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The election result and your finances.

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The election result and your finances.

Wednesday, January 22nd, 2020

With the Conservative’s having won their largest majority since 1987, we thought now would be a good time to reflect on some of the pledges made during the election campaign. How will the promised reforms affect you and your finances? 

Increase of the National Insurance threshold

The NIC threshold is set to rise from £8,632 to £9,500, which will lead to savings of around £100 a year for the 31 million workers who earn above that amount. Over the long term, the Conservatives have set an ambitious £12,500 threshold which would result in a tax reduction of £500 for those who earn over that figure.  

State pension triple lock

The state pension lock is set to be maintained, which is unsurprising, particularly after Theresa May’s plans to change the system cost her voters back in 2017. Currently, under the triple lock the state pension increases year on year, in line with whichever is the highest of these three measurements: the average earnings increase, the rate of inflation or 2.5%.

Further pension pledges

The government has pledged to address a separate pension anomaly which can result in people earning under £12,500 to be denied pension tax relief, if their provider uses the ‘net pay arrangement’ approach as opposed to the ’relief at source’ method. 

The government has also mentioned that it will address the ‘taper tax’ issue that is causing many senior NHS medical professionals to turn down work and overtime, rather than risk a retrospective pension tax charge. 

Steve Webb, director of policy at Royal London, raises the concern that there is a “lack of detail” in the suggested reforms, mentioning that “the measure proposed is far too narrow and may not even work. The tapered allowance affects far more people than senior NHS clinicians and creates complexity and uncertainty in the tax system.”

More will be revealed, no doubt, when Sajid Javid delivers his budget on 11 March.  

Income tax

When he was battling for leadership of the Conservatives, Boris Johnson promised to reduce Britain’s tax burden, making the bold statement that he would raise the threshold for the 40% higher-rate income tax band from £50,000 to £80,000. This would have resulted in serious tax savings for the top 10% of earners. It appears, however, that the plan has been shelved, at least for now. 

Rest assured, we’ll keep our ears to the ground and will update you of any significant policy changes in the budget that might affect your finances. In the meantime, if you have any queries, please don’t hesitate to get in touch.

What does the governor of the Bank of England do?

Wednesday, January 15th, 2020

With the 121st governor of the Bank of England, Andrew Bailey, set to take over on 16th March this year, we wanted to take a look at one of the UK’s oldest institutions and its figurehead. 

What is the Bank of England? 

The Bank of England is the UK’s central bank. It produces all the banknotes used in the UK and houses the UK’s gold reserves (a total of 400,000 bars worth over £200bn).

Founded in 1694 to act as banker to the government, the first ever governor was John Houblon – you may have seen his face on a £50 note between 1994 and 2014. The Bank was owned privately until the end of the Second World War, when it was nationalised by the government. 

How long can you be governor for? 

Officially, a governor has a term time of eight years. However, the 120th governor, Mark Carney, agreed to a five-year term with the option of an additional three years. He then agreed to extend his term twice, staying on longer due to delays caused by Brexit. 

What does the governor do?

The governor will represent the UK in meetings with international bodies such as the G7 or the International Monetary Fund, while also chairing important internal committees such as the Monetary Policy Committee and the Prudential Monetary Fund. In addition to this, he is tasked with overseeing the Bank of England’s three main responsibilities:

  • The Financial system: This is the system that connects people who want to save, invest or borrow money. The Bank of England monitors any risks within the system and tries to mitigate them – such as loaning to banks when necessary. It shares this responsibility with the Treasury and the Financial Conduct Authority.  
  • Individual banks: The Bank of England ensures that individual banks, insurers and building societies are of a suitable standard and are being run well.  
  • Inflation: The Bank of England tries to keep the cost of living as stable as possible by setting monthly interest rates and making sure that prices rise within the current target of 2% per year.

Have you got what it takes? 

