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Help To Buy v Lifetime: Which ISA is best?

Archive for May, 2016

Help To Buy v Lifetime: Which ISA is best?

Wednesday, May 11th, 2016

Set to be introduced in April 2017, the Lifetime ISA essentially offers an alternative to the Help To Buy ISA. With two competing options on the table, it’s important to know which is best for you and your needs, as whilst they have some similarities, there are also key differences between the two.

The Help To Buy ISA allows you to save up to £200 each month to save for a deposit on your first home. The government then boosts your savings further to the tune of 25% up to a total limit of £3,000, as long as you’re a first time buyer purchasing a property priced up to £450,000 in London and up to £250,000 everywhere else in the UK. There is no minimum deposit each month, and you’re also able to pay in £1,000 when the account is opened that doesn’t count towards your monthly savings.

Available up to Autumn 2019, anyone aged sixteen or over is entitled to open a Help To Buy ISA. The accounts are limited to one per person, which means both people in a couple can have an account and benefit from the bonus.

The new Lifetime ISA is based on similar principles but has several important differences, with the most important being that it can be used either to save for purchasing your first home or as money put away as a pension for later in life. There’s no limit on how much you can save each month as long as you don’t go over the yearly cap of £4,000.

Again, the government offers a 25% bonus, but this is paid whether you use the money to purchase your first home up to a price of £450,000 anywhere in the country, or keep it for later in your life. Any money that’s taken out before your 60th birthday and not used for purchasing your first home will forfeit the government bonus plus any growth or interest earned from it, as well as incurring a 5% charge. If you wait until after you’re 60, you can take out everything tax-free.

As you will be allowed to have both a Lifetime ISA and a Help To Buy ISA, you can choose to do this, but you will only be able to use the bonus from one of the two accounts to buy a home. As the Lifetime ISA is essentially replacing the Help To Buy ISA, it makes sense to opt for the newer style of account after they are introduced next April. If you want to set up an ISA for your child, however, you could consider opening a Help To Buy ISA on their 16th birthday then transferring the savings to a Lifetime ISA two years later which will allow you to take full advantage of the government bonuses.

May market commentary

Wednesday, May 4th, 2016

April was the month for stats fanatics…

We monitor a dozen world stock markets for this commentary: remarkably, seven of them rose by 1% during April. Brazil and Russia managed rather more noteworthy increases: the Chinese market shuffled off in the opposite direction.

But April was a month when events away from the world’s stock markets made the news, starting with the tax affairs of the rich and powerful. A huge leak of confidential documents from the Panamanian law firm Mossack Fonsceca has revealed how these ne’er-do-wells use tax havens to hide their wealth.

France’s President Hollande hailed the revelations – possibly as he wasn’t named in them. No such luck for Vladimir Putin, with several papers pointing out that the leaked papers provided a ‘trail leading right to the heart of the Kremlin.’ Putin shrugged, blamed his critics and carried on as normal.

Meanwhile, the IMF – or those members of the IMF not closeted with their lawyers – pledged to pursue ‘growth friendly’ policies to kick-start the world economy, still at risk from weak trade and a number of other dangers including the UK’s possible exit from the EU. IMF Managing Director Christine Lagarde – still under investigation in a French fraud case – described the talks between finance ministers and central bankers as ‘collective therapy.’ Just what you need when you’re waiting for news from Panama…


April saw the introduction of the National Living Wage in the UK, initially set at £7.20 per hour. But the news agenda in the early part of the month was dominated by Tata’s decision to sell its steelworks – reputedly losing £1m a day – in Port Talbot. The Government has vowed to do all it can to find a buyer, with Tata understandably anxious for a quick sale – but with the continuing global oversupply of steel that isn’t going to be easy. And it got even more difficult when the Chinese imposed a 46% import tariff on steel from the EU.

There was more bad news for the national economy when it was revealed that productivity fell in the final quarter of 2015 at the fastest rate since 2008. According to the Office for National Statistics ‘worker output per hour’ was down by an overall 1.2% on the previous quarter, with manufacturing output down by 2%.

