July 2022 - Lawsons Equity

Is it time to retire retirement?

Everyone has different circumstances and different expectations

No matter how far away you are from retiring, it’s important to plan for the future. It’s hard to know exactly how much you’ll need because everyone has different circumstances and different expectations. Today you have new pension freedoms to decide when and how you retire.

There’s also no fixed path to retirement or finite endpoint. Everyone has a different journey through life, with their own experiences along the way, and there’s no need for it to become stressful. You can reduce any anxiety by planning how much you’ll need to retire and working out how best to build up your pension pot.

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.

Making the right choices

It’s important to think about how much money you might need in the future and whether you’ll have enough to give you the lifestyle you want. You might be eligible for the State Pension but can you manage on this alone? Also, you may want to retire before your State Pension age.

Making the right choices now could make a big difference to how much money you have in the future and saving into a pension plan could help you achieve the lifestyle you would like. 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 at which you choose to retire your retirement plans and factors that impact your life expectancy, such as your health.

Retirees are falling short by decades

Retirees are falling short by decades A 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.

https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2017to2019#main-points
https://corporate-adviser.com/quarter-of-retirees-risk-exhaustingpension-funds/

Market Update July Monday 25th 2022

Equity markets rise as a weakening economic outlook dampens inflation expectations

Equity markets rose this week on the back of company results that were not as bad as feared, most notably the US media streaming giant Netflix, whilst further evidence of a weakening business environment, through the purchasing managers indices (PMI), helped to alleviate fears as to the extent of interest rate tightening. The US dollar also took a breather from its relentless strengthening, in part helped by the European Central Bank (ECB) raising rates by half a percent, the first rate rise since 2011, closing the chapter on eight years of negative interest rates.

As of 12pm on Friday, London time, US equities rallied by 3.5%, with the US technology sector climbing 5.3%. European stocks rose by 3.1%, whilst the UK stock market increased by 2.5%, although the more domestically focused mid cap stocks which have borne most of the selling pressure this year, were up 6.1% versus 1.9% for more internationally exposed large cap stocks. Japanese equities rose by 3.4%, with the Australian market up 2.8%. Emerging markets, enjoying the softening in the dollar, rallied by 3.0%.

Government bonds rally as the outlook for manufacturing companies in Europe weakens

Government bond yields, which move inversely to price, fell over the week, reinforced by weak data from the PMIs, which are compiled from company surveys on activity levels. The German and French PMI data for the manufacturing sector came in below 50, indicating contraction, as companies reported weaker than expected sales, leading to a sharp rise in unsold stock. 10-year US Treasuries fell to a yield of 2.81%, with German bunds falling to 1.04% and UK gilts 1.93%.

European natural gas prices remain at elevated levels despite Russia turning the gas supply back on

Commodity prices were somewhat more stable, following the sharp losses in recent weeks. Gold traded up 1.0%, now priced at $1,740 an ounce. Crude oil also rose, with Brent crude rising by 1.3%, currently trading at $102 a barrel. Copper increased by 1.8%, to $7,304 a tonne. European natural gas remains at very elevated levels despite Gazprom, the Russian state backed supplier, resuming supply after ten days planned maintenance to the Nord Stream 1 pipeline. Supply levels remain at 40% of total capacity, insufficient for Germany to rebuild their reserves ahead of winter, as Russia punishes Europe for supporting Ukraine in the war.

Netflix share price jumps 7% on less bad news, as it reports the loss of one million subscribers

Technology stocks, having nursed losses greater than 30% since their peak in November of last year, were rewarded with a little positivity this week as Netflix announced that it had only lost one million subscribers in the second quarter, versus forecasts of losing two million. The shares rallied by over 7% on the news. News sources reported that a number of technology companies are reviewing their spending plans in light of high levels of inflation and the tightening rate environment, including Apple, Alphabet (parent company of Google) and Microsoft. The US social media group Snap, posted a $422m loss for the second quarter, blaming a slump in advertising demand, with the shares falling by more than a quarter in after hours trading.

Big 5 technology companies sitting on $542bn in cash

Many of the large technology companies are due to report earnings this coming week, with investors looking for clues to the outlook. Whatever the news, many of these companies are in a very different position today versus over a decade ago in the 2008/09 financial crisis. The five largest technology companies, Apple, Microsoft, Alphabet, Amazon and Facebook, are sitting on a combined cash pile of $542bn, versus $51bn during 2008.

