July economic update – Global conflicts cast a shadow

Geopolitical news dominated July and share prices around the world were adversely affected. Violence escalated between Gaza and Israel while the ongoing conflict in Ukraine was exacerbated by the Malaysian Airlines crash, which was followed by fresh sanctions against Russia from the US and the European Union. Investor sentiment received a further knock after it emerged Argentina had defaulted on its debt.

In the US, the Dow Jones Industrial Average index did breach 17,000 points for the first time, fuelled by upbeat investor sentiment and encouraging employment data. Nevertheless, the benchmark index fell 1.6% over July as a whole, undermined by wider geopolitical issues. More positively, the US economy rebounded during the second quarter, expanding at an annualised rate of 4%. July also saw the US Federal Reserve announce its programme of asset purchases is likely to finish in October, stoking speculation about the timing of an increase in interest rates.

According to the International Monetary Fund, economic growth in Europe is showing signs of recovery although financial markets might be “too upbeat”. For its part, the European Central Bank expects interest rates in the eurozone to remain at 0.15% for “an extended period of time”. The region’s rate of inflation continues to languish and dropped from 0.5% in June to 0.4% over July. Share prices in Europe experienced relatively high levels of daily volatility during the month and, over July as a whole, Germany’s Dax index fell 4.3% while the CAC 40 index in France fell 4%.

Closer to home, the UK economy grew at a quarterly rate of 0.8% over the second quarter (equating to an annualised rate of 3.1%) to surpass its pre-crisis peak of 2008. According to research undertaken by Ernst & Young, however, the first six months of 2014 saw profit warnings from UK businesses reach their highest level since 2011 – a result of competitive pressures and a strong pound. The FTSE 100 index fell 0.2% during July.

In Japan, meanwhile, the Nikkei 225 index rose 3% over the month, although share prices were dampened towards the end by some disappointing corporate earnings data. According to the Bank of Japan’s quarterly ‘Tankan’ survey of business confidence, although sentiment among large manufacturers deteriorated during the three months to June, large companies intend to increase investment spending, indicating businesses are broadly sanguine about the economic outlook.

Yet again, the few (you) will be paying for the many

The Chancellor of the Exchequer, George Osborne, appeared on television and on the radio earlier this month to put some meat on the bones of the pensions announcement he made in his budget back in March. We have been looking at the paper released this week and are concerned that there is something here hidden from sight that we feel you need to be aware of.

Pensions have historically been a vehicle to save monies to provide you with an income for life when you retire. For some years now, those of us not lucky enough to have a guaranteed income from a defined benefits pension (final salary based company pension scheme), have had options when we retire. These are to either buy an annuity (or guaranteed income for life) or take a limited income directly out of the pension fund (income drawdown).

In the budget George announced that from next year he was removing the cap on the amount of income drawdown which is effectively allowing individuals draw out all their pension savings from the age of 55 in one go if they wished to. As part of the original announcement he stated that everyone retiring would be entitled to free independent advice, which very quickly changed to free independent guidance.

The reason for this change is that “advice” in the pensions world is a regulated activity and has to be provided by fully qualified financial advisers such as our team at Chilvester, whereas “guidance” is not a regulated activity and could be provided by anyone whatever their qualifications or experience. Advice is always supported by guarantees so that if anything goes wrong investors are protected; whereas anyone acting on the basis of guidance will not be protected in any way should that guidance prove to be unsuitable in the future. We accept that if they wish to offer retirees guidance that is fine, as long as it is made very clear that there is no investor protection if an individual acts on the basis of that guidance.

What this months announcements have included is how it is proposed that this guidance is to be provided. The suggestion is that this is not to be provided by regulated firms with set standards and qualified staff with proven experience but from the likes of the Citizens Advice Bureau staff and the Money Advice Service, a quango that a government select committee declared as not fit for purpose just 6 months ago.

These organisations are to be funded for this work not from government funds (thankfully) of from the pension companies who are holding the monies but through a levy on all regulated financial firms, including believe it or not, IFAs such as us who provide advice not guidance. The proposal is that IFAs will fund a high proportion of the total cost of this by way of a new levy, which will be in addition to the levies we (you) already pay to fund the Financial Conduct Authority, the Financial Ombudsman Service, the Financial Services Compensation Scheme and the Money Advice Service. This means that the cost of this free guidance to the many will be funded by those of you who are paying us for individual “advice”.

The idea was floated that the financial advisory firms themselves provide this service as the guidance would at least be supported by qualified and knowledgeable staff but no, the government has in its wisdom decided that we cannot be trusted with this……………madness in the extreme.

We have worked over the last three years to hold our fee structure at the same level and will continue to do so. Whilst this is a threat to us it will be at least another year before we fully know the cost implications and I can assure you that we will do our best to minimise any impact on our fee tariff.

