Wealth Management Update – August 2016

12 Aug 2016 | Wealth Management Update |

Debt versus savings

The right time to borrow is definitely when interest rates are at their lowest, so if you have a credit card don’t rush to pay off your balance just yet, especially if you have money in the bank that means you are able to. If you are in this situation it means you are at the very low-risk end of the borrowing spectrum, and using that borrowed money in this economic climate may well be more beneficial than using the money in your bank. But make sure that if interest rates do shoot through the roof or your circumstances change that you have a plan to clear your debts and remain in the ‘black’.

Long-term debt is said to be at one of the highest points in history across the UK, with the credit card companies doing little to address the issue. And why would they? As long as their customers keep up minimum payments then they carry on making money.

With borrowing so cheap and a huge variety of companies, cards and offers to choose from, it is no surprise that people are tempted into the ‘buy now, pay later’ mentality of the credit card. This means that whilst credit cards have always been, and should always be, used for short-term debt, debts are being held for increasingly longer periods of time, with higher balances and less concern. On top of this, there is no incentive to save into cash accounts because of rock-bottom interest rates giving next to no return on your money.

Even with interest rates so low, saving should not be replaced with cheap borrowing. If you are keen to skip cash savings and avoid the cheap-debt trap, then investing offers an alternative savings route, of which you are all quite aware.

Is the pensions monster working?

The auto-enrolment process introduced by the government for pensions has a 95% compliance rate from small businesses. The auto-enrolment scheme was meant to encourage people to save for their retirement rather than rely on state benefits, which are less than adequate for the average Brit.

As 66% of employees are reported to have signed up to the scheme, from the outside looking in it appears that this venture has been a success, despite it being quite a stretch for smaller businesses to incorporate into their policies. But is this enough? Are people educated on how much is needed to lead an enjoyable and active retirement? It is feared that some people may consider the ‘pensions box’ ticked and continue to pay the minimum possible into such schemes, only to discover that at retirement their small pots support a much lower standard of living than they have become accustomed to.

Saving for retirement is becoming more and more of a focus for young and old alike as it becomes increasingly obvious that the state simply cannot provide for our population in retirement. Therefore, it has never been more important to save into a pension, especially given the tax benefits this offers and new flexible rules that mean you have even more freedom. Whilst I am sure that few of you intend to rely on the state pension, maybe just check once again to be certain that in retirement you can continue with the jet-setting, comfortable and luxurious lifestyle you may have become accustomed to.


Pensions and property

Following on from the previous article, one thing not to rely on to supplement your pension savings is money tied up in property.

Whilst property is a good long-term investment in most cases, you still need to be aware of the risks of holding such a direct investment. Unlike other investments, your money really is tied up and is not easily accessible – not ideal in emergency situations. In addition to this and in light of Brexit, nobody knows how the housing market will react when we really get into the process of leaving the EU. Having precious retirement money trapped in property may prove fatal if the housing markets are negatively affected to a large extent.

Whilst you could downsize to free up some money, taking into account fees etc. it is difficult to generate enough equity to make this worthwhile for some. Also, moving to a smaller home may not be what you want in retirement, especially as you will probably be spending more time at home. So the message here is to really focus on your pension, and the benefits and increased freedom and flexibility you have if you avoid using property as a pension alternative.


BHS – The row

I can’t believe we haven’t yet had an article on this debacle!

You cannot have missed the uproar in the media about Sir Philip Green and the ex-owners of BHS. Green sold BHS a year ago for a pitiful £1. Since then, the company has entered administration and the full extent of the company’s £571 million pension deficit has been revealed. The problems apparently started around 2008 at the height of the crash, when the company chose to stay invested in equities rather than switch to a more robust investment, and have spiralled out of control since.

Over the sixteen years that Green owned the company, his family, shareholders and Green himself reportedly withdrew £580 million from BHS in some shape or form. The Regulator is calling for some of this to be repaid by Green to help the 11,000 people made jobless and the 20,000 members of the BHS pension scheme whose savings will be affected.

Green has apparently offered an insubstantial £40 million towards the ailing pension scheme, which, as well as being an embarrassingly small gesture, will not make a dent in the current fund deficit. It certainly does not help that Green is conducting these negotiations from one of his three luxury yachts currently moored in sunny Greece.

BHS has been given six months to reach a suitable agreement on the funding of the pension scheme, but questions really need to be asked as to how BHS and its pension fund were allowed to get into such a dire situation? And while we all look to Sir Philip for answers, is he the only one at fault here?


Book of the month

This month’s book is a must for those interested in leadership, particularly those who enjoy true stories that demonstrate the point. In Extreme Ownership, Jocko Willink and Leif Babin share their experiences as Navy SEALs on tour in Iraq. They use this experience to demonstrate leadership in harsh and harrowing conditions. Those of us who run businesses, the local football team or the parish council will suddenly realise that leadership in our world is easy compared with what they had to endure.


Best Savings Selections


Top Three No Notice Accounts without Bonus

Name Contact £1 Gross % £500 Gross % £1k Gross %
RCI Bank UK www.rcibank.co
1.45 (min £100) 1.45 1.45
Virgin Money Via branch 1.26 1.26 1.26
 Coventry BS 0800 121 8899 1.15 1.15 1.15


Top Three Monthly Interest Accounts

Name Contact £1k Gross % £5k Gross % £25K Gross %
Charter Savings Bank www.chartersavingsbank.co.uk 1.44 1.44 1.44
RCI Bank UK  www.rcibank.co.uk


1.44 1.44 1.44
Charter Savings Bank www.chartersavingsbank.co.uk 1.60 1.60 1.60


Top Three Cash ISA’s

Name Contact £1 Gross % £10 Gross % £100 Gross %
Paragon Bank www.paragonbank.co.uk n/a n/a 1.50 (min £500) Fixed Rate
Bank & Clients 01935 609600 n/a n/a) 1.50 (min £1,000)
Al Rayan Bank 0845 6060 786 n/a n/a 1.55 (min £250)


Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.

Source: Moneyfacts Magazine August 2016 Edition

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