When Philip Hammond first put up the job advertisement for the role of governor in 2019, the description said that the successful candidate should have experience of being at the helm of a large financial organisation, good communication skills and “acute political sensitivity and awareness”.  If that sounds like you, in eight years time there may be a £495,000 a year job opportunity for you. 

Why you must make sure your will is accessible

Wednesday, December 18th, 2019

Do you know where your will is? Even more importantly, do the people who will act as your executors, in the event of your death, know where your will is stored?  

The recent discovery at Lloyds Banking Group that 9,000 wills had been left in storage and not passed on to customers serves as a stark, cautionary tale. The bank is now desperately trying to match envelopes with the relevant families.  

The wills were kept in the bank’s ‘Safe Custody’ service – an ironic name given that the custody actually proved too safe, with no one knowing about the wills’ existence. The service closed to new customers in 2011.

The error means that some executors may have administered a deceased’s estate using what turned out to be the wrong will, unaware that the right one was stored at Lloyds. As a result, some families are having to re-examine old bequests years after they were thought to have been settled.     

Not only will this have caused great inconvenience, it will also have been incredibly distressing for those involved. 

Michael Culver, chairman of Solicitors for the Elderly, commented that the processing failure could lead to estates being wrongly distributed, contentious probate claims, negligence claims against executors and administrators, issues with tax payments and, ultimately, the last wishes of the deceased not being honoured.     

The bank, however, has said that it was only in a small percentage of cases that they did not trace the will when a customer died. According to their spokesperson, 90 per cent of the newly discovered wills had already been superseded by a later will or there were copies available elsewhere. In some cases, the estates were declared intestate but had been distributed in line with the deceased’s wishes anyway.         

What action can be taken? Families affected should make a complaint to the Financial Ombudsman and a counter claim against Lloyds directly. Compensation will be offered, including legal costs, and LLoyds have promised that it won’t claw back assets given to the wrong people. 

As for the future, what lessons can be learnt? It is recommended to always register a will. This case illustrates that it is often better to use a solicitor, who will be specialised in making and storing wills, rather than a high street bank. You can also register a will with the Probate Service for a one-off fee of £20. 

The Society of Trust and Estate Practitioners (STEP) advises against safety deposit boxes for wills as it means the executor cannot get access until they get probate and this cannot be granted without a will, so it becomes a bit of a Catch 22 situation.  

If you do have a will stored in a safety deposit box, consider moving it elsewhere to ensure it is accessible. Make sure its whereabouts is known to your executors. It may not be something you or your family want to think about right now but it could save a lot of stress and worry at a difficult time later.

What can go wrong with the Bank of Mum and Dad?

Wednesday, December 18th, 2019

Being part of the sixth largest lender in the whole of the UK can be a challenge. Especially when you’re completely unregulated and financial qualifications are a rarity. But it hasn’t stopped the Bank of Mum and Dad from lending or gifting over £6.3 billion in 2019. 

A report, published in January 2019 by the London School of Economics, found that around half of the funds provided were for deposits for house purchases, with the remainder being used for associated costs, such as stamp duty and legal costs.

While the name contains the word ‘bank’, most parents don’t actually act like one. Few take legal or financial advice on either side of the exchange. There is rarely a written record of the transactions and families tend not to discuss arrangements for repayment. That’s because people, in general, are uncomfortable talking about money. 

So, how do we remedy this?

Gifts

Though it can feel overly official, preparing a Living Together Agreement (LTA) with the advice of a solicitor is one of the preventative tools available. Creating a legal framework will help to give you peace of mind, knowing that the gifts will remain in the hands of intended beneficiaries. 

Stamp Duty Land Tax

There is a higher rate of SDLT for property purchases when the buyer is already a property owner. Tax equal to 3% of the total purchase price will be added to the standard rate of SDLT. Although the rate is nil on the first £125,000 of the purchase price with the standard rate, the same does not apply for higher rates. So it’s worth thinking about who is actually going to  make the purchase of the property if you’re planning to help your children out this way. 

