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Varying Opinions Over The Amount Deemed Safe To Withdrawal From Pensions

Experts advise on the ideal yearly amount to take out of a pension.

Data published by the Association of British Insurers details the amounts of money taken out of pension schemes in the first year of “pension freedoms”. The insurers believe “a minority may be withdrawing too much too soon” in a manner that is risky.

The data shows how the British people are reacting to the new freedoms but what amount is safe to withdrawal is open to debate.

Over 10%

3,379 pension pots had over 10% of their total value withdrawn in the first 3 months of 2016. At this rate over 40% of the pot would be gone within a single year, an amount that is unsurprisingly only recommended if someone has another source of income.

4%

72,275 pension pots had 4% or less of their total value withdrawn. 4% has been thought of in the U.S. as the optimum figure in order to enjoy the best return over a period of around 30 years, a sensible time-frame when dealing with pensions.

When studied by the investment analysis firm Morningstar however it was shown that the amount released varied greatly over time in the U.S. specifically. At the height of the stock market boom of the 1980’s, 10% was withdrawn but the 1930’s, 1970’s and 2000’s saw just 2.5% taken out.

2.5%

Morningstar found that for the U.K., 2.5% would have been the most efficient amount to withdrawal in the past. Its future prediction is that 3.2% is the top end of what is desirable.

Inheritance Tax

Protected from inheritance tax, pensions may also be seen by some as a favourable way to pass money on to beneficiaries. Wanting a sum of money to remain after death complicates calculations and further demonstrates that people should seek professional financial advice.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Market’s “Muted” Reaction To Trump’s Election

Data suggests Trump’s surprise victory may have less of an impact on the market than initially feared.

The F.T.S.E. 100 saw an initial negative reaction to the news of Donald Trump winning the U.S. election matching that of Japan’s Nikkei, the two falling 2% and 5% respectively. There is however a feeling among some that the market has learnt lessons from its knee-jerk reaction to ‘Brexit’. Hargreaves Lansdown’s senior analyst, Laith Khalaf states that the “initial stock market reaction to the Trump victory was a short intake of breath, followed by a shrug”.

The news, although a shock has been received in a more “muted” fashion according to Mr Khalaf who points out that despite an “early morning sell-off,” the F.T.S.E. 100 then “staged a recovery to trade a little under yesterday’s closing price, with the F.T.S.E. 250 actually bouncing back into positive territory.”

A common theme between the events was that ‘experts’ failed to predict the results. Markets are seemingly growing used to political uncertainty. Managing director of IBOSS Ltd Chris Metcalfe believes “there is no point in us forecasting what happens next, people way smarter than us have just called another election completely wrong and as for economist forecasts, well you just have to look at the hopeless calls on the U.K. post-‘Brexit’”.

Short Term Impact

There is still room for short term profit making off the back of market uncertainty. Those that invested in gold for example have seen a $20 rise in the price of 1 ounce up to $1,300. Longer term the election of Donald Trump is receiving more positive sentiment from Mr Metcalfe saying “that once the dust has settled Trump is not necessarily bad for asset markets”.

It took a few weeks for the F.T.S.E. 100 to recover ‘Brexit’ losses. Mr Khalaf’s view is that the market has become better at factoring in political surprises.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

New I.S.A./Pension ‘Hybrid’ Derided

New Lifetime I.S.A. blurs the distinctions between I.S.A.s and pensions.

Steve Webb, a former pensions minister has bemoaned the creation of the Lifetime I.S.A., feeling the product fails at being either a pension or an I.S.A. and is instead a “horrible hybrid”.

Mr Webb served as pensions minister during the coalition government and is now the director of policy at Royal London. He highlights what he sees as the eroding of the tax benefits of pensions. He questions if pensions are being degraded with those in power deciding “whether pensions are simply a long term savings product or something special.”

Baroness Ros Altmann, Mr Webb’s successor shares his concerns, stating that in her view “Lifetime I.S.A.s risk poorer pensioners in the future and it is a disaster in the making.” She feels the launching of the product has “mis-selling written all over it” and is concerned customers will be hurt due to its complexities. She says “it is not simple. It is not a pension” its “penalty on withdrawal is punitive.”

Baroness Altmann expresses that “it is fundamentally – as a pension – not a good product.”

“Saving More Tomorrow”

Mr Webb’s suggestion is that the U.K. could move towards a more American style system he describes as “saving more tomorrow”. He points out how “the Americans encourage people to save more tomorrow by forgoing any salary rises and instead putting that increase into a pension.”

Calling for changes Mr Webb advises “there has to be a law that means unless you opt out every time you get a pay rise it goes up by increments, from 8% to 8.5%, then up to 9%. And so on.”

Mr Webb believes action such as this is necessary to avoid a situation where people are “not going to be able to afford to retire”.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Employers Could Be Freed To Cut Employee’s Final Salary Pensions By Up To 30%

Proposed law would allow companies to reduce their workers’ pensions without seeking court’s approval.

MPs in the Work and Pensions Committee are considering freeing employers who are struggling financially to reduce their workers’ final salary type pensions without having to appeal to a court.

