Guide – Your retirement choices: how to generate an income in later life

Guide – Your retirement choices: how to generate an income in later life

Since Pension Freedoms were introduced in 2015, retirees have had more choice when they access their pension. However, it also means you have more responsibility for generating an income later in life and it’s important to understand what your options are.

Our latest guide explains the basics you need to know, including:

  • Why it’s important to have a retirement plan in place
  • Your different options, such as buying an annuity or taking a flexible income
  • The pros and cons of the different options available to you.

Download “Your retirement choices: how to generate an income later in life” and start planning for your retirement.

It’s never too soon to start thinking about retirement. The decisions you make when accessing your pension for the first time can have an impact on the rest of your life. Setting out a plan now can make sure you stay on track, whether the milestone is just around the corner or decades away.

Investment market update: March 2021

Investment market update: March 2021

During March there were reasons to be optimistic. In fact, the Organisation for Economic Co-operation and Development (OECD) raised global growth forecasts following Covid-19 vaccination and stimulus package news around the world. It’s now expected the global economy will expand 5.6% this year.

Despite the pandemic dominating headlines, a survey from the Bank of America suggests Covid-19 is no longer the biggest risk worrying investors. Instead, their focus is on inflation. With low-interest rates set to continue, in order to support countries’ economies, interest rates could play a significant role in wealth management over the coming years.

UK

The big news in the UK this month was the Budget. Chancellor Rishi Sunak unveiled a range of measures to support economic recovery following Covid-19 and to pay back the money borrowed over the last year.

For individuals, the Budget means freezes on many taxes and allowances, such as the Capital Gains Tax annual exemption and pension Lifetime Allowance. While the freezes mean taxes won’t rise immediately, they will have an impact in real terms over the next five years. From a business perspective, Corporation Tax will rise from the current 19% to 25% in 2023 for the largest companies.

The Budget also included support for aspiring homeowners, with the government revealing plans to back 95% mortgages. This led to a boost for homebuilders, with Persimmon and Taylor Wimpey seeing stock prices rise by 6% and 5.7%, respectively, when the news was leaked to the press.

While introducing the Budget, the chancellor was optimistic about growth forecasts and returning to “normal” over the coming months. This sentiment was echoed by Bank of England governor Andrew Bailey, who said there was a “growing sense” of economic optimism.

Consumers are becoming more confident about the future too. According to an Ipsos MORI survey, 43% of Britons think the economy will improve over the next 12 months, an increase of 14% from February.

Data that tracks economic growth suggests there are good reasons for this optimism.

According to IHS Markit, factory output is slowing but the manufacturing Purchasing Managers’ Index (PMI), which tracks new orders, input costs, and employment, has increased. This could signal a growth in demand. The services sector is also nearing growth. In a measure where readings above 50 indicate growth, it scored 49.5 in February. While still in contraction territory, it’s a sharp rise from the 39.5 recorded just a month earlier.

As retail and hospitality businesses prepare to reopen, news from the high street highlights the challenging circumstances firms are operating in:

  • High street favourite John Lewis revealed losses of £517 million in 2020, its first-ever full-year loss. Alongside the announcement, the department store said it would be permanently closing an additional eight stores, placing 1,500 jobs at risk.
  • Chocolatier Thorntons announced plans to permanently close all of its stores nationwide. The firm will continue to operate an online store.
  • Bakery Greggs posted its first annual loss since floating on the London stock market in 1984. Like-for-like sales were down 36% in 2020, resulting in a pre-tax loss of £13.7 million. This compares to a pre-tax profit of £108 million in 2019.

As well as Covid-19, Brexit continues to present challenges for businesses on both sides of the English Channel. Exports to the EU from the UK fell by 40% (worth £5.6 billion) in January. This represents the biggest monthly decline in British trade for more than 20 years. Imports from the EU also fell 28.2%, representing £6.6 billion worth of trade.

Europe

According to the service sector PMI, the eurozone could be on track for a double-dip recession. Activity and new orders fell in February, with a reading of 45.7 indicating a contracting sector. However, factory growth, with a PMI reading of 57.9, could help balance this out.

Lockdowns and social distancing restrictions haven’t harmed all businesses; Danish toymaker Lego, for example, has benefited from more families playing together, with consumer sales increasing by 21% in 2020.

