Pensions: State Pension changes

Solomons-financial-advisor-wimbledon-blogger

The State Pension is changing…. again!

Like anyone else I am rather fed up with the constant tinkering and general messing around with pensions, in particular the State pension. It seems to me that it isn’t so much that the goalposts are regularly moved, but more that you don’t know whether the game requires, a ball, bat, horse or car. I came across a rather good succinct short video by financial journalist Sarah Pennells. I see no reason to reinvent the wheel when someone else puts all you need to know concisely. Sarah runs a financial information website called www.savvywoman.co.uk which aims to help women in particular. It’s certainly worth checking out. Anyway here she is summarising the changes.

Your State Pension

It would be wise to obtain a State pension forecast if you can. You can do this by visiting the main website to obtain one.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pensions: State Pension changesDominic2023-12-01T12:20:12+00:00

Investing: Greece is the word

Solomons-financial-advisor-guest-blogger-Jim-Parker

Greece is the Word

The world’s markets and media financial pages have been consumed by a single issue in recent weeks—the stand-off between debt-laden Greece and its international lenders over the conditions of any further bailout. For investors everywhere, both of the large institutional kind and individual participants, the story has been fast-paced and difficult to keep up with. More importantly, the speculation about possible outcomes has been intense.

Of course, no-one knows the eventual outcome or whether there will even be a definitive conclusion. After all, this is a story that has been percolating now for six years, since Greece’s credit rating was downgraded by three leading agencies amid fears the government would default on its debt.

Since then, the Greek situation has faded in and out of public attention as rescue packages came and went and as widespread social and political unrest gripped a nation known as the birthplace of democracy.

But there are a few points to keep in mind. Despite the blanket media coverage of Greece, this is a tiny economy, ranking 51st in the world by GDP in purchasing power parity terms (which takes into account the relative cost of local goods).

On this measure, Greece is a smaller economy than Qatar, Peru or Kazakhstan, none of which currently feature prominently in world news pages. Its economy is about half the size of Ohio in the USA or New South Wales in Australia and about a tenth of the size of the UK. Even within Europe, it is tiny, representing only about 2% of the GDP of the 19-nation Euro Zone.

Size is everything

As a proportion of global share markets, Greece is also a minnow. As of early July 2015, it represented about 0.32% of the MSCI Emerging Markets index and just 0.03% of the MSCI All Country World Index.

And while its total debt is large in nominal terms and relative to its GDP at about 180%, this still represents only about a quarter of 1% of world debt markets.

Of course, what worries investors is not so much Greece itself but the wider ramifications of the debt crisis for its European bank lenders, for the future of the single European currency and for the global financial system.

Yet, many of these concerns are already reflected in market prices, such as in Greek government bonds, the spreads of peripheral Euro Zone bonds, regional equity markets and the single European currency itself.

While no-one knows what will happen next, we can look at measures of market volatility as a rough guide to collective expectations. A commonly cited measure is the Chicago Board Options Exchange’s volatility index, sometimes known as the ‘fear’ index. This has recently spiked to around 18 from 12 in mid-June. But keep in mind the index was up around 80 during the peak of the financial crisis in 2008.

Of course, the human misery and dislocation suffered by the Greek people through this crisis should not be downplayed, neither should the financial risks. But from an investment perspective, there is still little individual investors can do beyond the usual prescription.

Perpective

That prescription is to remain disciplined and broadly diversified across countries and asset classes and to be mindful that markets accommodate new information instantaneously. So the risk in changing one’s portfolio in response to fast-breaking news is that you end up acting on events that are already built into security prices.

In summary, the events in Greece are clearly worrisome, but Greece is a very small economy and a tiny proportion of the global markets. Events are moving quickly and prices are adjusting as news breaks and investor expectations adjust.

For the individual investor, the best approach remains diversifying across many countries and asset classes, remaining focused on your own goals and, most of all, listening to your chosen advisor, who understands your situation best.

Jim Parker

Vice President, Dimensional

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Investing: Greece is the wordDominic2023-12-01T12:20:12+00:00

Budget 2015: Students

Budget 2015 – Students

I’m going to attempt to be non-political by explaining how the current student loan system works. This relates to “Type 2” loans, which started in September 2012. Having watched mainstream media coverage of the Budget, I was alarmed at the degree to which little was known about the cost of a prospective Degree… by both media pundits and potential students.

