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Month: August 2022

Pension Freedoms

Improve your financial wellbeing in later life

‘The secret to happiness is freedom’, wrote the ancient Greek historian Thucydides. And with the introduction of the pension freedoms rules, those aged over 55 now have far greater freedom of choice over how they use their pension pot to fund their retirement years.

The pension freedoms, introduced on 6 April 2015, dramatically changed the pensions landscape. How people can now access their retirement income is substantially different from previous generations. Pension freedoms have made it much easier for people to access their pension pots and as a result, some may think they can do it themselves.

Little knowledge and understanding

Pension freedoms have put a greater onus on people to keep themselves informed of their options when it comes to accessing their pension money. However, little knowledge and understanding of the rules could mean some people risk making decisions that are not best for them.

For people in their 40s and 50s, understanding retirement savings is especially critical. Pension freedoms now give savers full access to their retirement savings from the age of 55. The reforms have given over-55s greater power over how they spend, save or invest their retirement pots.

‘Half of Britons aged 55 and over (51%) admit they know little about the pension freedom rules introduced in April 2015, according to research. A further one in ten (10%) over-55s say they know nothing about the changes, which represented a complete shake-up of the UK’s pensions system five years ago.”

Think carefully before making any choices

The pension flexibilities may have given retirees more options, but they’re also very complicated, and it’s important to think carefully before making any choices that you can’t undo in the future. Withdrawing unsustainable sums from your pensions could also dramatically increase the risk of running out of money in your retirement.

  1. Standard Life’s research of more than 2,000 UK adults found 35% of Britons aged between 55 and 64 have already accessed their pension pot, prior to State Pension age

Market Update August Monday 29th 2022

Markets continue to look for signs of an interest rate pivot in the US

Bond yields, which move inversely to price, moved higher, as investors await the hotly anticipated speech from Jerome Powell, chair of the US Federal Reserve (Fed) on Friday, as interest rate policy continues to dominate markets. Expectations are high that without giving away any details on further rate rises, the Fed chair will be keen to burnish his credentials as being tough on inflation. With economic data beginning to point towards a slowdown, investors are looking for any sign of a pivot away from the current trajectory of rate increases, which has been running at an increase of 0.75% for the last two rate setting meetings. Currently markets are pricing in a peak in US rates of around 3.8% in March 2023, with peak rate expectations gradually increasing in recent weeks, with the peak priced in as low as 3.2% at the end of July.

As of 12pm on Friday, London time, US equities are down 0.7% over the week, whilst the US technology sector has fallen 0.5%. European stocks have lost 1.3%, and the UK market is down by a similar amount, having dropped 1.2%, not helped by the continued escalation in natural gas prices. The Japanese market is down 0.75%, whilst Australian equities fell 0.2%. Emerging markets bucked the trend, rising 0.2%, with Latin American stocks increasing by 3.1%, helped by the recovery in commodity prices in recent weeks.

Interest rate expectations gradually ratchet higher

Government bond yields rose, with shorter dated bonds rising the most. The yield on 2-year US Treasuries touched 3.40% mid-week, before settling back down at 3.37%. The 10-year Treasury is currently trading at a lower yield of 3.07%, meaning that the 2-year 10-year yield curve remains inverted, which many investors (but notably not the Fed) believe is a signal of an upcoming recession. The UK yield curve is also inverted, with 2-year gilts trading at a yield of 2.80% versus 2.61% for 10-year gilts. Whilst perhaps counter intuitively the German bund yield has yet to invert, with 10-year bunds trading at a yield of 1.35%. Futures markets are currently pricing UK rates rising to 2.8% by the November meeting, versus 1.75%, with rates rising to 4.0% by March. Whilst Eurozone rates are priced to rise from zero today, to 1.3% by December.

