please contact us today – we look forward to hearing from you.
THE NATIoN’S FAvoURITE ovERSEAS RETIREmENT dESTINATIoNS ARE:
1st: Spain2nd: France3rd: USA4th: Australia5th: Far East6th: Canada7th: Italy8th: South East Europe9th: India10th: Portugal
it’S bEEn a bIG yEar for elections around the world, and now the political focus has turned up on
our own doorstep. First the Scottish referendum in September, then next May’s General Election.
In between, November sees the US’s mid-term elections, which could bring America’s deficits to the fore again.
India showed us this year just how much politics can matter to financial markets. The prospect of a new business- and investor-friendly government under new Prime Minister Narendra Modi galvanised the Bombay exchange and resulted in big gains for
those who jumped on the bandwagon early enough.
As is often the case, it has been better to travel than to arrive. Having surged since February in anticipation of the change of regime, markets have paused for breath since the result was confirmed.
Indonesia was a similar story, with markets rising ahead of the election of reformist candidate Joko Widodo.
The Turkish result was also preceded by a big run-up in the country’s stock market.
The latest opinion polls for the Scottish referendum suggest a vote that’s too close to call. A ‘No’ vote
(continued membership of the UK) looks marginally more likely, especially after the recent TV debate. But it could go either way.
As for the General Election, a definitive result looks even more unlikely. Another hung parliament is a distinct possibility.
For the first time in many years, there is also a significant gap between the two main parties on economic policy, and the rise of UKIP raises the prospect of a fractured vote. It really is anyone’s guess how things will turn out next May.
A bigger question for investors is whether it really matters? n
IN THE FIRST HALF OF THE YEAR, GEO-POLITICAL UNREST HAS DOMINATED THE HEADLINES. THERE HAVE BEEN SIGNIFICANT CHALLENGES FOR INVESTORS IN RECENT MONTHS – GEO-POLITICAL UPHEAVALS, ECONOMIC GROWTH AND MONETARY POLICY. ONCE THE SUMMER IS OUT OF THE WAY, THE ATTENTION WILL TURN TO DOMESTIC POLITICAL UNCERTAINTY.
IN THE NEwS
geo-poLiticaL matterSsiGnificant challenGes for investors this year and beyond
TIME TO MAKE SURE YOU’RE ON TRACKTO ACHIEVING YOUR FINANCIAL FREEDOM?
WANT TO FIND OUT MORE? CONTACT US TODAY - OUR DETAILS APPEAR ON THE FRONT COVER.
21
22
IN THE NEwS
IN more recent months investors have also had to contend with fears of a Russian military intervention in Ukraine, tit-for-tat trade sanctions
between the EU and Russia, and the bailout of Portugal’s second-largest listed bank, Banco Espírito Santo.
THE PoSSIbILITy oF dEFLATIoNData that was recently released showed the eurozone’s economy slowing to a standstill in the second quarter of the year, raising more questions about the sustainability of Europe’s recovery and the possibility of deflation[1].
Now, as evidence of slowing growth in the second quarter of the year for a number of eurozone countries has also shown, questions about the sustainability of Europe’s economic recovery and the possibility of deflation intensify.
ExTRAoRdINARy mEASURESAccording to official preliminary data, Italy slipped back into recession in the second quarter of the year, with the economy shrinking by 0.2% after a 0.1% contraction the quarter before[2]. Even Germany, the powerhouse of economic growth up until recently, seems to be suffering, with the economy undergoing a 0.2% contraction last quarter[3].
The danger is that the European Central Bank (ECB) may be missing the big lesson from 1990s Japan – that dallying over economic policy risks a deflationary spiral that’s hard to get out of.
Not that the ECB isn’t trying. In June, eurozone interest rates were cut to a record low, and banks began to be charged for holding cash reserves at the ECB. These extraordinary measures followed hard on the heels of a surprise fall in the annual rate of eurozone inflation to just 0.5% in May[4].
It’s just that the big gun of quantitative easing (qE) shows little sign of being fired yet.
The ECB’s reticence is understandable, even as the evidence of economic fragility piles up. For one thing, qE might be seen – in Germany at least – as providing indebted nations at the periphery with the breathing space necessary to ease up on their attempts to reduce their spending and budget deficits.
