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Month: February 2022

Retirement Clinic

Answers To The Myths About Your Pension Questions

If you are approaching retirement age, it’s important to know your pension is going to finance your plans.

Pension legislation is extremely complex and it’s not realistic to expect everyone to understand it completely. But, since we all hope to retire one day, it is important to get to grips with some of the basics. It’s particularly helpful to become aware of the things you may have thought were facts that are actually myths. Here are some examples.

Truth About Government Pensions

Myth: The Government Pays Your Pension

Fact: The government pays most UK adults over the pension age a State Pension, which is currently:

Retired post-April 2016 – max State Pension of £179.60 a week

Retired pre-April 2016 – max basic State Pension of £13760 a week (a top-up is available for some, called the Additional State Pension)

Not everyone is eligible for the full amount, which requires you to have at least 35 qualifying years on your National Insurance record. If you have less than ten qualifying years on your record, you’ll receive nothing. Even if you receive the full amount, you’ll usually need to supplement it with your own pension savings.

Truth About Employer Pensions

Myth: Your Employer Pays Your Pension

Fact: Most people are automatically enrolled into a workplace pension. Your employer is usually required to pay a minimum of 3% of your salary into it and you must also pay a minimum of 5% of your salary.

If you keep your contributions at the minimum level, it might be difficult to save enough for retirement. As life expectancies grow longer, your retirement can be almost as long as your working life. It’s therefore important to put aside a portion of your earnings to create a pension pot that will enable you to receive the income and live the lifestyle you want during retirement.

Truth About Life Time Allowance

Myth: You Can’t Save More Than Your Lifetime Allowance

Fact: There is a lifetime allowance on the benefits you can access from your pension, which is currently £1.073100 (tax year 2021/22). That doesn’t mean that you can’t withdraw any more after that, but it does mean that you’ll pay a tax charge of up to 55%. However, there are ways of withdrawing the money with a tax charge of 25%.

Truth About Provider’s Default Fund

Myth: Your pension provider’s default fund is suitable for everyone

Fact: Most pension default funds will start out with a high-risk strategy and steadily move your capital into lower-risk investments, such as bonds and cash, as you get closer to retirement. This is to reduce volatility in the value of your investments so that you can have a higher degree of confidence in how much you’ll eventually end up with.

If you don’t plan to purchase an annuity, you don’t necessarily need to reduce volatility before retirement. You may be leaving some of your money invested for several more decades, in which case a higher risk strategy may be more appropriate.

Truth About Annuities

Myth: Annuities Are Outdated

Fact: There was a time when almost everyone bought an annuity when they retired, and that time has passed because there are now alternative ways to access your pension savings. But annuities still have a useful role for generating a retirement income and can be an appropriate product for some people. Unlike other pension withdrawal methods, such as drawdown, an annuity offers a fixed income for life, so there’s no risk of your money running out. That’s a crucial benefit for many pensioners.

Truth About Passing On A Pension

Myth: You Can’t Pass On A Pension

Fact: If you’ve used your pension savings to purchase an annuity, the income from this will usually cease when you die. But if you have pension savings that you haven’t used to buy an annuity or example, if you’ve been taking an income through drawdown), what’s left can be passed on to a loved one.

If you die before the age of 75 there will usually be no tax to pay by the beneficiary. Otherwise, they will need to pay Income Tax according to their tax band.

Look After Your Future

There’s a whole lot to think about when you’re planning for retirement. Is it worth paying into private or workplace pension? Are you saving enough? Which investments should you choose? All these unanswered questions can make planning feel a little overwhelming. To review your situation or consider your options, please contact us – we look forward to hearing from you.

Market Update February Monday 28th 2022

War returns to the heart of Europe

The grim reality of war returned to Europe this week, something that most of us thought was consigned to history, as after several weeks of uncertainty, Russia invaded Ukraine. Several countries including the US, the European Union, the United Kingdom, and Japan have imposed sanctions on Russia in response. However, tellingly, so far, they have stopped short of including companies involved in the export of oil and gas to the European Union and neither has Russia been excluded from SWIFT, the cross-border exchange system. This is despite the European Parliament adopting a resolution on the 29th April 2021 to exclude Russia in the event of an invasion of Ukraine. There was also a deafening silence from China on the matter.