USA

There was good news for some businesses affected by the trade war between the US and Europe, including Scottish whiskey firms. The US and UK agreed to a temporary four-month suspension of the tariffs resulting from an ongoing dispute between the US and Europe over government aid to support Boeing and Airbus. It’s hoped the agreement signals that a quick post-Brexit trade deal can be reached.

Asia

China’s banking regulator issued a stark warning for investors, saying a bubble was building abroad. Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said: “I’m worried the bubble problem in foreign financial markets will one day pop.”

He added that gains in the US and European markets, enabled by loose monetary policy, have “seriously diverged” from reality. He went on to say there was a bubble in China’s property market too, adding it was “very dangerous” for people to buy homes for investment or speculative purposes.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

 

10 books to fall in love with from the British Book Awards 2021 shortlist

10 books to fall in love with from the British Book Awards 2021 shortlist

Britain has a long history of fantastic storytellers, and a new generation of authors have filled this year’s British Book Awards shortlist with excellent reads. If you’re looking for some new books to read as the weather warms up, there are some fantastic options to choose from.

The British Book Awards is an annual celebration of the best books, bookshops, and publishers, with a history going back 30 years. Despite the rise of technology, we’re still a nation of book lovers, preferring a paperback over an e-book, according to a YouGov poll. Two in five (43%) of Brits say they read for pleasure at least once a week, and a fifth (19%) read every day.

If you’re looking for a new read, these authors featured on the British Book Awards’ shortlist could capture your interest.

Fiction
1. The Evening and the Morning by Ken Follett

Fans of Ken Follett will be thrilled to return to Kingsbridge in his latest novel, The Evening and the Morning. This prequel is set at the end of the dark ages as England faces attacks from the Welsh and the Vikings. The book follows a similar format as other books in the series, charting the journey of three young people as they navigate a time of chaos and bloodshed to create an epic tale. It’s been 30 years since the release of the first Kingsbridge novel, The Pillars of the Earth, and now the latest addition takes us back to where it began.

2. The Midnight Library by Matt Haig

The Midnight Library is a unique novel about hope and regret. Between life and death, there is a library that gives you a chance to see how your life would be different if you’d made other decisions. This is where we find Nora Seed, who has been living with regret and now has the chance to see the life she could have had. But it becomes clear that in trying to undo the “wrong” decisions, things don’t always work out the way you want them to. Is any life perfect?

Fiction: Crime & Thriller
3. The Guest List by Lucy Foley

Following up her debut novel, The Hunting Party, Lucy Foley brings us another “whodunnit” thriller. This time the story takes you to a wedding hosted on an island off the Irish coast, and will leave you wondering until the final pages not only “Who’s the murderer?”, but “Who’s been murdered?” As you discover past grudges, jealousies and marital problems, everyone is a suspect with a motive.

4. The Thursday Murder Club by Richard Osman

TV presenter Richard Osman gives a new twist to the detective genre. In a sleepy retirement village, four friends meet up every week to investigate unsolved murders but find themselves entangled in a live case. Filled with witty one-liners and twists, can the unorthodox murder club discover the story behind the murder of a local property developer before it’s too late? Fans of the novel will be pleased to hear the second book in the series is due to be published later this year.

Fiction Debuts
5. The Girl with the Louding Voice by Abi Daré

Adunni is a Nigerian girl sold into slavery at the age of 14. She battles to find her “louding voice” that will give her a life that she’s in control of and enable her to speak out for the girls who came before her. While the book tackles challenging issues and hardship, Adunni finds joy in the unlikeliest situations as she goes from a small village to the wealth of Lagos. The main character uses non-standard English language and imagery, giving the book a vivid, original twist.

6. Shuggie Bain by Douglas Stuart

Douglas Stuart’s journey to reach the shortlist is a story in itself. Twelve British publishers rejected Shuggie Bain before it was picked up and then went on to secure a Booker Prize – just one of five debut novels that have won the award. Shuggie Bain tells the story of a boy’s attempt to save his alcoholic mother from addiction. Set in Glasgow when Margaret Thatcher was prime minister, it’s a compelling story of poverty and love.

