Waterside View – UK Flooded Property

Waterside view – UK Flooded Property

As we are now approaching the spring (hopefully) most of us will be relieved that we have not suffered from flooding, however the feeling of despair at having your home flooded is something that many have had and many continue to do so. All home owners will know that with property, there is a battle with water – to keep it in the right places and out of the wrong ones. Our homes (our refuge and defence) need tending and maintenance. Those gutters need clearing of leaves and perhaps some attention needs to be given to the pointing…

Nature or Nurture

The recent floods have been a little too close for comfort for many of us, particularly if you live within a relatively small distance of a major river. It not clear, (to me at least) if the impact of the floods are a result of poor “water management” policies, or the unavoidable laws of nature. There seems little point denying the evidence that mankind is having a significant and alarming impact on the natural environment, however it is not clear if the recent bad weather is a normal “unusual year” or now a usual year, when the extreme becomes the norm.

Parable… house upon the sand

Like it or not, I cannot help by think of the parable of men that built their houses on rock or sand. Here in Britain, we have been given warnings from history about where to build. History has a familiar habit of repeating itself. So for those considering buying property with a sea or river front view, you may wish to think again. Properties like these have tended to command a premium, I wonder if this is not terribly wise, unless we adopt some of the lessons learned by the Dutch – which I recently visited to see the canals of Amsterdam, an engineering marvel and architectural delight. Back here in Britain, you may wish to give some thought to place names. Names that contain these terms are likely to do so for a good reason. Perhaps property prices may begin to reflect this.

ford; bridge; fleet (estuary or stream); upon; over; on; font or hunt (spring); hythe (port, haven); lac (stream) also obviously lake; lock and lack; rith (stream); harbour; quay; dock; water; bank; sea; river; mill; mouth; side; fen and strangely “hope” which is an old term for dry land in fen or small valley.

Oh, and the timing probably couldn’t be more opportune for a new film about Noah. A man who many thought completely mad.

Dominic Thomas: Solomons IFA

Waterside View – UK Flooded PropertyDominic2023-12-01T12:39:00+00:00

Can the Money Box Producer invest £5,000?

Earlier this month Money Box, the BBC Radio 4 programme decided to find out how easy it was for a complete novice to do their own investing. He has a sum of £5,000 representing his life savings, which is otherwise held on deposit in his bank earning less than 1% interest.

Financial Planning Basics

It is true to say that basic financial planning is straight-forward, yet most people fail to do the most basic tasks. Financial advisers may therefore spend considerable time, helping clients to get the basics in place. This was touched on in the programme, but very briefly. In essence, ensuring that your finances are under control, knowing what you spend and what you earn, having suitable reserves (3-6 months of spending). Having a Will, adequate financial protection and clearing debt etc.

Too small-fry?

As a result the starting premise of the show is how to invest £5,000. In truth the vast majority of financial advisers are not really interested in this level of work. Its not financially worthwhile and its not satisfying work. A good planner will take investors through a risk assessment, invariably a questionnaire which helps start the process of explaining and understanding investment “risk”. In truth this ought to be a straight-forward process, but it often isn’t. DIY investing is fine for low levels of funds, but when the sums get bigger, so does the complexity.

How much is a pint of milk?

Sadly Wesley didn’t really do DIY investing. He asked for advice and then went to the investment company to find that they required £100,000 as a minimum to invest directly through them. Alternatively he could access the fund through a platform. He then asked a very good chap Mark Polson, who assesses platforms for people like me, about which platform to use. This is an art and science. However, Mark rightly points out that using a platform will cost typically 0.25%-0.35% for using their administration. That’s £12.50 – £17.50 for a £5,000 investment. I’d call that peanuts, though I’m sure Money Box would disagree.

Investing is not gambling. Gambling is gambling.

I was also disappointed to hear the description of investing as a “gamble” from someone in the know (Candid Money). It carries risk but it is not gambling. Thankfully ludicrous questions were kicked into touch and Mark also pointed out that “best” and “cheapest” are two different things. Paul Lewis also seems to think that charges are a loss. They are a cost of investing, not a loss (and free banking isn’t free, its cross subsidized by loans etc).

