Now for the real work!

The night of 07 May 2015 was a long one. Waiting for the results of a General Election can be a fascinating time, with a few high profile MPs and candidates falling at the declarations across the UK. As the morning of 08 May broke, the clear outcome of the General Election was a surprise to many, especially the various pre-Poll providers whose predictions were well wide of the final result.

With the press suggesting it was neck and neck to the wire, many, including me, were surprised by the initial exit poll which provided a clear outcome. As the investigations begin as to how the real result was not closely hinted at, many are questioning the motives behind the voting pattern, with thoughts of loyalty to a political party, desire for the economy to stay on track and, conversely fear of an alternative route. Fear, along with other basic emotions, such as love and greed are powerful motives.

With the dust settling and the new cabinet posts being allocated as I type this blog, the real work for the new Government begins. I wish them every success, as it is clear the majority of the UK does, in moving the country forward.

With this in mind, what does this change mean to you, if anything at all? Will it make a change to the way you work or manage your money and financial planning? Some issues are not affected by who governs the country, such as the population naturally living longer. More time to work, possibly, but also more time in retirement. Indeed, the new 'pensions freedoms' which were a legislative change, may help manage this issue. Longer working may give more time to save, but it might also mean that as a bread-winner, you may need to protect the family for longer.

Whatever your individual circumstances, and we are all individuals, now may well be a good time as we head towards the summer to take stock of your financial planning, to review this and to make changes to meet with your plans, whether they have been changed by the General Election results or not.

The team at Chapters Financial can help you with your financial planning and any review that may well now be due. Talk to us at our Guildford or Woking offices or contact us, via our link here

Because each person is an individual, no individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Inflation is good...the alternatives are not!

The UK has seen inflation rates gradually falling in recent times, with recent falls appearing to accelerate. There is no guarantee that this trend will continue, but with current inflation rates standing at 2.3% RPI (Retail Prices Index) and 1.2% CPI (Consumer Prices Index) in the year to September 2014 (source: Office for National Statistics), the possibility of stagflation, and even deflation, and their consequences, need to be revisited. 

As you will see, inflation, believe it or not, can have its benefits.

Stagflation

The term 'stagflation' refers to a combination of ‘stagnation’ and ‘inflation’. Stagflation is an economic phenomenon characterised by slow economic growth and rising prices. The term was first coined in the 1960s in the UK to describe the combination of a stagnant economy, increasing unemployment and rapidly rising inflation owing to dramatic upward movements in world oil prices. Stagflation hit the UK hard in the 1970s, as rising inflation and lack of employment opportunities stifled economic growth. 

There are a range of theories about why stagflation occurs. Keynesian economists cite supply shocks as the cause, for example rapidly rising oil or food costs. Others blame excessive growth in the supply of money – as Milton Friedman described, “too much money chasing too few goods”. It has also been argued that stagflation is just a natural part of the modern economic cycle or that political and social structures are responsible for the phenomenon.

Whatever the cause, stagflation raises serious dilemmas for economic policy because actions designed to reduce unemployment may exacerbate inflation, and vice versa.

Deflation

Deflation is the opposite of inflation - a general decline in the price of goods and services. It occurs when the inflation rate becomes negative, i.e. when the inflation rate falls below 0%. Deflation is often caused by a reduction in the money or credit supply, although it can also be caused by a decrease in spending by the state, the consumer or the financial community. Deflation increases the real value of money over time. This is because consumers will hold back on purchases of goods and services with the expectation that the price of these will fall over time. This fall in demand, combined with an increase in the real value of debt, leads to increased unemployment, which in turn can lead to economic depression, as seen in the US between 1930 and 1933 when the rate of deflation was rapid, banks failed and unemployment peaked at 25% of the population. 

Japan: 20 years of deflation

Japan has experienced deflation and its effects since the mid-1990s. The initial shock came in the early 1990s with the bursting of the economic ‘bubble’ of super-inflated property and stock market prices. The subsequent collapse lasted for more than a decade, as the slump in demand caused by the bursting of the asset bubble resulted in Japanese firms being unable to raise sales prices and cutting wages and employment as a consequence. From the late 1990s onwards, wages began to fall faster than prices and deflation became entrenched. With no incentive for firms to invest, the economy became trapped in deflation, with falling prices, falling wages and falling investment combining to maintain the downward pressure.

Is there a lesson here for Europe and the UK?

Firms in the Eurozone are responding to the lack of demand and their inability to impose price rises with a conviction that cutting labour costs is the route back to competitiveness. This is worryingly reminiscent of the vicious circle in which Japan became trapped in the 1990s and the threat of deflation is therefore of real concern to Eurozone leaders.