This news was compounded by figures showing that the UK’s industrial output in February was down by 0.5% on the previous year – the biggest decline since August 2013. Again, the fall was particularly marked in manufacturing, down 1.8% from a year earlier. These weaker-than-expected figures have raised fears over the performance of the UK economy (and by implication, the Chancellor’s growth forecasts) and it came as no surprise when the ONS revealed that the UK’s trade deficit in February was worse than expected. The deficit for the month was £4.8bn – the ONS had been anticipating something around £3bn.

There was more bad news on the national High Street with BHS calling in the administrators and putting 11,000 jobs at risk – and the next day Austin Reed followed suit (so to speak…)

Fortunately, there was some light amid the gloom, with UK car sales hitting a 17 year high in March. Tesco finally returned to profit, and its supermarket rival Sainsbury’s won the battle to buy Argos.

How did the FTSE-100 index of leading shares react to all the news? It was the first of our markets to rise by 1% in April: having started the month at 6,175, it ended April at 6,242 – exactly the same level at which it closed 2015.


Where the UK leads, so Europe follows, with figures for March showing that European new car sales had risen by 5.7% to 1.74m registrations in the month. This was despite VW’s continuing problems with the emissions scandal: the company has now doubled its provision for the debacle to €16.2bn.

New car registrations are up by 8.1% in the first three months of the year, which may be indicative of a European economy that is finally starting to recover. According to official statistics the Eurozone economy grew by 0.6% in the first quarter of the year – double the rate in the previous quarter and ahead of analysts’ expectations of 0.4%. Unemployment in the Eurozone also fell to 10.2% – the lowest level for 4½ years.

But some problems never seem to go away. ‘Greek bailout talks make progress,’ said the headlines. Closer examination revealed that these talks – about a new bailout of €80bn – were supposed to have been completed by end of last year. But after a meeting in Amsterdam Eurozone finance ministers say that ‘further work is still needed.’

Let’s hope Europe moves rather more quickly with the ‘tax crackdown’ launched by the big 5 economies – the UK, Germany, France, Italy and Spain – in a concerted bid to respond to public concern over the leaks from Panama. We’ll report back on progress in the May 2021 monthly commentary…

On the stock markets both Germany and France joined our ‘1% club’ finishing the month at 10,039 and 4,429 respectively. Even Greece – a market you can usually rely on to do something spectacular – was up the obligatory 1% to 583.


Here’s a headline you never thought you’d see: ‘Apple revenues fall.’ Yes, the seemingly irresistible march of the iPhone has been halted, with Apple revenues going into reverse for the first time since 2003. Earnings for its second quarter were down by 13% as iPhone sales fell roughly 20% on the same period in 2015. Apple CEO, Tim Cook, said the company had performed well in the face ‘of strong macro-economic headwinds’ – which translates as, ‘it’s tough, especially in China.’

No such problems for Facebook, which tripled its quarterly profits as ad revenues continued to grow, or for Amazon – where profits jumped to $513m in the first quarter of the year, helped by a 28% rise in sales.

Overall the US created 215,000 jobs in March, but Intel did announce plans to shed 12,000 jobs worldwide, and the Chinese shopping spree in the US continued as Lexmark was bought for $3.6bn.

The Federal Reserve ended the month by keeping US interest rates on hold at between 0.25% and 0.5%: the Fed appear to be waiting for inflation to reach 2% before make any further movement on rates.

The Dow Jones index? You guessed it – up by 1% in April to end the month at 17,774.

Far East

Figures released for the first quarter showed that Chinese economic growth had ‘slowed’ to 6.7% in the first quarter of the year. This is down on the 6.8% recorded in the final quarter of 2015 and the lowest quarterly figure for seven years – however, it was in line with both expectations and the Chinese government’s own forecasts.

Chinese exports were also moving in the right direction, surging by 18.7% in March, the biggest increase in overseas shipments for more than a year. With imports down by 1.7% in March, China had a trade surplus for the month of $30bn.

Business in Japan was sadly hit by two powerful earthquakes which struck Kumamoto in south western Japan, forcing Sony, Honda and Toyota among others to suspend production at their factories.

There were even more serious problems for Mitsubishi, as they were forced to admit to falsifying fuel economy data since 1991. At the moment more than 600,000 vehicles in Japan are affected: whether data was also falsified in exported vehicles remains to be seen.