In a volatile week, dispassionate markets rally towards the end as investors focus on the economics

Markets have been volatile in response, with government bonds not providing the haven status normally associated with them as the sharp move up in energy prices has exacerbated inflationary concerns. However, it has not been one-way traffic of selling pressure as markets are dispassionate to war and focus on the economic impact. A combination of sanctions that are deemed ineffective, at least in the short term, combined with the possibility that this event may temper central banks’ interest rate hiking plans, has led to a strong market rally at the end of the week.

As of 12pm on Friday, London time, US equities over the week have fallen 1.4%, whilst technology stocks dropped 0.6%. European stocks lost 2.3% and UK stocks fell 1.6%. The Japanese and Australian markets dropped 2.5% and 3.1% respectively, whilst the emerging markets dropped 6.2% with a wide dispersion of returns amongst country returns. Asia Pacific markets fell 5.2%, whilst Latin American stocks were down 2.0%, reflecting concerns over Chinese intentions towards Taiwan.

Government bonds provide little protection for investors

Haven US Treasuries, having initially rallied on the news of invasion, have subsequently sold off as markets have increasingly focused on the inflationary impact of the conflict with respect to energy prices. The 10-year yield on US Treasuries, which moves inversely to price, is now trading at 2.00% having started the week at 1.93%. It was a similar story for German bunds and UK gilts, both yielding higher levels at the end of the week, at 0.23% and 1.47% respectively.

Rally in gold soon peters out

Gold briefly provided a hedge intraweek, as the precious metal rallied by 4%, but it is now trading back down at levels close to where it began the week at $1,898 an ounce.

Industrial commodities spike

However, industrial commodities have been squeezed higher and have hung onto much of those gains whilst so much uncertainty continues to exist. Brent crude oil peaked at $105.6 on Thursday, and is now trading at $99.2 a barrel, an increase of 6.0% over the week, whilst US WTI (West Texas Intermediate) has given up more of its gains, having touched just over $100 a barrel on Thursday, it is now trading at $93.4, an increase of 2.5% for the week. Iron ore is up 2.7%, whilst copper bucked the trend and is trading down 0.7% at $9,918.

Issues under discussion

Russian sanctions unlikely to trouble Putin too much

US and UK intelligence had been forecasting an invasion for several weeks now, even if this was not universally anticipated by politicians. In addition, NATO has for some time made it clear that any conflict in Ukraine was not its war. As horrendous as this conflict is on a sovereign country by Russia, provided the conflict does not spill outside of Ukraine, markets are unlikely to care about the conflict itself too much. Although that is not to say that the volatility we have seen this week has passed. However, what markets will focus on are the likely knock-on impacts from this war.

So far, the sanctions imposed on Russia are unlikely to trouble Putin too much. He has after all been planning this for many years. Russia has one of the lowest debt to GDP ratios in the world, standing at about 20%, therefore their reliance on foreign investors to fund themselves is somewhat limited. And in all likelihood, they can turn to China for help if needs be.

For Russia, what is much more significant is the price of oil and gas and their ability to export it. Given that this conflict has dramatically pushed prices up, and the European Union is dependent on Russia for about 40% of its gas imports and 30% of oil, this conflict is only filling up Putin’s coffers quicker.

What is critical at this juncture is how the West continues to respond to Russia, and in turn, how Russia responds back. If the West is unwilling to tighten sanctions further, in large part because in the immediate term the blowback from any further sanctions will hurt the European Union more than Russia, then financial markets’ concern over the conflict is likely to ebb.

However, if Russia chooses to restrict oil and gas supply in retaliation for any sanctions imposed thus far or in the future, this could lead to further energy price rises and the prospect of stagflation which would be very negative for markets.

How has Europe allowed itself to become so dependent on Russia for something as important as energy. And ultimately, longer-term, if Europe does not stand up to Putin, what does this mean for the Baltic states?

Historically, as long as conflicts have remained contained, market losses have swiftly recovered. And in all likelihood, central banks will temper their interest rate ambitions in the face of this conflict. But this is a fast-moving situation, and we are evaluating the situation as time goes on.

Live the Life You Want

How Much Pension Income Will You Need For A Comfortable Retirement?