Buying with a friend or partner

If your child is unmarried and buying with a partner, it’s worth considering an LTA. This provides an opportunity for all parties involved to discuss and record any third party contributions from the Bank of Mum and Dad. An LTA also creates a safety net should the relationship breakdown. 

If the child intends to allow another person to live in the property, it’s a good idea to make sure a Tenancy Agreement is also drawn up alongside the LTA in order to set out the exact responsibilities of both parties. 

Joint mortgage

Many parents are turning to joint mortgages between themselves and their children, however it comes with financial implications for Mum and Dad. The property would be taxed as a second home and the additional 3% SDLT would be applicable. If the house was sold in the future, the parents could be landed with a Capital Gains Tax bill of up to 28% on the increased value. 

It may be worth considering a Joint Mortgage Sole Owner Arrangement (JSMO) instead, meaning that borrowers can call upon the support of their parents by combining family resources in the short term to achieve home ownership with less difficulty than if they were to apply alone. In short, a JSMO means that the family members join the mortgage in support of the owner, and will not be counted as joint owners, therefore avoiding the additional SDLT charge. 

It isn’t easy being part of one of the largest lenders in the country and it’s a given that you’ll want to support your children as they grow up and fly the nest. But by thinking ahead and carefully considering the options, you can give yourself greater peace of mind. If you’d like to discuss any of the issues mentioned, please do not hesitate to get in touch.   

Sole trader vs limited company?

Thursday, December 5th, 2019

When people are setting up a business, one of the first questions they have to grapple with is what legal structure they are going to trade under – sole trader, limited company or partnership.

If you’re one of our clients, you will already have made this decision but we thought it would be useful to give a quick outline of the differences.  

Sole trader

Being a sole trader is the most popular legal structure. Approximately 3.4 million sole proprietorships were created in 2017 and they accounted for 60% of small businesses in the UK. 

On the plus side, there are no set up costs and it’s very simple to get up and running. The only requirement is to inform HMRC by 5th Oct of your business’ second tax year. There is very little paperwork and you don’t have to have any dealings with Companies House. None of your information is held on the public record.    

As a sole trader, however, you are completely responsible for your business and its finances. You need to be aware that if your business goes bust or you have any business debts, your personal finances and assets could be in danger. Legally, your liability is unlimited.

It’s advisable, therefore, to take out small business insurance policies. This way you can avoid getting sued personally should there be any legal disputes. Remember, the buck stops with you! 

You and your business are treated as a single entity, which is also significant for tax purposes. You will have to pay tax on the profits that are above your personal tax allowance (£12,500 for the 2019/20 tax year). This is calculated through the self-assessment system and you will also pay Class 2 and Class 4 NICs.

Being a sole trader is thought to be less tax efficient than being a limited company as there is less opportunity for tax planning via the self-assessment system. 

Limited company

The second most popular legal structure is a limited company of which there were 1.9 million in 2017. There is a certain amount of paperwork required and you need to deal with Companies House but it is relatively straightforward. Note that your company details will be on public record.   

The main advantage of having a limited company is that you have limited personal liability should something go wrong. The business is treated as a separate entity from its owners so your own assets are protected.    

Despite the higher dividend taxes that were introduced in 2016, a limited company is still  considered to be more tax efficient. The company will pay corporation tax and dividend tax and employer’s Class 1 NICs on salaries, while staff pay employees’ Class 1 NICs on salaries. Under the limited company structure, there are more possibilities for tax planning by delaying dividends, for example, until a future tax year to minimise the tax liability. 

One of the disadvantages, though, is that you are obliged to prepare annual accounts which need to be filed with Companies House. You also need to file a full set of corporate tax accounts for HMRC. As a limited company, it’s advisable to use an accountant to make sure the accounts are done thoroughly.