There was no need for South Korea’s Samsung to falsify any data as it forecast a 10% jump in operating profits for the first quarter. The company expects profits of $5.6bn, helped by a surge in demand (presumably at Apple’s expense) for its flagship smartphone, the Galaxy S7.

On the stock markets Hong Kong played its part by dutifully rising 1% to 21,067 whilst South Korea was virtually unchanged at 1,994. The Japanese market declined by 1% to finish the month at 16,666 while China’s Shanghai Composite index was down by 2% to 2,938.

Emerging Markets

There was more turmoil in Brazil with the news that the President, Dilma Rousseff, faces possible impeachment proceedings over claims she manipulated government accounts ahead of her 2014 re-election. There were also problems for the state oil producer Petrobras: the company announced plans to axe 12,000 jobs as it struggled with losses following price-fixing and bribery scandals.

However, none of this bothered the Brazilian stock market, which was our star-performer of the month with a rise of 8% to 53,910.

The Russian market also enjoyed a good month as it rose by 4% to 1,953. But the Indian market brought us safely back to normality, with a 1% rise seeing it end April at 25,606.

And finally…

April was the month where rewards for poor performance reached a low point. Sniffer dogs at Manchester airport came in for serious criticism after they succeeded in finding plenty of cheese and sausages carried by holidaymakers, but comprehensively failed to find any class A drugs. The Home Office said ‘improvements must be made.’

Despite this woeful under-performance Manchester airport rewarded its six detector dogs by spending £1.25m on new kennels. That works out to just over £200,000 per dog kennel and compares to the average house price of £286,000.

April was also the month when BP investors overwhelmingly rejected plans to pay the company’s chief executive, Bob Dudley, a meagre stipend of £14m a year. But no such worries for Martin Sorrell, boss of the world biggest ad agency, WPP, who trousered £70m and said he was ‘worth every penny.’

I don’t know if Mr Sorrell has any dogs. If he does, they must be looking forward to new kennels. What else can he spend the money on…?

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The new State pension: how will it affect you?

Wednesday, May 4th, 2016

The new single-tier state pension, also referred to as a ‘flat-rate’ pension, came into effect at the start of April this year. Whilst it makes the system simpler, as well as increasing the basic state pension from around £120 per week to a starting figure of £155 per week, the new system is not set to benefit everyone. To find out whether you’re one of the people who will be better off, one of those losing out, or someone who won’t be affected by the changes at all, read on.

The new system applies for men with birthdays after 6th April 1951 for men, and 6th April 1953 for women, so if you retired before 6th April 2016, the single-tier system won’t affect you and you’ll continue on the previous two-tier system.

Unlike the old system, not everyone in the UK will be entitled to a state pension; you’ll need to have made National Insurance contributions (NICs) for at least ten years. These don’t have to be in consecutive years, and there are some people who will be exempt from this rule including some parents, carers and jobseekers. Even so, it has been predicted in some quarters that this will result in approximately 70,000 people who will be unable to draw any state pension at all. In order to receive the new state pension in full, you’ll need 35 qualifying years of NICs, up from 30 years under the previous system.

Some two million people are unlikely to receive the full amount due to being contracted out of the old second state pension before April 2016, having paid a lower rate of National Insurance. Most of these will be public sector employees, such as teachers, members of the armed forces and those working in the NHS. How much less these people will receive will be determined by how long they were contracted out of the second state pension. Equally, those who have been paying into the second state pension before April 2016 will have this protected, meaning they may receive more than the £155 per week basic rate.

After the transitional period, those who are likely to lose out in the long-term are those currently in their 20s and 30s, due to making standard NICs but not being able to benefit from the second state pension as those under the old system did. It’s estimated that two in three people currently in their 30s will theoretically be £17,000 worse off over the course of their retirement. That rises to around 75% in current 20-somethings who are set to lose a notional £19,000. There will of course be those who will be better off under the new system – around six million by 2030 according to government estimates.

As a general rule, and assuming a pension age of 70 by the year 2050, if you were born before 1980 you can expect to benefit from the flat-rate pension; in contrast, those born after 1980 have a greater potential to be worse off.