The purpose of a pension is to provide an income for you to live the life you want once you have retired. But, due to longer life expectancies, less generous schemes and lack of understanding around saving, a common problem is that some people don’t retire with enough to last them.

The current life expectancy in the United Kingdom in 2017 to 2019 was 79.4 years for males and 83.1 years for females, while you can access your pension savings from the age of 55, and the State Pension age is currently 66.

Changes To Your Lifestyle

The concept of retirement has changed. The idea that we stop working at 65 and then spend our time playing golf and travelling the world is now anachronistic and probably ageist. However, retirement is a challenging new phase in life. While it ranks high on the scale of stressful life events, it also provides the opportunity to enjoy a new lease of life. A fulfilling and enjoyable retirement will, of course, depend on the age you choose to retire at, your retirement plans and factors that impact your life expectancy, such as your health.

Retirees Are Falling Short By Decades

A recent survey of people aged 55 to 64 who have not yet retired found that 25% of this age group are only budgeting for their pension savings to last ten years. Around 10% are only budgeting for their pension savings to last five years. All of these people are risking a significant gap with eventually no income from their retirement savings. While they may be eligible for the State Pension, that will provide less than £10,000 a year to live on.

Income Needs Tend To Change

Perhaps these people have created their budget believing that less than £10,000 a year is likely to cover their needs in later life. They may feel that the first five to ten years are when their spending will be highest, so plan to use their retirement savings during that time. But this isn’t a typical pattern for retirement spending. Often, there is a peak in spending in the first five to ten years, when many people pay off their mortgage or make a big purchase, such as a trip-of-a-lifetime. But there is another peak towards the end of life, when many people may need residential or at-home care, which can be expensive.

Retirement Spending Forecast

Surprisingly, 80% of survey respondents said they had received no advice on their retirement
needs and more than half of these people had no plans to. Receiving professional financial advice will help you identify and forecast how your retirement spending could change over time, make a realistic budget and determine how many years your current savings may last. If there is a shortfall, you’ll then be able to make the necessary adjustments to ensure you top up any potential savings shortfall before you retire and see how many more years you may need to work for. You can also get a better understanding of where your pension is invested and your options to take an income from it. These factors might affect the income you’ll eventually receive, and what you can do about it.

Make Sure Your Plans Stay On Track

If you’re not sure if you’ve saved enough to last throughout your retirement, a simple solution is to seek professional financial advice and get the answers you need. Get in touch today to find out how we can help you.

Look After Your Future

There’s a whole lot to think about when you’re planning for retirement. Is it worth paying into private or workplace pensions? Are you saving enough? Which investments should you choose? All these unanswered questions can make planning feel a little overwhelming. To review your situation or consider your options, please contact us. We look forward to hearing from you.

Market Update February Monday 21st 2022

Market volatility spikes as tensions between Russian and Ukraine ratchet up

Concerns over inflation took a back seat this week, as markets focused on the build-up of Russian troops and weapons on the Ukrainian border, with President Biden warning that a conflict could start in a matter of days. Markets have oscillated up and down whilst investors have tried to second guess how serious the threat from President Putin is, or whether it remains chiefly a bargaining tool to prevent Ukraine from slipping towards the European Union and membership of NATO (North Atlantic Treaty Organisation).

As of 12pm on Friday, London time, US equities had fallen 0.9% over the week, whilst US technology stocks dropped 0.5%. Since the start of the year, the US market has now lost just over 8%, with the US technology sector having fallen by just over 12%. European equities fell 1.0% over the week, whilst the UK market fell 1.5%. Japanese stocks lost 2.0%, whilst the Australian market proved to be defensive, rising by 0.1%, helped by a rally in the gold price, whilst emerging markets fell by 0.5%.

US government bonds fall

US government bonds have fallen in value from the start of the week, despite the ratcheting up of concerns by western politicians and the media over a potential invasion of Ukraine by the Russians. The yield on 10-year US Treasuries, which moves inversely to price, is now trading at 1.97%, having started the week at 1.93%, whilst in intraweek trading, it touched 2.06%. It has been a different story for German Bunds and UK gilts which have both rallied in price, now trading at a yield of 0.22% and 1.44% respectively. This is despite the UK revealing on Friday retail sales figures that exceeded forecasts, posting the largest monthly increase since the reopening of the high street last April. Sales volumes rose by 1.7% in January, excluding car fuel, against forecasts of a 1.1% gain, increasing the case for further interest rate rises.

