Kicking the US fiscal ‘Can’ down the road

There is a saying of “Kicking the can down the road”, which means to delay a decision in the hope that the problem or issue will go away or that someone else will make the difficult decision easier to swallow, the later it is made. This saying has also recently been applied to the ‘Fiscal Cliff’ of the American fiscal deficit and the ways that it can be brought under control. A hard path to negotiate if ever there was one.

The US ‘Fiscal Cliff’ is the deficit which would have been caused by simultaneous changes in proposed tax rates combined with government expenditure. This was due to occur on 31 December 2012 until the US politicians (Senate and House of Representatives) finally agreed to extend the US Government’s borrowing limit/ debt ceiling. However, they only extended this by a matter of months and effectively “kicked the can down the road”.

You may have noticed in the media recently that the US government has started a partial shutdown after both Houses of Congress failed to agree a new budget. This has meant that the federal government has to save running costs and to achieve this has partially shut down non-essential departments and their related personnel. This could potentially affect more than 800,000 federal employees who will be on unpaid leave until the budget can be agreed. The knock-on effect to America’s GDP could be significant if the situation is sustained for a long period. The shutdown is significant, but is not the ‘main event’. The debt ceiling is.

Effect on the US Economy and Dollar

The planned budget agreement to resolve borrowing limits was meant to be ratified by both Houses of Congress by 30 September 2013. As you may know, this was not achieved. One consequence of the first shutdown in 17 years has seen an initial weakening of the dollar on 01 October 2013. Some commentators in the media are suggesting that these recent events could derail the world’s largest economy. I believe this is somewhat of an extreme view and do not hold this opinion. But the short term impact will be felt by the markets while uncertainty remains.

Outlook for US Economy

I believe that the main thrust of this impasse is partly due to President Obama’s health care bill and this is effectively being seen by some as a game of poker between the Democrat held White House and Senate, and the Republican held House of Representatives. Who will blink or fold first? As is usual in politics, I expect that some hurried negotiations will take place in some corners of Washington which will allow a new budget to be in place with a revised healthcare bill and the proverbial can will be kicked down the road again – possibly until there is a change of occupier in the White House or balance of power in the Houses of Congress.

At Chapters Financial Limited we remain optimistic for the outlook of the US economy and financial markets, although allocations to this area should be invested as part of an overall investment allocation process.

Past performance is not a guarantee of future performance. Fund values and currency values can fall as well as rise and are not guaranteed.

It should be noted that as financial planners, Chapters Financial remain positive about North America as an investment area and of the dollar as a currency.  

Each investment and its allocation/ recommendation is different and individual to the Client. To consider your circumstances with regard to savings and investments, you should take individual financial advice. No individual advice is provided in the content of this Blog. The team at Chapters Financial can help you with your planning and look forward to working with you.

Simon Hewitt

Financial Planner
Chapters Financial Limited

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

On-Site Auto-Enrolment Employee Pension Presentations / Seminars

As the momentum and delivery requirements of pension Auto-Enrolment (AE as it is sometimes known) become paramount for many more employers (as their Staging Dates come closer), we have prepared an employee focussed presentation that meets the needs of the new pension legislation and themed to the employers requirements. This is illustrated in the picture of our Financial Planner, Simon Hewitt, delivering the details and requirements of Auto-Enrolment to the employees of a medium-sized company in their locality in early autumn 2013. This was followed by a Questions & Answers session, along with hand-outs, to answers points raised by the audience, with some very positive feedback to this required retirement initiative.

Chapters Financial Limited is employed by companies to implement and deliver a smooth transition of the requesting companies Auto-Enrolment pension scheme, from scheme selection, initial administration, implementation, presentations and end administration including The Pensions Regulator notifications, where required. Our recent certification to British Standards /BS8577 confirms our system based programme aimed to deliver consistent high quality outcomes. We would hope that post-implementation, we can work with employers, their staff and pension scheme to ensure its continued success.

No individual advice is provided in the course of this Blog. Employers and those affected by Auto-Enrolment pensions. As independent financial advisers (IFA), we can guide employers to the right scheme for the needs of their employees and to implement the arrangement in good time (with enough notice) to meet the outcomes of this legislation.

