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Care costs: 4 out of 10 say they would deplete wealth to avoid paying

Archive for January, 2016

Care costs: 4 out of 10 say they would deplete wealth to avoid paying

Wednesday, January 27th, 2016

Forty-three per cent of people in England would deliberately deplete their wealth to avoid paying for care, leading to more pressure on state finances than ever before, statistics from the latest Partnership Care Report show. Findings in the report show the number of people prepared to reduce their assets below the £23,250 annual threshold to ensure local councils pay for their long-term care has nearly doubled from 23 per cent (2013) to 43 per cent (2015).

Partnership said that between 2012 and 2015, 9,774 individuals were interviewed for the report. This breaks down into almost 200 advisers, 24 powers of attorney [face-to-face] and tranches of those aged 40 plus. The report has warned this move could see councils shouldering an additional £1.62bn burden in England alone if those who claim they will spend their wealth do so.

Andrew Dixon-Smith, business development director and adviser at the Eldercare Group, said that the Care Act provided an expectation for a new opportunity to receive a contribution from the government towards the cost of care. He believes the postponement until 2020 and the raising of the capital limit from £23,250 to £118,000 was disappointing for the public.

Mr Dixon-Smith said:

“They are more likely to seek other opportunities such as gifting their assets to reach the £23,250 limit of assets to claim local authority funding. However if they do so at a time they are/have been receiving care the value of what they gift is likely to be counted back in as if they still owned the asset in an assessment process. There is no time limit on this and the local authority have strong powers to investigate and verify any statement of a claim.”

It has been estimated that councils in the south east (excluding London) and east will shoulder most of the burden due to the higher cost of care homes in this region. The report has predicted the south east will need to spend £337.5m annually to support the number of people entering the care system. In contrast, those in the north east, the region already most likely to claim local authority support for care – are also the most likely to say they would spend and look to the state for support, a move that would cost local councils £202.9m annually.

In May 2013, the Care Bill was welcomed by industry figures, before it was recently shelved until 2020 at the earliest, a move which is predicted to affect 23,000 pensioners.

Suggestions made during the pension tax consultation

Wednesday, January 27th, 2016

The Government has recently finished a consultation looking at how pension taxation could work in the future. The Chancellor, George Osborne, has said that he expects to reveal the findings and the direction he is going to take during the March Budget. But is there any way to take an advance look at the situation? What has the Chancellor considered and what might his decision be in March?

Whilst there are no certainties in this situation, Scottish Widows in particular has identified a number of key ingredients it believes could make the system successful. These ideas may well have made it into consultation responses, so it’s this sort of thing that the Chancellor may well be debating over, as we type!

Employers must remain positively incentivised to play a central role. Employers account for 80% of savings in our pension system (excluding the State Pension), where National Insurance Contribution (NIC) relief encourages employers to be much more generous than the law requires and often also encourages employees to save more in order to unlock higher levels of employer contribution.

A pension should offer a superior return compared to any alternatives. Under any new system there will be winners and losers relative to the current system. However, this is largely irrelevant once the old system has gone. Whether or not an individual will put money away over the long term for retirement depends on the extent to which it is more beneficial to do so over other savings options available to them (including ISAs or buy to let property.)

Incentives should apply to both the employed and the self employed. Whilst statutory employer contributions now make workplace pensions attractive to most employees, there is less incentive for the self employed, who make up 15% of the working population. A modern system should provide similar incentives to the self employed.

Tax relief should be promoted and appreciated. Research from Scottish Widows showed that only 15% of people fully understand the current pension tax system. People in ‘net pay’ arrangements have the least understanding with many unaware of any tax relief applying at all. Moving all schemes and products to operate on a ‘Relief At Source’ type basis would make relief more visible and a re-branding of tax relief to say a ‘Government Incentive’ could assist in more effective promotion and increased appreciation.

A simple message that applies to everyone. With ISAs, it doesn’t matter who you are, there is a simple annual allowance that applies to everyone, every year. In pensions, the complex interaction between annual allowances, lifetime allowances and tapers, prevent Government, employers and the pensions industry from effectively promoting a simple message which applies universally.