Your Starter for Ten

Being a student involves many things, but financially these are the basics – the cost of the course, the cost of the accommodation and the cost of living. Over the last 30 years the number of students has increased enormously, fuelled by the belief that higher qualifications result in better choices, better income, better national prosperity. As you will know Colleges and Polytechnics became Universities some time ago, for no other reason (I think) than appearing less elitist.

Anyhow, the cost of a University course varies relatively little, most are £9,000. Those not living at home, need accommodation, which realistically costs between £3,500 – £6,000 a year, depending on location and type. Once through the first year most are left to house share within the private sector. Then there is the cost of living… food, drink, books (depending on the course) and the occasional fun night out. I think its possible for most students to live on £80 a week for this.

Loans and Grants

That’s it. Those are the costs. You can pay yourself or you can apply for a tuition loan to cover the cost of the course and a living maintenance “grant” (also a loan) for the living part. Those from families with low incomes can also apply for a further grant, some of which can be a loan, some is a grant, never to be repaid. The Chancellor announced on 8th July that this bit is changing – so that its all wrapped up as a loan. Nothing gratis.

Student Debt

The debt clock starts once the 3 year course ends. Interest is added and so the debt increases, but the amount of interest added depends on income (RPI for those earning less than £21,000 and RPI up to 3% for those earning £21,000-£41,000, above that its RPI+3%).

Repayments are made via salary if you are employed, or via self-assessment returns if self-employed. No payments are made if income drops below £21,000. Leaving the UK means that the loan is repaid directly to the Student Loan Company… failing to notify them will result in penalties. The loan lasts for 30 years and then cancelled, whatever the balance.

So let’s suppose you have three years of tuition loans (£18,000) and 3 years of maintenance loans (say £15,000), a total debt of £33,000. In theory if you never work or earn more than £21,000 you will not repay a penny. Hopefully University was inspiring enough and helped to obtain a career in something that is rather better paid than £21,000 a year over time… so most will pay something.

The Repayments

This is where it seems that most of the misunderstanding occurs. Loans, however large are only payable if income is over £21,000. If income falls below this, payments stop, interest continues to accrue. In essence then the mechanics of this are more like an extra tax than a loan.

Gross Income	Annual Payment	Monthly Payment
£21,000	£0	£0
£22,000	£90	£7
£25,000	£360	£30
£35,000	£1260	£105

Perhaps you could think of a mobile phone contract… £30 a month seems pretty “normal” for a phone. So I fail to see how £30 a month is not affordable for a Degree. Of course many graduates would hope and expect to earn much more than £35,000. As they do so, their repayments rise. In fact repayments are calculated at 9% of pre-tax income over £21,000. So a graduate earning £150,000 would pay £11,610 a year or £967 a month (the monthly payments are always rounded down). Of course by that point one would expect the loan to have been repaid anyway.

The Politics

Frankly I would need to be persuaded (and open to being so) that going to University isn’t affordable under the current terms. However this misses the wider and more substantive political point. Do we want a well-educated society that one day will be “running the country”. Do we view higher education costs as an investment in our own population or not? The argument that better educated people get better paid jobs and therefore pay more income tax applies whichever side of the debate you stand.

It would appear that given the increase in courses and students, most believe that a Degree must provide better choices. In 1920 only 4,357 first Degrees (as in a Degree not a Masters) were awarded, by 1950 the number had increased to 17,337 and by 1970 51,189. 1990 saw 77,163 Degrees awarded and in 2000 this rose to 243,246. In 2011 the number stood at 350,800. This level of growth is pretty dramatic isn’t it. Since 1980 the number of graduates each year has increased five-fold or eighty-fold since 1920. [source: House of Commons Library, SN/SG/4252 27 November 2012]

Naturally a “free” University system is open to abuse, (every system is) the current one is too – its possible that a graduate could avoid repaying the loan by keeping income below £21,000 a year for 30 years… but I imagine that would be rather difficult, when allowing for real life and inflation.

Happy to be challenged, but let’s ensure the facts are right. The notion of starting adult life with a large debt isn’t pleasant, but in practice it isn’t a bad solution to help more people improve their education.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Budget 2015: StudentsDominic2023-12-01T12:20:13+00:00

Investing: Q2 2015

Solomons-financial-advisor-guest-blogger-SW

Q2 – 2015

The second quarter (Q2) saw the domestic equity market fall 2.8% while the market for government bonds fell 2.6% in value. A portfolio composed of 60% equities and 40% bonds finished the quarter 2.6% lower.