Italian Prime Minister Draghi resigns, despite winning the no confidence vote

Mario Draghi resigned as prime minister of Italy, despite winning a no confidence vote this week, having lost support of members of his governing coalition party. Italy is now embarking on a snap general election on 25th September. As a result of the political instability in Italy, and their 150% debt to GDP ratio, the cost of servicing Italian 10-year government debt stands 2.3% higher versus Germany, at a yield of 3.34%. The ECB has introduced a tool to prevent the cost of debt for indebted nations soaring. However, for Italy, it will likely need yields to rise further before the ECB is willing to intervene. Even then, the central bank requires “sound” macroeconomic policies, for which it is not clear whether Italy will meet the threshold.

Upbeat about Retirement

Tax relief and lifetime limits

Saving into a pension is one of the most tax-efficient ways to save for your retirement. Not only do pensions enable you to grow your retirement savings largely free of tax, but they also provide tax relief on the contributions you make.

There are various pension allowances in place that you need to be aware of and understand how to make the most of them. These limit the amount of money you can contribute to a pension in a year, as well as the total amount of money you can build up in your pension accounts, while still enjoying the full tax benefits.

Some companies may also make contributions to your pension scheme, dependent on the type and some may increase contributions if you increase yours. However, most companies only contribute to your pension if it is held in their scheme, so before thinking of moving check if they do contribute and if they will continue even if you are no longer in the company pension scheme.

Lifetime Allowance

All your pensions, including workplace pensions, count towards the Lifetime Allowance, with the exception of the State Pension and overseas pensions. The standard Lifetime Allowance is currently £1,073,100 You don’t pay the tax charge until you take your pension savings over and above your Lifetime Allowance (or reach age 75, if earlier). The charge is only on the excess money saved in your pension that is above your Lifetime Allowance.

Non-taxpayer or earning less than £3,600

If you have no earnings or earn less than £3,600 a year, you can still pay into a pension scheme and qualify to receive tax relief added to your contributions up to a certain amount. The maximum you can contribute is £2,880 a year. Tax relief is added to your contributions, so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this or have no income at all. This applies if you pay into a personal or stakeholder pension yourself (so not through an employer’s scheme) and with some workplace pension schemes – but not all. The way some workplace pension schemes give tax relief means that people earning less than the personal allowance (£12,570 in the 2021/22 tax year) won’t receive tax relief.

Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) rules were introduced as an anti-avoidance measure to prevent widespread abuse of the pension freedoms which commenced from 6 April 2015. It’s intended to discourage individuals from diverting their salary into their pension with tax relief and then immediately withdrawing 25% tax-free. The MPAA applies only to money purchase contributions and has remained at £4,000 since 6 April 2017. If you have taken flexible benefits which include income, such as an ‘Uncrystallised Funds Pension Lump Sum (UFPLS)’ or flexi-access drawdown with income, and you want to continue making contributions to a defined contribution pension scheme, you will have a reduced annual allowance of £4,000 annually towards your defined contribution benefits.

Annual Allowance

The pension Annual Allowance is the maximum amount of money you can contribute towards a defined contribution pension scheme in a single tax year and receive tax relief on. All contributions made to your pension by you, your employer or any third-party, as well as any tax relief received, count towards your Annual Allowance. The standard pension Annual Allowance is currently £40,000, or 100% of your income if you earn less than £40,000. A lower Annual Allowance may apply, however, if you are a high earner or you have already started accessing your pension. High earners may potentially be subject to the Tapered Annual Allowance, while those who have already started accessing their pension potentially face the Money Purchase Annual Allowance (MPAA).

Carry forward

Carry forward is a way of increasing your pension Annual Allowance in the current tax year. It is used when your total pension contribution amounts for a tax year exceed your annual pension Annual Allowance limit for that year. You can do this by carrying forward unused allowances from the three previous tax years to make contributions this year. This may enable you to absorb or reduce any pension Annual Allowance excess paid in the current tax year which, in turn, would reduce any potential Annual Allowance charge amount. The 2021/22 tax year allows use of unused allowances from 2018/19, 2019/20 and 2020/21.