Please contact Simon Hewitt and the team at Chapters Financial to discuss your needs on 01483 578800 (Guildford) or 01483 330800 (Woking).

Keith Churchouse FPFS
Director
Chapters Financial Limited
ISO 22222 Personal Financial Planner
Chartered Financial Planner
Certified Financial Planner

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

Where to go next? Investment allocations

There is a very old saying and theory that some investors 'sell in May and go away' ....usually with the plan that they return in early autumn to pick up where they left off and take new investment opportunities for the future period. Investing in real assets though should always be seen as a medium-longer term strategy, usually with the objective of investing for a 5+ year period.

The question however would be where to invest? Chapters Financial has always recommended diversity when investing, usually spreading any proposed investment across a range of funds to diversify risk and to offer the potential for returns based on a client’s attitude to investment risk. More information on our investment risk scale can be found here. Your view is also likely to be swayed by why you are investing, either for income generation, growth or a mix of the two, as an example.

Chapters Financial also maintains 'house views' on investment areas and the purpose of this blog is to share these with our readers as we enter the autumn season of 2013. Obviously, views can change quickly, with no individual advice being provided during the course of these current investment notes. You should take individual advice based on your own circumstances to meet your needs. Some of our current thinking is as follows:

Generic Investment Area	Current View
UK Equity Growth	Positive
UK Equity Income	Positive
Europe	Negative
Corporate Bonds	Neutral
North America	Positive
Japan	Negative
Property (Commercial)	Neutral
Emerging Markets (including BRICs)	Neutral

There are many other investment areas and opportunities and you should seek individual advice on any specific areas you wish to consider. We would however recommend diversity across a range of areas.

The value of investments and pensions and the income they produce can fall as well as rise and is not guaranteed.

However you plan to invest, through pensions, SIPPS, ISAs, Investment Bonds, portfolios, Unit Trusts, OEICS and the like, Chapters  Financial can help you with your asset allocations with the aim of meeting your needs into the future. We recommend that investments and pensions should be regularly kept under review to ensure that your financial planning continues to meet your needs and attitude to investment risk.

No individual advice has been provided in the content of this blog. The team at Chapters Financial would be pleased to help you with your individual or business (SME) financial planning. Please contact us on 01483 578800

Keith Churchouse FPFS

Director

ISO 22222 Certified Financial Planner

Chartered Financial Planner

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

Back to School/ University....it's just around the corner!

Summer is a great time to spend with the family during the holiday period. There has been much going on with events and social outings, along with holidays, being enjoyed by many. A great distraction from the autumn months when new school terms start and the reality of funding this education need, from uniform costs to school/ university fees as examples, to be considered and planned for. All very topical subjects this month with exam results being released and the Government making its announcements on a new Child Care cost system (August 2013) from 2015.

These education issues are a concern to many parents and grandparents alike and, like pension planning, planning early and funding correctly can be used to meet future requirements. I have detailed some thoughts on this financial planning topic below. As I am sure you would expect, the team at Chapters Financial Limited can help you with meeting your financial planning strategy for this need.

University – Tuition Fees and Costs

Recently, the Government introduced legislation which allowed Universities in England to charge tuition fees for attending their courses. The current permitted maximum tuition fees within English universities is £9,000 pa (2013) for UK/EU based student nationals. Almost three quarters of universities in England are planning to charge the maximum £9,000 pa tuition fee for some or all of their courses, according to Office for Fair Access (Offa - their website can be accessed using the following link http://www.offa.org.uk/ ).

With estimated living costs, of approximately £10,000 pa, and upwards, on top of the tuition fee then a standard 3 year honours degree could cost anything in the region of £57,000. Considerably more if postgraduate study is undertaken. This would be a tremendous burden of debt for any graduate to start off their future career.

Currently, there exists the option of a Tuition Fee Loan which is paid directly to the university or college. Currently the maximum loan available is £9,000 for a full-time English / EU student. The loan would start to be repaid when the income of the student / graduate is greater than £21,000 gross pa. The interest rate charged on the loan is rate of inflation, Retail Prices Index (RPI), plus up to 3% pa (depending upon study period and income) and applies until the loan is paid back in full. More details on student finance can be found at the Government Student Finance website (https://www.gov.uk/student-finance).