Non-fiction: Lifestyle
7. Nadiya Bakes by Nadiya Hussain

If you prefer a book that can boost your skills, why not learn to bake with the 2015 winner of The Great British Bake Off? Unsurprisingly, it’s packed with beautiful recipes, whether you want to make yourself a treat or are planning a family celebration. The easy step-by-step guide makes it the perfect addition to all kitchens, even if you’re a beginner baker. Taste-testing the strawberry and clotted cream shortcakes or the honey cake with a salted hazelnut crumb will delight the whole family.

8. Think Like a Monk by Jay Shetty

Jay Shetty rose to fame by hosting a podcast where he shares the wisdom he learned as a practising monk. Now Think Like a Monk brings you practical steps you can use in your life. It’s part modern self-help book, part entertainment that aims to help readers live a more meaningful life. With a social media following of more than 32 million, his advice and exercises have already had an impact on many, and the book makes the lessons more accessible than ever.

Non-fiction: Narrative
9. A Life on Our Planet by David Attenborough

National treasure David Attenborough secures a shortlist spot with his latest book, which accompanies a Netflix film of the same name. It’s a mix of David’s extraordinary memoir and an urgent climate message calling on readers to preserve our precious ecosystem for future generations. Mixed in throughout the text are pictures of David’s iconic travels across the world, bringing his story to life. A Life on Our Planet is a powerful and truly inspiring read.

10. Tomorrow Will Be a Good Day by Captain Sir Tom Moore

It was just a year ago that Captain Sir Tom Moore rose to international fame at the start of the Covid-19 pandemic. The second world war veteran raised money for the NHS by walking laps around the garden to mark his 100th birthday. As his challenge went viral, Tom’s efforts raised a staggering £32 million. His memoirs, from a childhood in the Yorkshire Dales to travelling to India during the war, have now become a bestseller thanks to Tom’s can-do attitude and uplifting spirit.

7 things to consider when choosing your mortgage

7 things to consider when choosing your mortgage

Whether you’re a first-time buyer or already a homeowner, choosing the right mortgage product for you is important. It could save you money as well as ensuring your mortgage fits your life plans.

However, with hundreds of mortgage products to choose from and an array of lenders, how do you know which is right for you? These seven questions can help narrow down your search.

1. Do you want a repayment or interest-only mortgage?

The first decision you need to make is the type of mortgage you want.

With a repayment mortgage, your monthly outgoings will be higher as you’ll be reducing the value of the loan as well as paying the interest. Assuming you stick to the repayments, you’d own your home outright at the end of the mortgage term.

In contrast, an interest-only mortgage only services the accrued interest. This means repayments will be lower, but you’ll still owe the full amount borrowed at the end of the term.

Repayment mortgages are more popular in the UK – between 2012 and 2019, the number of interest-only mortgages fell by 54%, according to UK Finance. However, there are circumstances where an interest-only mortgage can be useful, if you’d like to discuss if an interest-only mortgage is right for you, get in touch.

2. How long do you want to pay the mortgage over?

Traditionally, homeowners would pay a mortgage over 25 years. However, as property prices have increased, mortgage terms have become longer. The mortgage term will usually need to end before you reach State Pension Age.

The shorter the mortgage term, the less you’ll pay in interest overall, but the higher your monthly outgoings will be.

Even when you’re remortgaging or moving home, you can change the length of term if you wish. In some cases, you may also want to extend your mortgage term. For example, doing this if you’re moving to a more expensive home can make outgoings more affordable.

3. Should you choose a fixed-, tracker- or variable-rate mortgage?

This decision will dictate how the interest you pay is calculated. What’s right for you will depend on your priorities.

A fixed-rate mortgage’s interest rate will remain the same for a defined period, usually two, three or five years. This is useful if you want to know what your outgoings will be over the medium term.

A tracker-rate mortgage follows the Bank of England’s base rate, currently 0.1%. This means your interest payments could rise and fall. Your interest rate will usually be the base rate plus a defined amount, for example, base rate + 2.5%.

A variable-rate mortgage works similarly to a tracker-rate mortgage. However, rather than following the Bank of England’s base rate, it will follow the rate set by your lender. Again, this means the amount of interest you pay can rise and fall.

4. What is the interest rate?

Once you’ve decided between the fixed, tracker and variable options, it’s important to compare similar mortgage deals in terms of the interest rate offered. Interest rates are currently low but there is still competition within the market, so shopping around for the best deal could save you thousands of pounds.

