Cash ISAs: Don’t Lose Out To Inflation!

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Low interest rates might be great news for borrowers but they can have a devastating effect on savers’ long-term wealth. With inflation tending to run in excess of interest rates, the buying power of your money is being eroded, even though the value of your capital might appear safe. You need to keep a close eye on the interest you are earning.

Nowhere is this more apparent than with cash Individual Savings Accounts (ISAs). According to Moneyfacts, the average long-term fixed-rate cash ISA offered a rate of 2.41% in April 2013, compared with 3.58% in April 2012. However, rates of around 3% are available suggesting consumers are not taking the time to shop around.

It is good practice to retain some cash in an easy-access deposit account so you can cover unforeseen emergencies and short-term necessities. However, there is no reason to tie up all your cash holdings in this type of account. Research by Skipton Building Society, for example, found more than 75% of pensioners with an ISA never withdraw money from their account and interest rates can be significantly higher for those willing to sacrifice some flexibility.

Life is hectic and it is all too easy to forget about your ISAs until the end of the tax year is looming. Rather than waiting until the last minute, take the time to shop around now for the best possible home for your money.

Platiinum are always happy to help our clients.

Is Retirement Your Ambition?

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The Department of Work and Pensions (DWP) has recently proposed a new breed of pension, which will be known as ‘Defined Ambition’. It is intended to provide a greater amount of certainty for people whose pension income is ultimately influenced by investment performance, as opposed to being a set amount based on their salary.

Currently, pensions can be separated into two main types – Defined Benefits and Defined Contributions. To summarise:

  • Defined Benefits pension  – income received when you retire is typically based on your salary and length of service in the scheme. For example, a Final Salary pension scheme is commonly based on a percentage of the member’s salary before retirement, multiplied by the number of years they were in the scheme. This provides a known income for the member in retirement, which has become an increasingly valuable benefit in recent years, due to falling annuity rates and volatile stock markets.

The increased costs and unknown liability that this type of scheme has created for employers has led to a number of schemes being closed to new entrants in recent years.

  • Defined Contribution pension –  this involves you (and/or your employer) paying monthly contributions. These are invested in funds which are designed to grow over the years until you retire, at which time they are converted to produce an income.

Most new pensions, including those used for Workplace Pensions and Personal Pensions, are Defined Contribution type.

The key drawback of the Defined Contribution type pension is that the income that someone will receive at retirement is dependent on investment returns and also on annuity rates that apply at the time, both of these can and do change significantly and can lead to someone receiving a much greater or much smaller income from their pension than they had anticipated when they retire.

This uncertainty, together with historically low annuity rates, have made pensions a less attractive option for many investors, leading to the DWP’s current rethink.

The Pensions Minister, Steve Webb, has for some time been looking at how to make pensions more attractive without placing the burden of providing full guarantees on employers. A decision has been reached and put out for consultation to introduce the Defined Ambition pension. The description set out in the consultation paper is that “A Defined Ambition (pension) scheme would be a scheme under which members are given some form of guarantee in respect of their pension, but not complete certainty of the level of income that they will receive from it in retirement, or when it would be paid.”

The exact detail of what form these guarantees will take is yet to be confirmed, though the consultation period finished in December 2013 and the DWP aims to consult on draft legislation in the next few weeks,

If you would like to discuss your ambition for retirement plans and how the legislation could affect you, please get in touch with us at Platinum.

Market Update – 2014 is looking good!

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Happy New Year to you all.

Looking back, 2013 was actually a very successful year in terms of the economy and financial markets.  Although many people continue to feel the financial pinch, there are distinct signs that economic growth is returning to both the UK and global economies, albeit slowly.

Most encouraging is the manner in which this has been achieved.  The evidence suggests that the economic improvements are steady and based upon good fundamentals.  This has been evidenced by the behaviour of stock markets.

Equities and well known indices such as the FTSE 100 and the S&P 500 had a year of steady growth in excess of anticipations.  Such that the FTSE, buoyed by public offerings such as the Royal Mail, finished the year at a level approaching it’s highest level.