Gold’s safe-haven status  shines through

Gold’s safe-haven status has also shone through, as the precious metal advanced by 2.8%, currently priced at $1,893 an ounce. Meanwhile, Brent crude, having touched a seven-year high on Monday of $96.4 a barrel, is now trading at $91.2, down by 3.5% over the week, dragging equity stocks down with it.

Funding Your Childs Future Lifestyle

Early Preparation In Life Is Key To Becoming Financially Independent

As the coronavirus (COVID-19) pandemic continues into a second year, we’re learning more and more about its financial impact. While many individuals and families are struggling up and down the country, there is a particular strain placed on the parents of adult children.

A recent survey showed that 50% of adults with children over the age of 18 have provided financial help to them due to the pandemic. Children may be staying in the family home for longer, since universities are unable to operate as they usually would, and some young people have decided to postpone their studies.

Young Professional Lifestyle

Those who have finished their degrees, who might usually migrate to city centres for a taste of the young professional lifestyle, are instead moving back in with their parents until this becomes a viable option again. Young workers who are inexperienced or unskilled may struggle to secure their first job or may be particularly vulnerable to redundancy. Even if they are not living at home, they may have needed to seek support from older family members.

Providing Financial Help

As most forms of entertainment were closed for a significant portion of the last year, many young adults have seen their spending drop. But their costs still potentially included rent, utilities, phone bills, food and petrol. Many also turned to their parents for help to buy equipment they needed to work or study at home, such as computers. The survey highlighted that some parents who have provided financial help have spent an average of more than £400 a month.

Higher Household Costs

Adults over the age of 30 have been less likely to need financial help. 43% of parents with children aged over 30 reported that they were helping them financially, compared to 61% of parents with children aged 18-29.

But the cost of helping someone who is older has been higher. Those parents who have been providing support to the over-30s spent, on average, more than £500 a month. These adult children are less likely to be living with their parents and tend to have higher household costs.

Ranked By Spending

Some parents have offered far more than the average of around £1,300 in support. The top 2% of parents, when ranked by their spending, have parted with over £3,300 monthly. This includes help with their children’s everyday expenses, contributions to savings accounts and pensions, and potentially help to rent or buy a home. Many parents have been prepared to offer this level of financial support to adult children if they’ve been able to.

If you have found yourself in this position you may need to examine your budget carefully and ensure that your other financial priorities, such as paying off debts or saving for retirement, are not suffering as a result. Preparing your children early in life to be financially independent is essential. If not, your retirement plans may need to include funding your child’s future lifestyle!

Time To Take Stock Of Your Situation?

The coronavirus pandemic has impacted both the physical and financial health of many families. If your finances have been blown off course and you would like to take stock of your situation, please contact us to review where you are.

Market Update February Monday 14th 2022

US Headline inflation comes in at 7.5%, the highest recorded since 1982 and ahead of forecasts

Inflation continues to dominate markets, with the latest consumer price index for the US having been released on Thursday showing a further acceleration, taking headline inflation to 7.5%, its highest level since 1982. This follows last Friday’s latest US employment data showing 467,000 new jobs having been created in January versus forecasts of 150,000, and average earnings jumping by 5.7%. However, although the inflation data was ahead of expectations, judging by market pricing, investors are reflecting changing views around future monetary policy rather than longer-term expectations for inflation. Futures markets continue to price in inflation expectations around an average of 2.5%, a figure that has not materially changed since September of last year.

Markets remain in positive territory over the week, despite selling off post the release of the inflation data

On the back of this latest inflation data, US markets sold off on Thursday, with other markets following suit on Friday. Nonetheless, over the week, most equity markets remain in positive territory having enjoyed a recovery rally post the previous inflation-induced selloff.

As of 12pm on Friday, London time, US equities were up 0.1% over the week, whilst US technology stocks rose 0.6%. European stocks increased by 1.3%, as did UK equities, whilst Japanese and Australian stocks rose by 1.7% and 1.4% respectively. Emerging markets added 2.5%, with a particularly strong showing from Latin American markets which increased by 4.4% in aggregate.