Private School Fees

According to the latest census by the Independent Schools Council, average fees have risen by 3.9% to £4,765 a term (or £14,295 pa in 2012/2013). Further information can be found on the Independent Schools Council website at (http://www.isc.co.uk/ ). If you want your child to board then this could increase to an average of £10,054 a term (£30,162 pa) in Greater London, for example.

As you can imagine, if the choice / option to send your children to an independent school, rather than rely on the state education system, has been made / is being considered then the total costs can be significant and could far outweigh the costs of attending university noted above.

Possible Solutions?

There are many different solutions to help plan for these future costs. One key area which should be taken into account is the effect of inflation, which could erode the real rate of return. Also, the time horizon available before the money will be required.

For example, we have commented in previous blogs on the use of Junior ISAs (JISAs) or Child Trust Funds (CTFs), however, these would not allow access to any capital until the child reaches the age of 18 and at that point it is the child/young person’s money, not the parent’s / guardian’s money, to do with how they wish. This raises the concern that they may not choose to spend it on education.

Another example, which may appeal to Grandparents, might be the use of the Annual Gift Allowance, which allows each individual to gift £3,000 pa and this money will be outside of their estate, for Inheritance Tax purposes, with immediate effect.

As an example, if this £3,000 pa was gifted to the child’s parent to save in an ISA arrangement for 15 years at £250 per month, to provide for university costs at a child’s 18th birthday, this might provide capital of £68,100 at that time.

Source: FundsNetwork illustration, with an Assumed Return after charges of 5.3% - not guaranteed, Past Performance is not a guarantee of future performance.) 

Summary

Is there an answer to the rising costs of education and the way it should be funded? Invariably, a combination of planning solutions are used and there is no simple answer apart from to start planning for the potential cost as early as possible and seeking financial advice from a professional Financial Planner.

No individual advice has been provided in the content of this blog. For individual advice on your education cost provisions and needs, please contact the team at Chapters Financial on 01483 578800

Simon Hewitt BSc (Hons) DipPFS
Financial Planner
Chapters Financial Limited

Chapters Financial Limited is Authorised and regulated by the Financial Conduct Authority.

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

Pension Lifetime Allowance /Fixed Protection and Individual Protection / HMRC Update

New guidance (and application forms) has become available from HMRC, on the morning of 12 August 2013, both for Fixed Protection from 2014 (must be applied for before 05 April 2014, if required) and for the plans for Individual Protection 2014, which can only be applied for after the start of the new tax year 2014/2015.

A link to this is available here: http://www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm#5

The Member Guidance here is also useful: http://www.hmrc.gov.uk/pensionschemes/fp2014guidance.pdf

I wanted to get this information to you promptly for consideration and action, if required or needed.

In addition, the new HMRC entry on their website notes the expected (to be confirmed) outcomes of its plans for Individual Protection 2014 as follows:

As well as fixed protection 2014, the Government has announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. The details of individual protection 2014 will be confirmed later but it is expected that:

• it will give you a lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million.
• you will not lose individual protection 2014 by making further savings in to your pension scheme
• any pension savings in excess of your lifetime allowance will be subject to a lifetime allowance charge

You'll be able to apply for this from 6 April 2014.

You can hold both fixed protection 2014 and individual protection 2014 but you can't apply for them at the same time.

I hope the above information and the links are of interest to those that are affected by these issues.

If you would like to know more about this pension planning and your tax allowances/limits then please contact the team at Chapters Financial Limited on 01483 578800.

No individual advice has been provided in the text of this blog. You should seek bespoke financial advice in your own circumstances.

Keith G. Churchouse FPFS
ISO22222 Certified Financial Planner
Director and Financial Planner

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

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

The continuing conundrum for savers / 'Forward Guidance'

The new economic tool deployed by the new Governor of the Bank of England, Mr Mark Carney, in August 2013 was heralded as the opportunity to manage economic, and to some extent financial, expectations into the future. 'Forward Guidance' as it is known, provides all those affected by the economy with the opportunity to know how the Bank of England predicts the future, and more importantly, what they plan to do if these expectations are met.