UK retail energy price cap rises by 80%, with further rises forecast

Gold fell 0.3% over the week, now priced at $1,758 an ounce, whilst industrial commodities continued their recent renaissance. Brent crude rose 4.4%, trading at $101 a barrel, copper was up 0.8%, at $8,167 a tonne, and European natural gas increased a whopping 28% over the week, priced at $318 a megawatt hour. On Friday the UK regulator increased the price cap on household gas and electricity bills from £1,971 a year to £3,549, an 80% increase. However, this is due to be reviewed again in January, with the latest industry forecasts suggesting the cap could rise to over £6,600 a year by the spring. If this comes to pass, this would be more than a fivefold increase on the price cap set in October 2021.

Bad news is good news as US economic data shows continued signs of softening

US home sales data softened further this week, as the annualised figure for July of newly built homes fell by 12.6%, versus forecasts of a 2.5% fall. Meanwhile the latest service sector purchasing managers’ index, which measures the business conditions service sector companies find themselves in, came in at a 27-month low of 44.1, with any reading below 50 representing contraction, also worse than forecasted. With a focus on interest rates, bad news is good news, as this drip, drip, drip of softening economic data may help the Fed to pivot on its rate hiking path. However, Neel Kashkari, president of the Minneapolis Fed, who has previously been perceived as more dovish on US central bank policy (less inclined to raise rates), was quoted this week saying that a combination of “maximum employment” and “very high inflation” makes the Fed’s approach “very clear, we need to tighten monetary policy to bring things into balance.”

Retirement Options

How to ensure a comfortable retirement

The pension freedoms have given retirees a whole host of new options. There is no longer a compulsory requirement to purchase an annuity (a guaranteed income for life) when you retire. The introduction of pension freedoms brought about fundamental changes to the way we can access our pension savings.

Once you reach 55, you can access your pension pot. You can take some or all of it, to use as you need, or leave it so that it has the potential to continue to grow. When you take your pension, some will be tax-free but the rest will be taxed.

The amount taxable will depend on your circumstances, which can change. Tax rules can also change in the future. It’s up to you how you take benefits from your pension pot. You can take your benefits in a number of different ways.

Choosing which method

You’ll need to choose which method you use to do so, with options including: buying an annuity (a guaranteed income for life), taking income through flexi-access drawdown, withdrawing lump sums or a combination of all of them.

There are advantages and disadvantages to each method, and in some cases your decision is permanent. Which option or combination is right for you will depend on:

  • Your age and health
  • When you stop or reduce your work
  • Whether you have financial dependents
  • Your income objectives and attitude to risk
  • The size of your pension pot and other savings
  • Whether your circumstances are likely to change in the future
  • Any pension or other savings your spouse or partner has if relevant Everybody’s situation is different, so how you combine the options is up to you.

Annuities – guaranteed income for life

Annuities enable you to exchange your pension pot for a guaranteed income for life. They were once the most common pension option to fund retirement. But changes to the pension freedom rules have given savers increased flexibility.

You can normally withdraw up to a quarter (25%) of your pot as a one-off tax-free lump sum, then convert the rest into a taxable income for life – an annuity. There are different lifetime annuity options and features to choose from that affect how much income you may receive. You can also choose to provide an income for life for a dependent or other beneficiary after you die. The amount you receive can vary. It depends on how long the provider expects you to live and how many years they’ll have to pay you.

Flexible retirement income – pension drawdown

When it comes to assessing pension options, flexibility is the main attraction offered by income drawdown plans, which allow you to access your money while leaving it invested, meaning your funds can continue to grow. This option normally means you take up to 25% of your pension pot, or of the amount you allocate for drawdown, as a tax-free lump sum, then re-invest the rest into funds designed to provide you with a regular taxable income.

You set the income you want, though this might be adjusted periodically depending on the performance of your investments. You need to manage your investments carefully because, unlike a lifetime annuity, your income isn’t guaranteed for life. You may be able to ask your pension provider to invest your pension pot in a flexi-access drawdown fund. If you have a ‘capped’ drawdown fund, you can keep it or ask your pension provider to convert it to flexi-access drawdown.