For another, the ECB found out two years ago that a pledge to ‘do whatever it takes’ on its own was enough to save the euro. It’s likely too that just the expectation that qE might be used has helped to support bond prices this year.
dEvALUEd CURRENCySomething the ECB ought not to be concerned about is the notion that qE might unleash inflationary pressures and lead to a devalued currency. The US, Japan and the UK, which led the way on qE, have provided practical demonstrations that this need not happen.
If qE is, as some say, the tide that lifts all ships of the financial kind, then European stocks and bonds might benefit from a change of heart at the ECB. In the absence of qE, or presence of only a tiny bit of it, Europe may be set to remain a stock-picker’s zone.
What the ECB must be looking forward to and, perhaps, investors are being asked to also, is some sort of resolution to the crisis in Ukraine and Europe’s economic recovery gathering momentum during the second half of this year.
bRIgHT SPoTSCertainly, there have been bright spots. Spain’s economy, for example, appears to have been on the mend. The economy there grew by 0.6% in the second quarter, reflecting perhaps a widening gap between countries that have embarked on convincing structural reform programmes and those that have not[5].
However, the International Monetary Fund forecasts economic growth across the region to be ‘a little over 1%’ this year. While that’s an improvement on last year’s contraction of 0.5%, it’s still only about one third of what is expected from the UK and about half the speed at which the US is forecast to grow[6].
To achieve even this, Europe’s economic slowdown last quarter leaves precious little room for further disappointment. n
Source:[1]Eurostat, 14 August 2014
[2]Istat, 6 August 2014[3]Destatis, Federal Statistical Office, 14
August 2014[4]Eurostat, Harmonised Index of Consumer
Prices, 17 July 2014[5]Instituto Nacional de Estadística, 30 July 14
[6]International Monetary Fund, July 2014
is there room for any further disaPPointment?
europe’S economic SLowdownEUROPE HAS SUFFERED A STREAM OF DESTABILISING NEWS THIS YEAR. FIRSTLY, THERE WAS JANUARY’S EMERGING MARKETS CRISIS, WHICH SLOWED THE DEMAND FOR EUROPEAN EXPORTS. THEN THERE WERE EU PARLIAMENTARY ELECTIONS IN MAY, WHICH RETURNED A LARGE NUMBER OF ANTI-ESTABLISHMENT MEPS TO BRUSSELS AND SPURRED DAVID CAMERON’S ATTEMPT TO BLOCK THE APPOINTMENT OF JEAN-CLAUDE JUNCKER AS EU PRESIDENT.
Achieving a comfortable retirement.Do you need a professional assessment of your situation to make this a reality?
If you are unsure whether your pension is performing in line with your expectations, and that you’ve made the right pension choices – don’t leave it to chance.
Contact us to discuss these and other important questions, and we’ll help guide you to a comfortable retirement.
24
IN THE NEwS
uK coUplES are spending more than £44,000 on average when they divorce or separate, totalling £5.7 billion per year across the
nation. A new study from Aviva reveals the hidden cost of divorce as £21,979 per person or £43,958 per couple.
The figures show a 57% increase since the study was last carried out in 2006 when the cost of divorce was around £28,000. While the data suggests legal fees for divorce have actually fallen over the period – from £1,818 to £1,280 – with many opting for cheaper online services, additional costs such as moving house and child maintenance payments mean the overall price of separation has soared.
AddEd ExTRASAs well as considering the core costs associated with a break-up, the study also looked at added extras that many people buy following a split. The research suggests that four out of ten newly separated people splash out on items to treat themselves.
For example, the study found one in eight people (13%) took a holiday to celebrate their newly single status at a typical cost of £1,925, while the same (13%) treated themselves to new technology, shelling out an average of £1,292 on gadgets and gizmos.
Four out of ten respondents said they were financially worse off following their separation, and more than half of couples (53%) took longer than six months to settle financial matters. The typical time to settle was 11.5 months, but one in ten couples (11%) said the process took more than two years.