The system should encourage people to behave responsibly at retirement. The current tax arrangements act as a braking mechanism which prevent people taking all of their pension pot early and spending it too quickly. When people spend their pension pots too quickly it places additional pressure on taxpayers to sustain them in later retirement and therefore any new system needs to consider an appropriate braking mechanism.

Provide assurance against double taxation. Individuals will be wary of saving through a vehicle where they could bare tax on the same money more than once. This could be the case at an individual level where an individual’s marginal rate of tax changes between the stages of accumulation and retirement. A carefully designed system will address this potential issue. There is also a concern that a future Government could be forced to tax retirement savings in times of economic necessity, although this could be addressed by assuring savers that in such extreme circumstances, pension assets would be no more at risk from taxation than any other form of savings.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Threats to the provision of care home places

Wednesday, January 20th, 2016

Are the financial difficulties which care home provider businesses seem to be currently facing their responsibility to manage, a local government responsibility or does the situation require urgent government action?

When the House of Lords was recently told of the situation, the Labour peer Baroness Weaver asked the question following the news that the UK’s largest care provider, Four Seasons Health Care, was facing financial problems due to its £500m debt, which raised the prospect of care homes being closed. It follows the collapse of Southern Cross in 2011, then the largest provider of care homes in the UK, due in part to a large rent bill.

Baroness Weaver said:

“The problem is wider than Four Seasons given the rising costs of care, postponement of the care cap and the inability of cash starved local authorities to increase fees to meet rising costs and demands. The Southern Cross collapse affected 31,000 frail and elderly residents who had to be found alternative care. Surely the minister recognises this and that there needs to be a wider government strategy to ensure the financial sustainability of the sector and deal with the huge scale of closures that will happen unless the funding problems are addressed.

Baroness Pitkeathley said it is estimated that by 2020 there will be funding gap of £3m for the residential care sector, adding that 15 social care groups warned the chancellor of this before his last Autumn Statement.

Lord Prior, a minister in the Department of Health, commented that managing provider failure in the adult social care market is a local responsibility, noting also that he could not comment on the finances of individual providers. He said:

“The collapse of Southern Cross in 2011 was the main reason why the last government gave the Care Quality Commission (CQC) its market oversight responsibilities, which will give early warning of any failure of a large provider. It is worth noting that the Local Government Association believes at least 95 per cent of local authorities do have contingency plans ready to implement.”

A New Year for the markets, but China’s woes continue

Wednesday, January 13th, 2016

As we all turn over a new leaf and enter 2016 with a fresh year ahead of us it rather seems that China has missed the New Year memo!

After uncertainty over Chinese markets affected worldwide stocks in 2015, the beginning of 2016 has seen a similar story. The Shanghai Composite market dived 7% on Monday 4th January, prompting the triggering of a suspension rule after just thirty minutes of trading. There was a bounceback on the same market on Wednesday 6th, with the index closing up 2.3%, but by Monday 11th January there were renewed concerns.

Further afield, in the US, the Dow Jones and S&P 500 followed the news from China in early January with 2.3% falls, whilst the FTSE 100 was down 2%. Overall, in the first week of January the FTSE 100 dropped more than 5%, though the news at the start of the second week initially only caused the market to flutter slightly: at close of trading on Monday 11th the market was down 0.69%, having veered into and out of positive territory all day.

The concerns around China and its markets appear set to continue into this year. The Chinese government and People’s Bank of China are now using interventionary methods to impact the market, with each of these interventionary measures themselves then being assessed by both China’s markets and worldwide markets in terms of their impact on the overall economy.

Media reports during the first week of January indicated that the People’s Bank had weakened the currency to boost exports. In the second week of January, further reports suggested that the bank is spending large amounts to buy up Chinese Yuan, potentially to steady the stock market. Both moves have raised questions about just what state the Chinese economy is currently operating in.

Whatever the answer, it is a sure thing that China will once again be a hot topic this year, as the world’s second largest economy by GDP continues to come to terms with the changing demands on imports, exports, construction and more.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Elderly pensioners are Britain’s biggest savers

Wednesday, January 6th, 2016

According to a recent article in the Daily Telegraph, drawing on data from the International Longevity Centre (ILC) and the Institute for Fiscal Studies (IFS), baby boomers are a “frugal not frivolous” generation, with the data revealing that people in their sixties and seventies are saving nearly twice as much money as thirty and forty-year olds.

