Wealth Management Update – February 2017

06 Feb 2017 | Wealth Management Update |

Inflation at 1.6% – The highest since 2014

Inflation has been slowly creeping up towards the Bank of England’s 2% target. Up from 1.2% in November, it reached 1.6% at the end of December – the highest it has been since the summer of 2014.

The increase is attributed to rising air fares and food prices, as well as higher costs of imported materials and fuels. Whilst still below the 2% target and still historically low, its rise certainly seems to be gaining momentum. With the increasing costs of production caused by the weakening pound starting to be passed on to consumers, we are likely to see further rises in inflation in the future, affecting our day-to-day spending, mortgages and savings.

If inflation continues to rise, the Bank of England are likely to look again at their policy of low interest rates. As yet, nothing has been announced so there is no cause for panic. We will keep an eye on progress but, at the moment, we are still in a period of exceptionally low inflation.

 

SJP playing hide and go seek – What does investment actually cost you?

The well-known investment provider St James’s Place (SJP) has been through the wringer in the press over the past few weeks about their transparency regarding fees.

The issue is not so much to do with the amount of fees they were charging but more to do with the fact that information on their fee structure was difficult to obtain and details of the penalties and fees applied were not clearly disclosed.

It was reported that a customer was forced to involve The Sunday Times’s “Money” publication in order to finally establish SJP’s exact fees over the six years he was a client. Whilst we understand that it is difficult to calculate fees precisely when dealing with the fluctuations of investments, it should be possible to provide close approximations that would satisfy customers. In fact, if they had simply disclosed all fees at the outset, then this situation could have been avoided!

This is not the first time that SJP has come under scrutiny for lack of clarity when disclosing their fees. At the end of 2015, acting on concerns raised by customers, the Financial Conduct Authority launched an investigation into the transparency of the company’s charging policies. They discovered that SJP were the only one out of the UK’s ten largest fund providers NOT to provide their charging structure online and up front. This does pose the question: what do they have to hide?

Another, and possibly the most shocking, revelation is that SJP impose a six-year penalty on all contributions! Six years! That is a long time to have your money locked away with no guarantee of returns! This penalty applies when you try to withdraw or transfer your investments and you have not paid an up-front fee.  One customer, not aware of this penalty and unhappy with his investment performance, tried to transfer to another provider. He was told that to do so would incur fees of £20,000. The customer had to decide if it was worth £20,000 in fees just to go elsewhere for better performance. Many people would consider this to be not worth it, remaining trapped for the six year period with a company they do not respect and in an investment environment they are unhappy with. Not ideal, I am sure you would agree.

SJP advisers are “restricted” in their advice – in other words, they can only recommend SJP funds as this is where they make the most money. They are paid a commission for every penny invested with them. So, whilst they may follow the rules and send you the small print about fees and charges, perhaps they are unlikely to be as candid about the penalties and charges if they feel this might discourage you from investing.

Our view on this, and one we put into practice, is that it is better for our clients (and for us) to disclose all fees up front. In this way there is no uncertainty further down the line and our clients feel they are being treated fairly. Our advice is independent and considers the entire marketplace, so we invest in the best funds for our clients and not in the ones that will pay us the most. If you have friends or family members in need of financial advice, please pass the message along and save them a lot of aggravation – and possibly a lot of money – in the future.

 

The beginning of the end for pension exit fees? – Act from April

You may have seen our previous articles on how pension exit fees are due to be capped at 1% of the pension value as of April this year. Well, Scottish Widows have gone one step further, and taken this opportunity to scrap pension exit fees altogether for their personal pension policies!

They are certainly leading the market with this decision, and they intend to introduce this measure before the end of March when the new rules take effect. David Lascelles, retirement expert at Scottish Widows, said:

It’s only fair that people who have saved responsibly and diligently are allowed to access or move their funds without being charged to do so; that’s why we’ve gone one step further than the requirements and removed them altogether. This means our customers can make full use of pension freedoms, if they wish to do so, and not feel restricted in any way.

Hopefully this will inspire other pension providers to follow suit and pension exit fees will be abolished entirely. Who knows? But if you have a Scottish Widows pension policy that you were holding off accessing or transferring, perhaps now that the deterrent has been removed it is time to revisit this and see if your pension would be better off somewhere else.

We dont charge penalties or exit penalties, so it is good to see the rest of the world catching up with us.

 

Trump has landed – What does it mean for your money?

Well he is in. As of 20th January Donald Trump is the President of the United States! Words you never thought you would hear, or we thought we would say. He has been labelled one of the most controversial Presidents and he certainly seems to be living up to that title.

In his first week as President he cut funding for international groups that provide abortions, froze the hiring of some federal workers and signed an executive order to withdraw from the Trans-Pacific Partnership. The Trans-Pacific Partnership was put in place by Obama as part of his Asia policy to strengthen economic ties, but Trump believes it will have negative effects on US manufacturing.