In our article next month, ‘Do you need an accountant?’, we’ll be looking at this in more detail.  In the meantime, if you know anyone who has any questions about the right company structure for them, we’re always happy to have a chat.    

What does Brexit mean for house buyers and sellers?

Wednesday, November 13th, 2019

While you may be heartily fed up of the word, Brexit has unfortunately had a major impact on the UK property market. What has it meant for buyers and sellers? What might the best course of action be now?     

The Rightmove House Price index in October showed that the traditional ‘Autumn bounce’ or increase in activity failed to occur this year. This usually happens in September or October because people are eager to complete their sale before Christmas but this year, many buyers and sellers opted for a ‘do nothing’ approach.

This resulted in 13.5 per cent fewer properties being listed than in the same period the previous year. Average asking prices went up by just 0.6 per cent compared with an average rise of 1.6 per cent in the month of October over the previous ten years.          

Interestingly though, although thousands of potential sellers are holding back, the number of sales agreed has been almost the same when compared with the same period a year ago. It seems that those buyers who do decide to move are committed to making it happen, so more sales are being completed than is the norm.

In order to minimise any further impact Brexit may have on your plans to move house, consider the following points:      

First-time buyers?

Brexit has meant unpredictability, which may have an adverse effect on interest rates. If possible, first time buyers should try and take out a mortgage while interest rates are still low. Fixed term mortgages could be a good option so that repayments are Brexit proof for some time.

New build v.s old home?

The advantage of buying a new build through a government scheme such as Help to Buy is that it helps you get on the property ladder with a small deposit. New builds do come at a property price premium, though, which could land you in negative equity if prices dropped suddenly after Brexit. At the moment, an older home is considered a safer investment.    

Once in your new home, stay put  

Brexit or no Brexit, this is a good strategy. Moving in itself is expensive and house prices are likely to fluctuate so find a house you really like and that you will be happy to stay in for a good number of years.    

Already a homeowner?

Now could be a sensible time to move if you already own your own home, especially if you’re planning to move to London or the South East. Prices there have dropped by as much as five per cent, so provided houses are selling in your own area, it could be an opportunity to buy a property  that you’d previously considered out of your price range. 

Buying at auction

The advantage of this in these current times is that you have the guarantee of a quick purchase without getting embroiled in a long property chain. As long as you can afford the ten per cent deposit as soon as the auction closes, it could be an option worth exploring.          

Thomas Cook and the current state of auditing

Wednesday, November 6th, 2019

When the giant tour operator Thomas Cook collapsed and went into liquidation after 178 years in business, various factors were cited. The firm’s failure was attributed to its unsuccessful merger with My Travel in 2007, its soaring debts and the transformation of the travel industry due to the internet. Uncertainty over Brexit and the fact people stayed at home rather than booked a holiday abroad due to the 2018 heatwave no doubt also played their part. 

Much has been made in the press of the directors’ exceptionally high bonuses. But question marks must also be raised against the performance of the auditors.The travel firm failed despite having being given a clean bill of health by its original auditors, PwC, and again by EY, who replaced them in 2017. These are both major audit firms known as being part of the Big Four. By the time the firm collapsed it had a debt of £1.7bn, so why had an alarm not been raised earlier?

EY said there was ‘significant doubt’ as to whether Thomas Cook could continue as a going concern when the firm posted a first-half loss of £1.5bn in May 2018  and issued a third profit warning. But by that point there was little that could be done.  

So from an auditing point of view what lessons can be learnt?

The Financial Reporting Council (FRC), who is investigating EY’s audit, said it felt that auditors had lost their objectivity and had got too close to the firms they were auditing. Elizabeth Barett, executive counsel and director of enforcement at the FRC, said she felt audit firms were viewing the companies they are auditing as clients and focusing on delivering non-audit services rather than playing the role of independent reviewer. The regulator’s view is that the lines have become blurred which could lead to potential conflicts of interest.