Index	1 year	3 years	10 years	Low Point	Greatest Loss
FTSE100	0.2%	9.2%	6.3%	Feb 2009	-39.8%
FTSE Gilts (5-15years)	7.4%	2.1%	5.6%	Dec 2013	-6.7%
60-40 Portfolio	3.2%	6.5%	6.3%	Feb 2009	-20.4%
LIBOR (3 months)	0.6%	0.6%	2.3%
Consumer Price Index	0.3%	1.5%	2.5%

Taking a longer term view, and given a minimum of 7 years for investment, we look for returns from the FTSE 100 Index to lie somewhere between 6.9% and 10.1% per annum. The most recent decade (from 30 June 2005 to 30 June 2015) is characterised by a return of 6.3%, outside of the lower end of our range. That makes good sense when one considers that the starting and ending points in that period coincide with a maturing bull market in 2005 and some volatility today.

Our hypothetical 60-40 portfolio, comprising 60% in the FTSE 100 Index and 40% in the FTSE Gilts (5-15 years) Index, has gained 3.2% over the last 12 months, 6.5% p.a. in the last 3 years and 6.3% p.a. over the 10 year period. Adjusting those figures for inflation gives us a healthy set of real returns of 2.9%., 4.9% p.a., and 3.7% p.a. respectively.

Those positive inflation-adjusted returns are particularly pleasing when we consider that cash investments have, somewhat unusually, lost ground relative to inflation – a result of 6 years of unprecedented monetary easing.

The last year is characterised by a mixed set of results with the US and Japan performing strongly. Meanwhile relatively low returns have been provided by markets in Asia, Europe and developing world.

Steve Williams

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Investing: Q2 2015Dominic2023-12-01T12:20:14+00:00

Financial Scams – Be Warned

Believe it or not July 2015 is financial scam month…. given all that is going on in relation to Greece, the ECB, IMF and European Union….not to mention FIFA, perhaps the timing is perfect. Anyway, there is a whole month being dedicated to warning you about financial scams. Sadly there are a lot.

Let me be very plain. A scam works because you are caught off-guard. It is not only the “foolish” that get scammed. Anyone is a potential target. As with most deceptive crime, emphasis is placed on appearing to help you, to warn you of impending problems and to then offer what seems like a logical or sensible solution – such as withdrawing all your money from your “compromised account”. One of the most despicable crimes is to then involve you in the entrapment of the fraudster…. when actually you are simply at a deeper level of the scam.

Your telephone number is a bit like a front door key. You answer the phone, the line is open. Invariably the fraudster passes themselves off as a Bank representative or a large well-known shop and they report that your card appears to have been compromised. If they are pretending to be your Bank, it is unlikely that they reveal which “Bank” they are calling from, simply allowing your mind to fill in the gaps. If they pretend to call from a shop, well frankly you aren’t likely to be that suspicious as you are being helped and advised that fraud was committed on your card in their shop.

Open Line

Your guard is down, because you think you are being helped, it doesn’t occur to you to ask the caller to confirm YOUR name or your bank account number. The caller with mind distracted asks you to check your card… the details, is there a number on the back to call the bank? yes… ok, call them. Goodbye. But actually the fraudster is still on the open line – even if you have hung up, the line is open (a problem that telecom companies have failed to address properly). You call back, but are essentially on the same call… answered by a colleague of the fraudster or even the same one, who then simply harvests your personal information to use… name, address, account information etc.

Another scam involves a fraudster posing a police officer, who suggests that they want to entrap the criminal. S/he suggests you withdraw as much as you can from your account and send it to them for assessment or tagging, perhaps sending a “secure” delivery car to your home to collect it from you. This is a scam, you won’t see the money ever again.

I know that these things seem “obvious” but in the heat of the moment, being caught off-guard and thinking you are being helped and could also help catch the fraudster, you are simply the next victim. Here is a link to a video from the BBC about this.

What you can do

Firstly if someone calls you offering to solve a problem with your banking or IT , challenge them with the sort of questions that your Bank asks you when you phone them…. but go full hog. Do not give them your details but ask them to tell you your details (which they are highly unlikely to have). Go further by asking them to confirm the last 5 payments that you made, the amounts, dates and sources. The fraudster will quickly give up and hang up.