Remember: some mortgage lenders don’t have a high street presence and there are specialist providers that could be right for you. With such a large market, searching different lenders and understanding their criteria can be time-consuming. We’re here to help you find a lender that matches your needs and offers a competitive interest rate.

5. Are there any fees?

Some mortgages will come with an arrangement fee or other charge that should be considered. But you shouldn’t discount them immediately in favour of those without fees. While mortgage fees mean an upfront cost, if the interest rate is lower, they can save you money over the term of the mortgage.

6. Do you want the flexibility to overpay?

Overpaying your mortgage can save money by reducing the amount of interest you pay. Whether you want to make a one-off lump sum or regular overpayments, it’s important to be aware of potential charges.

Usually, you can pay up to 10% of the outstanding balance each year without facing additional fees. However, this isn’t always the case and you should check if overpaying is something you plan to do.

7. Do you have plans to move home?

If you plan to move in the next few years, you should keep this in mind when searching for a deal. You could opt for a shorter deal that coincides with moving plans or you can select a mortgage that will allow you to port it to a different home. Be aware that porting a mortgage could come with some restrictions.

Finding the right mortgage provider for you

We know that searching for a mortgage can take time and you may have questions about which option is right for you. We’re here to lend a hand throughout the process, whether you’re a first-time buyer or nearing the end of your mortgage, and to help you save money.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

 

The cost of Covid-19: How does pandemic borrowing add up?

The cost of Covid-19: How does pandemic borrowing add up?

In 2020, the government spent an unprecedented amount supporting the economy through the Covid-19 pandemic. The economic consequences are expected to be felt for years to come and will no doubt influence policy that will affect personal finances.

For the 2020/21 tax year, public sector net borrowing – the difference between public spending and total receipts from tax and other sources – was £394 billion. That’s a huge £339 billion higher than anticipated when Covid-19 restrictions were first put in place in March 2020.

The significant deficit is down to a combination of changes in the economy and paying for government measures, like the Coronavirus Job Retention Scheme.

According to the Institute for Government, £82 billion has been used to support households, £71 billion has gone to supporting businesses, and an additional £127 billion has been used to deliver Covid-19 public services.

However, on top of these expenses, restrictions also affected the economy, leading to tax revenues falling by £106 billion. This includes taxes falling in a range of areas, from business rates falling by 39% to fuel duty falling 21% as families were told to stay at home. The UK now faces its largest deficit in peacetime.

Over the coming years, the government will have to make some tough decisions about how they’ll repay the amount borrowed.

Covid-19 restrictions led to the worst recession in 300 years

The social distancing restrictions put in place to limit the spread of the virus forced many businesses to close or severely restrict operations. This caused economic activity to plummet in the second quarter of 2020 by 22% when compared to the end of 2019. Overall, 2020 economic activity was 9.9% lower than the previous year.

The most significant recession before this was over 300 years ago, when temperatures in the UK plunged to around -12˚ Celsius. This “Great Frost” of 1709 caused widespread flooding, devastated agriculture, and caused further hardship.

While we don’t have to contend with flooding after the pandemic, there will be other challenges. The Office for Budget Responsibility (OBR) predicts a long-lasting impact. Even in 2025, the economy is expected to be 3% smaller – around £40 billion less – than it would otherwise have been.

The ongoing impact is despite the government’s decision to spend now to limit long-term costs. For example, by supporting businesses through the Job Retention Scheme (furlough scheme) it’s hoped that the economy will be able to recover quicker as restrictions ease and job losses are minimised. If the economic output was to shrink by 3% despite these steps, national income would fall by around £70 billion.

Of course, the pandemic is still affecting lives and the economy now. The vaccine programme has meant the UK has started to lift restrictions, but further waves could mean more time in lockdown. As a result, it’s difficult to predict how Covid-19 will affect the economy in the long term or even this year.

Paying back the cost of Covid-19

As the vaccine is rolled out and health concerns lessen, attention is now turning to how the UK will pay back the money.

Despite rumours, the chancellor did not increase taxes affecting personal finance in this year’s Budget. However, he did bring in widespread allowance freezes for five years, effectively increasing taxes in real terms. It’s important these freezes are part of your financial plan as they could affect your tax liability in the coming years.