In addition, the FRC criticised auditors for not being strong enough in challenging management and called on firms to adopt a more robust culture.        

The very fact that there had been three finance chiefs at Thomas Cook in two years should have highlighted that all was not well. The firm’s accounting methods had been questioned and when Sten Daugaurd took over as Chief Financial Officer in December 2018, he expressed surprise at the number of items classed as exceptional costs. But again, no action was taken.   

The FRC’s investigation can take up to two years to complete but in the session before MPs, the regulator gave the opinion that the auditors were complicit in the failings and not sufficient scrutiny had been given. 

The FRC itself has also been criticised, however, and questions raised as to why it didn’t see problems a long time ago when Thomas Cook carried out a refinancing in 2013.

With high profile cases such as Carillon and now Thomas Cook, proactive steps are being called for in order to reform the audit sector.

Climate change fears impact on ethical investing

Wednesday, November 6th, 2019

As pressure mounts on governments and financial institutions to do more to combat climate change, the demand for ethical investment opportunities is on the rise. 

Triodos Bank’s annual impact investing survey has found that nearly half (45%) of investors say that they would be keen to move their money to an ethical fund as a result of news surrounding the environment. When asked, investors state that they would put an average of £3,744 into an impact investment fund, marking an increase of £1,000 when compared with 2018. 

53% of respondents believe that responsible investment is one of the best ways to fight climate change and 75% agreed that financial institutions should be more transparent about where their money is invested. 

Gareth Griffiths, head of retail banking at Triodos Bank UK, said: “Many investors are no longer waiting for governments to take the lead in our transition to a fairer, greener society – they are using their own money to back the change they want to see.” 

Ethical investing isn’t a new practice by any stretch. In fact, some ethical funds have been available for the past 30 years, though they still only make up 1.6% of the UK industry total, according to research carried out by Shroders. 

That then poses the question, why haven’t they earned popularity in the past?

The old consensus was that investing ethically meant you were sacrificing performance for morality. A thought which seems to be changing, however, as research conducted by BofA Merrill Lynch found that a strategy of buying stocks that ranked well on ethical, social and governance metrics would have outperformed the S&P 500’s yearly result for the past five years. 

Further to this, a survey conducted by Rathbone Greenbank Investments found that over 80% of the UK’s high net worth individuals are interested in investing ethically. Many want to back the fight against climate change and plastic waste reduction but say that due to a lack of choice they still end up investing in fossil fuels or mining companies.   

The investment industry has recognised the change in attitude, leading to more and more fund management companies including ethical, social and governance factors in their core investment strategies. However, with the movement only just beginning to gain true momentum, it seems that time will tell when it comes to the mass adoption of ethical investment practices. 

If you have any questions about ethical investment and the impact it might have on your portfolio, feel free to get in contact. 

November Market Commentary

Wednesday, November 6th, 2019

The beginning of October brought us the Conservative Party conference and a plethora of promises and fiery speeches. Meanwhile world stock markets were tumbling on fears of a global sell-off and the US/Europe tariff war joining the US/China dispute. By the middle of the month President Trump declared himself ‘optimistic’ about trade talks with China. 

Come the end of October it looked like the World Trade Organisation (WTO) would allow China to impose tariffs on $3.6bn (£2.8bn) of US goods, a move that was confirmed in very early November.

Boris Johnson spent the early part of the month trying to persuade politicians at home and abroad to do – or vote for – a deal that would allow Brexit to happen on October 31st. By the end of the month he was preparing for a General Election – while his opposite number in the White House was facing yet more calls for his impeachment. 

Let’s look at all the events and figures in more detail…

UK

October was another month where the ‘retail gloom’ section has eclipsed all the others. Christmas is creeping up on us and reception desks in offices up and down the land will shortly be groaning under the weight of Amazon deliveries – as shops in our high streets continue to close. 