The International Longevity Centre says the stereotypical idea that pensioners are splurging on holidays, cars and gadgets is a myth, claiming instead that many are cutting back on non-essential spending when they retire.

The findings contradict fears over pensioners blowing their retirement funds on Lamborghinis and running out of money, as was suggested when pension reforms were introduced last April. The average person aged between 70 and 74 saves £4,043 a year from their income while someone in the 40-44 age bracket puts aside an average of just £2,411, 41% less than their elder counterparts.

The research found spending on nonessential items dips significantly between the ages of 70 and 74. Suggested reasons for this included an increased amount of time spent at home alone, potentially due to poor health, with time spent in the company of family and friends falling. As a result of decreased activity among the elderly, the ILC found the biggest savers were aged 80 and over, putting away an average of £5,870 a year.

Ben Franklin, head of economics of ageing at the International Longevity Centre, said:

‘Our research does not reveal any sudden consumption boom on entering retirement, which is somewhat against the grain of stereotypical images of retired people on cruises and playing golf. Instead people slowly reduce their consumption on non-essential goods and services during retirement, cutting out holidays, other leisure activities and eating out. While some of this is the result of declines in health and leaving the workforce, this doesn’t explain the full extent to which people are consuming less in old age and the subsequent rise in savings. This may mean that some of the fall in consumption is actually down to people’s preferences.’

The data was based on the average for the highest-earning member of the household for respondents of the Office for National Statistics’ latest Living Costs and Food Survey.

January market commentary

Wednesday, January 6th, 2016

Occasionally when we’re compiling these monthly commentaries we look at our notes, realise that not very much has happened in the month and have a minor panic. What are we going to report on?

There are no such worries this month. December 2015 seemed to be the month when pretty much everything happened. The only worry this month is fitting it all in…

December was the month when the United States finally raised interest rates; when the UK started the month by voting for air strikes against the Islamic State and ended it with George Osborne’s much-vaunted ‘Northern Powerhouse’ largely under water. It was the month when there was finally good news for the flagging economies of Spain and Italy: but when Brazil plunged even deeper into recession and when Russia and the Ukraine began limbering up for their annual spat over the Ukraine’s gas supplies.

December was also the month when world commodity prices continued to slide dramatically. By the middle of the month Brent crude was down to $39 a barrel – its lowest level since 2008 – and a few days later it touched $37. Commodities such as iron ore also fell in value, and if your business (or your wider economy) depended on digging things out of the ground, then 2015 was not a good year. OPEC is adamant that the oil price will recover to $70 a barrel by 2020, but right now the slowdown in China is having a far greater impact on oil and commodity prices than OPEC’s optimism.

What of the eleven major world markets we cover in this commentary? The glass was half full, but only just: six were up, and five down. The star performer was Russia, with a rise of 26% despite the country being in recession: the wooden spoon went to Brazil, where the market fell 13% during the year.


Barely had George Osborne sat down from delivering his Autumn Statement than he was back on his feet to announce the date of the next Budget: Wednesday March 16th.

There’ll be plenty of good and bad economic news before then, but the Chancellor got off to a flying start when a report from the International Monetary Fund praised the UK’s recent growth, employment progress and debt reduction as ‘strong.’ The IMF said that ‘steady growth was likely to continue’ but did highlight potential dangers – the high levels of both government and household debt, and a ‘strikingly large’ trade deficit. Inevitably it also highlighted the uncertainty stemming from the forthcoming EU referendum.

Levels of household debt in the UK do appear to be worryingly high (even allowing for Christmas…) The Independent highlighted a forecast from the Office of Budget Responsibility, suggesting that UK families could be on course to spend £40bn more than they earn in the coming year – which could potentially lead to a ‘credit crunch’ similar to that of 2008.

That said, it was expected that retail figures for December and January were likely to be disappointing – despite shoppers being forecast to spend £3.74bn in the January sales.

UK house prices continued to move strongly ahead, rising by 7% a year according to the Office for National Statistics. Nationwide reported a lower annual figure of 4.5%, meaning that the average value of a property in the UK is now £196,999.