Rate markets are now pricing in six quarter point rate hikes for the year

The yield on 10-year US Treasuries, which moves inversely to price, touched 2.05% in intraweek trading, its highest level since mid-2019. It has since moderated a little, trading at a yield of 2.00%. James Bullard, the president of the St Louis Federal Reserve and a voting member of the rate-setting Federal Open Market Committee, said on Thursday that he would like to see the Fed funds rate rise by 1% by July. This would imply four quarter of a point rate increases as a minimum at each rate meeting between now and then, whilst the market is currently pricing in six quarter of a point rate hikes over the year. 10-year German bunds are trading at 0.26%, whilst equivalent UK gilts have risen to a yield of 1.52%.

Crude oil treads water for the moment, with Brent and WTI trading at $92 and $91 a barrel respectively

Gold traded up by just over 1%, now priced at $1,827 an ounce. Copper rose by 1.6%, currently trading at $10,305 and iron ore rose by over 2.5%. However, after a very strong run, crude oil took a breather, with Brent falling by 0.9%, currently priced at $92.4 a barrel and US WTI (West Texas Intermediate) falling by 1.4%, trading at $91.0.

Despite rising US rate expectations, emerging market currencies make headway against the dollar

Although the US dollar index rose by 0.4% over the week versus a basket of internationally traded currencies, emerging market currencies in aggregate increased by 0.9% versus the dollar, coming from a low base. Historically, the US dollar has often peaked as US interest rates start to increase, which would be a positive catalyst for emerging markets, especially those reliant on international markets to fund their borrowing.

Succession Planning

Preparing Yourself, Your Family And Your Business For The Future

The operational demands of running a family business or other closely held enterprise can be all consuming, but it’s vital that business leaders take the time needed to assess their organisation’s business succession planning.

After pouring years of your life into building a profitable business, it’s natural that you’ll want to pass it on to someone who will take equal care of it, whether that’s a member of your family or a buyer. That’s why succession planning is so important.

In the context of your business, succession planning is the process that ensures a smooth transition in ownership from you to someone else, so that a new owner can continue to pursue your company’s goals.

Why Is Succession Planning Important?

What Are Your Succession Planning Options?
The three most common options are:

The Business In Your Family

You might want to pass on your business to a family member, such as an adult child. While this option has many benefits, the relationshipds and emotions involved can make objectivity difficult, so it can help to involve an external adviser who can remain impartial.

Selling The Business

It can be difficult to find a buyer with the skill and expertise to run your business, and the inclination to do so. But once you find them, this option can be profitable and strategically successful.

Management Buyout (Mbo)

Another option is for your company’s managers to become owners by raising the finances together. This can be the best way to ensure continuity of your business’s progress towards its goals, as the same team continue to operate it and service customers.

How Can You Ensure Successful Succession Planning?

A successful succession plan takes time and dedication. It will be unique to your business. But all good plans involve the following steps:

Goal Setting

Consider your personal goals and the goals of the business. You may have shareholders or other stakeholders whose goals you must consider.

Timeline Planning

You need to establish the date you’re working towards, which may be definite, for example, your retirement at a specific age or indefinite, your eventual death.


Keep your employees, customers and clients informed. When people feel ‘out of the loop’, they get uneasy and you may lose them.

Seeking Professional Advice

You’ll likely only create a succession plan once. So, to maximise your chances of success, speak to a professional adviser who’s helped other businesses create theirs. An expert’s perspective provides insights you may not be aware of and keeps your plans on track.

Succession Planning Checklist

For a business, working without a succession plan can invite disruption, uncertainty and conflict, and may endanger your future competitiveness. Do you know the answers to these ten questions?

  1. Have you defined your personal goals and a vision for the transfer of ownership and management of the company?
  2. Do you have an identified successor in place?
  3. If applicable, have you resolved the family issues that often accompany leadership and ownership decisions?
  4. Does your plan include a strategy to reduce estate taxes?
  5. Will there be sufficient liquidity to avoid the forced sale of the business?
  6. If succession will one day require the transfer of assets, have you executed a ‘buy-sell’ agreement that details the process ahead of time?
  7. Is there a detailed contingency plan in case you die or become unable to continue working sooner than anticipated?
  8. Have you identified and considered alternative corporate structures or stock transfer techniques that might help the company achieve its succession goals?
  9. Have you determined whether you or anyone else will depend upon the business to meet retirement cash flow needs?
  10. Have you recently had the business valued and analysed in the same way potential buyers and competitors would?