Small cash sum withdrawals – tax-free

This is an important consideration for those weighing up pension options at age 55, the earliest age at which you can take up to 25% of your pension pot tax-free. You should ask yourself whether you really need the money now. If you can afford to leave it invested until you need it then it has the opportunity to grow further.

For each cash withdrawal, the remaining counts as taxable income and there could be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year. With this option, your pension pot isn’t re-invested into new funds specifically chosen to pay you a regular income and it won’t provide for a dependent after you die. There are also more tax implications to consider than with the previous two options. So, if you can, it may make more sense to leave your pension pot to grow so you can enjoy a larger tax-free amount in years to come. Remember, you don’t have to take it all at once – you can take it in several smaller amounts if you prefer.

Combination – mix and match

Of all the pension options, if appropriate to your particular situation, it may suit you better to combine those mentioned above. You might want to use some of your savings to buy an annuity to cover the essentials (rent, mortgage or household bills), with the rest placed in an income drawdown scheme that allows you to decide how much you can afford to withdraw and when. Alternatively, you might want more flexibility in the early years of retirement, and more security in the later years. If that is the case, this may be a good reason to delay buying an annuity until later in life.

The value of retirement planning advice

There will be a number of questions you will need answers to before deciding how to use your pension savings to provide you with an income. These include:

  • How much income will each of my withdrawals provide me with over time?
  • Which withdrawal option will best suit my specific needs?
  • How much money can I safely withdraw if I choose flexi-access drawdown?
  • How should my savings be invested to provide the income I need?
  • How can I make sure I don’t end up with a large tax bill?

Tax on your pension

When you receive money from a pension, you pay tax on any income above your tax-free personal allowance. Your pension provider will take off any tax you owe before you receive money from your pension pot. You may have to pay a higher rate of tax if you take large amounts and you may owe extra tax at the end of the tax year.

Top 5 things to consider before withdrawing money from your pension

  1. Pensions freedoms: Familiarise yourself with the pensions freedoms so you are aware of your options. You can now do a lot more with your pension pot than previously. Everyone is different and it is important to find the right solution for your circumstances. What risks are you willing to take?[ahr_space value=”20″]
  2. Saving requirements: Consider the amount of money you will need each month to maintain your lifestyle. Ask yourself: How much might I need? How much might I get? Do I still have a mortgage to pay off? What other sources of income do I have, and do I need my pension to keep up with inflation? Could I consider working for longer? Do I want to have annual holidays?[ahr_space value=”20″]
  3. Costs later in retirement: Think about costs later in your retirement. What will your living costs be in the future? Care needs are not a subject we are comfortable thinking about but it is important to have conversations about it with your family, as well as Powers of Attorney, Wills and inheritance.[ahr_space value=”20″]
  4. Health and life expectancy: We often vastly underestimate this, but evidence shows we are mostly living longer, with a growing variation in healthy life expectancy. If you have a partner, do you need to provide for them financially after you die, or are you relying on them?[ahr_space value=”20″]
  5. Obtain professional financial advice: Few of us may expect to give up work altogether in our 50s. But a growing number of us are dipping into our pension before retirement age. Before we get into the different ways you could withdraw money, there are some more general things to think about first. Try asking yourself the following questions: How long will I need my money to last? How long do I want to keep working? How much tax might I pay? Could my health and lifestyle affect what I get? How much do I want to leave behind?


Market Update August Monday 22nd 2022

Mixed economic data and company results have led to a similarly mixed week in markets

It has been a mixed week for markets as economic data and company results were mixed, providing little direction. Whilst there are some signs of cooling growth, such as in the US housing market, other areas, such as employment, remain robust, pointing towards further rate rises. And, whilst China has been gently easing monetary policy this year, the country’s zero covid policy continues to sap consumer confidence, which has been reflected in lacklustre retail sales growth and rising unemployment.