Summary

It will be interesting to see how the next few months pan out for the UK economy and the way that the Bank of England uses its financial tools to control, where possible, the outcomes. Inflation, against its alternatives noted above, can have its ‘benefits’. With many now suggesting that Bank Base Rates (currently 0.5% pa) will stay at this level until summer 2015, the effect of inflation or stagflation….or worse, could have a real effect on the value of the money we have to spend over time.

No individual pension/ financial advice is provided during the course of this blog.

If you would like guidance and advice on your income planning for the future then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Are Your Children's Savings Invested Appropriately

How do you save for your children’s future, and are you saving with a particular goal – such as university fees – in mind? If so, are the funds invested in assets appropriate to the length of time until the money is needed?

With the current geopolitical situation causing stock market volatility, parents and grandparents may well be concerned over where best to save for the younger members of the family. However, it is important to bear in mind that most investments made for children are for a term of 10 years plus, and therefore investing in stocks & shares could well be a suitable route to take, on the basis that the investment is regularly reviewed.

It is interesting to note that three quarters of the £578 million subscribed to Junior ISA (JISA) accounts in 2013-14 is invested in cash, with only a quarter subscribed to stocks & shares arrangements. Although the interest rates offered on cash JISAs are superior to those offered to adults, with the majority currently paying between 2% - 3.5% gross AER per annum (source: Money Advice Service), any gains made are at risk of significant erosion by inflation over time. Investing in ‘real’ assets such as stocks & shares can help to protect against inflation and improve the overall return over time (not guaranteed).

Junior ISAs – a popular and tax-efficient way to save

JISA accounts have been available since 1 November 2011 to children under the age of 18 who do not own a Child Trust Fund (CTF) account (CTFs were available to eligible children born on or between 1 September 2002 and 2 January 2011).
According to recently published Government statistics, JISA account openings rose by 46% in the tax year 2013/2014, the second full financial year since the JISA took over from the CTF. £578 million was subscribed to JISA accounts in 2013-14 (source: HMRC ISA Statistics 2014 - http://tinyurl.com/n4l86sx ).

Chapters Financial is not responsible for the content of external websites

 

We expect this figure to continue to rise, with a boost from April 2015 when parents will be allowed to switch funds currently held in CTFs to JISA accounts. It is likely that JISA accounts will prove more flexible and better value than the older CTF arrangements and we would encourage parents to seek advice on the new options available.

Are you taking enough investment risk?

In the current tax year (2014/15), parents and grandparents can invest up to £4,000 in a JISA. Even if you don’t save to this limit, and choose to set aside a small amount each month, this can add up to a substantial amount over an 18 year timescale if invested appropriately.
Understandably, some people will not be comfortable with exposing their savings on behalf of their children to stock market volatility. However, given the long time period over which money is likely to be invested, sheltering the funds in cash may prove counterproductive. An (example) 18 year period provides enough time to absorb short-term stock market movements and investments in stocks & shares offer the potential for real capital growth (not guaranteed).

Maximising the tax efficiency of saving for children

Children are entitled to the same income tax personal allowance as adults (currently £10,000 in the 2014/15 tax year). Most children won’t have ‘earnings’ as such, so this allowance is applied to the income they may receive from sources such as deposit savings or investments. If the return the child receives in a tax year is less than the personal allowance for that year, no tax will be due.
An important point to watch is that if you give your children money outside a tax-efficient investment such as a JISA, and this generates interest of over £100 gross in a tax year, the whole amount of this income will be taxed as if it were your own income, at your highest marginal rate.

This limit applies to parental gifts only, not to gifts from other family members. With Christmas approaching, it may be a good time for grandparents to consider gifting money to their grandchildren, either into a JISA if contributions have not been maximised, or into a savings account or other arrangement. This gifting would have the added advantage of using the grandparents’ annual gift allowance, if not already used. Each individual is allowed to give away gifts worth up to £3,000 in total in each tax year and these will be exempt from inheritance tax from the date of the gift. Any unused part of the annual exemption can be carried forward to the following year.

Summary

If you would like support and advice on saving for your children or grandchildren’s future and maximising the tax efficiency of gifting and investing then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own family situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.



Vicky Fulcher
Trainee Financial planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899

Back to school, back to school fees

Ah! The start of a new school year – the joys of trying to gather together all the sports kit and school books that you stowed away in July thinking that September was weeks away. There’s nothing like last-minute preparation. Great for uniforms, but not for planning school fees.