Tapered Annual Allowance

The Tapered Annual Allowance calculations will now not affect anyone with a Threshold Income level of £200,000 or below. The taper starts in this tax year at £240,000 and is extended to a minimum of £4,000 Annual Allowance. This reduces the level of pension funding high earners and their employers can make into pension schemes. If high earners exceed the threshold and adjusted income amounts, their Annual Allowance may be reduced by £1 for every £2 of adjusted income over this level until the minimum annual allowance level of £4,000 is reached. The maximum Tapered Annual Allowance reduction is £36,000.

Pension tax relief

The government encourages you to save for your retirement by giving you tax relief on pension contributions. Tax relief has the effect of reducing your tax bill and/or increasing your pension fund. However, at the time of writing this article, the way pension tax relief works is reportedly under review by the Treasury.

You can receive tax relief on private pension contributions worth up to 100% of your annual earnings. Since the tax relief you receive on your pension contributions is paid at the highest rate of Income Tax you pay, the higher your rate of tax, the more you could receive. The Welsh Government now has the power to set Income Tax rates and bands, but has opted to keep these the same as England and Northern Ireland for tax year 2021/22. If you live in Scotland, you pay Scottish Income Tax to the Scottish Government.

Market Update July Monday 18th 2022

Further inflationary pressures drive the US dollar higher and markets down

The US dollar continued its ascent this week as US consumer price inflation hit 9.1% for the month of June, raising expectations for yet another 0.75% interest rate rise. Yield curve inversion in the US widened to its greatest level since 2007 as the yield on 2-year US Treasuries rose, whilst 10-year yields fell as markets priced in greater odds of an impending recession. Commodity prices also fell in anticipation of falling levels of demand.

As of 12pm on Friday, London time, US equities fell 2.8% over the week, whilst the US technology sector shed a further 3.3%. European stocks fell 1.8%, whilst the UK market dropped 1.3% with both large and mid-cap companies bearing the pain. The Japanese market rose 0.3%, however, the Yen continued to weaken, cancelling out any gains for international investors, whilst Australian equities fell 1.1%. Emerging markets lost 3.4%, with Latin America suffering most of the pain from a stronger dollar and weaker commodity prices as the continent’s stock markets fell by 6.4% in aggregate whilst Asia Pacific dropped by 3.0%.

US Yield curve inversion as markets price in a higher probability of recession risk

10-year US Treasury yields fell to 2.93% as investors started to price in the US Federal Reserve cutting rates in the face of a recession, whilst the yield on 2-year Treasuries rose to 3.12%. 10-year yields on both German bunds and UK gilts also fell to 1.16% and 2.09% respectively. The US dollar strengthened by 1.8% versus Sterling, taking the exchange rate to $1.183 and by 1.4% versus the Euro, with the Euro/Dollar exchange rate hitting parity on Thursday, before settling at $1.005.

Commodity prices tumble in anticipation of demand destruction

Gold proved to be no haven asset over the week falling by just over 2%, now trading at $1,704 an ounce in anticipation of further US rate rises. Brent crude dropped by 5.3%, priced at $101.3 a barrel, however on Thursday it fell as low as $94.8 a barrel, a level last seen prior to the Russian invasion of Ukraine. Copper fell by 8.2%, currently trading at $7,160 a tonne, whilst iron ore tumbled by almost 15%.

Chinese slowdown continues against the background of a zero Covid policy

News that the Chinese economy only expanded by 0.4% in the three months to June added further gloom, against economists’ forecasts of 1.2%. China has begun to ease financial conditions against a slowing economy, however, whilst the country persists with its aggressive zero covid policy, consumer confidence remains at rock bottom, with many reluctant to spend money on big-ticket items.

However, the upcoming Chinese elections provides hope for a better outlook

Investors still have positive hopes for the Chinese economy this year, with the twentieth National Congress of the Chinese Communist Party being held in November which will elect the decision makers for the following five years. The current leadership are unlikely to want a weak economy and rising unemployment going into this. The main barrier to a return of full economic activity is the relative ineffectiveness of China’s covid vaccines versus the West, with research suggesting that three jabs are required to prevent severe infections or death. Currently, only about two-thirds of the over-sixties population have had three jabs, meaning that their health system could be swamped in the event of a severe outbreak.

How To Future-Proof Your Finances as A Parent

A momentous event that can change every aspect of your financial stability

The coronavirus (COVID-19) pandemic has had a shattering effect on the country. Futureproofing your finances can help you feel more secure about what lies ahead – whether that’s preparing for big life milestones, such as starting a family, or navigating difficult periods, such as unemployment or poor health. One of the areas that tends to cause some anxiety is managing household finances with the additional cost of each child. Starting a family is one of the most momentous events in the life of a couple and it can change every aspect of your financial stability. Although you don’t need to be financially well off to start a family, it is essential that you plan and budget for it.