The DIY Investor

I have lots of sympathy with people that find financial planning expensive and also have had bad experiences. I recently met with a potential client who is a DIY investor, but really wanted to know how to minimise capital gains tax. He was a bright guy, but fairly unusual, holding shares in just two companies worth a good six-figure sum. Whilst he seemed to appreciate the risk he was taking, I had serious doubts. He had no clear idea of the returns achieved and not kept any good records. For all I know he may be a genius investor (unlikely) but my suspicion is that his approach was born out of an understandable mistrust and fear of being ripped off, yet in practice he was (and is) in serious problems should his two shares take a turn for the worse. The main winners will be HMRC as he has not used any capital gains tax or ISA allowances over the last 20 years (use it or lose it).

DIY is spending time to save money, yours.

DIY investing is not something to be undertaken lightly. I am learning new stuff almost each day and I’ve been doing this for over 20 years. Frankly, any professional skill can be learned by most people. Yes I could even learn to be a brain surgeon… but do I want to? am I actually playing to my natural interests and skills? if time is short, why would I waste it learning about stuff an expert can do for me? (and with whom I have a professional relationship). I tend to find people tend to fall in one of two camps – spend time to save money, or spend money to save time. DIY investors are the former (by doing it themselves) but beware it takes a lot of time, whereas you could focus on the things that actually improve your employed skills and therefore your income, or simply spending time on doing the things you love. Oh and Money Box – “ad valorem” is a fee based on the value of a portfolio, in short a percentage. There is definitely a need and place for DIY investing, but check where you are really coming from before you embark on this rather lonely and arduous venture. You don’t want to find that all is lost…

Dominic Thomas: Solomons IFA

Can the Money Box Producer invest £5,000?Dominic2023-12-01T12:38:59+00:00

Valentine’s Day love and passion

Tomorrow is Valentines day and whilst retailers attempt to describe love and passion, I thought I’d take you back to a memory 30 years ago. The Winter Olympics in Sochi, for all the issues, remind us about commitment and focus and it was 30 years ago that Jane Torvill and Christopher Dean wowed the world with their performance of Bolero and in the process sweeping the board with top marks for artistic expression. Watching the video now, despite its very poor quality, transports me to the gripping moments, hoping that nothing went wrong and that they did themselves justice by winning a very deserved gold medal. It was a moment of great joy, perhaps because they were British, but more than that – they were simply remarkable, the best. Even 30 years ago, I had sufficient life experience to recognise that the best didn’t always triumph, that hard work, commitment and passion wasn’t always rewarded. It is therefore all the more pleasing when “justice” is done and nobody can deny it.

The last thirty years have seen a professional ice skating career that has involved many repeat performances of Bolero, today in an interview is seems that the chances of seeing this seminal piece performed by its creators is coming to an end, tour dates have been announced for “The Final Tour”. You have until April…. but perhaps tomorrow’s soundtrack should be Bolero.

Dominic Thomas: Solomons IFA

Valentine’s Day love and passionDominic2023-12-01T12:38:59+00:00

A morning of auto enrolment

Today I spent the entire morning hidden away in the company of auto enrolment experts…. Its almost as though there is a theme building in this blog. Anyway, there were some great speakers and presentations, thankfully nothing was terribly surprising, other than perhaps the candour. As I had outlined here previously, the real issues have little to do with pensions and everything to do with compliant processes and systems that work.

34 and counting…

Reliance on a payroll system may be misplaced (its not easy to tell) but one major pension provider outlined that there are 34 data fields required for each employee…can you think of 34 questions about your staff? Name, date of birth, NI number, salary, home address, email address, contribution rate…. And so on. There was no denying the importance of accurate and correct data and of course this needs proper checking and policing for security – involving your IT department or if you don’t have one… your IT person/supplier etc.

Concern about loss of pension allowance protection

My only real concern was in relation to lifetime allowance protection, after all payments into a new pension (such as auto enrolment) will, (under current rules) undo any pension protection. The thing is that employers are not permitted to advise staff not to join the auto enrolment scheme and indeed most financial advisers aren’t either due to a quirk in the rules which prevents anyone that does not hold G60 (an exam that can no longer be taken) from advising people not to join an employers pension. Yes, its daft and everyone seems to be relying on HMRC providing some sort of exemption or providing the advice themselves…. Yet here we are with lots of firms with auto enrolment already under way… now call me a cynic, but waiting for the right thing to be done seems unrealistic and naïve.