Dollar strength returns

As of 12pm on Friday, London time, US equities were up 0.1% over the week, although investors based outside of the US were able to benefit from renewed dollar strength. The Dollar index, which measures the value of the dollar against a basket of internationally traded currencies, strengthened by a massive 2.2% over the week. US technology stocks, faced with rising expectations of further rate tightening, fell 0.6%. European markets dropped 0.45%, not helped by European natural gas futures rising by almost 20% over the week alone, having risen 250% year to date. UK stocks rose 0.2%, although weakness in sterling accounted for much of this. More domestically orientated UK mid cap stocks fell 1.9%. Japanese equities rose 1.1%, aided by currency weakness, with the Yen falling against most major currencies, as unlike other major central banks monetary policy remains very accommodative under the Bank of Japan as inflationary pressures remain muted. Australian shares rose 1.2%, supported by very strong results from commodity producers. Emerging markets fell 0.7%, with the Hong Kong Hang Seng falling 2.0%.

UK inflation data leads to a selloff in short-dated government bonds

Developed market government bond yields rose (yields move inversely to price) this week as economic data on balance pointed to continued rate hikes. The 10-year yield on US Treasuries is now trading at 2.9%, German bunds 1.22% and UK gilts 2.44%. The bigger move was in shorter dated bonds following the latest release of inflation data out of the UK. Consumer price inflation came in at 10.1% for the year to July, higher than last month’s reading of 9.4% and above forecasts of 9.8%. Short-dated gilts rose over half a percent as the market reappraised UK interest rate expectations, with the 2-year gilt now trading at 2.59%, dragging the yield up on both US Treasuries and German bunds mid-week.

Crude oil slips further

Crude oil fell, with Brent crude down by 3.6%, now trading at $94.6 a barrel. Copper prices were also weak, falling 0.5% to $8,045 a tonne. Iron ore shed 8.6% on the back of weak Chinese economic data. Meanwhile gold suffered from the rally in the US dollar, falling 2.8% to $1,764 an ounce.

Zero covid policy continues to take its toll on China’s economy

The week began with disappointing data out of China, with both retail sales and industrial production coming in lower than forecasts. China continues to lock down cities as a key part of its zero covid policy resulting in lacklustre economic growth. Youth unemployment has risen to a record high of 19.9%. The People’s Bank of China reduced its medium-term lending rate by 0.10%, but expectations are growing for further easing.

US housing market continues to soften, whilst employment picture remains robust

In the US, new home construction moderated to its lowest level since mid-2021, with housing starts falling by 9.6% from the previous month. However, the DIY store Home Depot reported its highest quarterly sales and earnings on record as consumers continue to spend on home improvement despite the high levels of inflation. Following two sets of profits warnings, the hypermarket chain Walmart reported stronger than expected figures and raised their full year guidance, whilst the department store Target Corporation missed earnings forecasts and described the operating environment as “very challenging”. The employment picture continues to remain more robust than expectations as initial unemployment claims came in beneath expectations.

Take It To The Max

Feel confident about your retirement

If you’ve been diligently saving into a pension throughout your working life, you should be entitled to feel confident about your retirement. But, unfortunately, the best savers sometimes find themselves inadvertently breaching their pension lifetime allowance (LTA) and being charged an additional tax that erodes their savings.

If you are a high-income earner or wealthy individual, you could be putting too much into your lifetime pension and risk exceeding the pension lifetime allowance. The government will maintain the pensions Lifetime Allowance at its current level until April 2026, removing the usual annual incremental rises. The following questions and answers are intended to help you avoid this tax charge.

Q: What is the lifetime allowance?

A: The LTA is a limit on the amount you can withdraw in pension benefits in your lifetime before you trigger an additional tax charge. By pension benefits, we mean money you receive from your pension in any form, whether that’s a lump sum, a flexible income, an annuity income or through any other method. This allowance applies to your total pension savings, which may be in different pensions.

Q: How much is the lifetime allowance?

A: In the 2021/22 tax year, the LTA is £1,073,100. This allowance has now been frozen until April 2026.

Q: What happens if you exceed the lifetime allowance?

A: Once you have received your full LTA in pension benefits, you will be required to pay an additional tax charge on any further benefits you receive. If you take your remaining benefits as a lump sum, you’ll pay a tax charge of 55ffi. If you take your remaining benefits as multiple withdrawals, you’ll pay a tax charge of 25ffi on each one.