If you are considering independent / private schooling as a future (or current) option for your children, achieving careful financial planning as early as possible will help you to gauge affordability, maximise your options for fee payment and could save you substantial amounts of money in the future. If your children are already at private school, you will no doubt have had school fees on your mind way before the start of the new term.

School fees, pupil age and inflation

The Independent Schools Council (ISC) Annual Census 2014, which is based on data gathered in January 2014 from the ISC membership of over 1,250 independent schools, states that the overall average termly fee across the membership is currently £4,998 (excluding nursery fees). The average boarding fee is £9,596 per term and the average day fee is £4,241 per term. Fees will of course vary depending on factors such as geographical location and reputation, and the differences can be extreme.

It is also important to bear in mind that school fees do not remain level. The amount you pay will increase in two ways. Firstly, the fees will increase by school year/pupil age – i.e. you will pay more for a child in Year 6 than for a child in Year 2. Secondly, fees across the board are likely to increase every year by far more than inflation.

ISC figures suggest that the cost of sending a child to private school has risen by approximately 40% since 2007. In its Annual Census 2014 the ISC notes that the average fee across its member schools (excluding nursery fees) has risen by 3.9% from January 2013. This is the lowest annual fee rise since 1994. However, it is still significantly higher than the rate of inflation over the same period which was 1.9% as measured by growth in the Consumer Prices Index/CPI (source: Office for National Statistics).

The ISC Annual Census 2014 may be viewed here:

http://www.isc.co.uk/Resources/Independent%20Schools%20Council/Research%20Archive/Annual%20Census/2014/ISC_Census_2014_11Apr14%20v2%20(2).pdf

Chapters Financial is not responsible for the content of external websites

School fees are usually not inclusive of extras

When parents try to assess the affordability of private education, or work out a savings plan for future fees, the figures used are often the basic fees quoted in the prospectus or on the school website. The ‘extras’ are often left out of the calculation and can bump up the cost considerably. From personal experience, the main potential areas of additional expenditure are as follows:

• Uniform: the biggest single outlay takes place when the child joins a new school and requires a whole new set of uniform and sports kit. Bought new, it can be cripplingly expensive, especially if the school has a dedicated shop from which all uniform must be purchased. In this situation, an initial outlay of £400 would not be unexpected. It is worth checking whether any generic items can be bought through other sources and it’s definitely worth looking at the school’s second-hand uniform shop. It’s also important to bear in mind that many private schools change the uniform requirement or design fairly regularly, so you should be prepared to replace items of clothing /sports kit that are ‘out of date’. Particularly frustrating when the ‘old’ kit still fits…
• Out of hours care: many schools now offer wrap-around care (e.g. breakfast and after-school clubs), which are particularly useful where the parent(s) work full-time. However, this service comes at a cost, which is often forgotten in budget planning. As an example, the cost of putting a Year 6 child in one local private school into breakfast and after-school clubs every day (care from 7.30am to 6.30pm) would currently amount to nearly £700 per term.
• Trips: in many cases, the cost of outings and residential trips offered by private schools is charged on top of the basic fees. It is sensible to plan in another £100-£200 per term to cover these eventualities, and potentially more for senior school children.
• Lunches: some private schools charge extra to provide lunch, whereas for others this is a service included within the basic fees. If lunch is not included, this could add in the region of a further £100 per term to the bill.
• Extracurricular lessons and clubs: there will often be a wide range of additional activities available, from music lessons to sports clubs. Again, most of these will cost extra - for one-to-one piano lessons alone, for example, I would suggest factoring in another £120 per term.

 

It’s easy to see, therefore, how the ‘extras’ can mount up – for a child entering a new school and requiring wrap-around care five days a week, the additional costs over and above the basic fees could well amount to over £1000 in the first term. 

Funding 

 

Early preparation is key. Paying for school fees out of net income (after-tax income) can have a significant impact. For example, a year’s school fees of £15,000 would be £25,000 before tax for a 40% taxpayer. However, with some forward planning, this situation can be at least partially improved. Strategies to consider include:

 

• Saving / investing: As early as possible. ISAs (or New ISAs/NISAs as they are now known) are a tax-efficient way to put aside money every year for future private education commitments. The NISA allowance for the 2014/2015 tax year is currently £15,000 and this can be invested in stocks and shares, cash or a combination of the two, according to your needs and your attitude to risk. Obviously the earlier you start saving, the more you can accumulate before school fees begin.
• Scholarships and bursaries: It is sensible to investigate the availability of scholarships and bursaries. Bear in mind, though, that bursaries are generally means-tested, although every school will have a different system in place. Scholarships are awarded for prowess in a particular academic or other area, such as music or sport.
• Family help: It may be the case that grandparents or other family members are willing to help out with school fees. If this is the case, a ‘bare’ trust arrangement could be a tax-efficient way for them to provide support. A ‘bare’ trust can be set up by anyone for a specific child or children. The trustees will withdraw money as required to pay towards the school fees. Gifts to the bare trust are usually treated as Potentially Exempt Transfers (PETs) and will usually fall out of the estate of the donor for Inheritance Tax purposes after seven years.

