A Great British Summer
An increasing sense of optimism seems to be apparent as the country emerges from lockdown, providing a much more familiar feel to the season, with anticipation growing that this will prove to be a Great British summer. There has already been a packed sporting schedule to enjoy, with events such as test cricket still to come; many of us have staycations planned and, for the musically minded, the Proms have made a welcome return.
Improving financial confidence and diverging fortunes
There also appears to be a similar air of optimism in relation to economic matters, with data across the first half of this year proving to be stronger than previously expected. The UN’s mid-2021 World Economic Situation and Prospects Report, for instance, revealed an annual growth forecast of 5.4% for 2021, up significantly from January’s 4.7% estimate.
This brighter outlook largely reflects the rapid vaccine rollout in a few large economies, principally the US and China, as well as an increase in global trade.
As a result, there now seems to be a good chance that major economies will recover the lost ground caused by the pandemic, before the end of 2021.
However, the report contained a word of caution that inadequate availability of vaccines in many countries, threatens a more broad-based global recovery, suggesting that ‘the economic outlook for the countries in South Asia, sub-Saharan Africa and Latin America and the Caribbean remains fragile and uncertain.’
A summer spending spree?
Many people have witnessed a substantial reduction in their outgoings over the past year, with commuting, childcare and entertainment costs all falling considerably for the typical household. As a result, a significant proportion of consumers are sitting on relatively large sums of money and, while some are likely to continue saving, others will undoubtedly be looking to make up for lost time by increasing spending on shopping, meals out and holidays.
Your financial wellbeing
Whatever impact the pandemic has had on your finances, we are here to help keep your financial affairs in good order, giving you even more time to enjoy the Great British summer!
The influence of social media on younger investors
Social media has infiltrated our everyday lives, bringing both positive and negative impacts. Astonishingly, 3.96 billion people, over half of the global population, currently use social media worldwide, up almost double from 2.07 billion in 2015. With the average person having 8.6 social media accounts, there’s no wonder it has become such a major influence in many people’s lives.
The Financial Conduct Authority (FCA) has recently expressed concerns over the influence of social media on younger investors. Prompted by social media platforms such as Instagram, Tik Tok and YouTube, findings show that a younger, more diverse group of investors are becoming reliant on investment tips and advice through these channels, but worryingly, lack the knowledge and understanding required to make informed choices.
Confidence versus financial resilience
The FCA believe that younger consumers are getting involved in higher risk investments, which are likely to be unsuitable for them, and in which they have a ‘striking’ lack of awareness of the associated hazards. Shockingly, 45% did not associate ‘losing some money’ as a potential risk, despite 59% claiming that a significant investment loss would have a fundamental impact on their lifestyle.
Ask yourself this…
The FCA have launched a ‘digital disruption’ campaign to make investors aware of the risks, question their investment journey and to encourage them to ask themselves five questions:
Nurture your financial future
FCA Executive Director, Consumer and Competition, Sheldon Mills, commented, “We are worried that some investors are being tempted, often through online adverts or high-pressure sales tactics, into buying higher-risk products that are very unlikely to be suitable for them… We want to make sure that we encourage the ability to save and invest for lifetime events, particularly for younger generations, but it is imperative that consumers do so with savings and investment products that have a suitable level of risk for their needs. Investors need to be mindful of their overall risk appetite, diversifying their investments and only investing money they can afford to lose in high-risk products.”
Don’t risk jeopardising your financial wellbeing, we can develop an investment plan suited to your long-term goals and risk profile.
Improving your pension confidence
It can be challenging to feel confident in our pension provision these days. Increased life expectancy and high living costs mean we need to save ever more into the pot for a comfortable retirement.
Do yourself a favour
Just 41% of non-retired UK adults are confident they’ll have saved enough by the time they retire, according to a study from financial services provider LV1, increasing to two-thirds (66%) of women. A lack of confidence in our finances can cause a great deal of worry and stress, adversely impacting our mental health. Positively, though, 65% of those who had consulted a financial adviser said they felt confident about their pension provision.
Making it a priority
Advice was also shown to increase the priority people gave to their pension, with 55% of advised adults increasing their contributions and 56% discussing their retirement plans with their partner. They were also more likely to have researched what they would need to live on during retirement.
The value of advice
We can help you engage positively with your pension, increasing your confidence and setting you on track to reach your retirement goals.
1LV, 2021
Could the deficit and rising inheritances accelerate IHT changes?
With the largest ever peacetime deficit on our hands thanks to the pandemic, and an aged Inheritance Tax regime firmly on the government’s radar, could this combination lead to unwelcome tax rises on transfers of wealth?