Good employer?

One of the good things about today was that many, well most, employers are actually pretty keen on providing staff with a pension. Yes there are some that seem to think it won’t happen (good luck with the fines) and as one commentator put it, there will be 100% take up, because 100% of employers have to offer and run a scheme, some (about 10%) of the staff will opt out, but even if 99% opted out, the rules must still be adhered to. So… better get on with it. Here is a little video about AE from a SME… yes the jargon is now in full flow! thanks to Standard Life.

Dominic Thomas: Solomons IFA

A morning of auto enrolmentDominic2023-12-01T12:38:58+00:00

“What have I missed about auto enrolment?”

What have I missed about auto enrolment?

Yesterday I suggested that auto enrolment was not really about pensions, that’s because despite it being about setting up a pension, the real emphasis is much more about communications with staff and with Government agencies. The new system is rather like PAYE, though nothing quite as simple. I have come up with 11, that’s eleven, key issues where auto enrolment will challenge your business or charity.

Contracts of employment

Contracts of employment will need to be altered reflecting the new pension arrangements; this may be a difficult discussion depending upon your type of business and workforce. Do you need to get the help of HR or even legal advice to do this properly?

Pay reviews and salary sacrifice

Some employers may use this as an opportunity to consider “salary sacrifice” or “salary exchange” this is a bizarre scenario where having a reduced gross income with the reduction paid into a pension, saves both employer and employee national insurance contributions and PAYE, yet invariably the net pay is a bit more, with more money going into a pension. Odd but true.

Payroll integration, live and up to date

Your payroll software will need to be able to integrate the new scheme, if you are a small firm and outsource this to your book keeper or Accountant; they need to be up to speed and have software that does the job.

IT overhaul

Schemes will be managed online and the Pension Regulator may demand data going back 6 years in a format that they can readily use). This therefore has implications for your IT systems and security and in particular how you hold and backup your data about staff.

Garbage in, garbage out?

Communication with staff is also a big deal. You need to be able to evidence that you have provided all of the relevant information to your staff, email is the most obvious and cheapest delivery option, but we all know that not everyone uses email or has provided you with an up to date email address, so do you need everyone in the business to have a company email address, and what happens when they leave? Do you maintain records properly?

Money Laundering

As a pension is an investment, there are issues about possible Money Laundering and politically exposed people. As an employer do you have evidence that you have done thorough identity and residency checks? Can you prove this? This will also identify any illegal immigrants or visa’s that have expired.

Staying silent and impartial

You might see auto enrolment as a valuable part of your staff package, however some see it as another tax and a whole lot of bureaucracy. You are not permitted to give advice about pensions or entice or discourage staff from joining the scheme. This isn’t just frowned on, it carries hefty financial penalties if revealed.

Disgruntled employees

Non compliance with the rules is a dangerous approach. You may believe that you know your staff, but perhaps you should reflect on what could go wrong for you if a member of staff falls out with you, or is just plain awkward anyway (these people do exist in 2014) so make sure you have complied and that you can demonstrate that you have done so. It is pointless to ask for a bullet proof vest after the event.

Tax triggers

You may not be aware that some people have very large pension scheme benefits. The Lifetime Allowance has reduced and will reduce again in April. Some people have protected their larger allowances, but should they accidentally enrol into a new pension, this would scupper their plans. This could trigger enormous tax penalties (55% of £1m for example) and you won’t be terribly popular with the employee that is presented with such a bill because you didn’t communicate well enough.

Honest guv….

The cynic in me might suggest that this is another way to join-up the Government agencies, which is fine if you are doing everything properly (unless you have concerns about information flow) but of course will catch out more people that have undeclared earnings anywhere.

Impacting your budgeting

Finally, don’t rely on your costs being 3% of your payroll. It is likely that contributions levels will be raised above 8%, in Australia (where they have had compulsory pensions since 1992) employers now contribute 9.25%. You ought to allow funds for the scheme and your systems to be reviewed and of course you might be wise to provide seminars or meetings for your staff to ensure that they understand their pension.