I have had a fraud call centre call me warning that my computers at home had a virus. I knew this was bogus, but quickly appreciated how easy it is to be duped. Normally in those circumstances they ask you to download something to your computer… which is essentially a trojan horse, tracking your banking, which of course can lie dormant for some time, so you forget all about the call and think you were helped by someone pretending to be from BT or whoever.

The 2008 film The Brothers Bloom is well worth watching to remind yourself at how skillful confidence tricksters can be and how little regard they have for the “relationships” that they create.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Financial Scams – Be WarnedDominic2023-12-01T12:20:14+00:00

Investing: Ecclesiastical name change

Ecclesiastical name change

Today is a new day for Ecclesiastical, who have changed their name to EdenTree. Those of you that have a requirement for ethical investment will appreciate that we have used some of the Ecclesiastical funds. This remains their speciality as they manage about £2.4bn. They say of themselves:

“EdenTree is an investment management firm with a strong heritage of delivering profit with principles. We provide an award-winning fund range managed responsibly by some of the UK’s most highly rated Fund Managers. Our investment team has some of the longest continuous track records of any in the City. We believe that consistent, long-term returns are more likely to be achieved by investing responsibly in sustainable businesses. That’s why we adhere to our profit with principles approach. We firmly believe that the companies still returning results tomorrow will be the ones acting responsibly today, both internally and within their communities.”

Sustainable, SRI and ethical investment

Many of our clients have a requirement for ethically screened investments. There are all sorts of issues with ethical investing, but it has been a growing aspect of mainstream investment for many years. A key difficulty is the depth of any screening or any inclusion in the list of companies that can be held within a fund. This requires some careful thought and discussion about what is really important to you.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Investing: Ecclesiastical name changeDominic2023-12-01T12:20:15+00:00

Budget 8 July 2015

Following my recent email and Mr. Osborne’s announcements, I am pleased to confirm the following changes and amendments have been made to our App (which is available free of charge for iphone, ipad and Android platforms).

As the 2016/17 rates are being added after the Autumn Statement, there is only one small change to the 2015/16 rates and the change has already been made earlier this afternoon and is live in your App. The change was within the Main Capital and Other Allowances section of the tax tables and related to the change to the Annual Investment Allowance from 1st January 2016 from the previously announced limit of £25,000 to a new limit of £200,000.

On a separate note, the chancellor has, from April 2016, abolished dividend tax credits. This will fundamentally change 3 of the tax calculators so they will need to be changed when we complete our updates prior to the April 2016 budget. However for the remainder of this tax year, all calculators and tax tables remain fully accurate.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Budget 8 July 2015Dominic2023-12-01T12:20:16+00:00

Estates: Inheritance Tax

So it’s 8th July already and into the second half of the Wimbledon Championships. Looking at your own life, which half do you imagine you are in? (ouch… didn’t see that coming!). Like most people inheritance tax (often referred to as IHT) probably isn’t something that is top of your current concerns (you don’t pay it) however it is a tax that generates more ire than most. In essence, inheritance tax is paid by the Executors of an estate following someone’s death. The amount of tax due will depend on the value of the estate and how it was arranged.

Today the Chancellor will give yet another Budget, but this one, the first as a Conservative Government. Like many I shall be waiting to hear what he says and see how he plans to deliver it. One of the pre-election manifesto promises was to increase the threshold for inheritance tax, perhaps to £1,000,000 for a couples main residence.

He may be less willing to follow through with this now as it was announced that in April HMRC collected £397m as inheritance tax payments, the largest in a single month and way above the longer term average of £260m a month. In fact March, April and May 2015 saw over £1bn of inheritance tax paid to HMRC. If interested, you can see the various taxes collected by HMRC from the data they published at the start of the month, just click here.

The Budget 8 July 2015

We shall simply have to wait for the Chancellor to tell us how and if he intends to adjust the nil rate band (the amount an estate can be worth before any inheritance tax is payable). The nil rate band has been frozen at £325,000 since 2009 and had historically increased with inflation each year, but of course that was before the credit crunch. As ever our APP will be updated with all the changes as quickly as possible (usually before the end of the day). Don’t forget it’s free and easy to use.