The month did start with some good news as Hays Travel stepped in to save the 555 Thomas Cook shops threatened with closure following the company’s collapse. But can Hays really save all the shops? There must be many towns where both companies have high street premises. 

Elsewhere it was the usual tale of woe as John Lewis went looking for discounts from its landlords, Bonmarché called in the administrators and Pizza Express said it was in talks to refinance a £1bn debt pile. 

A report in City AM highlighted the sharp fall in stores’ profit margins as operating costs continued to rise. Profit margins are apparently down from 8.8% in 2009/10 to 4.1% in 17/18, with retailers blaming inflexible leasing arrangements, high business rates and a 10% rise in operating costs over the last five years. 

Unsurprisingly, the BBC reported that 85,000 jobs had been lost in retail over the last twelve months, with the number of retail sector jobs falling (on a year-on-year basis) for the fifteenth consecutive quarter. 

November was, of course, scheduled to bring us Sajid Javid’s first Budget. One absolute certainty was that the phrase ‘reform of business rates’ would have featured in that speech, as the Chancellor looked to find ways to revive the national high street. With the General Election now scheduled for December 12th, any Budget is likely to be delayed into the New Year.

What of the rest of the economic news in the UK? 

There was certainly plenty of bad news in October: the Purchasing Managers’ Index in the service sector showed a ‘heightened risk of recession’. UK car sales in September were disappointing: house price growth is at its lowest for six years and UK productivity recorded its worst fall for five years. 

Meanwhile, climate change protesters Extinction Rebellion were targeting both London City Airport and the London Underground. 

Against that, figures released by the Office for National Statistics showed that the UK economy had grown by 0.3% in the three months to August. The ONS did not exactly cover itself in glory later in the month when it reported a £1.5bn ‘error in the public finances.’ Fortunately it was an error in the right direction, with the UK budget deficit being £1-£1.5bn less than the ONS had previously reported. 

By the end of the month the UK was gearing up for a December General Election – but the bad news was back, as consumer confidence dropped to minus 14 from the minus 12 recorded in September – the lowest level since July 2013. 

Perhaps this was reflected in the stock market. The UK’s FTSE 100 index was the only leading market we cover to fall in October. Having started the month at 7,408 it closed down 2% at 7,248. The pound, boosted by hopes of a deal with the European Union, went in exactly the opposite direction, rising by 5% in the month to close October at $1.2944.

Brexit: an end in sight?

For much of October, uncertainty looked set to continue as Boris Johnson tried and failed to get his new Withdrawal Agreement through the Commons. The House even sat on a Saturday – to the dismay of MPs who wanted to watch the Rugby World Cup – but it all proved futile. 

Reluctantly, the PM accepted an extension from the European Union, pushing the date of leaving the EU back for another three months. Now the uncertainty would go on until January of next year…

And then, on Tuesday October 29th Parliament finally voted for a General Election as the Liberal Democrats and SNP sided with the Government to by-pass the Fixed Term Parliament Act. 

The UK will therefore go to the polls on Thursday December 12th in – whatever anyone claims – will be an election about the future of Brexit. The battle lines are clearly drawn, and the Conservatives started the race with a 16 point lead over Labour. But the experts have been quick to point out that this will be an election where tactical voting will have a major part to play. There will certainly be ‘remain alliances’ in some seats: whether the Conservatives will eventually come to an agreement with the Brexit Party to counter that remains to be seen. 

Europe 

The big – and worrying – news in Europe was that the German economy appears to be heading for a recession, if it is not already in one. 

Figures released at the beginning of October showed that German industrial orders fell more than expected in August: this was due to weaker demand and added to signs that a manufacturing slump is pushing Europe’s largest economy towards a recession. 

Thomas Gitzel, economist at VP Bank Group, said that, “The German economy is [already] in the midst of a recession.” With the economy having shrunk by 0.1% in the second quarter, “The German government will come under pressure to give up its strict Budget policy,” added the economist.  