 

Summary 

 

Private school fees can be a significant drain on your household income and advance planning is the key to assessing affordability and minimising the financial impact as far as possible. If you would like support and advice on planning for school fees then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own family situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.  

 

 

Vicky Fulcher Dip PFS

Trainee Financial Planner

  

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

 

 

Financial Review, but also re-balance

At Chapters Financial, we have always noted the benefits of clients reviewing their finances on a regular basis to ensure their existing planning meets with their needs and objectives. Individual circumstances change, markets change and the asset allocation of funds can also change. A review may occur once a year or more regularly, dependent on the needs of the client.

The asset allocation of an investment portfolio is informed by the risk profile of a client and the returns that are sought. Over time, market movements can cause one or more asset classes to drift from their initial targets, resulting in the investor holding a portfolio that may not reflect either their attitude to risk or their investment goals. Rebalancing, as one financial planning solution, is about controlling risk and ensuring that your portfolio is not overly exposed to the success or failure of one particular asset class.

Rebalancing can be an important part of financial planning. Simply put, the process involves periodically buying or selling assets in a portfolio to bring it back to its original asset allocation level. However, there is no accepted industry-wide ‘best practice’ on how and when to rebalance a portfolio. Some providers offer an automatic rebalancing model as part of a passive investment approach. There is much data to suggest that this can work, particularly if fairly wide tolerance bands on both the upside and the downside are in place to avoid excessive trades and associated charges which could erode returns. However, automatic rebalancing is just that – automatic – client portfolios are rebalanced once they drift beyond set tolerance bands. If this is set to occur at pre-determined times over the year, e.g. quarterly, it will take place even if market conditions at the time are not optimal.

Chapters Financial prefers to take a more active approach to investment management and review. Our view is that calendar-based rebalancing alone is not the best approach – at each review, it is important to consider the prevailing market conditions, the specific circumstances of the portfolio in question and to tailor the solution to the needs of the client. We are all different and our investments are likely to mirror this.

At a review, we would anticipate examining the performance of the funds, recommending changes where required to improve the potential to meet the client’s investment objectives and also re-allocating fund balances to meet with a client’s attitude to investment risk. Our active approach means that we can take a view on the ongoing performance of each asset class within a portfolio, rather than just following a set of systematic rules for rebalancing. Given the levels of volatility that all financial markets can experience, we believe that this individual and ‘hands-on’ approach offers the best way to work towards our clients’ investment objectives within agreed risk parameters. This does not mean that at a review you would anticipate a wholesale change of your holdings. However, areas of underperformance can be addressed and areas of good performance may see a ‘profit-take’ situation.

As suggested, each of you is individual and your investments are likely to be the same. No individual advice has been provided during the course of this blog. If you would like financial advice on the allocation of your funds/ investment strategy, then please contact the Chapters Financial team in Woking (01483 330800) or Guildford (01483 578800).

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Extra! Extra! Read all about it! Topping up your State Pension: is it worth it?

Financial planning and retirement planning can get complicated when coming to the right solution for each individual. The new flexibility introduced in the Budget 2014 is very welcome, however it is very important not to forget the basics, such as the State Pension available to each individual.

Normally, as part of our standard process, we ask individuals to check their State Pension benefit accumulation to ensure that the correct value is being achieved. This may not always be the case and it is important that allowances, such as the Home Responsibilities Allowance, are accounted for. This can be achieved by using a BR19 State Pension Forecast form, which may be found here: https://www.gov.uk/government/publications/application-for-a-state-pension-statement-form-br19-interactive-pdf or by going online to check the value of future benefits here: https://www.gov.uk/calculate-state-pension

It should be clear that in most cases there is real value in maximising the index-linked income from the State Pension, and reviewing the benefits, in our opinion is usually worthwhile (not in all cases), especially if you have the opportunity to increase their value.

Extra! Extra! Read all about it!

From October 2015, pensioners will be able to ‘buy’ up to £25 a week of extra State Pension. This option will be open to anyone who reaches State Pension Age before April 2016 – in other words, women born before 6 April 1953 and men born before 6 April 1951. The scheme aims to compensate the millions of pensioners who will miss out on the new flat-rate State Pension, which will come into effect from April 2016 and will pay around £155 a week.