Pensions and ISAs are now IHT friendly

The main gripe is that property has continued to soar in value and is invariably the main asset that is left once someone dies. The pension freedom rules have enabled pension funds to be exempt from inheritance tax (though some taxes may apply) and ISAs are able to be passed on to a surviving spouse (previously they would have lost the tax-free status of an ISA).

As a result more people, or rather estates have been brought into the inheritance tax threshold, probably not the original intention of the tax. However the Chancellor will be seeking some wriggle room to keep things as they are given that it raises such significant sums for the Treasury.

A 40% tax rate

As of this morning, inheritance tax is charged at 40% on the excess value of estates worth £325,000. Each individual has a nil rate band and so a couple effectively has a nil rate band of £650,000. In addition, for those that have been previously married to someone now deceased, it is possible to use part of their allowance too.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Estates: Inheritance TaxDominic2023-12-01T12:40:17+00:00

Investing: ETF Statistics from LSE

ETF statistics from the LSE

Further to my recent post “What are ETFs” it is perhaps worth outlining the size and growing popularity of ETFs. The LSE (London Stock Exchange) publishes monthly data about various investments that it provides a trading function for.

The latest data (in the July 2015 LSE report) to the end of May 2015 shows that the UK is now the largest market for ETFs in Europe, with 32.7% market share. This beats the Germany (25.5%), France (13.4%), Italy (11.4%), Switzerland (8.5%) and Holland at 4.9% with the other European markets making up the rest. £22billion of trades were placed in June, representing around 302,000 individual trades (buy/sell). These sums are not insignificant and increasing each year, increasing 61% over the last 12 months.

We can explain the pro’s and con’s of ETFs for your portfolio and arrange your investments to suit your requirements and ability to cope with investment risk

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Investing: ETF Statistics from LSEDominic2023-12-01T12:40:17+00:00

Pensions: Annuities starting to improve?

Annuities starting to improve?

We appear to have witnessed a small upturn in annuity rates. In June the best open market annuity for a male aged 65, with £100,000 seeking a single life, level income with a 5 year guarantee rose to 5.35% or £5,350 in April and May the rate was 5.09%…. technically a modest increase of £260 a year in this example, but equivalent to an increase of 5.1% (Ok it is starting from a very low point).

Why?

Well, gilt yields have increased modestly too, these essentially drive annuity rates, along with mortality rates (as well as other health and geographic factors). The 15 year gilt yield bottomed at 1.76% in February this year, but has slowing started to increase. All this suggests a possible interest rate rise is probably coming.

Back in the day…

I wonder what your feelings are to this news. In October 1990 the same £100,000 for a 65-year-old male, also buying a single-life level annuity with a 5 year guarantee would have received an annuity rate of 15.64% or £15,640 a year (nearly three times as much). At the time the 15 year gilt yield was 11.74%. Gilt yields have historically always been less than annuity rates, tracking a very similar path but 2-3% less.

Of course to buy an annuity in October 1990 you would be born in 1925, the year Clara Bow starred in “The Plastic Age” and you would now be 89. Most men born in 1925 do not live to 89, (and some may have fought in WW2… just, being 20 when it ended) but for those that have survived until 2015 the average man would live another 4.32 years according to the ONS. Some will obviously live longer, some less (hence it being an average figure). If you are lucky enough to have a 15.64% annuity rate that started in October 1990 you would have already had £400,384 by the end of June 2015 from your £100,000. Living until the average 93.3 would provide a total income of £458,252… which really isn’t too bad is it.

What about inflation?

Since 1990 until the end of last year (2014) the average rate of RPI was 3.1%. As a result anyone with a level annuity has seen the effective value reduce by 3.1% a year (assuming that you believe the RPI data and buy the same goods and services – which is a significant point). Of course £15,640 today is £15,640, but if we back date this to 1990, its worth the equivalent of £32,746, in other words a little more than twice as much…. or to put it another way £15,640 is worth about half what it was worth in the space of about 25 years.

Planning your retirement income

If only life were as simple as buying the best deals. In practice planning your retirement income is a fairly involved task, there are lots of choices – loads in fact. How much income you need and your thoughts about inflation are part of the discussion. The new pension freedoms make this a more valuable discussion than simply having to buy an income and living with the consequences, the downside is that greater choice, brings greater complexity and possibility.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pensions: Annuities starting to improve?Dominic2023-12-01T12:40:16+00:00