There was more bad news for Europe at the beginning of the month when the WTO gave the US the go-ahead to impose tariffs on $7.5bn (£5.8bn) of goods that it imports from the EU. It is the latest chapter in a 15 year battle between the US and the EU over illegal subsidies for rival planemakers Boeing and Airbus and – as Brussels threatened to retaliate – was largely responsible for the global share sell-off at the beginning of the month. 

Did October bring us the first moves towards a common European budget? European finance ministers have laid the groundwork for a shared financial mechanism, designed to be used ‘in the event of future economic shock’. Eurozone countries will be required to pay capped contributions into the fund and – presumably – be able to draw on the fund if they duly suffer an ‘economic shock.’ Countries who are struggling economically will be able to reduce their contributions by 50% ‘when necessary’. 

The end of October brought the news that Fiat Chrysler are in merger talks with PSA – owners of Peugeot and Vauxhall – to create ‘one of the world’s leading automotive groups, valued at around $50bn (£39bn). 

On the stock markets both the German and French indices enjoyed good months. The German DAX index rose 4% to close at 12,867 while the French stock market was up just 1% to close October at 5,730. 

US 

The US economy added 136,000 jobs in September as hiring continued to slow down: economists had been expecting a figure around 152,000. However, the previous figure of 130,000 reported for August was revised upwards to 168,000 and the two months taken together were enough to push US unemployment down to a rate of 3.5% – the lowest figure for 50 years. 

With Bill Clinton having famously said, “It’s the economy, stupid,” you would think – given those numbers – that Donald Trump would be a certainty to win a second term in the White House. Maybe not: November will see the Democrats continue their bid to have the President impeached, with Elizabeth Warren having emerged as the clear favourite to win that party’s nomination for 2020. 

Away from politics Microsoft was betting on ‘foldable not bendable’ as it unveiled folding devices with dual touch screens which it hailed as the future of mobile computing. There was more good news for Microsoft later in the month as it beat off competition from Amazon to win a $10bn (£7.7bn) contract from the Pentagon. The contract is for the Joint Enterprise Defence Infrastructure (‘Jedi’, obviously) and is aimed at making the US defence department more ‘technologically agile.’ 

Two companies, meanwhile, were having rather less successful months. First up was Facebook – where a host of big names were queuing up to disassociate themselves from the Libra cryptocurrency the company hopes to launch. Meanwhile Apple received any amount of flak for withdrawing an app – apparently under pressure from the Chinese government – which allowed protesters in Hong Kong to track the whereabouts of the police. To compound the misery, figures released at the end of the month showed iPhone sales slowing down. 

Perhaps Apple will be helped by the Federal Reserve’s decision to cut US interest rates for the third time in four months. As US economic growth for the third quarter slowed to 1.9%, the Fed cut rates to a range of 1.5% to 1.75%.

The Dow Jones index was up in October, but only by 129 points to 27,046 – leaving it unchanged in percentage terms. 

Far East 

October got off to a bad start for Japanese shoppers as the Government – pushing worries about a sales slowdown to one side – increased its sales tax for the first time in 5 years. The rate rose from 8% to 10%. 

But the country soon had even bigger worries, as it braced itself for Typhoon Hagibis, ‘the biggest storm for decades.’ Winds reached 140mph with some areas suffering from floods and landslides. 

China now has more ‘unicorns’ – tech start-ups valued at more than $1bn (£770m) – than the United States, but the figures for the third quarter showed the economy growing at its slowest rate since 1992. Admittedly that ‘slow’ rate was 6% – due to the continuing trade war with the US and falling domestic demand – but it was still below the government’s target of 6.1%. 

As anyone who has watched a news bulletin will know, the pro-democracy protests continued in Hong Kong and the economic consequences of the unrest were finally felt in October. With shops closed, public transport paralysed and tourists scared away, Hong Kong slid into recession in the third quarter, with the economy shrinking by 3.2% in the three months to September. That was much worse than the 0.5% contraction in the second quarter – and was well beyond economists’ worst fears. 