The outlook for 2014 is similarly encouraging – the US Federal Reserve is likely to scale back on its programme of Quantitative Easing and given the recent stock market response, this looks as though it is expected and welcome to some extent.

Within the UK equities remain good value.  The economy looks stronger, as demonstrated in part by the resurgent housing market.  And although UK financial markets grew well over the past year there is still much scope to catch up with some of the larger global markets.

As a slight caution to this enthusiasm, there are still some global and European markets which are struggling as there are some financial sectors (not necessarily equities) which have an uncertain future.

That said, a balanced portfolio will continue to provide the most protection against uncertainties and here at Platinum we will continue to watch the signs in order to help ensure our clients goals are met.

As always I encourage you to contact us about any financial matter or if you simply want to discuss your pensions or investments in 2014 further.

What The Autumn Budget Means For You

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On 5th December we heard the latest Autumn Budget Statement by George Osbourne. On the whole the Chancellor of the Exchequer gave a relatively optimistic assessment of the UK economy, together with a reiteration of earlier proclamations and a sprinkling of new announcements.

Although the UK economy appears to be recovering more rapidly than expected and Government borrowing has fallen “significantly more than forecast”, there is still a vast debt burden.  Hence the austerity measures will continue.

As previously announced, the Government will be introducing a tax incentive for marriage with couples able to share £1000 of personal tax allowances under certain circumstances.  The Chancellor also announced various increases to allowances such as an individual’s capital gains tax allowance and ISA limits, as well as increases to benefits and existing State Pensions

In terms of the ‘new’ elements there were a few items worth highlighting;

  • For those who are renting out a property in which they previously lived, there is a big reduction in the period for which you can claim exemption from Capital Gains Tax.  Currently up to three years, it will be reduced to a maximum of 18 months.

  • For those yet to draw their State Pension there was confirmation that the State Pension Age will be deferred yet again.  Also there is a clear intention to further review the age in line with life expectancy.  As this increases so will the State Pension Age.

  • Staying on the subject of the State Pension, the Chancellor also made mention of his goal to allow existing pensioners to make up contributions to the system to ensure they’re drawing the maximum pension.

  • For employers, there was more positive news.  There will be a clear incentive to recruit staff under age 21 as these employees will be free from Employers National Insurance Contributions.

The changes will affect most people in some way.  If you have any concerns or would like to discuss things further please do not hesitate to contact us at Platinum.

Investing In Bricks & Mortar

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Property has become increasingly popular as investors have recognised the diversification benefits it can add to a portfolio. In other words – performance can help smooth out peaks and troughs in a portfolio, reducing overall risk.

Generally, when the economy is doing well property performs well. When we are earning more money and feeling reasonably secure, we not only buy larger houses but also spend more on retail goods, encouraging companies to invest in larger premises. However, one of property’s key problems is its lack of liquidity – it is difficult to sell or buy a property investment quickly. It takes time to draw up legal contracts and undertake all the checks and balances involved in the sale or purchase of a property, not to mention the costs involved in moving.

Although it behaves differently to shares or bonds, an investment in property offers income from rents that are similar to the interest payments generated by bonds. It can also offer the potential for increases in this rental income as well as the possibility of some capital growth. There are, however, significant differences between commercial property and residential ‘buy-to-let’ investments. For example, leases on commercial property are longer – meaning greater stability of income – and the vetting of tenants is generally more detailed, reducing the likelihood of rental default.

The global commercial property market has become more transparent, as companies make more information available (either voluntarily or through corporate governance). Moves to improve the regulatory aspects of the industry should also be positive for investors. In particular, the UK has proved attractive to foreign investors, due to its central position between New York and Asia, and its reputation as one of the centres of the financial world.

For the average investor, buying property over and above their own home is often beyond their means. However, there are numerous diversified investment funds that focus on the sector. These offer investors the opportunity to gain exposure to a selection of properties, providing access to a key asset class while removing the risks associated with direct investment in a single building. It is also worth remembering investors can use their annual ISA allowance to invest in relevant funds, ensuring their capital gains and dividend income will be tax-free.