Q: How is the usage of your lifetime allowance measured?

A: Each time you access your pension benefits (for example, by purchasing an annuity, receiving a lump sum or establishing a flexible income), this is recorded as a ‘benefit crystallisation event’. There is an additional benefit crystallisation event when you turn 75, and finally, upon your death.

Q: Is lifetime allowance protection available?

A: You can only protect your pension from the LTA if your savings were worth more than £1 million on 5 April 2016. You may be able to protect your pension savings up to £1.25 million, or up to the value of your pension on that date, depending on the type of protection you have.

Q: Is it possible to avoid the lifetime allowance?

A: If you do not have LTA protection and you are approaching the limit, there are various actions you can consider. These include stopping your contributions (and, instead, investing your money into an alternative tax efficient environment), changing your investment strategy or starting retirement earlier.

Q: Who does the lifetime allowance affect most?

A: The LTA affects high earners and those approaching retirement age the most, including those with defined benefit pensions. As the value of high earners’ pensions rises over the next five years towards a lifetime limit that will remain fixed, more and more individuals may find they need to stop contributing to avoid breaching the limit.

Q: When should you seek professional advice?

A: The rules around the LTA are very complex and making the right decisions can feel difficult. Receiving professional financial advice will help to identify if you have a problem and offer different solutions to consider, based on a full review of your unique circumstances.

Market Update August Monday 15th 2022

Softening inflation powers markets upwards

In a choppy market, equities made further gains following the latest US inflation data, providing the possibility that peak inflation is behind us. Consumer price inflation (CPI) came in at 8.5% for the year to July, down from 9.1% the previous month, and for the month of July itself inflation was flat. Falling petrol prices were the main contributing factor.

As of 12pm on Friday, London time, US equities rose 1.5% over the week, with the technology sector gaining 1.0%, having risen just over 20% from its recent trough. European equities, despite the soaring cost of natural gas, also made gains rising 1.1%, whilst UK equities were up 0.7%. The Japanese market increased by 1.3%, but the Australian market could only manage a gain of 0.2%. Emerging markets rose 1.1%, helped by dollar weakness and an increase in commodity prices, with Latin America rising by 4.9%.

Developed government bond markets were relatively benign, with 10-year US Treasury yields rising (yields move inversely to prices) to 2.87%, German bunds 0.99% and UK gilts 2.10%.

Gold prices moved up 0.5%, now trading at $1,800 an ounce, whilst industrial commodities and crude oil showed greater strength. Copper increased by 3.9%, to $8,165 a tonne, and Brent crude rose by 3.6%, priced at $98.3 a barrel. Whilst futures in European natural gas, for delivery in one month, rose almost 10% over the week, having risen over five-fold year to date and over sixteen times since the start of 2020, pre the pandemic.

Tech stocks start the week on weak note following disappointing corporate results

Markets started the week on a sour note, as results from US chipmaker Micron Technology warned of slowing consumer demand for chips in personal computers and smartphones. This followed weak guidance from Nvidia, also a manufacturer of semiconductor chips, as revenues for the second quarter fell 19% versus the first quarter, with revenue from gaming components being behind the fall. However, market sentiment improved swiftly on the release of the CPI data, although inflation remains at very elevated levels. On Thursday, the latest index for prices paid (PPI) to US producers for goods and services also came in unexpectedly low, with PPI dropping by 0.5% in the month of July, the first decline since April 2020.

Interest rates set to continue climbing despite the softening inflation data

Whilst it remains too early to call the top in inflation with any great certainty, the softening in prices in recent months has been taken very positively by markets, with world equity markets having risen by over 12% since their recent lows. However, the softening in inflation data does not signal the end of interest rate rises and by extension, nor does it remove the threat of a recession. And, as on cue, data released out of the UK on Friday showed a contraction in the economy of 0.1%, versus growth of 0.7% in the previous quarter.