The estimated minimum cost of bringing up a child from birth to their 18th birthday, excluding rent and childcare costs, is £153,000 over 18 years for the child of a couple and £185,000 for the child of a lone parent. The lone parent figure is higher because certain fixed costs of having children are offset by greater adult savings for the couple. Most notably in the case of transport, since the cost of having a car is offset by greater savings on public transport fares when there are two adults rather than one. Whoever said the best things in life are free obviously didn’t have children. Let’s face it: kids are expensive. But, of course, they’re worth every penny. Here are some areas to consider for new parents.

Create a budget

A good first step in reducing anxiety about general expenses is to know what you’re spending. You’re less likely to be overwhelmed by a bigger-than-expected bill if you know it’s coming. If you don’t have one already, starting a budget is essential.

If you haven’t done so already, grab your calculator, bank statements and bills and draw up a household budget. Go back over the last few months and review your income (salary, overtime, benefits and any other income sources) and spending. Create categories for spending, such as ‘debts’, ‘bills’, ‘groceries’, ‘entertainment’, etcetera and mark them as ‘essential’ or ‘non essential’ so you can identify any areas where you can cut back. If you’re spending more on certain categories than you expected, set a realistic goal for how much you’d like to bring that spending down.

Set financial goals

Now that you know where you stand financially, you can plan where you’d like to be in the future. Consider what you want to achieve, and then commit to it. Set SMART (specific, measurable, attainable, relevant and time-bound) goals that motivate you and write them down to make them feel tangible. Then plan the steps you must take to realise your goals, and cross off each one as you work through them.

Be specific about what’s most important to you. One of the big ‘hidden’ costs of having children may be the need for more space. For example, your highest priority might be saving for a larger home for your children to grow up in. Or you might be saving to send your children to a particular school. Be accurate about how much you’ll need for these goals and break that down into a monthly saving schedule.

Understand your entitlements

Most people are entitled to financial support when starting a family, such as maternity and paternity pay and child benefit.

Statutory Maternity Pay is paid at 90% of your average weekly earnings for 6 weeks and then £151.97 (or 90% of your average weekly earnings if this is lower) for 33 weeks.
If you are not entitled to Statutory Maternity Pay you may be able to claim Maternity Allowance at up to £151.97 a week for 39 weeks.
If you already receive certain benefits and this is your first child, you may be entitled to a one-off payment of £500, called the Sure Start Maternity Grant.
Depending on your circumstances, you may be entitled to child benefit, tax credits or child disability benefit.

Protect your family and lifestyle

Even if you have sufficient cash savings to cover emergencies or periods of lost income, you also need to consider different types of insurance that would pay out in these instances. You need to ensure you are properly protected should you find yourself out of work due to an accident or sickness, or if you were to die prematurely. Parents with young families need protection the most.

Parents considering cancelling insurance such as life cover or income protection as a way of saving money need to think long-term. It could have catastrophic implications on the family’s finances if either you, your spouse or partner became unable to work or were no longer around.

Income protection insurance – provides a regular income in case you are not able to work due to illness or injury.
Critical illness cover – provides a tax-free lump sum payment if you’re diagnosed with certain specified serious illnesses.
Life insurance – provides either a lump sum or regular income for your family if you’re no longer here.

Plan for retirement

Your retirement may seem a long way off and a low priority compared to the financial needs of your young family now. But it’s important to stay on track with your pension contributions through your twenties and thirties, as it’s the investments you make now that have the best opportunity to grow.

Look at how much you’re contributing and obtain professional financial advice to see how much income this might provide in retirement. If you’re paying into an employer’s pension scheme, a small increase in contributions might make a bigger difference than you think. Often, your contributions will be matched by your employer, and you’ll also receive tax relief, which provides an instant boost to your savings and helps the fund to grow faster than other kinds of investment.

Seek professional advice

Of all the things that cross your mind in the run-up to having children, it’s fair to say that the
impact on your finances will not be the thing you wish to dwell on. But how you plan to manage your money both before and after the patter of tiny feet should be a consideration once you’ve decided you’d like to start a family.

