Helping you realise your retirement vision

We’ve now entered a new age of retirement planning with the introduction of pension freedoms. But Britain has an ageing population, highlighted by the fact that the number of telegrams sent by the British Monarch to 100-year-olds has risen from 24 in 1917 to nearly 7,000 today.

It is projected that the number of centenarians – people who live to 100 years old and beyond – will continue to rise by more than tenfold over the next 30 years (when the NHS will also celebrate its 100th birthday). This growth is due to the higher birth rate between the First and Second World Wars, and dramatic improvements in health and healthcare.

Thinking about pensions sooner rather than later can mean the difference between a comfortable retirement and struggling to make ends meet. Unfortunately, some people put off retirement planning when they are young because they think they’ve got time on their side. However, the earlier you start saving for your future, the bigger the pension pot you’ll end up with when you’re older.

Seven pension tips for nurturing your nest egg 

Research shows we’re more likely to achieve our financial goals if we write them down and start with a clear plan of action. Work out what financial goals you want to achieve, then break them down into realistic steps that will lead you there. We’ve provided seven pension tips for you to consider to keep your retirement plans on track at the start of the New Year.

  1. Consider consolidating your pension pots – while it might be hard to keep track of pensions with job changes, the Government offers a free Pension Tracing Service. Bringing your pension pots together may help you manage them but take care to understand the benefits associated with the existing contract, along with any potential risks/disadvantages of transferring the funds – and always seek professional financial advice to see if it’s suitable for you.
  2. Make use of your tax reliefs on pension contributions – when you can do this, particularly at higher rates, this can be beneficial. The Government may well revisit pension tax relief post-Brexit to help ‘balance the books’.
  3. Maximise your workplace pension contributions – if your employer pays a contribution that is linked to your contribution, see if it’s affordable for you to pay the maximum to receive your employer’s maximum.
  4. Invest for the long term – there have been various moments of uncertainty in the markets – think back to the ‘crash’ of 1987, which now looks like a blip. Keep an open mind, and don’t panic or have a knee-jerk reaction. You must remember that when investing in the stock markets, it is inevitable that there will be times of volatility when you need to weather the storm.
  5. Review your State Pension entitlement – given so many changes, it is worth keeping your finger on the pulse and looking at what you may need to do to top up to the maximum entitlement available.
  6. Review your expected expenditure in retirement – it’s key that you clearly establish ‘essential’ and ‘discretionary’ spending, so that in poor market conditions you can always look to reduce income from pension funds if necessary to cut back on discretionary expenditure that can wait for another day.
  7. Ensure your income in retirement is set up as tax-efficiently as possible –making full use of all available tax allowances/exemptions is crucial. Don’t forget to look at how different tax wrappers can work for you.

What does retirement mean to you?

From stopping work altogether to a slow and gradual reduction of commitments, retirement means different things to different people. Making sure you can sustain the level of income you need as you move away from full-time employment or your business interests is key to a long and happy retirement. To discuss your requirements, please contact us.

Source data: 

Investor Pulse Survey – BlackRock’s Global Investor Pulse Survey examines investing attitudes and behaviours across the world. The 2017 survey included 28,000 respondents in 18 countries. The UK sample included 4,000 respondents between the ages of 25 and 74. Survey conducted in Q1 2017.

 

 

How much money do you need to retire?

You may have had it drilled into you from an early age that you should save. Being a diligent sort of person, you may have always done that; maximising your yearly ISA allowance, putting 6% of your salary into your pension, investing wisely, even purchasing a buy-to-let property as an additional investment.

But once you’re into the habit, is there a danger of saving too much? More importantly, when can you afford to stop?

Of course, it’s different for everyone. Perhaps a more relevant question is what kind of lifestyle are you planning for when you have financial independence and how much will you need to meet those requirements?

Our culture today is focused on acquiring things: the latest iPhone, that designer jacket you’ve seen, a top of the range sports car. There comes a point, however, when we reach a kind of saturation point without even realising it. That’s why it’s good to take a step back and consider how much money you really need.

Once your basic needs are met,

The bank that likes to say ‘yes’

Repeated pay-outs to children could have a detrimental impact on your own long-term saving

Many parents who are in a position to do so would want to provide financial help to their children. However, in many cases, this financial support ends up being gifts from Mum and Dad rather than the loans from the Bank of Mum and Dad they start out as.

Long-term dent

These written-off loans risk making a long-term dent in the finances of parents, often at the stage in their lives when they would like their money to be invested for the future and working hard for them in a pension. If the choice is between providing loans to their children or continuing to contribute to a pension, parents should obtain professional financial advice before making that decision.

On average, those who have lent money to their children or grandchildren are owed £12,700, and more than one in ten (11%) of the Bank of Mum and Dad’s loans are for figures of more than £20,000.