With this in mind, it’s perhaps no surprise that 36% of people surveyed said they’d prefer to stay single in the future!
FINANCIAL ImPACTThe financial impact of a separation is also clear from people’s behaviours when a relationship breaks down. Almost a third of couples (29%) said they tried to reach an amicable settlement to save on legal fees, while one in ten said they effectively separated but continued living together for several months because they couldn’t afford to live apart immediately. A further 6% initially put off getting a divorce because of the costs involved.
Women were more likely than men to make lifestyle changes to supplement their income following a separation. One in eight women (13%) said they worked longer hours or took a second job following a break-up, while one in ten who didn’t work before the split got a job. Women were also more likely to use short-term fixes to make ends meet after a separation: 27% of newly single women dipped into savings compared to 16% of men, while 23% relied on credit cards, compared to 14% of men.
Two thirds of couples who are married or co-habiting have some shared finances, so these arrangements can take some time to unravel if a relationship unfortunately breaks down. Beginning again following a separation can be a daunting time, not to mention a busy one, but it’s crucial that newly single people review money matters when their circumstances change.
FACINg THE FACTS:nInterviewees were typically with their
partner for 10 years and eight months before separating, although one in ten (9%) were together for less than two years
nThe average age at separation in the study was 38 years and two months
nTwo thirds (66%) of separating couples had joint finances: four in ten of these shared all finances, while the remaining six in ten had some shared and some separate
nOne in five women took out protection insurance (such as life cover) after separating, compared to one in ten men, but a quarter of respondents said they didn’t have life cover following the split (25%)
nOne in eight separated women (12%) said they have no pension/savings plans as they were relying on their partner to fund their retirement
nOne in ten respondents (10%) said they would be significantly worse off in their retirement as a result of their break-up
nFour out of ten women (42%) said they were worse off financially as a result of their divorce/separation compared to 33% of men. Four out of ten men (39%) said they were actually better off, compared to 29% of women
nMore than a third (36%) of respondents said they would prefer to remain single following their break-up, but 25% would marry (again)
REvIEwINg moNEy mATTERSBeginning again following a separation can be a daunting and emotional time, not to mention a busy one, but it’s crucial that newly single people review money matters when their circumstances change. If someone becomes the sole income earner for their family unit, it’s important they think about what they might do if they were unable to work, for example, through illness or injury. Protection insurance – such as life insurance, critical illness cover or income protection – can provide that all-important peace of mind, so people can start on a firm footing as a new chapter begins. n
uk couPles are sPendinG more than £44,000 on averaGe when they divorce or seParate
tHe Hidden coSt oF divorceACHIEVING A FAIR RESOLUTION OF ALL THE FINANCIAL ISSUES SURROUNDING DIVORCE OR THE DISSOLUTION OF A REGISTERED CIVIL PARTNERSHIP CAN BE HIGHLY STRESSFUL. ALONGSIDE WANTING TO RESOLVE THESE EFFECTIVELY AND AFFORDABLY YOU MAY ALSO BE WORRYING ABOUT HOW YOU WILL ACHIEVE THE FAIREST DIVISION OF YOUR FAMILY ASSETS, HOW TO DEAL WITH ANY REqUIREMENTS FOR CONTINUING SUPPORT OR
PERHAPS EVEN HOW YOU WILL MANAGE TO MAKE ENDS MEET IN THE FUTURE.
25
IN THE NEwS
Source:Latest figures from the Office
of National Statistics show that 118,140 marriages and 794 civil
partnerships ended in England and Wales in 2012, while 9,700
marriages and 67 civil partnerships ended in Scotland in 2012/13 according to latest figures for
Scottish civil law cases. This equates to 128,701 divorces/dissolutions
annually, relating to 257,402 people.Average cost of divorce is based
on total costs according to the study, multiplied by the proportion
of people who spent on each item, divided by the number of divorces/
dissolutions across the UK annually.
These days retirement can easily last 20 or 30 years. People are living much longer and the nature of retirement is changing too. The longer you live in retirement the more susceptible to the pressures of inflation your retirement income will become. Pensioners are being squeezed further as more of their income is spent on food and fuel, the costs of which continue to rise more quickly than goods.