So, auto enrolment is about pensions… well yes, but it is also about rather more besides.

Dominic Thomas: Solomons IFA

“What have I missed about auto enrolment?”Dominic2023-12-01T12:38:57+00:00

I have plenty of time to sort out auto enrolment right?

Love it or loathe it, auto enrolment is under way. The biggest companies and organisations are now running their schemes. As an employer you may be thinking that you have plenty of time to sort out your auto enrolment, you don’t. On the face of it one would think that setting up a pension for everyone to be opted in from the outset would be straight-forward (if I were King…) however there are all manner of obstacles to overcome, many of which employers are not terribly aware of. The truth is that this is not really about pensions, but about compliance and communication. Whilst the process is dressed as a pension, the reality is that the pension bit is probably the easiest element to resolve.

The real issue is to ensure you are compliant with the rules. This means not being late for your date, that is your staging date (find it here). If you are a small firm with 4 or fewer staff the fixed penalty is £400 and then £50 a day. If you have 5 staff its £500 a day, rising to £10,000 a day for firms with 500 or more staff. So it simply isn’t worth being late and in practice the entire process is likely to take 12 months from start to “implementation” and rather like having a baby, the pregnancy and then birth is not the end of the job… its an ongoing process, requiring a lot of time, effort and understanding.

So in preparation (the pregnancy part) quite a lot needs doing, this is where a financial adviser can help, though many employers will hope that they don’t need assistance, they probably will. In this analogy (and I don’t want to stretch it too far) the financial adviser is rather like the local GP, who is involved with the care, monitoring and progress and the life-long after care, but the parents (the employer) carry the responsibility.

To make matters harder there are a lot of companies all trying to do the same thing at the same time. Staging dates have been staggered, but there is a genuine problem with capacity. An estimated 1.4million firms will be attempting to bring their schemes into life. This is not going to be easy and most of the pension companies that you have heard of are alarmed at the prospect and cherry picking those that they want to work with, some are also simply closing the doors. This will leave pensions that you haven’t heard of as your main choice. Here is a chart showing the staging dates over the next 3 years by quarter. So you are just going to have to trust me on this – get on with the process, wave of applications is going to cause all sorts of capacity problems for pension companies.

So, let’s see how far I can get away with the analogy…whilst you have be currently of the view that you are searching for a new date (Valentine’s is shortly upon us) you are actually already in an arranged marriage and fairly stern in-laws have planned the baby-shower and booked a hotel to be near your local maternity ward…. Well maybe it doesn’t work too well as analogy, but you get the point. Time is running out whilst auto enrolment provides the opportunity for opting out (by employees) employers are not permitted to do the same and under no account permitted to influence employees.

Tomorrow I will outline some of the key issues that have little or nothing to do with pensions, but everything to do with compliant auto enrolment… after all how many small firms can afford fines of £15,000 a month?

Dominic Thomas: Solomons IFA

I have plenty of time to sort out auto enrolment right?Dominic2023-12-01T12:38:57+00:00

In your pocket

I am delighted to announce that we are working on a helpful piece of kit that will fit into your pocket, or rather on your smart phone or tablet.We are working on a new app, for our clients and their friends. I’m quite excited about it and hope that it’s a great aid to our clients. The new app is being constructed and we are working on the title page. I wonder if you would like to have a preview? You will be able to use the app an iphone and ipad or any android device. Its rich with lots of features, financial calculators, budgeting stuff and of course means that you can contact us easily. We are constantly seeking to utilise proven technology where possible and if it makes sense.

We have another innovation as well that I shall be speaking to clients about, but only for those that use the internet for banking and would like a clever, secure way to view banking, credit cards and investments all in one place safely.

If this is of interest to you please get in touch.

Dominic Thomas: Solomons IFA

In your pocketDominic2023-12-01T12:38:56+00:00

A New Widow

It is good to see that Scottish Widows have figured out that having a financial plan rather than a collection of policies and investments is the better approach to better results. On Monday they began a new consumer campaign – Life Feels Better When You Have A Plan… its as though they looked at my website! They are also updating their image with yet another “widow” the fourth, Amber Martinez at just 24 (how many 24 year old widows are there really?) is the new face of Scottish Widows taking over from Hayley Hunt, who was the widow since 2005. Here is a link to the new advert that has gone live.