Repaid in full

Research from Prudential[i] has revealed that in many cases, the Bank of Mum and Dad doesn’t expect its loans to be repaid in full, with more than two in five (44%) parents who have lent money to their families admitting it is unlikely that they will ever see the full amount of money again.

However, the potential for significant financial loss from written-off loans doesn’t appear to deter them. More than two thirds (68%) of the parents interviewed have already loaned money to their families, or have definite plans to do so in the future, while the remaining (32%) all hope to be in a position to act as their children’s preferred lender sometime in the future.

Considering lending

Of those parents who are considering lending to their offspring in the future, many are also unsure they will get the money back – nearly two fifths (37%) think it is unlikely

To Bit or not to Bit?

Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios.

Cryptocurrencies such as bitcoin emerged only in the past decade. Unlike traditional money, no paper notes or metal coins are involved. No central bank issues the currency, and no regulator or nation state stands behind it.

Instead, cryptocurrencies are a form of code made by computers and stored in a digital wallet. In the case of bitcoin, there is a finite supply of 21 million,[1] of which more than 16 million are in circulation.[2] Transactions are recorded on a public ledger called blockchain.

People can earn bitcoins in several ways, including buying them using traditional fiat currencies[3] or by “mining” them—receiving newly created bitcoins for the service of using powerful computers to compile recent transactions into new blocks of the transaction chain through solving a highly complex mathematical puzzle.

For much of the past decade, cryptocurrencies were the preserve of digital enthusiasts and people who believe the age of fiat currencies is coming to an end. This niche appeal is reflected in their market value. For example, at a market value of $16,000 per bitcoin,[4] the total value of bitcoin in circulation is less than one tenth of 1% of the aggregate value of global stocks and bonds. Despite this, the sharp rise in the market value of bitcoins over the past weeks and months have contributed to intense media attention.

What are investors to make of all this media attention? What place, if any, should bitcoin play in a diversified portfolio? Recently, the value of bitcoin has risen sharply, but that is the past. What about its future value?

You can approach these questions in several ways. A good place to begin is by examining the roles that stocks, bonds, and cash play in your portfolio.

EXPECTED RETURNS

Companies often seek external sources of capital to finance projects they believe will generate profits in the future. When a company issues stock,

Merry Christmas

We would like to wish you all a very Merry Christmas and a Happy New Year and also thank you for your support over the last 12 months.

The office will be closed from 1pm on Friday 22nd December 2017 and will re-open on Tuesday 2nd January 2018.

As in previous years, in lieu of sending Christmas cards, this year we have donated to

 

 

Legal Entity Identifiers (LEI’s) – Do you need one?

If you hold any form of investment, whether it be stocks, company shares, investment bonds, etc., you may well have heard of a Legal Entity Identifier (LEI) – but what is it, what does it do, and more importantly … do you need one?

In January 2018, the UK will become subject to new legislation brought about by the Markets in Financial Instruments Directive II (MiFID II) regulations.  MiFID first came into force in the UK in November 2007 when its aim was to increase competition and consumer protection in the financial services sector across the European Economic Area (EEA).  However, lessons learned from the ‘financial crisis’ along with the desire to strengthen consumer protection have led to the updating of the regulations.

Transaction Reporting & Unique identifiers

Perhaps one of the biggest changes to be brought about by MiFID II relates to the transaction reporting rules, which are designed to ensure that Investment Firms report post-trade information to the Financial Conduct Authority (FCA) to help them to detect and deter market abuse. In addition to this, from the 3rd January 2018, Investment firms must also ensure that prior to trading in any ‘reportable financial instrument’ they hold an appropriate unique identifier.  For individual’s this will be their N.I. number, and for a Legal entity, this will be a Legal Entity Identifier (LEI).

Legal What is a Legal Entity Identifier (LEI)?

Legal Entity Identifier’s (LEI’s) are unique alphanumeric 20-character codes that are used to

Pack up your troubles in your old kit bag and smile, smile, smile…

This week I thought I would share with you a blog written by Tim Hale of Albion Strategic Consulting.  Tim is engaged by Carpenter Rees as a consultant and has helped design and develop the investment strategies we put in place for our clients. Tim is well known  for his investment knowledge and is author of the book Smarter Investing. 

Modern life provides us – some would say swamps us – with so much news, information and punditry, which focuses on the here-and-now, that it is easy to be overwhelmed with the feeling of doom and gloom. The list of things to concern us is long and worrisome; Donald Trump leading the free world, a nuclear-armed North Korea; an increasingly fractious Brexit process and looming cliff-edge, to name a few.