All our clients at Platinum are encouraged to diversify their portfolio and most have holdings in all sectors, including property. If you are unsure about whether you have an exposure to property please do not hesitate to get in touch with us.

A New Addition To Our Team

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We are pleased to introduce the latest recruit to our financial planning and advice team; Duncan Selkirk.

Duncan is a financial planner who is always keeping an eye on the future for his clients.

He brings 13 years of robust financial advisory experience with him, gained from working within a range of independent firms – something he believes is an essential requirement for true financial planning.

When it comes to expert subjects, Duncan has vast experience in the Group Pensions market and recently he has chosen to focus on complex financial planning matters, including Estate and Intergenerational Planning. He has also worked with Deputies for clients under the Court of Protection.

He holds specialist qualifications in a number of planning areas including Personal Taxation, Retirement Planning Options and Retirement Income options.

Duncan is a keen golfer, skier and as a former rugby player, he enjoys following Sale Sharks. He has taken part in a number of cycling and endurance challenges for charity, including cycling through China to raise money for MNDA.

 

Don’t jump too soon!

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Despite signs of economic recovery, it’s still a tough time out there. The cost of living continues to rise faster than wages, unemployment remains high. For those struggling to finance their day-to-day living, the idea of being able to get access to all their pension funds early – often called ‘pension liberation’- might sound attractive, but there are serious long-term risks.

Pension liberation involves the transfer of an individual’s pension savings to a scheme allowing them to gain access to the funds in their pension pot before the key age of 55. However, an “unauthorised payment” from a pension scheme is likely to incur tax charges of more than 50% of the total value of the pension pot. Although there are certain rare situations, such as a terminal illness, that might permit a scheme member to access their funds early, dipping into your pension pot before the age of 55 will almost certainly land you with a substantial tax bill.

The Information Commissioner’s Office (ICO) has reported a “dramatic” rise in unsolicited approaches to pension scheme members, encouraging them to withdraw a proportion of their savings before the age of 55. The ICO estimates up to £400m has been released from legitimate UK pension schemes into schemes that range from high-risk to non-existent. Some members have had to absorb unexpected and substantial administration fees and taxes while others have had to face the fact their savings have been taken by fraudsters.

It is important to differentiate between pension liberation fraud and ‘pension unlocking’ – a legitimate move that allows a pension scheme member, aged 55 or over, to release up to 25% of their pension savings as a tax-free lump sum. Nevertheless, pension unlocking should still only be considered in the most exceptional circumstances, as it is likely to lead to a lower level of income in retirement.

The ICO reports that “spam” text messages relating to pension liberation have more than tripled during the past six months. Meanwhile, the Pensions Advisory Service has warned that pension liberation fraud is on the rise in the UK, and police investigations into pension liberation schemes have stepped up. Although the Pensions Regulator provides information for pension scheme trustees, there is still no law empowering trustees to prevent the transfer of a member’s pension savings into a liberation scheme. You can never be too particular about something as important as your pension savings so always take professional and unbiased advice from an expert.

If you, or anyone you know, is tempted by these offers of accessing your entire pension fund we would recommend you contact us at Platinum immediately to ensure you do not fall foul of these unscrupulous ‘liberators’.

What is a Paraplanner?

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Our wonderful admin team – Lisa, Faye and Catherine – provide invaluable support for all our staff as well as clients, including the often unknown role of Paraplanners.

Paraplanners fulfil a vital support function for busy financial advisers. Experts in their own field, they work alongside us to complete much of the essential back office work. Their expert support allows us to spend more time in a client-facing role, so you get the best possible service. Over recent years, they have come to represent an increasingly important component of our firm’s infrastructure.