A succession plan can help to leave the business without negative repercussions, secure your legacy at the company, ensure a seamless transition to new management and reassure employees and stakeholders.

Comprehensive Financial Plan?

Succession planning is a complex process that draws upon many business disciplines. There are many benefits for companies and owners who plan properly and strategically for an orderly transition of management and ownership. To find out more, please contact us.

Market Update February Monday 7th 2022

Meta’s (Facebook) share price craters on a weaker earnings outlook

It has been a volatile week for markets, as a four-day rally in US equities was cut short on Thursday as Meta’s (Facebook’s parent company) share price fell by over 26% in afterhours trading on Wednesday, following the release of disappointing earnings guidance and a decline in its active user base. This wiped a massive $230 billion off its valuation in a single day, demonstrating how much more sensitive investors have become to earnings results of richly valued companies, in an environment where interest rates are expected to rise.

As of 12pm on Friday, London time, US equities were up 1.0% over the week, with US technology stocks rising 0.8% despite suffering losses of 3.7% on Thursday alone. Overall earnings results were mixed, with Alphabet (Google’s parent), Amazon and Snap, a direct competitor to Meta, all beating earnings forecasts. However, Paypal, the digital payments company, also suffered sharp losses as it warned that many of the new customers accumulated during the pandemic have not become active users of its service, guiding towards a weaker earnings outlook than previously thought. Its share price fell 25% on the news and by the close on Thursday was down by 30% from its midweek peak.

European stocks, having not benefitted from the rally as much at the start of the week, were trading lower by 0.5% as of 12pm on Friday. Whilst UK equities, having a low exposure to technology and a much higher exposure to financials and commodity stocks, were up 0.8%. Japanese equities, trading on much lower valuations to the US, finished the week 2.9% higher, whilst Australian stocks rose 1.9%. Emerging markets rose 1.6%, with Hong Stocks playing catch up, rising 4.3% after the Lunar New Year three-day public holiday.

German bund yields rise into positive territory for the first time in over two years

Yields on government bonds, which move inversely to price, gently rose over the week, with the 10-year US Treasury now trading at 1.82%. Perhaps more strikingly, German bunds rose into positive territory for the first time in over two and half years as European inflation exceeded expectations, coming in at 5.1% for the year to the end of January. As inflation is a year-on-year comparison economists had expected a decline, but after stripping out food and energy, although it fell back to 2.3% from 2.6% the month before, this was still higher than forecasts, with many economists having pencilled in a figure beneath 2%. The president of the European Central Bank (ECB), Christine Laggard, at a press conference on Thursday declined to rule out raising interest rates this year. Markets are currently pricing in two rate hikes by the ECB by the year end which, if borne out, may bring about the end of negative interest rates in the European Union.

Bank of England hikes interest rates to 0.5% against rising inflationary pressures

As widely expected, the Bank of England increased interest rates to 0.5% on Thursday, in the face of escalating inflationary pressures. This was in the same week as the energy regulator announced a 54% increase in the price cap for energy bills, with a further increase forecast for October. This is on top of a 1.25% increase in National Insurance contributions due in April to fund further expenditure on the NHS. The squeeze on household expenditures has arrived.

Crude oil exceeds $90 a barrel

The gold price climbed 1.4% this week, now trading at $1,812 an ounce. The copper price also rose, trading at $9,868, an increase of 3.9%. Crude oil rallied by a similar amount, rising by 3.2%, with Brent crude now trading at $92.9 a barrel and US WTI (West Texas Intermediate) $92.1. Whilst iron ore fell slightly, dropping 0.8%.

Latest US employment figures due out later today

US employment figures are due out today at 1.30pm London time, with 125,000 new jobs expected to have been created in January in the non-Farm payrolls. This has gradually been revised down following the very weak private sector payrolls number released on Wednesday by ADP, with the number of jobs falling by 301,000 versus forecasts of a rise of 180,000. This has been attributed to the spread of the Omicron coronavirus, to which markets are largely looking through as the virulence of the variant has increasingly been downplayed. However, whilst the US Federal Reserve says it remains data-dependent as to its plans for quantitative tightening and interest rate policy, it remains an important indicator.

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