Bank of England Governor Mark Carney expressed his worries about the Buy-to-Let sector, saying that lending to landlords was still too high. Gazing into the crystal ball we’d suggest we’ll see more ‘help to buy’ measures in the March Budget.

Elsewhere in UK news, the inflation rate turned positive in November – rising to 0.1% – but manufacturing went in the other direction. Having enjoyed a positive few months, UK manufacturing is suffering a poor end to the year according to the Engineering Employers Federation. Overall, it now expects manufacturing output to fall by 0.1% in 2015, and to rise by 0.8% in 2016.

Manufacturing certainly won’t be enjoying a short term boost from the expansion of Heathrow: to widespread criticism from business groups (‘gutless’ was one of the kinder phrases) the Government delayed a decision on a third runway until at least the summer of 2016.

December ended with severe flooding in the North of England, with estimates putting the cost at £2bn so far. The last of the current pound coins was minted, and Kellingley Colliery closed down, bringing deep coal mining in the UK to an end.

What did the FTSE-100 index of leading shares make of all these events? Not much was the answer: the FTSE started the year at 6,566 and closed at 6,242 for a fall of 5%. In December the market dropped by 2%, having started the month at 6,356.


The month began with the European Central Bank announcing yet more moves to boost the Eurozone economy. The overnight deposit rate was cut from minus 0.2% to minus 0.3% in a move intended to force banks to lend, as opposed to simply ‘parking’ money at the ECB.

The ECB also extended its monthly €60bn stimulus programme by six months to March 2017, but left its main interest rate on hold at 0.05%. ECB President Mario Draghi told a news conference that the stimulus programme ‘was working.’ However, many analysts were less than convinced that the stimulus package will achieve its aim of pushing Eurozone inflation back to 2% by next year.

At first glance the analysts appeared to have won round one when the December Purchasing Managers’ Index for the Eurozone fell slightly from 54.2 in November to 54.0 in December: remember that any figure above 50 indicates confidence and – hopefully – growth.

However, the last three months of 2015 did see the strongest growth in Europe for more than four years – with the service sector showing its best gains since November 2010. The pace of growth in manufacturing was also up – turning in its strongest performance for twenty months.

Perhaps even more significantly, there was good news from Spain and Italy, the third and fourth largest economies in the Eurozone. Retail hiring in Spain is up nearly 2% on a year ago – the best figure since Spain entered its deep recession in 2008 – whilst business confidence in Italy also appears to be strengthening.

The Spanish recovery may be tested by an uncertain general election result in December, after two new parties won nearly a third of the seats. The anti-austerity party Podemos and the liberal Ciudadanos both made big gains as the Conservative Popular Party lost its majority. A coalition government appears inevitable.

…And no mention of European politics would be complete without Greece, where the government was busy approving a budget for grown-ups. There were spending cuts and tax increases: but as we have seen so often with Greece, imposing tax increases is one thing, collecting them quite another…

Both of Europe’s leading stock markets – Germany and France – did well in 2015, with rises of 10% and 9% respectively. Having started the year at 9,806 the German DAX index closed at 10,743. There was a fall of 6% in December, but a rise of 10% represents a good year nonetheless. It was a similar picture in France, with the market also falling by 6% in December, but ending the year at 4,677 from a starting point of 4,273.


At last! After months of will-they-won’t-they, the US Federal reserve finally raised interest rates by 0.25%, in the first increase since 2006.

The move – which looked inevitable following Janet Yellen’s ‘strong economy’ comments at the beginning of the month – meant an increase from 0.25% to 0.5%. It will undoubtedly cause ripples around the world, possibly adding to the pressure for a rate rise in the UK and definitely meaning higher borrowing costs for developing economies, some of which are already struggling with low growth.

Someone who isn’t struggling with low growth is Facebook boss Mark Zuckerberg. Following the birth of his daughter he announced that he’d be giving away 99% of his fortune: why didn’t he wait until he had teenage children? It would have happened automatically…

The US economy added 211,000 jobs in November, slightly above expectations, whilst the jobless rate remained steady at a seven year low of 5%.