The natural extension of this is to worry about what the impact of all this uncertainty will have on your portfolio and in turn, on your future wealth and expenditure goals. The first mistake is to believe that the world is falling apart around our ears.  It most certainly is not.  The second mistake is to think that the portfolio needs to be repositioned to mitigate these events. There are six key reasons why portfolio tinkering is unlikely to be a sensible course of action.

Reason 1: today’s ‘unprecedented’ turmoil is no different to how it’s always been

Today’s worries dominate our thinking; but can you remember what you were worrying about a year ago, or two years ago? Probably not. It has ever been thus.  Take a look at the chart below. The overwhelming take-away is to acknowledge the relentless upward trajectory of purchasing power for those patient enough, and disciplined enough, to stay the course.

Figure 1: The relentless growth of purchasing power, despite World events

Source: Albion Strategic Consulting[1]

Reason 2: bad news sells – so don’t ignore the underreported good news

We are all aware that bad news sells. For example, the Office for Budget Responsibility (OBR) delivered a ‘gloomy’ forecast for growth of ‘only’ 1.4% for 2018.  Yet, the UK economy is still growing; remember too that this slow down comes after a period of growth that has outstripped much of the developed world – particularly the rest of the EU – for the past few years.  It is not all bad news.

Reason 3: the danger of conflation of ‘what ifs’

The human mind likes stories and in themselves these stories may lead to what appear to be rational outcomes on which some action, or another, could or should be taken. What we often fail to realise is that the seemingly logical outcome is highly unlikely; we have failed to multiply the probabilities of each sequential outcome together.  Think hard about the stories you read and hear.

Reason 4: the futility of futurology

Futurology is the financial markets’ version of astrology. There is a huge industry out there from the IMF and the UK’s Office for Budget Responsibility (OBR) to investment banks, academics and BBC reporters all peddling their own view of the future.  These futurologists have one thing in common; they are nearly always wrong in their predictions, and are rarely held to account for their poor forecasts. Take forecasts with a pinch of salt.

Reason 5: the framing of data

As we all know, data is used to score points in support of the data-user’s viewpoint. Be aware that simple statements of fact can be both very influential and misleading.

Reason 6: the news is already in market prices

It is normal to be worried about the potential impact of what is going on in the world and how this will affect markets. The reality is that you are not alone; in fact, all active investors have some view on how Trump, Brexit, Merkel’s problems in Germany, or the Federal Reserve in the US – to name a few – will impact bond and equity prices.  These global, diversified view-points are already reflected in the equilibrium price of securities, agreed freely between buyers and sellers.

Your portfolio is already structured to manage uncertainty

Today’s concerns such as Brexit, Sterling’s weakness, potential tax rises in the event of a Labour government, and Donald Trump in general, are endlessly recycled through the 24/7 media soundbite process, alarming some who are invested in the markets. Well-structured investment portfolios seek to ensure that any market conditions can be weathered in the future, whatever drives these storms.  Your highly diversified portfolio, balancing global equity assets with high-quality shorter-dated bonds, is well positioned to do so.  Try not to worry.  Start by watching the news less.

If you are feeling concerned, please feel free to get in touch to talk further.

 

Other notes and risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

[1]     Global balanced portfolio: 36% MSCI World Index (net div.), 26% Dimensional Global Targeted Value Index, 40% Citi World Government Bond Index 1-5 Years (hedged to GBP) – no costs deducted, for illustrative purposes only. Data source: Morningstar Direct © All rights reserved, Dimensional Fund Advisers.

Your Wealth – Your Legacy

In my recent blog ‘to gift or not to gift’ I talked about how too much money can leave you with a difficult quandary regarding gifting. But what is too much money, and have you even considered your Legacy or Inheritance Tax?

Data from the Office of National Statistics shows that IHT receipts increased by 22.9% in the first quarter of this tax year. The figures show that since March, more than £2billion has been taken from people’s estates in IHT.

According to new research[1], almost half of UK Adults (47%) say they have never discussed Inheritance matters.  Talking about estate planning can of course be an extremely emotional subject as people generally don’t like talking about death or money. However, research shows that around one in ten people would like to talk about it but haven’t found the right time, whilst some people just don’t know where to start.

Amongst the most common reasons given for not discussing Inheritance are; not old enough so it’s not a priority, don’t like talking about it, and avoiding it because it’s a morbid subject.

However, whilst approximately a third of people say they don’t feel comfortable talking about their legacy, there are some life events that may prompt people to talk to loved ones, such as a health scare, a near death experience and getting older. Research suggests that after their partner or spouse, people feel most comfortable talking to their mum or a financial adviser in the first instance.

So just what can you pass on?

When someone dies, the value of their estate becomes liable for IHT. Everyone is entitled to pass on assets up to the value of £325,000 IHT-free. This is called the ‘nil-rate band’. It hasn’t changed since 2009 and will remain frozen until 2021.  Any excess above £325,000 is taxed at 40%.