Creating a budget, choosing protection insurance and planning for retirement can all be difficult to manage alone. Seeking professional financial advice will enable you to benefit from expert opinions and make you feel confident about your family’s finances.

Planning for your child’s future

The cost of raising a child won’t always be the first thing parents think about when deciding to have a family, and regardless of the cost, people wouldn’t change having children for the world. Staying on top of everything while also planning for your child’s future can be challenging. To discuss how we can help you plan for the retirement you want, please contact us.

Market Update July Monday 11th 2022

Equities recover a little as interest rate expectations fall

Equities recovered a little this week as markets scaled back interest rate expectations on early signs of an economic slowdown, with the manufacturing sectors outlook weakening in recent company surveys, as both employment intentions and new orders have waned. However, a key US jobs report is due out later today, the non-farm payrolls, for which investors will be looking for signs of easing that might provide an indication as to whether the US Federal Reserve can step back from its aggressive rate rise intentions.

As of 12pm on Friday, London time, US equities rose 2.0% over the week, whilst the US technology sector jumped 4.4%. European equities climbed 2.0%, whilst UK equities were flat. However, in a week when the Prime Minister Boris Johnson finally caved into pressure to resign following question marks over his integrity, more domestically focused mid cap stocks rose 1.0%. Japanese stocks held onto gains of 2.3%, despite the tragic news of former Prime Minister Shinzo Abe’s assassination, having been shot dead whilst at a campaign event for the Liberal Democratic party. The Australian market also managed to rise by 2.1%, despite the general weakness in commodity prices. Emerging market equities increased by 0.2%, with India rising by 3.0%, whilst China fell by 0.9%.

US yield curve inverts for the third time this year, considered a harbinger for a recession

Within government bond markets the difference between 10-year US Treasury yields and 2-year yields went into negative territory for the third time this year, which is considered a reliable indicator of a forthcoming recession within the next eighteen to twenty-four months. The yield on 10-year US Treasuries rose towards the end of the week to 2.98% ahead of the US jobs report, as did German bunds and UK gilts, now trading at 1.26% and 2.13% respectively.

Commodity prices continue to fall on rising recession fears

Commodities were generally weak as the market increasingly priced in the probability of a recession. Copper fell 2.8%, taking it down to $7,818 a tonne, iron ore fell 1.3%, and crude oil weakened sharply, with Brent crude falling by 6.0%, to $105.0 a barrel. Gold also fell, as although it is viewed as a haven asset, whilst central banks are looking to aggressively raise rates, the return from holding cash is looking relatively more appealing. Gold is now trading at $1,738 an ounce, having fallen 3.5% over the week.

Issues under discussion

The Bank of Japan’s yield curve control,

The Bank of Japan’s (BoJ) yield curve control, where the central bank aims to keep the 10-year yield around zero, has increasingly been questioned by investors. The Yen has weakened dramatically this year, whilst the BoJ remains alone in keeping interest rates anchored at record low levels in order to exit the deflationary trap Japan found itself in over the past decade. Many investors believe this is the last shoe to drop before global yields reach an attractive entry point for investors. However, inflationary pressures, whilst being high in terms of Japan’s recent history, still look very tame versus other developed countries. Headline inflation is running at 2.5% (UK 9.1%, Europe 8.6%, US 8.6%), whilst excluding food and energy, it remains languishing at 0.2%. Therefore, views remain split as to whether the BoJ will relinquish their policy.

Nonetheless, fixed income looks much more attractive as an asset class today than it did only a few months ago, with US Treasury yields close to 3.0% versus the current US interest rate range lying between 1.50% to 1.75%, and the market pricing in a peak in rates of 3.3% in early 2023. Government debt is at least offering defensive characteristics once more, even if corporate debt has scope to sell off further should recession fears rise from today.

Market Update July Monday 4th 2022

Markets turn south on persistent inflation, whilst China provides a glimmer of optimism

Following last week’s strong rally in US equities, this week markets lurched lower as the latest inflation data released in the US, the Personal Consumption Expenditures index, continued to point towards elevated levels of inflation, with prices having risen by 6.3% over the year to May, in line with the previous reading.

In addition, whilst inflation data out of Germany pointed towards some mild moderation, with the Consumer Price Index (CPI) coming in at 7.6%, versus 7.9% for the previous reading, inflation data out of Spain showed a sharp acceleration, as annual CPI surged to 10.2%, up from 8.7%.