Here are the four widows talking about the role. Am I alone in thinking that the age of the widow is possibly important? by definition to be a widow you have to have been married.

Dominic Thomas: Solomons IFA

A New WidowDominic2023-12-01T12:38:56+00:00

What is the best way to save for retirement? Part 7

What is the best way to save for retirement? Part 7 /7

Ok, this is the last part in the current series and rather than fill you with more information about planning a pension, lets start with what its really all about – your lifestyle. Any decent financial planning should (it’s a requirement, but you would never believe how few “advisers” mess this but up) begin by outlining your current spending. This is an exercise that hardly anyone likes doing, I think because it reveals who we currently are and have been and often this can leave us feeling somewhat disappointed or uneasy about our own “maturity”.

Your Lifestyle

So, lets begin. Running your home – each month what does it cost? That’s mortgage/rent, insurance, council tax, utilities bills etc. Then lets turn to your living costs, that’s food, clothing, haircuts, dry cleaning etc. OK, so now how much does it cost you to run your car/s, commute, use the bus? Next healthcare – medicines, opticians, dental, then how about presents (Christmas, birthdays, weddings) and charitable giving. Finally, how much do you really spend on holidays, your hobbies and entertainment generally? These are all pretty much your lifestyle costs… but we aren’t done yet… and if you have children how much does childcare/schooling cost you?

Current financial stuff

Financial costs – how much are you paying to debt and loans? What are the balances, current rates and when do they end? How about your savings, investments and pensions? What are you currently putting away each month? What are the balances? Any financial protection (life assurance, income protection, critical illness cover? Cost and cover?).

When?

So lets make an assumption or two – but please adapt this for your circumstances. When do you want to have the option of working? In other words you don’t need to earn money to pay for your lifestyle? Pause on this. It isn’t the same question as “when do you want to retire?”. So, lets assume (adapt) that your children if you have had them have left home, your mortgage is repaid and you don’t have a need for ongoing financial products (you might, but just go with it). So what does your lifestyle cost (this is a net – after tax figure for the year or month). Is there anything else? When you reach this point you will have more “spare time” to do the things you’ve been working hard for… so what are they? Extra travelling? that “bucket list”… what?… so what is your required income? When?

Calculating your number

Let’s assume the State pension is still viable then, so knock off £5,200 (£100 a week) from the figure. What does that leave? OK, calculator ready? Quick rule of thumb… divide this by 4% to reveal the fund you need IN TODAY’S MONEY (not the same as the money you need today). Example: £20,000 /4% = £500,000. This is a rough estimate. We then need to figure out what this number would be (your number) when you want to stop working. So we really need to do all the sums and pull all the information together about what you have already. This is basic financial advice or as our American friends say “Financial Advice 101”.

This is usually where you need a financial planner to help pull apart your assumptions, explain what you really have and importantly explain what you can do to get on track and what returns you need. Want help? Call me. if you want more flesh on the bone, you might want to buy a book called “The Number” by Lee Eisenberg.

Dominic Thomas: Solomons IFA

What is the best way to save for retirement? Part 7Dominic2023-12-01T12:38:55+00:00

What is the best way to save for retirement? Part 6

Part 6 in the series “What is the best way to save for retirement?”

Inflation – Power to the people?

Inflation is probably the most underestimated factor within finance and economics. It has a massive impact on what you really need to do and frankly drives the need to ensure that your assets increase in-line with or preferably above the rate of inflation. This sounds easy, but it isn’t. You know all about inflation as it is, I don’t need to explain much. All I need do is ask you to remember going to the sweet shop and what you used to be able to buy, or perhaps how much you bought your first home for.

