Monthly Archives: January 2016

A disappointing start to 2016, but no need to panic
January 2015

We have advised clients not to panic before and as investments markets got off to a keep calm and stay investeddisappointing start this year, now is a good time to remind investors of our investment philosophy and the importance of taking the long term view.  It’s at times such as now that a diversified portfolio selected to fit the appropriate risk profile should provide reassurance.

Click here to view our article on the recent market turmoil.

As always,  please contact us if you have any concerns.

 

 

State pension increases and non-increases
January 2016

The  basic state pension will rise by nearly 3% in Aprildepartment for work and pensions

The Autumn Statement confirmed that the basic state pension will rise by £3.35 a week to £119.30 a week from April 2016. The increase of 2.9% is the result of the ‘triple lock’, which requires the basic state pension to increase each April by the greater of inflation (as measured by the Consumer Prices Index – CPI), earnings growth and 2.5%. However, other existing state pensions (such as the State Second Pension) will be unchanged next year because their increases are linked to the CPI, which fell by 0.1% in the year to September.

The Chancellor also announced the rate for the new single tier pension, which will apply if you reach state pension age after 5 April 2016. At £155.65 a week, it is slightly higher than had been expected and 2.9% above the notional figure for 2015/16. The new pension will also be subject to the ‘triple lock’, although how long that will continue is a moot point. In a recent hastily withdrawn report, the Government Actuary’s Department said that the triple lock has already added £6bn a year to the welfare bill, compared with the cost of a simple earnings link.

To put the newly increased single tier state pension into context, from April it will represent less than two thirds of what somebody working a 35-hour week on the new National Living Wage will earn. No wonder the government remains anxious to encourage private pension provision.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Auto Enrolment – the first deferral
January 2016

The Autumn Statement revealed more evidence that the government is counting the cost of tax relief on pension contributions. 

When auto-enrolment into workplace pensions started in October 2012, the legislative intention was that the level of contributions as a percentage of qualifying earnings (those between £5,824 and £42,385 in 2015/16) should rise from the current minimum total of 2% to 5% from October 2017 and then 8% from October 2018. In his Autumn Statement, the Chancellor pushed out both increase dates by six months “to help businesses with the administration of this important boost to (the) nation’s savings”.

There had been no clamour for an April alignment from business groups – the greater concern has been the impact of the huge increase in the number of employers registering in the next year. The real reason for Mr Osborne’s administrative simplification was to be found in the Autumn Statement ‘scorecard’ which showed the deferral would save the Exchequer nearly £850m in employer and employee tax relief over the two tax years involved.

Auto-enrolment has always been a double-edged sword for the Treasury: while it should mean less state support for the retired in the long term, the immediate impact is negative because of the rise in pension contributions and hence tax relief.  Already the process has brought over five million people into workplace pensions. As the government’s decision on the future of pension taxation has been deferred until the March 2016 Budget, this latest tweak could be seen as a pre-emptive grab of future benefits. Whether or not that proves to be the case, the argument for maximising your pension contributions before the Chancellor’s next set piece has been reinforced.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax relief depends on your individual circumstances. Tax laws can change.

What is the safest way to save for retirement?
January 2016

The Office for National Statistics (ONS) has been looking at attitudes to private savings.

Which one of the options below do you think would be the safest way to save for retirement?

  • Paying into an employer pension scheme
  • Paying into a personal pension scheme
  • Investing in the stock market by buying stocks or shares
  • Investing in property
  • Saving into a high rate savings account
  • Saving into an ISA (or other tax-free savings account)
  • Buying Premium Bonds
  • Other

The ONS regularly carries out a “Wealth and Assets Survey” asking the above question. The most popular answer in the latest round of the survey was, somewhat predictably, 1., selected by 41% of respondents. More interesting was the winner from the same list of options to the follow up question “And which do you think would make the most of your money?”, as shown in the graph below.

graph for and the winner for retirement savings is article

Unfortunately, the ONS is not specific about the type of property, although it is a reasonable assumption that most of those replying are thinking in terms of the residential type rather than commercial buildings. Earlier surveys have produced very similar results.

Very few investment professionals would be likely to choose property, particularly if it was residential bricks and mortar, so why does the Great British Public? Some of it is down to the simple truth that many people are more familiar with the performance of house prices than other assets. Then there is the fact that when people think about how much the value of their homes has increased they tend to forget about the mortgages which had to be financed. Borrowing to boost returns is a long-standing investment technique, but it can go badly wrong – witness the negative equity problems in the mid-1990s. Selective memory also plays an important role. For example, UK property prices have on average risen by 17% in the last five years, according to Nationwide. In the previous five years the rise was just over 6%.

If you were tempted to answer ‘property’ to the second question, do talk to us about what the other options can offer and the impact of the latest planned buy-to-let tax changes announced in the Autumn Statement.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.