According to the Bank of England inflation calculator, £10,000 in 1994 would be worth only £6,127.31 in 2011. A pension income that doesn’t rise means that effectively you will face a pay cut every year throughout your retirement. Take a look at the impact of inflation of 3% on income at retirement:
Starting income rate of inflation how much is how much is how much is it how much is it it worth in real it worth in real worth in real worth in real terms in year 5 terms in year 10 terms in year 15 terms in year 20
Unfortunately, you can no longer rely on the State to support you during your retirement. The basic State Pension has been steadily reducing over the years. In fact, it’s now among the lowest in Europe. And that’s not all. Because retirement can last so long these days, each pound you’ve saved won’t go as far as it might have in the past.
It’s crucial you make the most of your retirement savings.
iS your penSion Big enougH to LaSt your LiFetime?
tHe StakeS are too HigH
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CoNCERNEd FoR yoUR owN FINANCIAL SECURITy?
The resolution of finances can often be an emotional rollercoaster and will be a different experience for each person. Everyone is understandably concerned for their own financial security and that of their family and so it is not unusual, therefore, for the financial settlement to end up being the key focus of attention. To discuss your situation please contact for further information.
AVERAGE LIFE EXPECTANCY
LIFE EXPECTANCY OF A UK CITIZEN UPON RETIREMENT AGE OF 65Source: ONS, Cohort expectation of life by selected age for the year 2008
YEARS IN RETIREMENT
YEARS IN RETIREMENT
AVERAGE LIFE EXPECTANCY
Published by Goldmine Media limited, Basepoint Innovation Centre, 110 Butterfield, Great Marlings, Luton, Bedfordshire LU2 8DLArticles are copyright protected by Goldmine Media Limited 2014. Unauthorised duplication or distribution is strictly forbidden.
RETIREmENT
wILL yoU ACHIEvE yoUR dESIREdRETIREmENT INComE?Putting as much as you can into a pension plan as soon as you can will give you a much better chance of having the retirement you want. Find out how much you should be saving to help achieve your desired retirement income. To review your particular requirements, please contact us for more information.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION
LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS
FROM, TAXATION ARE SUBJECT TO CHANGE. PAST PERFORMANCE IS NOT A
RELIABLE INDICATOR OF FUTURE PERFORMANCE. A PENSION IS A LONG-TERM
INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR
EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT,
FUTURE INTEREST RATES AND TAX LEGISLATION. THE VALUE OF INVESTMENTS
AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE
ORIGINAL AMOUNT INVESTED.
8 STEPS to a BrigHter retirementmake Sure you can aFFord a comFortaBLe LiFeStyLe wHen you retire
1. From April 2015, you can use your pension savings in any way you
like. the first 25% can be taken as tax-free cash and the remainder used
as you wish (all income or capital withdrawals subject to your marginal
rate of tax at the time).
2. consider when you want or need to take your benefits – from both state and any private pensions.
You don’t have to use them at ‘traditional’ retirement ages or
when you stop working.
4. If you have a small pension pot (individually below £10,000 or up to three
valued at less than £30,000), you may be able to take the whole pot as a lump sum under the current ‘triviality’ rules (from April 2015, you
will be able to take the whole pension as cash, subject to marginal tax rates at the time).
5. If an income is important to you, consider all the different options available to you, such as an annuity, an investment-
linked annuity and income drawdown. each of these comes with different risks – income
from drawdown or an investment-linked annuity could fall in future.
7. consider the ‘cost of delay’ – if you are looking for a guaranteed lifetime income, then an annuity could be your safest option. by delaying any decision until next
year, you are losing out on income this year, which could take many
years to make up.
6. think about how much flexibility you need over your income, bearing in mind you
may be in retirement for 20 plus years, and if you want
to protect your spouse or partner when you die.
3. With annuities, the income is guaranteed but may come with
the risk of inflation, which means the income you receive may not buy as much in the future. You can protect your income from
inflation but this comes at a cost.
8. If you buy an annuity, don’t automatically purchase it from the
company you saved with. make sure you shop around other providers, giving
full information about your health and lifestyle – this can help you get a