Viewed by some economists as a way to generate revenue without inhibiting the economy, whilst also improving social mobility, the Institute for Fiscal Studies have been exploring two ‘i’s’ – inheritance and inequality.
Heightening inequality
Their spring 2021 paper, entitled ‘Inheritance and inequality over the life cycle: what will they mean for younger generations?’, pinpoints trends likely to influence policymakers’ thinking, with one key finding highlighting that inheritances have formed a rising proportion of national income for the past fifty years. Inheritances for those born in the 1960s will on average equal 9% of their other lifetime income, compared with 16% for those born in the 1980s. A continuation of this trend will see a widening of the gap between rich and poor families.
With social levelling-up prominent on a cash-strapped government’s agenda, IHT changes could prove costly for the wealthy. Taking expert advice and preparing for all scenarios is wise.
A changing investment perspective
We’ve heard it all before – it doesn’t take a rocket scientist to appreciate how the pandemic has prompted a seismic shift in public behaviour, as it’s impacted all our lives. Appreciation of this major shift in the way we live our lives should also translate to our investment choices, making them a prime consideration when evaluating future prospective investment opportunities.
In the mix – socioeconomic trends
For many, especially early on, the pandemic served a slower pace of life, it has also considerably accelerated various socioeconomic trends that have been simmering away under the societal surface for many years. The most obvious example of this being the shift to flexible working practices, suddenly propelled to the fore.
The past year has made everyone see that workplace presenteeism isn’t always necessary. Companies in traditional offices were forced to send their employees home to work remotely, and many will continue to work from home long after the pandemic is over. This trend will impact business interaction, travel, commuting, commercial property, and city centres, and spending will move to the suburbs.
The acceleration of digitalisation
Another key trend accentuated by the pandemic has been the intense acceleration of the shift to digitalisation. The massive growth in e-commerce, for instance, has resulted in those businesses with superior online offerings gaining greater competitive advantage. The shift to online shopping has been evident across the age range, as older consumers increasingly turned to e-commerce to avoid leaving home.
Socially responsible investing
The pandemic has reinforced the immediate importance of sustainability and corporate governance issues. Greater focus has been placed on wellbeing and how businesses treat both their employees and suppliers. As a result, governance and sustainability issues have been catapulted up the corporate agenda.
Saving for a pension later in life?
When it comes to saving for retirement, there are always options, no matter how late you leave it.
Increase your contributions
If you’re currently paying the minimum 8% (including tax relief and 3% employer’s contribution) into your workplace pension, consider increasing it. Making a few cuts elsewhere can help you find those much-needed funds.
Look at your State Pension entitlement
If you have made at least ten years’ National Insurance contributions (NICs), you will be entitled to some level of State Pension. The full rate New State Pension is currently £179.60 per week, or £9,339.20 per year, with eligibility reserved for those who have made 35 years’ worth of NICs. While the State Pension is not enough to live on, it will help boost your income during retirement.
Quantify your pensions (and any other assets)
When you look at the State Pension entitlements, they do serve as a wake-up call to engage with any other pension provision you have made. It’s likely, if you’ve moved jobs, you have accumulated pensions; these need to be quantified and the underlying investments assessed for diversity and suitability.
Take advice
An ILC study2 revealed that pension savers who took advice for a five-year period between 2001 and 2006 accumulated nearly £50,000 more wealth on average (in pensions and financial assets) than those who only took advice at the beginning. It’s easy to justify the value of advice.
2International Longevity Centre UK, 2019
School fee planning – begin on day dot
With the average annual fee for private schools now £36,000 (£12,000 per term) for boarders and £15,191 (£5,064 per term) for day pupils3, making the decision to privately educate your child is a big step and a massive financial commitment. In addition to fees, added extras such as registration fees and funds to cover things like outings, uniforms and clubs, all need financing.
School fees are likely to rank amongst a family’s largest expenses, so starting to save as early as possible and encouraging family members to contribute to savings accounts, will help you accumulate the sums you need to cover all the costs involved.
Start early and be savvy with your exemptions and allowances
Investing could be a good option if you have a longer time frame, say ten years plus. Although there are risks involved, investments do provide the potential to offer more favourable returns than those derived from a savings account; however, this is certainly not guaranteed. By investing money monthly, you can benefit from pound cost averaging, to smooth out any market volatility.
Making the most of their own ISA allowances, (£20,000 for the 2021/22 tax year), parents can invest and pay no tax on their returns, as well as withdraw their money without incurring tax. In addition, grandparents may choose to make use of lifetime gifting, which can have the dual benefit of reducing the value of their estate for Inheritance Tax purposes and deriving satisfaction from seeing their money benefit their grandchildren during their lifetime.