There is much lobbying still going on to try and make them see the errors of their ways but I fear that this will end up as yet another government inspired mess-in-waiting.

Health benefits are key to staff motivation

Half of full time employees think health benefits packages improve their job satisfaction, according to research by Investors in People.

The poll found that happy employees were seven per cent less likely to take an unnecessary sick day than their unhappy colleagues.

The poll found that:

  • 80 per cent would feel more positive towards their employer if they offered better health and wellbeing benefits
  • flexible working hours was the most sought-after benefit with 43 per cent saying it would improve job satisfaction
  • health insurance (41 per cent), dental insurance (23 per cent) and career breaks (10 per cent) were other popular ways to increase employee happiness.

Paul Devoy, head of Investors in People, said:

“Organisations need to see staff health and wellbeing as crucial to their business and staff retention. Companies offering health and wellbeing perks will see real business benefits.”

In a separate survey by Westfield Health, 74 per cent of employees said knowing their employer cared about their health would increase workplace motivation.

Paul Shires, executive director of Westfield Health, said:

“It’s clear that employers that adhere to the three Cs – consult, communicate and care – are going to have a healthier and happier workforce as a result.”

1 in 5 adults have no savings

Nine million people, or one in five UK adults, had no savings in 2013, a YouGov survey for Scottish Widows has revealed.

The survey of 5,000 people found that 67 per cent of UK adults had savings last year, the lowest level since 2011. A further 15 per cent said they didn’t know how much they had put aside.

Half of the survey’s respondents said they were saving less than they were two years ago.

The report found that family pressures have a big impact on savings:

  • 41% reported lending ‘a substantial amount’ of money to family members
  • a quarter of people lent money to their children
  • 17% said they had reduced living costs due to family lending.

David Lascelles, savings expert at Scottish Widows, said:

“It is promising to see that among those who are saving, the amount they have put aside has risen year-on-year. However, it is concerning that despite economic improvements, the number of people who are able to set something aside for a rainy day is actually falling.”

Of course, the government are trying to encourage savings with the recent Budget changes to ISA rules which will see the annual ISA allowance increase to £15,000 from July. For a no obligation review of your savings & investment strategy, please contact us.

It’s time to take control of your pension

Although there is no bad time to review your retirement arrangements, with all the changes taking place in the sector, now is a particularly appropriate moment to ensure you are making the most of your pension.

Lost and found
Research conducted by Age UK has found a quarter of UK adults have lost track of at least one pension accumulated during their careers. The average individual aged over 65 has worked for at least five employers – and a quarter of those aged between 25 and 34 have already worked for a similar number. Given this, we are more than likely to have several different pension pots. To trace a missing pension, try contacting the Pension Tracing Service at or call 0845 6002 537.

Consider your options – but take care
If you have several different pension pots, you might consider consolidating them into one. Most occupational and private pension schemes can be transferred and consolidating all your pension savings could cut administration and paperwork, make it easier for you to track the performance of your pension pot and may also reduce costs. But you should take advice – once made, the decision to switch is irreversible and a wrong decision could incur harsh penalties. Chilvester can help you with this.

Take a closer look
Every year, your pension provider should send you a statement showing the current value of your pension pot, and a forecast of what it will be worth when you reach your retirement age. Don’t just file it away – take a closer look. Does the projected value of your pension pot bear any relation to the amount you are aiming for? If not, consider what action you could take to boost its value – perhaps you could boost your pension contributions or you might have to end up working for longer. At present you can pay up to £3,600 or 100% of your earnings, whichever is larger, into a pension every year and receive tax relief on contributions of up to £50,000 (reducing to £40,000 for the 2014/15 tax year).

Focus on the future
Finally, we may talk about “retirement age”, but do you actually know your state pensionable age? Not so long ago, men used to retire at 65 and women at 60 but times have changed. The age at which you become eligible for your state pension – and the amount you receive – is determined by your National Insurance contributions. Find out more using the government’s State Pension Calculator at

For help with your retirement planning, contact Chilvester to arrange a free initial consultation.

What is auto enrolment?

One of the largest-ever shake-ups in the history of UK pensions, automatic enrolment (auto-enrolment) was introduced in 2012 to provide wider access to pension savings. A changing demographic backdrop means that people in the UK are living longer, but they are not saving enough to finance their increasingly long retirements. Before the advent of auto-enrolment, only 46% of UK employees were enrolled in a qualifying workplace pension scheme.  Read more

Budget 2014: What do the pension changes mean?

The announcements made in this week’s budget set out some of the biggest changes to UK pensions for a generation.

Up until now, it has only been possible to draw an income from a pension by the way of a fixed income for life (an annuity) or by taking income withdrawals within prescribed limits (income drawdown). Taking the whole of a pension as a lump sum has only been available under flexible drawdown rules subject to already having a minimum level of income. For those that don’t meet these criteria, lump sum withdrawals have been heavily discouraged with a punitive 55% tax charge.