If you qualify, there is only a short window of opportunity to increase your State Pension under this new top-up scheme: the scheme will run for 18 months, from 12 October 2015 to 1 April 2017.

Is this a new top-up scheme?

Yes, although there’s already a system whereby you can top up your basic State Pension. You currently need 30 years of full National Insurance contributions to qualify for the full basic State Pension. If you’ve accrued fewer years, you can make a lump-sum payment to increase the amount of basic State Pension you will receive on retirement.

The new scheme doesn’t replace this system and it’s important that you check that you have full entitlement to the full basic State Pension before you subscribe to the new top-up scheme. This is because your money will buy you significantly greater benefits under the existing scheme – for example, a sum of £890 would currently buy a 65 year old £4.64 a week of extra basic State Pension, whereas under the new scheme the same sum would boost your income by just £1.

What benefits can I ‘buy’ extra?

You can choose to top up your State Pension by between £1 and a maximum of £25 per week. How much you’ll need to contribute depends on how much extra pension you want to get each week and how old you are when you make the contribution.

For example, you are 68 years old in October 2015. You decide that you want an extra £5 per week (£260 a year) on top of your pension. The cost of an extra £1 per week for a 68 year old is £827, so you multiply £827 by 5. Therefore, you’ll make a lump sum payment of £4,135.

An online calculator is available at https://www.gov.uk/state-pension-topup . This will give you an idea of the cost and value of buying extra State Pension income at your current age.

Chapters Financial Limited is not responsible for the content of external webpages.

Does the new scheme offer value for money?

It could, for many people. The scheme works like an annuity, in that you are buying a guaranteed (and index-linked) income for life with a lump sum payment. Thus, your investment will only pay off if you live long enough to recoup the cost of buying the income and subsequently start earning a ‘return’. So those in good health should benefit from topping up their State Pension.

The maximum additional benefit of £25 a week costs £22,250 for a 65 year old. This is equivalent to an annuity rate of 5.84% - significantly higher than the current market rate of just over 3%. The return is higher still for older pensioners – a 70 year old will pay £19,475 for an additional income of £25, which is equivalent to an annuity rate of 6.67%.

Spouses and civil partners will also be able to inherit 50% of the top-up on the death of the pensioner, and the resulting income payments will remain index-linked.

The scheme may offer poorer value for money for a range of individuals:

• Single pensioners – as they have no spouse/civil partner to inherit 50% of their top-up
• Those with shorter life expectancies – as they may not live long enough to benefit from their investment
• Those who need access to their capital in retirement – rather than committing their lump sum to buying an income

What are the alternatives?

There are alternatives and each individual case is different. This is where high quality financial planning advice can help you understand the options and to allow appropriate decisions to be made as to the ways clients and enquirers use their capital to gain income.

The Chapters teams in Guildford and Woking are well placed to advise you on the impact of current and future changes to pensions legislation on your finances. No individual advice is provided during the course of this Blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters team in either Guildford or Woking.

Vicky Fulcher

Trainee Financial planner

 
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

What’s new about the NISA?

All Individual Savings Accounts (ISAs) will become New ISAs (NISAs) from 1 July 2014. This applies to all existing ISAs and new accounts opened after 1 July. The new name reflects the significantly increased limits and flexibility that will be available to account holders following the Budget 2014. Some use this medium as a savings vehicle for retirement and have campaigned to see the limits available under this tax efficient savings vehicle extended.

New limits

The current limit for ISA investment is £11,880 for the new tax year 2014/2015. From July, the annual limit will increase to £15,000 – the biggest ever increase to ISA limits. It is planned that this investment limit will then rise by inflation every year going forward.

You won’t be able to invest the full £15,000 ISA allowance until July. Between 6 April and 30 June 2014, the total amount you can pay into a Cash ISA is £5,940. If you have a Stocks and Shares ISA, you can also pay into that account, but the combined amount you pay into your Cash and Stocks and Shares ISAs must not exceed £11,880.

New flexibility

When the new rules come into play, you will be able to split the amount you pay into an ISA between a Cash NISA and a Stocks and Shares NISA as you choose – up to the new overall annual ISA limit of £15,000. Previously, it was only possible to save up to half the overall ISA subscription into a Cash ISA. This should be a particularly valuable feature for those who are keen to protect their capital from exposure to movements in the stock market.