Striking a balance
Not advisable for all, but in some instances, older parents are choosing to take their 25% tax-free lump sum from their pension to fund their child’s education, leaving the rest invested for income in retirement. If this is a possible strategy, it is important to leave enough for retirement. This may impact on your income in retirement and could affect the amount of money you contribute to a pension.
When embarking on a major financial commitment to your child’s education, taking financial advice will ensure you don’t compromise your own financial security, helping you plan effectively for the years ahead.
3ISC, 2021
Protecting your pension from long COVID
The medical, social and financial impacts of the pandemic have been far reaching. Some people who are recovering from COVID, are left with prolonged symptoms, leading to a diagnosis of ‘long COVID’. Similarly, from a financial perspective, many people have lost earnings, but economic recovery could help restore their financial health and wellbeing. Unfortunately, a minority could suffer the financial equivalent of long COVID.
During the past eighteen months, Legal & General has monitored the financial effects of the pandemic, with a particular focus on the long-term impact on the future pension income of workers aged over 50. Last August, only 2% of this age group were considering reducing their pension contributions. Eight months on, in April this year, the research highlighted that 12% of workers over 50 were actually paying less into their pension pots because of the financial disruption caused by the pandemic, severely impacting the retirements of one-in-eight (about 1.7m) 50-plus workforce members. By way of example, L&G cites, ‘A 50-year-old opting out of a workplace pension could be £50,000 worse off by the State Pension age of 67 if they never opted back in and continued working full time throughout.’
The message is clear – anyone, whether over the age of 50 or under, who has economised on pension contributions during the pandemic, should restore them as soon as they can, as Andrew Kail, CEO of L&G Retail Retirement, concludes, “Although current circumstances are proving challenging, we would urge those who have already saved something for retirement to maintain their contributions. Pausing them may be tempting, however people should explore every possible alternative before considering this. Prioritising enrolling back into the scheme as soon as possible, to limit the losses and take advantage of the tax breaks, is also advisable for anyone who has already stopped.”
Lockdown savings result in six-year ISA high
People paid £1.5bn into Individual Savings Accounts (ISAs) in April4; this constitutes the highest level of April inflows in over six years. During the month, people invested £78m more into ISAs than over the entire previous 12-month period.
Chief Executive of The Investment Association, Chris Cummings, commented about growing investor confidence in the UK as the country emerges from the pandemic, adding, “Savers have once again shown the appeal of ISAs in helping to get into the savings habit and build up a retirement nest egg. Comparing the strong ISA flows this April to the year before shows investors have been moving money into funds to make the most of tax incentivised savings and to deliver better returns amidst low interest rates on cash savings.”
He also noted, “Rising inflows to more domestically-focused UK Smaller Companies funds shows investors are increasingly positive that the post-Brexit UK economy will grow strongly as it opens up. In another strong month for responsible investment funds, savers invested £1.6bn, taking the total inflows to £13.5bn over the last year – representing 30% of flows into funds.”
Here to help
For advice on maximising your savings in a low interest environment, get in touch.
4The Investment Association, 2021
Investment scam myths you should ignore
Have you ever read one of those articles focusing on tell-tale signs of an investment scam? It might not be as useful as you think.
Unfortunately, investment scammers are becoming increasingly sophisticated in their techniques, winning their victims’ trust by not conforming to how we think scammers are supposed to behave.
Contrary to popular belief, scammers don’t always use aggression or rush tactics. If you’re encouraged to take your time, don’t be lulled into a false sense of security – make sure you still do your research and take advice.
Typos and unprofessional language are often associated with scams. Unfortunately, scammers have cleaned up their act (and their spelling) these days, and often come across as polite and professional.
You’ve probably heard the adage ‘if it sounds too good to be true, it probably is’. However, criminals are just as likely these days to offer realistic returns, in order to win your trust.
No fixed pattern
Modern scammers now exploit the stereotypes we all rely on to tell the fact from the fiction. That’s why it’s so important to take financial advice and refer to reputable sources such as the FCA’s ScamSmart tool, before making any decisions with your money.
Do you understand your pension benefit entitlement?
Rising living costs and increased life expectancy mean that it’s more difficult than ever to save up enough to provide a sufficient income for our retirement years. And yet, 63% of Britons who are of pensionable age have never checked their entitlement to benefits, making them the least likely group to do so5.
Very few pensioners are on a high income, and yet millions of pounds worth of benefit payments, including pension credit, housing benefit, income support and child tax credit (to name but a few) are going unclaimed every year.
A financial health check
It’s always good to regularly review your finances to check you’re on track for retirement. For assistance in exploring the various options for funding your later life, please get in touch.
5Turn2us, 2021
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It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.