Wealth Management Update – July 2017

Make the most of your workplace pension

There have been several reports recently that employees may be missing out on extra pension funding from their employer because they are only saving into their workplace pensions at the minimum level.

In many cases, employers will match your workplace pension contributions, so by saving a little more now, you may actually get a lot more than you expected in the long run. On average, people could receive an extra £650 per year into their pension – not to be sniffed at when it is your employer’s money rather than your own.

At a time when retirement savings are at an all-time low, the benefit of having a top up to your pension that doesn’t come out of your own pocket is great. This employer contribution is on top of your own tax relief, whether you get this at source or through your wages, and so would not affect the top ups you already get from HMRC.

The main point is that if you don’t know whether this is possible with your policy make sure you find out, because you could be missing out without even realising.

Notes on Brexit

The Brexit negotiations began in earnest on 19^th June, with David Davis still at the helm. Both sides are keen to get off to a constructive start, tackling the issues of ex-pat citizens, borders and current beneficiaries of EU policies, before moving on to future relations; this follows the structure outlined in the EU negotiating principles laid out a few weeks ago.

Whilst polls and the media are keen to voice that a softer Brexit is now called for, those at the negotiation table will be keeping as many options open as they can to try to achieve the best deal possible for all; any deal will need to be ratified by at least 20 countries, with a combination of at least 65% of the population within them represented. This means that either France, Italy or Germany have to agree to the deal, as the other 24 countries combined do not represent a large enough proportion of EU citizens to allow any agreement to be forwarded to the European parliament to be ratified.

To give you an idea of our position with these principal EU members: Germany and France currently export 7.5% of their total exports to the UK, and Italy 5.5%; France and Germany import approximately 4% of their total imports from the UK, and Italy imports 2.9%. Of the UK’s total exports, 9.3% goes to Germany, 5.3% to France and 2.8% to Italy. Imports from those countries are 15%, 6.2% and 4.1%, respectively, of our total imports. These numbers put us roughly on an even keel; however, on aggregate, the UK exports $230Bn of $425Bn (54%) to the combined EU and imports $377Bn of our total $606Bn (62%) from the EU, which really puts into perspective the breadth of the impact these negotiations will have on our economy (data source: http://atlas.media.mit.edu, based on 2015 figures).

At this point it is too early to do anything other than speculate, so we’ll stop here and be back when there has been any definitive progress.

What does the election result mean for you?

So the Conservatives have joined forces with the Northern Ireland party, the DUP. The agreement means that Northern Ireland will receive £1 billion in additional funding over the next 2 years in exchange for their support. While this may cause indignation among voters, it is sure to bring more stability to the country now that we have an established government.

It is likely that the performance of sterling will continue to suffer, so if you are planning your summer holiday now you are likely to pay more than if you had booked it before the election. The initial drop in sterling was 1.4% against the euro and 2.4% against the dollar immediately after the results, but it is likely to fluctuate for the time being. Hopefully, with this recent announcement its direction will be up rather than down.

The election did not cause as much upset as predicted, with Brexit still the focus for many people. However, reports suggest that with the new political arrangement in place we may now start to lean towards a ‘softer’ Brexit – something that Theresa May was very much against in the beginning.

It is definitely not the election outcome that we expected (and we are sure Theresa May didn’t expect it either!) but we were well prepared going into the election, with a clear strategy in place. We continue to feel confident in our position and will be interested to see what this new political union will bring for Brexit and the remainder of the government’s term in office.

Barclays charged with fraud

Every month a different organisation is in the news, whether for tax evasion, poor security, or now fraud; a scandal is never far away.

This particular case against Barclays goes back to 2008 (a time I’m sure we all remember), and the worldwide financial crisis. It relates to the behaviour of the bank itself, as well as to four former executives working at the company at the time.

The accusation is that there was what is referred to as a “money-go-round”. Barclays lent money to Qatari investors, who then immediately ploughed it back into the bank as support during the financial crisis. This allowed Barclays to avoid a government bailout, whereas others such as Lloyds and RBS were not so lucky.

Barclays failed to disclose the funding arrangements, which involved £12 billion, and have now been charged with conspiracy to commit fraud. This is the first time that criminal charges related to the financial crisis have been brought against a bank in the UK.

All of those implicated protest their innocence, but the investigation continues.

Are you prepared for retirement?

Apparently, only 35% of those approaching retirement actually feel prepared for the transition. Only 49% of those over 50 years of age have ever requested a state pension forecast and only 42% have a Will!

This means that preparations for retirement and an understanding of pensions are low in those who most need the information. Taking into account changes to the state pension and the new flexible pension rules that have been announced over the past two years, understanding your potential financial shortfall is imperative to ensure you enjoy a comfortable and stable retirement.

We know this is not the most interesting of subjects, nor the most exciting thing to sit down and do on your weekend off, but it is vital nonetheless. It can certainly be daunting to consider your financial future in retirement, and this may be why people are loathe to address the issue – but that is why we are here.

Those of you who have dealt with us in the past, or are working with us regularly as a client now, will hopefully feel comfortable with your retirement plans. We would like to think this is something we have helped positively towards – tailoring your future to your needs and wants so that you are not only comfortable but can also enjoy the later years of your life in a way you may not have been able to do without our help.

Our goal is to make the daunting seem easy, whether that is helping you to write a Will or managing your life savings. We want to help you be prepared in any way we can.

Are cash ISAs worth it?

In last month’s article on inflation, we reported how it is steadily rising to the heady heights of 2.7% and beyond.

Under normal circumstances, interest rates are raised to keep inflation under control. However, because of the uncertainty of Brexit, Mark Carney and the Monetary Policy Committee have decided to keep interest rates at their current low level.

This is good news for those of us who want to borrow, but it is not good news at all for savers! It means that it may be time to start questioning the wisdom of keeping savings as cash in notice accounts or cash ISAs that are probably not getting interest rates much above 1%.

When comparing inflation with interest rates there is obviously a shortfall in any post-inflation growth you may receive. This means that the £10,000 you have in a cash ISA now will be worth much less in 2, 3 or 5 years’ time, as it is being eroded by inflation.

The only way to avoid this erosion is to expose your investments to the equity markets. This should be done in a way that is specific to your circumstances, so that the risk you take is proportionate to your situation.

If you are concerned about inflation erosion or savings that you hold in cash, then please contact our office.

Book of the month

This month’s book is by the economics editor of the Sunday Times. In Something Will Turn Up, David Smith examines the UK’s economy by looking at its past, present and future.

The book considers the economy in the context of global changes that we have seen and gives a real sense of what might happen going forward. No one knows the future, but we can start to understand the consequences of certain actions by looking at the past.