The use of the Executive Order by a President is rare. It means the President can make decisions on policy without the need for Congress to sign them off. Trump has used this at least three times in his first week! Let’s hope he does not make a habit of using this ‘Trump card’ to enforce some of his more radical decisions.

His extreme style, coupled with the fact that nobody really ever knows what he will say or do, and that he is only just stamping his authority over US policy, means that market volatility is likely to stay high for the time being. However, general opinion is that the US economy is strong and that Trump may not be the downfall of the investment markets. There will certainly be scope for gains, as well as times to protect against losses. It is important to take a long-term view on this, as nobody really knows what will happen … and if they say they do, they are lying.

 

Ban the pension scams

Since the freedoms on pensions were introduced in 2015, there has been a tenfold increase in pension scammers trying to use the opportunities of pension flexibilities to their advantage.

One of the most obvious, but effective, ways in which they work is cold calling. This has become such a problem that the Department for Work and Pensions is holding a consultation on this threat until the middle of February. Their proposals include the following:

  • to ban cold calling
  • to restrict how and to whom people transfer their pensions, to ensure that the schemes are legitimate
  • to make it harder for fraudsters to set up pension schemes that are likely to be used for scamming.

A ban on cold calling regarding pensions would definitely be beneficial; in fact, a ban on cold calling in general would be excellent! But if you know that you will never be called about your pension you can be sure that if you do receive a call, it is not genuine – unless you left your details on a site asking for help or more information of course.

Please be extra vigilant if people contact you about your pension. In particular, look out for those who claim they have been “instructed by the government” to offer free pension reviews, or those who offer a loophole that means you can access your pension before the age of 55 … because this simply is not true.

As always, if you are unsure about any calls or communications you have received then please contact us before taking any action.

 

Make the most of your annual exemptions

We are getting closer to the end of the tax year and so it is time to think about your annual exemptions and how you can get the most out of them.

The annual exemption of £3,000 can be gifted, free of Inheritance Tax, to an individual of your choice each tax year. This allowance is per person, so couples could give away £6,000 to the same individual if they so wish. This allowance can be carried forward one year, so if you forgot to give this last year you will now have £6,000 each that you can give this year. It is only possible to carry forward one year though, so either use it or lose it.

You can make small gifts of £250 per person, free of Inheritance Tax, to as many people as you want to, or can afford to! This cannot be part of a larger gift, otherwise it becomes taxable.

You can give gifts that are “out of your normal expenditure” free of Inheritance Tax. This can be interpreted differently, so be careful. This gifting strategy has no monetary limit but gifts must be made in a pattern, must form part of your normal expenditure, be from income (not capital) and leave you with sufficient income to maintain your normal standard of living.

Don’t forget about your Capital Gains Tax allowance – you can make and withdraw £11,100 of gains on your investments before you are taxed. If you need to access investments but want to avoid the tax, make sure you are using up this allowance each tax year. If possible, hold your assets jointly so that you get two allowances when you access the funds.

And finally, always try to use your ISA allowances. This year you can invest £15,240 in ISAs, increasing to £20,000 in the next tax year. This is a “use it or lose it” allowance, so be sure not to waste it. Cash withdrawals from an ISA are completely free of Capital Gains Tax or Income Tax.

There are many more ways to mitigate tax, either through gifting or allowances, so if you want any further information on this, or anything else, please call our offices and someone will be able to help.

 

Book of the month

This month’s book is not just a good book, but is written by us – The Wealth Secret. We felt it was about time we mentioned our book again – so if you havent already, contact the office, or go to Amazon, and get yourself a copy. All profits from the book go to charity. Please help us to help more people make sense of Financial Planning and help bring back the saving habit that seems to have been lost.

 

Best Savings Selections

 

Top Three No Notice Accounts without Bonus

Name Contact £1 Gross % £500 Gross % £1k Gross %
RCI Bank UK www.rcibank.co
.uk
1.10 (min £100) 1.10 1.10
Virgin Money Via branch 1.01 1.01 1.01
 ICICI Bank UK Via branch 1.00 1.00 1.00

 

Top Three Monthly Interest Accounts

Name Contact £1k Gross % £5k Gross % £25K Gross %
Charter Savings Bank www.chartersavingsbank.co.uk 1.04 1.01 1.04
RCI Bank UK  www.rcibank.co.uk

 

1.09 1.09 1.09
 Virgin Money  www.virginmoney.com

 

1.01 1.01 1.01

 

Top Three Cash ISA’s

Name Contact £1 Gross % £10 Gross % £100 Gross %
Aldermore 0345 604 2678 n/a n/a 1.20 (min £1,000)
National Sav & Inv www.nsandi.com 1.00 1.00 1.00
Virgin Money www.virginmoney.com 1.01 1.01 1.01

 

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 February 2017 Edition

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