The Power of Planning

Changing shape of retirement

Are you ‘mid or late career’ or planning to retire within ten years? If the answer’s ‘yes’, then you probably want to know the answers to these questions: Will I be able to retire when I want to? Will I run out of money? How can I guarantee the kind of retirement I want? But, for many different reasons, planning for retirement is a commonly overlooked aspect of personal financial planning and this can often lead to anxiety as your age of retirement approaches. We’ve provided some ideas about how to boost your pension savings and help achieve your retirement goals sooner.

Review your contributions

Sometimes the simplest solutions are the most effective. If you want to boost your retirement savings, the simplest solution is to increase your contributions. You may think you can’t afford to, but even a slight increase can make a big difference. For those lucky enough to receive a pay rise in line with inflation every year, increasing your pension contributions by just 1% could add thousands to your eventual pension pot.

The reason why a relatively small increase in pension contributions can result in such a large increase in the value of your pension pot is because of the power of compounding. The earlier you invest your money, the more you benefit from the effects of compounding. Adding more money to your pension pot by increasing your contributions just makes the compounding effect even better.

Review your strategy

A missed opportunity for many pension holders is failing to choose how their pension is invested. Some people leave this decision in the hands of their workplace or pension provider. Firstly, you should know that you don’t have to hold a pension with the provider your employer has chosen. You can ask them to pay into a different pension, allowing you to choose the provider while considering the type of funds they offer and the fees they charge.

You can ask them to pay into a different pension, allowing you to choose the provider while considering the type of funds they offer and the fees they charge. Secondly, many pension providers will give you several options for investment strategies. If you’re in the default option, you could achieve higher returns with a different strategy (though this will usually mean taking on more investment risk). Note that this may not be appropriate in all circumstances, particularly if you are close to retirement.

Know your allowances

When you save in a pension for your retirement, the government adds tax relief on top of the money you contribute, helping you to grow your savings faster. However, there’s a limit to the amount of contributions you can claim tax relief on each year, which is called your ‘annual allowance’. It’s currently £40,000 (tax year 2021/22), and in some cases may be lower.

If you want to contribute more than your annual allowance into your pension in one tax year (for example, if you’ve received a windfall and want to put it aside for the future), it’s worth knowing that you can use any unused allowance from up to three previous years. So, if you have £10,000 of unused allowance in each of the past three years, that’s another £30,000 you can claim tax relief on this year. The tax relief on this amount would be at least £7,500, depending on your tax band.

Trace lost pensions

Usually, starting a job with a new employer means starting a new pension. And, when that happens, some people may overlook the pension they had with their last employer. As a result, many people have pensions with previous employers that they’ve lost track of – and rediscovering them can give a huge boost to your retirement savings. You can trace old pensions by getting in touch with the provider. Look through any documentation you still have from your past employers to see if you can find your pension or policy number. If you can’t, you can contact the provider anyway and they should be able to find your pension by using other details, such as your date of birth and National Insurance number.

If you’re not sure who the provider is, start by asking your previous employer.

Weekly Market Update August Monday 8th 2022

Attention turns to US economic data

After a strong July for global markets, the first week of August saw more moderate returns amongst equities as investors keenly anticipate today’s US labour market data. With the US already in a technical recession (two consecutive quarters of negative growth), extra focus is being paid to other economic indicators for the largest economy in the world. Economists have forecast US non-farm payrolls to have added 275,000 jobs, down from 372,000 last month. Meanwhile, on Monday, the US Manufacturing Purchasing Managers’ index (PMI), a survey of economic activity, slipped to 52.8. Although the reading is above 50 indicating economic expansion, the PMI figure is the lowest since June 2020.

Geopolitical fears resurface

US House of Representatives Speaker, Nancy Pelosi, began her tour of Asia with a controversial visit to Taiwan. Taiwan is self-ruled, but the Chinese government strongly views the country as a breakaway province which should ultimately belong to China. Upon landing, Pelosi reiterated US support for Taiwan, but this prompted a furious response from Beijing. The Chinese government called the visit a “provocative move” and has since held military exercises around the island in a furious response. The inflamed tensions and fear of escalation within the region briefly prompted a demand for haven government bonds and stock markets faltered on the day.