It will also be possible to transfer between cash and stocks and shares ISAs (either way) to meet your needs and attitude to investment risk. If you want to transfer funds from a Stocks and Shares NISA to a cash NISA after 1 July, different rules will apply depending on when you paid the relevant amounts into your Stocks & Shares ISA. If it was in the current tax year (i.e. after 6 April 2014), you must transfer these savings as a whole. Any savings related to earlier tax years can be transferred to a cash NISA in whole or in part (but you’ll need to check with your ISA provider that they allow part transfers).

New for juniors

If you are aged between 16 and 18, you can hold an adult Cash NISA but cannot open a Stocks and Shares NISA. From 1 July 2014, you will be pay up to £15,000 into your Cash NISA for the tax year 2014/15. This equates to an increase of £9,060 in the amount that a young person can save in an ISA account – a significant step forward in encouraging a savings habit in the younger generation.

For those up to the age of 18, the Junior ISA limit has increased to £3,840 in this tax year. One possible way of saving for university costs.   

Old ISA providers…

If you’ve already paid into a Cash ISA account in this tax year, you may find that the terms and conditions of your account don’t allow further amounts to be added when the new rules come into play. However, you can make additional payments by opening a Stocks & Shares ISA account, or by transferring your Cash ISA to another provider that will allow additional amounts to be added.

Nicer ISAs

This new flexibility will give you far greater freedom of choice in how you shelter your capital from tax. If you don’t want to brave the vagaries of the stock market, you will now have the opportunity to save a significant amount more cash in a tax-efficient manner. If you’re keen to take more of a risk, there’s a whole world of investments out there – and the Chapters Financial team would be pleased to advise you on those that will best meet your financial objectives and your attitude to risk. 

Don’t forget the additional opportunity (for those eligible) introduced in the Budget 2014 of the Pensioner Bonds due to be released in early January 2015 which will also offer attractive savings options for amounts up to a total of £20,000.

No individual advice is provided during the course of this Blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters team in either Guildford or Woking.

Vicky Fulcher

Trainee Financial planner

 
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

New tax year, new investment allocations?

We have now moved into the new tax year 2014/2015 and many clients have already arranged to use up their full ISA allowance of £11,880 with the plan to increase this to the increased maximum of £15,000 from July 2014. Some refer to the investment opportunity presented by this increase in the ISA allowance, along with greater investment flexibility, as the New ISA (NISA). The changes are welcome and some prefer the flexibility of ISAs to save for their retirement, either by using stocks and shares options or cash ISAs or a combination of both, now being able to switch between the two options to suit their needs and attitude to investment risk.

Having recently met with a Bank of England representative, we anticipate the Bank of England base rate (currently 0.5%) to start to rise from around the beginning of 2015.

In past blogs, Chapters Financial has detailed its views on investment allocations and our current preferences. We regularly review our 'house' views on investment areas and classes, maintaining a quarterly Investment Committee to give continuity to our process and client recommendations. You may want to look at our Investment Risk Scale to consider your individual attitude to investment risk.

Current views are as follows:

Positive Allocations
UK Equity Income
UK Equity
US Equity Income
US Equity
Commercial Property  

Neutral Allocations 
In a change to previous blogs, we continue to watch Europe as an investment area, although are currently not actively recommending this area.*

Corporate Bonds  

Negative Allocations
BRICs ( Brazil, Russia, India, China)
* Europe ( see notes above)

Other investment areas are available and will be considered to meet our client requirements.

Past performance is not a guarantee of future performance and changing fund/ asset allocations does not guarantee an increase in performance.

No individual advice has been provided during the course of this blog. If you would like financial advice on the allocation of your funds/ investment strategy, then please contact the Chapters Financial team in Woking (01483 330800) or Guildford (01483 578800).  

Keith Churchouse BA Hons FPFS 
Director, Chapters Financial Limited 
Chartered Financial Planner 
Certified Financial Planner 
ISO22222 Personal Financial Planner 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Are Annuities dead? Take Financial Planning advice first

I read recently from some actuarial tables that a male and female aged 65 in reasonable health could expect to live for around another 25 years or so. It is interesting to note that the differential between men and women (a while ago women would be expected to live for around 3 years longer than a man) has reduced to around a year’s difference. We never know when we will finally meet our maker, however making your money stretch far enough to ensure you enjoy the years of your autumn is paramount.

A possible quarter of a century in retirement is a long time and with the State Pension being equalised in the tax year 2016/2017 at approximately £145.00 a week (£7,540 pa /paid gross but taxable), this amount may well be the minimum you require to make ends meet. (Current level £113.10 maximum 2014/2015). There are some expectations that we will retire later and this has been partly factored into the rise in the State Pension Age in coming years (increasing to 68 between 2024-2026). The minimum age to which you can draw your pension benefits is also increasing to age 57 from 2028. All because we are living longer.