In common with all the major stock markets, those in the Far East fell at the beginning of the month in line with the global sell-off, but they had all – even Hong Kong – recovered by the end of October. Despite the typhoon, Japan led the way, rising 5% to 22,927 and Hong Kong’s Hang Seng Index shrugged off the news about recession to rise 3% to 26,907. The Chinese and South Korean markets were both up by 1%, closing October at 2,929 and 2,083 respectively. 

Emerging Markets

We have written previously about the economic problems in Argentina, a country that held an election in October. The winner was the centre-left candidate Alberto Fernandez in a vote inevitably dominated by economic concerns, with the recent – and continuing – crisis leaving a third of Argentina’s population living in poverty. 

It was a quiet, but profitable, month for Brazil, Russia and India as they all moved in the right direction in October. The Brazilian stock market rose another 2% to end the month at 107,220. The Russian market was up by 5% to 2,894 and the Indian market broke through the 40,000 barrier, ending October up 4% at 40,129. 

And finally…

With all this uncertainty around the world you’d be forgiven for harking back to ‘the good old days’. Shepherds in Spain did this by allowing their flocks of sheep – in their thousands – to follow ancient migration routes from the north of the country to the south for some winter grazing. What’s noteworthy about this annual event is that one of these ancient routes has, since the Middle Ages, been replaced with a large portion of the city centre of Madrid. Dodging sheep is certainly a change from their more popular running from bulls!

While we’re on animal news, rats hit the headlines when psychology professor Kelly Lambert taught them to drive. Strangely enough it was not the fact they were driving that shone the spotlight on the cruising critters. Instead, research found that driving reduced their stress levels… though they were not expected to sit a driving test.

And on that note, we wish you a great month.

How to retain your lifestyle in retirement

Wednesday, October 30th, 2019

Do you feel like you just go to work day in, day out, with the weeks quickly turning to months and the months to years?    

If that’s the case, you may be going through life with a vague notion that your pension contributions will be enough to give you a comfortable retirement without having done any precise calculations of late.      

Unfortunately, this means you could be on track for a significant shortfall. 

The pension and investment provider, Aegon, warns that members of Defined Contribution (DC) schemes will find that their retirement income will fall short of their expectations if they simply rely on the minimum automatic enrolment contributions and the state pension (currently £8,767). 

According to the insurer’s findings, most DC savers will need to increase their contributions to ensure they enjoy a similar lifestyle in retirement to their current one. It’s, therefore, worth taking stock as early as possible to find out how much more money you need to save.     

The figures Aegon used came from the government’s 2017 auto-enrolment review and highlighted broad target replacement rates (the percentage of an employee’s pre-retirement monthly income that they receive each month after retiring).          

Someone earning an average salary of £27,000 would need a 67 per cent replacement rate to maintain their lifestyle from pension savings of £303,900. They would require an income of approx £18,000 per annum in today’s money to continue to live in the way they were accustomed.    

On top of the state pension of £168.60 a week, a 22-year old earning £27,000 would need to contribute an additional 4 per cent to the current 8 per cent minimum combined contribution to reach their required monthly income. Failure to do so could result in a shortfall of £106,500. The extra contribution required would increase with age to:  

  • 13 per cent more for a 35-year old 
  • 29 per cent more for a 45-year old 

These figures are based on individuals just being in auto-enrolment schemes and having no existing pension pot. The additional percentages may sound steep but, with tax relief from your own employee contributions, it could cost as little as 1.6 per cent from your take home pay to reach the 4 per cent specified.

The key message is to take stock now. Think realistically about how much you will need to get close to maintaining your lifestyle once you retire. If a shortfall looks likely, explore the option of  paying more than the automatic minimum as early as possible. The longer you wait, the harder it will be to catch up.