Despite this, most equity markets did however finish the week in positive territory. As of 12pm London time, the broader US index rose by 0.52% whilst the main US technology index had a strong week, up 2.66%. This was helped by better than expected earnings results from PayPal and Moderna. Returns were more muted in the UK, up by just 0.18% whilst continental European equities traded marginally lower by 0.07%. In Asia, as alluded to, the tensions around Taiwan weighed on equity returns within the region. The Japanese market finished higher by only 0.35%, whilst the Hong Kong Index returned just 0.19% for the week. The Shanghai composite traded negatively ending the week by -0.80%.

Hawkish comments hold back government bond returns

After last week’s suggestion from the US Federal Reserve (Fed) Chair that the pace of interest rate increases could be slowed down, this week saw much more hawkish comments from Fed officials. For example, San Francisco Fed president Mary Daly remarked the bank was “nowhere near” done with its fight against inflation, whilst other members of the Fed in separate interviews were open to larger interest rate rises.

Shorter dated government bonds, which are more sensitive to interest rate expectations, sold off on the remarks with the 2 year US treasury yield (which moves inversely to its bond price) rising 22 basis points to breach 3%. Longer dated US government bond yields also rose, with the 10-year benchmark yield finishing the week trading at 2.69%. 10-year German bunds traded flat, with its yield only higher by 3 basis points at 0.84%.

Bank of England makes largest rate increase in 27 years.

Although UK gilt yields ended higher for the week, there was brief demand for UK haven bonds when the Bank of England forecasted the UK economy would fall into recession by this year. The 10 year gilt yield trades at 1.92% as of 12pm London time. Following the 0.75% hike by the US Fed and a bigger-than-expected 50% increase by the European Central Bank, this week saw the Bank of England also raise rates by 0.5% to 1.75%. The central bank cited the large move given fears that inflation will become “embedded” in the economy. They forecast inflation could peak at more than 13% and stay at “very elevated levels” throughout much of next year, before eventually returning to the Bank’s 2% target in 2024.

Oil prices slip to their lowest levels since February

With so much attention and continued concern over the health of the global economy, oil prices fell significantly from their peaks. Brent crude oil fell sharply by -14% to trade below the $100 mark at $93.69 per barrel. WTI crude prices also fell significantly, trading lower by -10% to $88.34 per barrel.

Market Update August Monday 1st 2022

Equity markets set for their best month since late 2020

Markets are set for a strong finish to the week, as investors were encouraged by comments made by US Federal Reserve (Fed) Chair, Jay Powell. The central bank raised its federal fund’s rate by 0.75% to a range of 2.25% to 2.50%, which was widely expected. However, comments from Powell that the central bank may soon slow the pace of further rate rises were well received by investors. Although inflation remains high, central bankers are looking to raise rates without choking off growth and consequently, stock markets have tended to react positively to any indication of less hawkish monetary policy.

As of 9am London time, the US index and the US technology sector both finished higher by 2.8%. Markets in Europe followed suit, with the European index up 2.36%, whilst the UK market rose by 1.2%. Asian stocks gave a mixed picture, however. Australian equities posted a strong gain of 2.26%, but the Hong Kong index dropped by 2.55%, following heavy selling in Alibaba after several executives stepped down. The Shanghai composite finished lower by 0.89% with investors disappointed by the lack of any new stimulus announcements from the Chinese government politburo meeting on Thursday.

Well received company earnings boost equity performance.

What also helped performance this week were well received earnings updates from several bellwether companies. US Technology giants Microsoft and Google parent Alphabet signalled better than expected full year forecasts, even if quarterly revenues were behind initial expectations. Microsoft and Google stock prices rose 6.6 and 7.7% on the announcements. Meanwhile Amazon shares leapt 14%, after revenue results beat expectations. The company also offered an upbeat outlook for the rest of the year on the strength of its cloud computing business. It was not all good news however, major retailer Walmart dropped 7.6% after the company issued its second profit warning since May, citing rising prices for fuel and goods weighing on demand.