As we have seen, Forward Guidance has linked the Bank Base Rate (currently 0.5%) to UK unemployment levels (currently 7.8%) with the plan that Base Rates will remain at their current level until the unemployment level falls below 7.0% (Subject to anything unexpected happening, which it can). With this plan in mind, the Governor does not expect the target of 7.00% being reached for around 3 years, and therefore does not expect Bank Base Rates to move either in this time.

This new direction provides the benefit of certainty for some (such as businesses and mortgage borrowers as examples), but also provides the negative certainty of continuing low returns for savers.

Many savers have seen returns falling in recent times, with Premium Bond returns also falling from August 2013 onwards. Many are resigned to this situation, sensibly using their tax efficient ISA allowances where possible to reduce the tax take on any gross savings earned.

Against this backdrop, some clients and enquirers are reviewing their attitude to investment risk, where appropriate, and applying this review to their future investment decisions. As an example, UK Dividend returns have remained relatively firm over the last year and these have typically been between 3.00-4.00% gross pa (Not guaranteed, past performance is not a guarantee of future performance). Obviously, by moving into this investment area, the risk to the capital invested increases significantly, with the value of funds varying daily. This volatility (and overall investment risk) is detailed on our Investment Risk Scale further here (Link). However, if an investor is prepared and able to accept this level of investment risk, this investment alternative may be suitable in some investment cases. It should be noted that diversifying any investment is usually worthwhile and we have noted that committing smaller sums initially may be worthwhile to get used to the chosen investment medium before committing larger sums.

Each investment plan and recommendation is different and individual to the Client. To consider your circumstances with regard to savings and investments, you should take individual financial advice. No individual advice is provided in the content of this Blog. The team at Chapters Financial can help you with your planning and look forward to working with you.

Keith Churchouse FPFS
Director
ISO22222 Certified Financial Planner
Chartered Financial Planner
Chapters Financial Limited

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

Nearly new regulatory regime 2013

We are now entering the eighth month of the inception of the Retail Distribution Review ( or RDR for short) process implemented at the very start of 2013.

As noted on our websites front page, Chapters Financial Limited moved to a transparent  fee based client agreed remuneration policy in 2007 (May). Because of this inspired change, we have found the regime transition less complicated than many of our competitors and are proud to have retained our independent status. This may be a reflection of the significant fall in the numbers of advisers in the UK (with numbers still falling) over the last year. (Source: www.imas.uk.com website). Personally, I am saddened by this reduction in numbers, because the access to financial advice that many enjoyed in the past has fallen away, with the anticipation that the Internet will fill the void left by the loss of these services. (See www.advicemadesimple.com as one example).

As a reminder, the headlines of the FSA's planned customer/ client outcomes for the RDR were:

• Advisers qualified to a high standard (Qualification 4 or above).
• Transparent fee based charging structure for both initial and on-going services ( a ban on commission for most services). 
• Choice to use an Independent (IFA) or Restricted financial advice service
• As an additional note, in April 2013, the Financial Services Authority was replaced by a new financial regulator, the Financial Conduct Authority (FCA).

What have been some of the initial effects of these changes we have witnessed?

Many retail financial advisory providers have struggled to comply with these new requirements and this has added to the numbers exiting the profession. It has also been interesting and concerning to note how many existing policy providers (namely some of the big insurance based companies) have been unable to meet the changes required for transparency, confirming that in some cases existing plans cannot accept additional or changed contributions.

Chapters Financial has seen an increase in focussed enquiries in 2013, ranging from pre-retirement, retirement and inheritance tax planning to many SME owner/ director/ managers now getting closer to their company’s  Auto-Enrolment date. It will be interesting to see how the legislation introduced for Workplace Pensions will affect retirement savings in generations to come.

More evidence of the benefits of this regime change will come in future times. It will be interesting to see in time if all the changes have been a success for those seeking financial planning advice.

No individual advice has been provided in this blog and you should seek financial advice (IFA) for your own individual or company’s needs and requirements. Speak to the team at Chapters Financial Limited on 01483 578800

Keith Churchouse FPFS
Director
Chartered Financial Planner

ISO22222 Certified Financial Planner

Chapters Financial Limited

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