These rather inflexible and restrictive ways in which pensions could be accessed meant that many savers may have been discouraged from investing in pensions for their future retirement. The government has recognised this and along with auto-enrolment these new reforms are aimed at getting people saving for their own retirement and being less dependent on the state in their old age.

The changes, which will take full effect from April 2015, mean that in addition to the options available today retirees will now have the opportunity to withdraw lump sums from their pensions without limit, regardless of their level of income, to do with as they please. A quarter of it can be taken tax free as it can under the current rules, with the remainder taxed at the individual’s marginal rate of income tax.

Some have argued that a relaxation of the rules will lead to many blowing away their pension savings on frivolous things like cars & round the world cruises leaving them penniless and looking back to the state for help and support – exactly what the government are trying to get away from. Of course, there will be a large boost for the tax coffers. The full effects remain to be seen in the years ahead.

As an interim measure, for anyone retiring after 27 March this year but before the new rules take effect next April, a number of current limits are being relaxed. From the end of this month it’ll be possible to cash in small pension pots valued up to £10,000 or all of an individual’s pension pots if the total value of all pots is below £30,000. Also the maximum income available from drawdown will increase.

Overall, the changes highlight the growing need for financial advice. Most of us will only get one opportunity to choose the right retirement option and making the right choice is going to be more important than ever.

Please contact us for a free, no obligation, initial consultation to discuss your retirement plans.

Changes to the ISA savings rules

In today’s Budget, Chancellor George Osborne unveiled a number of changes in the ISA system to help encourage savings.

Last year it was announced that from the new tax year commencing 6 April, the annual ISA limit was increasing to £11,880 with up to £5940 of this being able to be put into Cash ISAs.

Whilst this is still happening next month, from 1 July the Cash and Stocks & Shares ISA allowances will be merged into a single ISA vehicle, with an annual tax-free limit of £15,000. This will remove the differentiation between Stocks and Shares and Cash ISAs and effectively allow transfers back and forth between cash deposits and stocks & share based investments as needs change.

At the same time the range of investments that can be put in to ISAs will also be expanded. ISA eligibility will be extended to include peer-to-peer loans and all restrictions around the maturity dates of securities held within ISAs will be removed. The government is also exploring extending the ISA regime to include debt securities offered by crowdfunding platforms, we will await the outcome of this with interest.

We will provide clients with more information as it becomes available. For more information on this or any other matter of personal finance, please contact your adviser.

Helping with the cost of Care

The cost of care in later life can sap your lifetime savings, force you to sell your home and leave you with very little to pass on to your children.  It is a worry for many people and although funding from the local authority is available, it only comes into effect when you have less than £23,250 of assets remaining.

Parliament is currently considering a proposal which tries to protect people’s savings and homes from unlimited care costs by offering a ‘fairer capped funding system’.  If it is passed, by 2016 it could give you more options when looking at funding long term care.  The Care Bill proposes the following for those people needing to fund their own care:

  • Local authorities will help with the cost of care sooner through changes to the means tested capital limits
  • A cap on the total amount you have to pay for care will be introduced
  • The ability to defer the payment of care costs for everyone allowing you to keep your home

Those are the headlines but is it all as good as it sounds? Read more

Planning for long term care

Over the past few years, we have become all too familiar with the effects of an ageing UK population on pensions funding and the gap in state benefits. However, there is another serious issue at stake and it is one that, all too often, is not considered until it becomes an acute problem – the older we grow, the more healthcare we are likely to need. Furthermore at the same time as the state is becoming increasingly concerned about demands on its funds, the cost of long-term care is rising.

Many people are therefore looking for ways to help prepare for such an eventuality, either through a pre-funded insurance policy or, if the situation has already arisen, through an immediate care plan. ‘Immediate needs annuities’ can help to bridge the gap between your income and the cost of your care and are designed to help cover the cost of care if you need it immediately They pay a guaranteed level of income for as long as you live, in exchange for the payment of a one-off lump sum. Pre-funded care plans are no longer available to purchase, although you might have a pre-existing policy that allowed you to insure your future care requirements before they arose. Another possibility would be to consider using your pension pot to buy an enhanced annuity if you have a medical condition, a long-term illness or a lifestyle that could affect your health.

If your income is sufficient or if you have significant savings, you might be able to make any necessary payments for care from your existing resources – in fact, this could well be the most appropriate strategy in the case of short-term requirements.

Above all, however, it is important to plan ahead. Could you – or a family member – need long-term care, either now, or in future? Do you have the money to pay for long-term care? What type of care might be required? What will happen if your care costs increase more quickly than your income? If you are using your savings, how long will they last? Could your savings be depleted before your needs cease? What if you live much longer than expected? These are common concerns for anyone facing an immediate need for care. Chilvester can help you through the maze. Please contact us for an initial meeting.