Away from the US we also saw a strong earnings boost in the UK for energy giants Shell and British Gas owner, Centrica. Shell attributed its record profits of £9.4bn in the second quarter due to higher energy prices and gas trading, whilst Centrica enjoyed £1.3bn operating profits boosted again by rising energy prices as well as asset sales.

US economy in “technical” recession

A day after the Fed meeting, data revealed US Q2 GDP growth falling 0.9% on an annualised basis. This followed a contraction of 1.6% in the first quarter of this year, putting the country into a technical recession, as defined as two consecutive quarters of negative growth.

However, it is the National Bureau of Economic Research (NBER) who officially declare whether the economy is in recession, based on a range of factors such as GDP, real income, and employment. They have yet to designate the US as being in a recession, whilst the White House has also pushed back on the idea of being in a recession, citing robust monthly job creation.

Nonetheless, US government bonds rallied on the news. Safe haven 10-year government bonds returned 1% for the week, with its yield falling by 6 basis points to trade at 2.69% as of 9am London time. Equivalent UK Gilt yields and German Bund yields also declined, by 10 and 16 basis points respectively to trade at 1.9% and 0.88%.

European gas prices jump higher

In other news, European gas prices rose as much as 13% on Wednesday as flows from the Nord Stream 1 pipeline from Russia to Germany were cut to just 20% normal capacity. European politicians have accused Russia of weaponizing gas supplies in response to sanctions imposed following the invasion of Ukraine. Gas supplies were already cut to 40 per cent of capacity in June before Moscow threatened to make further cuts this week.

Retirement Goals

Knowing where you’re going and how to get there

Retirement might seem a long way off but the later you leave planning for it, the less chance you have of achieving the retirement you want. We all dream of how we’ll spend our retirement but that dream looks different for everyone.

Some people want to spend more time with their family, while others want to enjoy long holidays and see the world, or simply wish to be financially independent. No matter what your dreams are, they rely on having sufficient pension savings to achieve them and live comfortably.

Specific retirement goals

People who associate confidence with retirement are most likely to have specific retirement goals and know what steps they need to take to reach them. But sadly, some people don’t feel confident that they will have enough savings to live comfortably after they retire.

Many people have a fear of outliving their money, but most don’t have a clear idea of how much money they need during retirement. It’s important to remember that retirement doesn’t happen at a certain age, it happens when you have enough money to live on. And having this clear direction and understanding will give you peace of mind that you’re on the right track.

Do you feel confident about your retirement?

Pensions can seem complex and overwhelming, and there are many reasons you might lack confidence in your retirement plans.

  • You might be worried that you’re not saving enough, but don’t feel you can afford to save more
  • You might feel ready to retire now, but you’re not sure if you can rely on your current pension savings to provide enough money for the rest of your life
  • You might have experienced a change to your financial situation, including life events such as divorce, and have new concerns about whether you can save enough
  • You might have previously felt confident about your retirement plan, but the COVID-19 pandemic has derailed your savings

Don’t suffer a ‘horrible shock’

Research shows that there is a significant difference in how confident people feel about retirement based on whether or not they have spoken to a financial adviser. 65% of UK adults who have obtained financial advice say they do feel confident that they will have saved enough for retirement, compared to only 41% of those who have not.

A positive retirement experience begins with a plan designed to help you live life on your terms. Your adviser will ask questions about your finances, personal circumstances and retirement goals, and create a plan that’s unique to you and will help you reach the retirement you’re aiming for.

Providing answers to your planning questions

People who know where they’re going and how to get there feel more confident in their retirement plan. Your adviser will be able to answer these key questions.

What do I need to know?:
• How much you need to save for retirement
• How to save tax-efficiently for retirement
• How pensions work
• The type of pension you should choose
• The right amount to contribute to your pension
• How to boost your pension pot
• How your pension should be invested
How to withdraw money from your pension

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