There is also greater knowledge of the need to provide for the costs of Long Term Care and this cannot, and should not, be ignored. You can see that the pressure is on to get these vital retirement income decisions right.

The new flexibility announced in the Budget 2014 was welcome news for many, the main changes occurring in April 2015. Sure, there is going to be a few who blow their pension pots (after paying income tax at their highest marginal rate) on fast cars and holidays, claiming destitution thereafter. You can see the headlines already! However, there are also those that will see the need for an annuity purchase from some or all of their accumulated pension funds to provide them with the future security they desire in their lengthy retirement. This certainty of income offers great security for some, preferring to avoid the volatility of investment markets with their funds. Do I think annuities are dead? Not for some.

Of course, the new flexible Income Drawdown arrangements will become popular, with the option of releasing tax free cash to spend as you will. Thereafter, careful financial planning needs to be undertaken to meet your current needs, taking into account the likely reality that the decisions being made at retirement will be felt for 20+ years ahead. Getting it wrong at the outset could see some returning to work to make ends meet.

HM Treasury have issued a paper called 'Freedom and choice in pensions' on the 19th March 2014 and this goes into great detail on the proposed changes here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/294795/freedom_and_choice_in_pensions_web_210314.pdf

Chapters Financial is not responsible for the content of external websites.

This might appear to be scaremongering, however, many may regret the flexibility introduced and we recommend caution and careful planning to make sure that your pension funds last as long as you do.

No individual advice is provided during the course of this Blog. Speak to the team at Chapters Financial Limited in Guildford or Woking to address your individual needs for what should be the best part of your life....retirement!

Keith Churchouse FPFS, B A Hons
Chartered Financial Planner
Certified Financial Planner
ISO 222222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, Number 402899.

The momentum of Pensions Auto-Enrolment in 2014

The beginning of April 2014 saw a significant number of smaller businesses joining into the Auto-Enrolment pension revolution that is sweeping across the UK.

It is clear that the numbers of individuals being Auto-Enrolled into pensions is climbing every day. I received an e-mail on 1 April 2014 (not an April fools) to confirm that the one millionth member had been enrolled within the National Employer Savings Trust (NEST) as an example.

The details of Auto-Enrolment Pensions are nothing new and further details are available on the Chapters Financial website (See Businesses and SMEs section). We have seen the largest employers first being enrolled from October 2012 with many employers with team numbers above 250 being enrolled by early 2014.

Living Longer/ Retiring Later/ State Pension Burden

It is a fact that we are all living longer and that our time in retirement is being extended. The financial burden on State Pensions is ever-increasing and we will see the State Pension age increase from 65 up to a proposed age of around 68 by 2026. We will also see the equalisation of State Pensions being rolled out over the course of the next 18 to 24 months. This should see the State Pension value equalised at approximately £145 a week (£7,540 pa/ paid gross but taxable) for all qualifying recipients post this change (subject to a suitable NI record).

This age increase is also reflected in the minimum age at which pension benefits can be accessed, which is currently 55 years old (having increased from 50 some years ago) and is proposed to increase to age 57 in 2028, as confirmed here: https://www.gov.uk/government/consultations/freedom-and-choice-in-pensions

Staging Dates 2014

The key date for employers in meeting their Auto-Enrolment requirements has been their Staging Date. This is the date to which they must enrol their employees into any new Workplace Pension, if they do not have a qualifying scheme that exempts them from the legislation. In our experience, this means most employers need to make changes to their existing schemes, Defined Benefit (DB) or Defined Contribution (DC), or implement a new pension scheme.

As you may be aware, the majority of employers in the UK are not large and therefore it is anticipated that a far higher number of employers will need to meet their Auto-Enrolment requirements during the course of 2014/2015.

What needs to be considered?

Requirements may include arranging a scheme, assessing the workforce for their eligibility, implementing notifications to the staff, reporting to The Pensions Regulator and implementing the scheme at the correct date with contributions and the relevant data for employees to be able to consider their options once they are opted into the scheme.