It’s still expected that some taxes will have to increase once the pandemic has passed to plug the gap left in public finances.

In his Budget speech, chancellor Rishi Sunak said: “The amount we’ve borrowed is comparable only with the amount we borrowed during the two world wars. It is going to be the work of many governments, over many decades, to pay it back. Just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.”

While we can’t predict how allowances and taxes will change in the coming years, it is important that individuals ensure their financial plans continue to reflect announcements. Making use of allowances to manage tax liability and ensuring you’re on sound financial footing can put you in a strong position even as we start to pay back the cost of Covid-19. It’s important you carry out regular reviews of your plan to incorporate any changes that are announced.

If you’d like the help of a finance professional when reviewing your plan or have questions about what changes mean for you, please give us a call.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

 

What does “rebalancing” your portfolio mean and why is it important?

What does “rebalancing” your portfolio mean and why is it important?

When discussing investments or reading the news, you may have heard the phrase “rebalancing”. It’s an important part of making sure your portfolio continues to reflect your goals, but it can be overlooked or misunderstood. Read on to learn what rebalancing involves and why it’s part of investment strategies.

Investing: A long-term game

Before we start looking at rebalancing, it’s important to understand how and why we invest with a long-term strategy.

It can be tempting to buy and sell stocks to try and maximise profits, especially during periods of high volatility. It seems like a good idea to buy low and sell high, but timing markets consistently is impossible. So many different factors influence stock prices that you can end up missing out or losing money.

Between 1989 and 2019, if you’d invested £1,000 in the FTSE 100 but missed out on just the best 30 days because you’d tried to time the market, it’d have cost you £19,000, according to research from Schroders. This is a good reminder of why the saying “it’s time in the markets, not timing the markets” is so common.

Instead, a long-term buy and hold approach is more suitable for most investors. As the name suggests, you buy stocks that match your long-term goals and risk profile and hold on to them. While values may fall at times, this strategy aims to deliver growth over the investment timeframe. Investors need to be patient as, historically, stock markets have risen, and so they will benefit over the long term.

Yet, a buy and hold strategy doesn’t mean you never need to make changes to your portfolio – this is where rebalancing comes in.

Evaluating your portfolio: Ensure it continues to match your strategy

When you first start investing, you create a portfolio with a certain risk profile in mind. This will consider your investment timeframe, goals, and financial position. However, over time, even if you don’t buy or sell assets, your initial investment position can change due to market movements.

Let’s say you set up a portfolio holding 50% stocks and 50% bonds. Following a period of stocks performing well, your stock allocation could have risen, changing the weighting of your portfolio. It may mean you’re now taking more investment risk than is suitable for you. In this case, rebalancing your portfolio would involve selling stock and buying bonds to achieve the original target allocation.

It’s not just asset allocation that should be considered when rebalancing portfolios. You should also consider the level of risk and diversification. Assets performing well in a certain sector, for instance, could mean you need to rebalance.

So, while you are buying and selling assets when rebalancing, it’s not about timing the market or making knee-jerk decisions based on its movements. Rather, it’s about ensuring your portfolio continues to reflect your circumstances and goals.

There’s no set timeframe for when you should rebalance your portfolio, but it is advisable to do a regular review, for example, annually. Rebalancing may also occur after significant market movements, such as the volatility caused by Covid-19.

Update your portfolio as your plans change

It’s not just market movements that can affect whether your portfolio still suits you. As you should invest with a long-term timeframe, you may find your goals and aspirations change. As a result, you may need to update your risk profile, and reflect this in your portfolio.

Rebalancing may already be factored into your financial plan. A common time for investors to rebalance their portfolio is as they near retirement. While you’re earning an income, you may be in a position to take more risk with your investments than you will once you retire and will rely more on your portfolio to provide an income. Therefore, as you approach retirement, you may choose to gradually take less risk with investments.

This is why your lifestyle choices and aspirations should be central to your financial plan. Your goals will affect your investment strategy.

Why is rebalancing such an important part of an investment strategy?

In short, rebalancing helps ensure your portfolio remains in line with your investing goals in spite of market movements. It’s important for making sure your portfolio continues to support your goals over the long term.

If you’d like to discuss your portfolio and whether rebalancing is needed, please contact us. We’ll help you align your investment strategy with your wider lifestyle plans so it helps you reach your goals.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.