Paraplanners have a wide-ranging and varied role, although their individual remit will vary depending on the needs of the business. Their job might include compiling and maintaining client information, undertaking research and analysis, preparing and implementing recommendations and undertaking regular client reviews. Paraplanners do not provide advice; instead, using research collected by the adviser, they carry out analysis to put together the most appropriate solutions and strategies to suit your personal circumstances.

They possess considerable technical ability and analytical skills. Training and ongoing development are paramount as they have to stay abreast of developments within the industry, from regulation and compliance issues to new products and offerings.

Paraplanning is now recognised as a long-term career within the financial services industry, requiring qualifications similar to that of a financial adviser.

Within Platinum our team fulfil an invaluable role in supporting and promoting the long-term relationship between our clients and the advisers. Their expertise, developed over the years, continues to prove beneficial for both our clients and the company as a whole.

Inheritance Planning To Show You Care

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A recent study by NFU Mutual found that one in seven people in the UK are clinging to the hope of inheriting property or cash. The reality is that 75% of people whose parents go into care lose most of their inheritance.

This is because a quarter of those in care pay for the care by selling their property, with one million homes sold in the past five years to this alone.

More than two million elderly people have also had to use their savings to fund care.

The research also highlighted a “naivety regarding the cost of care and a lack of inheritance tax planning”.

A third of the people surveyed said their parents had made no plans for the impact of old age care on their estates and a similar number admitted they failed to factor this cost into their own planning.

And the gap in retirement provision is set to worsen as Councils tighten budgets for elderly residential care.

Freedom of Information data collected as part of the study showed that more than half of Councils have slashed their care budgets over the last five years or reduced actual spending, suggesting a tightening of purse strings when it comes to old age care.

Whilst there is no simple or straightforward solution to avoid care costs, careful and prudent planning can help protect a family’s wealth should residential care be needed or a loved one die.

It is essential to seek professional advice to make sure no one pays more tax than they need to and wealth is ring-fenced where appropriate.

Darker Nights But A Brighter Future

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As we move through the final quarter of 2013 there seems to be a steady stream of positive news from stock markets and money markets.

The main theme of this year has been the steady climb in the main stock market indices, and more importantly the fact that the climbs have been relatively smooth with very little disruptions or fall backs.

Some really positive news for investors is how the UK in particular is showing signs of a turnaround.   For example, unemployment has stayed low and the numbers of people employed within the private sector greater than the public sector, although this includes part-time employment.  However the private sector is the driving force behind a recovering economy.

Also the number of new business formations have increased significantly which can also be seen as a sign that people are looking ahead.

Despite our enthusiasm there are a number of major headline grabbing issues still around;  European debt levels are still exceptionally high with very little economic growth or change, and America’s government continues to argue and barter over whether to increase their debt limit, which in turn has created the first US federal shutdown in 17 years.

Although the headlines may make these two subjects alone seem like financial Armageddon, there are many reasons not to be nervous.

Fundamentally markets recognise that Europe’s debt issues haven’t disappeared but equally they are no longer fearful of a collapse in the Euro currency.  The European Central Bank seems to be doing its job of co-ordinating the efforts to manage the debt.

Equally in the US, markets are of a feeling that the politicians will continue to ‘horse trade’ over different issues but in reality none are prepared to suffer the effects of a US failure to raise their debt ceiling hence the situation will move on through the short and medium term.

Overall the news is positive for investors as I said.  The prospects for equities in particular in the UK and globally is very favourable.  At the same time the robustness of the markets looks to continue.

Autumn often sees a slight dip in markets before the climb as we enter winter, but we do not think this will be significant.  Rather there is an anticipation that investments will continue their steady growth.

In light of the positive outlook we have made a slight but important change to our tactical strategy.  Whilst we continue to have reservations on assets such as sovereign debt, such as gilts and gold, we are quite positive on other investment areas.  Equities remain good value and offer good prospects hence we have increased these holdings slightly.

For our clients who hold investments, our focus always remains in the medium to long term.  We feel confident that this outlook demonstrates itself in terms of steady growth.

As always, if you would like to discuss your investments in more detail or have any queries do not hesitate to contact us.