Residence nil-rate band

The new £100,000 residence nil-rate band was introduced in April 2017. It will increase in steps to £175,000 in April 2020 so married couples or registered civil partners with children will be able to pass on up to £1 million IHT free, as this is in addition to the ‘nil rate band’.  However, the residence nil rate band is only available when passing on the family home, or the value from the sale of it, to a direct descendant, so it is important to consider structuring your estate to make the most of these allowances.

5 Conversational topics to have with your loved ones

  1. The importance of an up to date will – When you are making a will, this is a good time to talk to your family about your wishes. Research found that just four in ten over 55’s have an up to date and valid will.
  2. Take advantage of the gift allowance – gifting small sums or money regularly throughout the year can be a great way to financially help loved ones, as well as reduce your IHT liability. See my previous blog http://carpenter-rees.co.uk/blog/gift-not-gift/ for further information on gifting.
  3. Let life events help you start a conversation – It’s not only negative events that can prompt a discussion about inheritance matters. Positive events such as the birth of a child or a marriage can also make people evaluate their plans. Use these opportunities as a way of talking to relatives about how you would like to pass on your wealth.
  4. Talk about later life care – Social care is a much talked about topic, and many people are worried about how they will pay for care when they get older. As a result, people are starting to plan for this earlier, and this provides an ideal opportunity to also talk about your estate planning.
  5. Talk about family heirlooms – If you find it hard to approach the subject of estate planning with your family, then a good place to start could be talking about family heirlooms. People love to hear stories about other relatives even if they never had the chance to meet them and this can be a great opportunity to start a conversation about estate planning.

For more information, please see the November / December edition of our smartmoney magazine, http://carpenter-rees.co.uk/resources.html

Planning for what will happen after your death can make the lives of your loved ones much easier. To discuss putting in place an estate plan to reduce or mitigate Inheritance Tax, please contact us – don’t leave it to chance.

 

[1] Brewin Dolphin

Autumn Budget 2017

Chancellor of the Exchequer, Philip Hammond, delivered his second Budget to Parliament on 22 November 2017. 

In every Budget there are winners and losers and Autumn Budget 2017 was no different. In his keynote speech given to MPs in the Commons, Mr Hammond signalled that he will allocate funds to ‘invest to secure a bright future for Britain’, saying the Budget is about much more than Brexit.

Under pressure to deliver a bold and positive vision of the UK’s future, Mr Hammond started the speech with an upbeat introduction to the economy, defying the expectations of more negative forecasts and promising to face challenges head on, seeking out opportunities. He laid out his plans for tax, housing and travel, but his ability to manoeuvre was limited by figures that showed large downgrades to the UK’s future path of GDP and productivity growth. 

The Chancellor resisted the temptation of making major changes to the pension system to raise cash. The only notable change was that the lifetime allowance for pension savings is set to increase in line with the Consumer Prices Index (CPI), rising to £1,030,000 for the tax year 2018/19. To encourage people to save adequately for their futures, he also announced that the annual allowance, a limit on the amount that can be contributed to your pension each year while still receiving tax relief, will remain at £40,000.

Personal taxes were largely left unchanged, though personal allowances and the higher tax threshold will be increased from April next year. The now annual obligatory freeze of fuel duties was delivered, but new levies on diesel cars were announced.

Click here  to read our guide to the Autumn budget 2017

Want to discuss the impact of Autumn Budget 2017 on your personal or business situation?

Overall, this was not the bold, game-changing Budget that many in the Chancellor’s own party were demanding. If you would like review what action you may need to take to keep your personal and business plans on track, or if you have any further questions, please contact us.

 

 

How to Financial Plan for owners of a growing business

For many entrepreneurs, making a profit is an achievement and growing that profit year on year is the ultimate goal. However, this leads to the new set of considerations and planning needs.

Questions such as;

  1. What do we do with excess capital?
  2. How do I extract money from the business tax efficiently
  3. How do I retain my quality staff and continue to attract more?

Carpenter Rees have always practised the principles of de-risking business owner’s personal finances. Having separate assets that are not linked to the business can give peace of mind and the ability to direct all their energies into growing the business. Taking money out of the business in a tax efficient manner, and using this capital to strategically build a portfolio of Investments independent from the business can help to achieve this goal.

At the growth stage of the company’s development, it is important that the company has a proactive accountant who will provide advice on profit extraction strategies. This includes maximising the tax benefits available by mixing remuneration by way of salary and dividends, the availability and scope of the level of pension contributions that can be paid and the private benefits that can be paid by the company (although some of these may incur a tax charge).

Pension schemes which were set up when the company first started making profits can now be funded to a greater