We forget what we don’t see

Inflation at the moment is historically low, despite what the media and politicians may suggest it is low. In fact ONS statistics reveal that the annual rate of RPI (retail price inflation) has not been above 5% since 1990. That’s now 24 years ago. It has varied since then between 0.7%-4.5%. This is why so few of us really give much thought to the impact of inflation. However, the longer term average rate of RPI since 1948 has been 5.5% and ranged between 2.9%-6.3% as a long term annual average. This was largely due to high levels of inflation in the 1970’s (24.9% in 1975) when we had a decade of high inflation rates, often forgotten, but which in turn led to tighter monetary control introduced as “Thatcherism”.

Size matters after all

My figures from the previous posts about the size of pot you need are therefore somewhat off. Why? Well because I suggested a target income of £20,000 a year from the age of 65, assuming a starting age of 35. I did this deliberately. Investors get really quite distressed by “real figures” the numbers invariably look too big and too terrifying. Here’s what I mean.

Warning: Explicit Information

£20,000 inflated at 3% a year for 30 years becomes £48,545. This is the same amount in real terms (if inflation runs at 3%). So I hope that you are sitting down. Rather than needing a pot of £500,000 to pay £20,000 a year (4% annuity) you really need £1,213,625 in real money. Yes that’s £1.2million. Rather than investing £305.69 a month (increasing by 3% a year) you actually need to invest £741.98 a month – more than double. You are no richer in reality; it’s just that inflation has been properly taken into account. The same facts are accurate, but the amount you really need to invest is considerably more.

Is time is on your side?

If you are rather closer to 65, say you are 50, you still have 15 years of inflation on £20,000 a year which becomes £31,160… worth the same amount… penny drops (literally) on the reason why I asked you to recall the childhood trip to the sweet shop. So in this example, a 4% annuity to provide £31,160 needs a fund of £779,000. You have 15 years to achieve this amount, hopefully you have made a start.

What about that buy to let property purchase idea?

So let’s turn to the property purchase option if you recall it. I suggested saving for 10 years for a deposit. Well starting with the end in mind we used a 5% rental yield. This would need to be £48,545 in 30 years time, so the property value would therefore need to be £970,900. So if property prices rise by inflation (3%) then you would need to be buying a property for roughly £400,000 and a 20% deposit would be £80,000 saved over the first 10 years, so rather than saving £214.71 a month, you really need to save around £450 a month (increasing by 3% each year for 10 years) and taking on a commercial mortgage for £320,000 – that’s quite a lot of debt.

Is it real?

The problem with real numbers is that they are pretty alarming. In reality you will hopefully have various sources of income for your retirement, hopefully including the State Pension. However the key issues are how well your portfolio performs and it will rise and fall in value which can be concerning. So its important that you consider the inflation adjusted or “real” returns. To give an example, the FTSE AllShare Index has averaged 5.9%pa above inflation since 1956. The average rate of inflation over the same period was 5.6% – so the actual FTSE AllShare return was 5.6%+5.9% = 11.5%. Since 1991 (to end of 2012) inflation has been 3% and FTSE AllShare real return 5.7% = actual returns of 8.7% but what you will notice is that the real return is pretty similar (over the longer term) at about 5.6% but not in the short term!

A suitable portfolio and strategy

Its important to get your investments right as in practice most people cannot stomach the volatility within shares. So you wouldn’t have all of your portfolio in shares, you would typically have some in Bonds and perhaps a bit in cash, thereby reducing but protecting the returns. Getting this balance right is not as simple as picking funds or using some sort of off the shelf “model” it needs to be thought through carefully…. Which is what I help clients do.

Its about your lifestyle, not the money

It goes without saying that £20,000 is not regarded as “a lot of money” by some people. In fact, £20,000 is a fair bit less than the average wage. However, great financial planning is not about value judgements about what is and what is not a small or large amount. No, its all about helping you to get clear about the lifestyle you want and what you need to do to achieve it, if that is possible, when considering your available resources, your appetite for and ability to take risk. When they say time is money, it is perhaps most pertinent in relation to inflation.

Was this helpful? Just plain scary? Too much? What questions do you now have? Email me or post a comment. Tomorrow I will conclude by providing some pointers to what I mean by “lifestyle”. Thanks for reading and here’s something you may remember from the 1970’s.

Dominic Thomas: Solomons IFA

What is the best way to save for retirement? Part 6Dominic2023-12-01T12:38:54+00:00