As the burden of this legislation comes to bear on many SME’s over the course of the next 12 months we are finding that many employers are contacting us to secure our services going forward to ensure that they meet their obligations. It is from our experience of arranging these types of schemes that we know it is important that the process is started some six months out to ensure compliance with the new requirements. The Pensions Regulator has made it very clear that they will take action against employers who do not meet their requirements and details of their enforcement options are here: http://www.thepensionsregulator.gov.uk/employers/what-happens-if-i-dont-comply.aspx#s10310

Real Benefits

I have no doubt that this framework for pension savings will bear significant fruit in future years in protecting retirement benefits for those people retiring in the future. It is also interesting and encouraging to note that the opt-out rate for employees seems to be very low, running at an average of around 10.8% as noted by the publication, Professional Pensions, here: http://www.professionalpensions.com/professional-pensions/news/2309949/five-surprising-facts-from-the-dwp-s-auto-enrolment-evaluation

Chapters Financial Limited is not responsible for the content of external webpages.

If you would like advice and guidance on implementing your Pensions Auto-Enrolment scheme and to manage its implications and costs to your business then please do not hesitate to contact the team at Chapters Financial at our Guildford or Woking offices. 

No individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Enjoy your ‘income’ gap year

Following the Budget of 2014, many changes are proposed to the way that pension benefits can be drawn. Of course much of the devil lies in the detail and it will be interesting to see how the legislation is detailed, the way that providers interpret the documentation and also the way they apply this to their schemes.

There is a view that there will be some who will decide that they will take their pension benefits in the form of tax-free cash, with the balance being drawn as a lump sum which will of course be taxable and very helpful to the Treasury.

Many financial planners have been using cash flow modelling for some years and this can have its benefits if applied correctly. I do wonder whether financial planners will be the ones that will need to guide individuals in the way that pension benefits can be bought and also to detail the concern that this fund needs to last the balance of their life rather than for a short term period whilst they enjoy themselves on pastimes that are possibly not affordable.

One thought that springs to mind is that we may see the proliferation of ‘gap years’. These could be years whereby individuals leave work and create a year where they receive no income from other sources and draw pension benefits in that year trying to take lump sums from pension schemes either taxed at nil rate or taxed at basic rate possibly rather than higher rate had they drawn all of their benefits in one year.

This might be a creative way of reducing the tax take on the pension benefits going forward.

Obviously time will tell how this legislation will manifest itself, although it is good that the Chancellor has proposed that individuals who are drawing retirement benefits receive face-to-face advice. We look forward to being involved in providing advice to our clients and enquirers.

If you would like to know more about the way that pension benefits can be drawn then please do not hesitate to contact the team at Chapters Financial.

No individual pension/ financial advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Any Rabbits in there Chancellor?

The annual 'Groundhog day' of the Chancellor proudly posing in front of his Number 11 Residence with his team has come and gone as we know. The annual heckle from the camera-clicking tabloid journalists was louder this year in anticipation of pre-election give-aways with the chirp of 'any rabbits in there Chancellor?', referring to his red Budget box and the possible trick of magic-ing wealth from austerity.

This year, 2014, he really did 'pull the rabbit from the hat' with the furthest reaching changes to the way pension benefits can be drawn during my lifetime. Indeed, I think with a few strokes of his ink pen, some of the pension exams studied over many years become obsolete over the course of the next 12 months when the full effect of these changes will come to fruition. Please do not think I am being negative about the far greater flexibility being encouraged, far from it, I think financial planning and retirement planning will boom over the next decade because of these changes. However, I do have some cautionary concerns that there will be spend, spend, spend with the ultimate consequence that they will be reliant on the state. Sure, basic State Pension benefits are increasing in the next 2 years to a level of approximately £145 per week, but this is unlikely to meet the living needs of many.

Don't forget, and I don't think this is a political statement, the Government, irrespective of their persuasion, is strapped for cash. Cash is generated from tax, tax is charged on pension output (excluding tax free cash), and if many release this early without the caution of stretching the yield across their lifetime, the 'tax take ' could well be quicker. It should also be noted that this new strategy is a bit of a cash-flow gamble for the Treasury. The normal system of 'Annuitising' pension income is achieved by purchasing Gilts. With the need/ preference for annuity purchase now seemingly being removed, the need for Gilt purchases will fall, reducing cash-flow to the Government. It is reported the next weekend that four of the larger Annuity providers had suspended annuity business (Prudential, Aviva, Friends Life and Royal London) and I am sure others will follow. One could argue that the Government us switching their Gilt 'loan' cash-flow for straight non-repayable tax income. The cash-flow effects will be very interesting, possibly fuelling the economy....and clearly the Government.

As a final note, it was good to see that the Chancellor proposes that those reaching retirement for private pension schemes should receive financial planning advice before drawing pension benefits over the age of 55 and we would very much agree with this.

If you would like to consider your retirement benefits and the way these can be used to meet your needs, both now and into the future, then please speak to the team at Chapters Financial in Woking or Guildford.

No individual pension/ financial advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.