However, this good news on jobs was countered by growth for the third quarter being revised down from 2.1% to 2.0% and by a slump in house sales as buyers struggled with new ‘Know before you Owe’ regulations.

In company news Dow and DuPont are to merge, creating a chemicals group valued at $130bn whilst – almost unbelievably – a company which is not an iPhone app was sold for $13.9bn. Keurig Green Mountain makes single-serve coffee pods, and has accepted a bid from a German investment firm whose directors presumably need more than one espresso to kick-start their day.

The Dow Jones index certainly needed more than one espresso, finishing December at 17,425 – down by 2% for both December and the year as a whole. Having started 2015 at 17,823 this was the Dow’s worst performance for seven years.

Far East

We have written frequently over the year about the economic slowdown in China and the impact that it’s having on world trade. Let’s consider another problem facing the country – air quality and pollution. Anyone who’s seen a news bulletin from Beijing lately will have noticed the very low visibility in China’s capital – and now the country is to receive a $300m loan from the Asian Development Bank specifically to help it combat dangerous pollution levels in Beijing and the surrounding area, which the ADB describes as ‘jeopardising health and sustainable growth.’

But throughout 2015, there’s been one thing even less clear than the visibility in China – the direction of the stock market. The Shanghai Composite Index started the year at 3,235. By June it had risen dramatically to 5,166: two months later it was down to 2,927 and news broadcasts were awash with wailing investors who’d ‘lost everything.’ Meanwhile, some of the bosses of the brokerage firms blamed by the government mysteriously disappeared. The market finally closed at 3,539: up 3% in December and up a perfectly respectable 9.4% for the year as a whole. But if ever you wanted proof that markets ‘can fall as well as rise’ you only had to look at China in 2015. Assuming you could see through the smog…

What of the other major Far Eastern markets? Surprisingly Hong Kong did not follow China’s lead and was down by 7% over the course of the year, starting at 23,605 and ending the year at 21,914, having been largely unchanged through December.

It was a better year in Japan: the market fell 4% in December with troubled conglomerate Toshiba announcing a record loss of $4.5bn and 6,800 redundancies – but over the full year the Nikkei Dow rose 9% to close at 19,034.

The South Korean index simply swapped two digits round; it opened 2015 at 1,916 and ended it at 1,961 – a rise of 2% for the year, having fallen by that amount in December.

Emerging Markets

With the Olympics due to be held in Rio in 2016 it seems appropriate to start this section in Brazil – a country where 2015 has seen an unremitting flow of economic bad news. The country has lurched from crisis to crisis throughout 2015, with figures for the third quarter confirming that the recession was deepening; the economy shrank by 1.7% in Q3 and is now 4.5% smaller than a year ago.

Unsurprisingly, this has impacted on the government’s finances, and the figures for November were particularly bad, with the public sector deficit jumping to one of the highest levels on record – $5.1bn as against October’s figure of $2.99bn.

The stock market had a wretched year, falling by 4% in December and 13% for the year as a whole: having started 2015 at 50,007 the Brazilian market closed the year at 43,350.

In Russia the stock market moved in exactly the opposite direction: largely unchanged in December but up 26% for the year as a whole, having started 2015 at 1,397 and closing the year at 1,761.

However, the stock market gains do not tell the full story for Russia: 2015 was a desperate year for the rouble, which fell 26% largely thanks to the slump in the oil price. Much as Vladimir Putin wants the crisis to have peaked, Russia is heading for a second year of recession, irrespective of what the stock market says. Russia also appears to be on course for its annual spat with the Ukraine as the latter once again refuses to pay for its gas supplies. Mr Putin has stuck firmly to his New Year traditions and may well be turning off the gas – and much of the Ukraine’s heating – any day now…

India is the other major emerging economy we cover – and it was another market which had a disappointing year. Again largely unchanged in December, it fell by 5% for the year as a whole, starting at 27,499 and finishing 2015 at 26,049.

And finally…

Did you know that … apparently fairy lights can slow down your internet speed? This dire warning came from Ofcom, as it also named baby monitors and microwaves among the potential culprits.

Rather than leave you with this rather negative thought however, we’d like to wish you all the very best for 2016 and look forward to bringing you more market commentaries throughout the year.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.