China further relaxes Covid restrictions

However, it was not all bad news for markets as China announced further relaxations in Covid controls, with quarantine requirements for arrivals into China being cut from twenty-one days to ten. In addition, the latest Purchasing Managers Indices (PMI) in China, which provide an indication of the operating environment companies find themselves in, were on the whole encouraging, with the latest service sector PMI coming in at 54.7 (anything above 50 represents an expansionary environment), ahead of forecasts. On Friday, the latest Caixin Manufacturing PMI for China also beat expectations, coming in at 51.7, versus forecasts of 50.2.

US equities record their worst start to a year since 1970

As of 12pm on Friday, London time, US equities fell 3.2% over the week, whilst the US technology sector dropped 5.0%. US stocks have now recorded their worst start to a year since 1970, having fallen 20.6% over this period, whilst the technology sector has given up 29.5%. However, for a Sterling based investor, this fall has been significantly cushioned by the weakness in the Pound, with the fall in US equities having been halved over this period, returning -10.7%.

European markets dropped 1.8% over the week, having fallen by 16.9% year to date. UK equities lost 1.1%, but year to date are only down by 6.6%, with the UK market having comparatively low exposure to expensive stocks. Japanese stocks fell by 1.2% over the week, down 7.4% year to date. Australian stocks gave up 0.6% for the week, down 12.2% for the first half of the year. Whilst in contrast, Chinese equities rose 1.1% over the week, but remain down by -6.9% year to date, whilst the wider emerging market complex fell -1.0%, down 18.8% year to date.

Interest rate expectations show signs of moderation

Government bond markets rallied this week as fears of a recession, combined with a moderation in future interest rate expectations, lowered government bond yields. The yield on 10-year US Treasuries, which moves inversely to price, fell under 3% this week, currently trading at 2.94%, as the futures markets priced in US interest rates hitting 3.5% by early 2023, down from 3.9% priced in two weeks ago. Similarly, German bund yields fell to 1.30% and UK gilts to 2.17%.

Recessionary fears take their toll on commodities

Gold weakened over the week, falling by just over 2% to $1,790 an ounce. Whilst recessionary fears took their toll on the crude oil price, as Brent crude fell to $111.3 a barrel, having traded as high as $128 a barrel at the outset of the Russian invasion of Ukraine in March. Copper is also sharply down from its high this year, now trading at $8,254 a tonne, having peaked at $10,702 in March, a fall of 23%.

Mind the Divorce Gap

Women see incomes fall by 33% following divorce, compared to just 18% for men

Divorce is an emotionally charged event – and can be an expensive one. The financial impact of divorce can also last for decades and carry on into older age. Women are also often impacted harder financially by divorce, new research highlights.

Many women are likely to see their household incomes fall by a third (33%) in the year following their divorce, almost twice as much as men (18%) and are significantly more likely to waive rights to a partner’s pension as part of a divorce (28% women versus 19% men).

Financial struggle post-divorce

Women are more likely to face a financial struggle post-divorce (31% women versus 21% men) and worry about the impact on their retirement (16% women versus 10% men).

Office for National Statistics (ONS) data shows, on average, women already have a significantly smaller pension pot than men. There are many reasons driving this disparity, one being that women are typically paid less, while men who divorce are far more likely to have been the primary breadwinner in the relationship (74% men versus 18% women).

Greater degree of financial burden

This is why women will likely feel a greater degree of financial burden if transitioning to a single-income household and are likely to face financial struggles following a divorce from their partner (31% women versus 21% men).

This is particularly true for older women who divorce. One in four divorces occur after the age of 50 and women are significantly more likely to worry about the impact of their divorce on their retirement (16% women versus 10% men).

Rights to a key financial asset

While there is only a slight difference in the number of men and women who feel that the division of their finances at the point of divorce was fair and equitable (54% men and 49% women), the research found that many women may be signing over their rights to a key financial asset.

Women are significantly more likely to waive their rights to a partner’s pension as part of their divorce (28% women versus 19% men). This could have a significant long-term impact, particularly as women tend to have less personal pension wealth, according to the most recent findings from the ONS.

Plan to protect your financial future

In most families, the two largest assets are the family home and a pension fund. If you’ve made the decision to file for divorce, it’s time to gather as much information as you can and figure out the plan to protect your financial future. Please get in touch to find out how we can help you – we look forward to hearing from you.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.

Month: July 2022