Current Promises Are Unsustainable

Pressures created by longer life expectancies and poor investments have led to a record pension funding shortfall in excess of £1 trillion. Sustainability questions mean that more than 11 million workers’ pensions could be affected.

The government is projecting to need to use its financial support, the Pension Protection Fund to save hundreds of pension schemes. Where used, payouts for workers will be reduced.

‘Conditional Indexing’

‘Conditional Indexation’ is viewed as a last resort, letting a companies own financial health inform the annual rises or ‘boosts’ ideally for a short time period.. It would allow annual pension uplifts to be as low as 0%. over the average 25 year retirement, this would mean total retirement income to be reduced by 30%.

Malcolm McLean, a senior consultant at pension firm Barnett Waddingham, says that although designed purely as a means of saving pension schemes genuinely in trouble, the ‘conditional indexing’ proposed could become a “free for all” for unscrupulous companies. He urges lawmakers clearly set out rules addressing this.

According to Calum Cooper, a partner at pension consultancy, Hymans Robertson if used in the manner it is intended, conditional indexation would be “just a temporary measure to be used whilst a sponsor is having difficulties”.

Other Measures Are Being Proposed

Another proposal is to change the minimum annual pension increases from the Retail Price Index to the historically lower Consumer Price Index. Over the average retirement, the worker will again lose out, this time losing 13% of their pensioner benefits.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Over 55s Lead Record Rise In Equity Release

Total lending based off the value of large assets such as houses increases to a record amount.

The Equity Release Council are reporting that in the second quarter of 2016 wealth being released by over 55s passed the £500m mark for the very first time reaching £514.4m.

The second quarter of 2016 saw the highest growth rate in new plans agreed between clients and providers since the third quarter of 2003, increasing at a rate of 23%. The 3 highest ever recorded rates of equity release have occurred in the last year.

Reasons Behind The Rise

An ageing population and increasing house prices have contributed significantly to this demand.

E.R.C. chairman Nigel Waterson says that the market has stepped up to meet the demands of this growing number of people wishing to use their assets to access cash.

Regulator legislation in April has also added to the numerous new providers and products in sustaining this boom. Optional interest repayments have become exempt from mortgage affordability rules.

Lifetime mortgages that provide a large lump sum rose 37% from £152.1m to £208.8m. Drawdown lifetime mortgages, allowing multiple withdrawals of money however still account for the larger sector of the market, up 31% from £231.6m to 304.0m. This was the greatest annual jump since 2012 when the country was recovering from recession.

Total market activity has risen markedly. More than 2 out of 3 current lifetime mortgages are drawdown, up from 65%. This means that despite growing at a faster percentage, the proportion of single lump sum lifetime mortgages actually went down slightly from 35% to 1 of 3.

Home reversion plans in the second quarter of his year has more than doubled the same period last year from £623,647 to £1.5m.

For help and advice please do not hesitate to contact us at Hoskin Financial or Hoskin Home Loans

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Record Number Of Over 50s In Work

Aviva have published figures showing that employees over 50 are on track to become the largest segment of the workforce by 2024.

A total of 9.67 million people over 50 are currently employed in the U.K., making up 31% of the workforce. The most recent figures show that this age group is rising at a record pace since 1992, when data began to be kept and when the over 50s made up just 21% of those employed.

Trend Set To Continue

Aviva believe that by 2018, the number will reach 10 million for the first time and account for 1 in 3 workers by 2024.

Alistair McQueen, savings and retirement manager at Aviva predicts that “over 50s will become the leading group of workers within the decade”.

Changing Attitudes Towards Planning For Retirement

As life expectancy and with it the cost of living post-retirement increases, pension-aged people must rely on both saving more of their earnings to put towards retirement and working longer to acquire more money.

Mr McQueen states, “for many, the best response will be a mix of the two. Auto-enrolment into workplace pensions encourages us to save more, and more than 6 million new pension savers have joined the system since it was introduced in 2012.”

Retirees Under 65 Becoming Increasingly Rare

Mr McQueen adds that “ the idea of ‘early retirement’ would be relegated to the dustbin of history if recent trends continued”. If the decline in early retirees were to be maintained at its current rate, it would take until 2029 for there to be no people aged between 16 and 64 classified as ‘retired’.

In 2011, a peak of 1.6 million 16-64 year old’s were classed as being retired. The number has since fallen to 1.2 million in 2016.

For help and advice please do not hesitate to contact us at Hoskin Financial or Hoskin Home Loans

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

 

Aviva Claims To Be Insulated From ‘Brexit’ Impact

Aviva believes capital surplus built up in recent years proves their business should not be affected by ‘Brexit’.

The insurance company Aviva is publishing research and data to reassure a market in shock after the vote for the U.K to leave the E.U., which led to Aviva’s share price falling by around 130p.

Steps Taken To Strengthen The Company In Recent Years

Angharad Knill, executive at Macquarie, provider of financial, advisory, investment and funds management services, says that “we believe this (devaluation) reflects the Aviva balance sheet of three years ago rather than today, and that the insurer has taken action in line with Solvency II capital requirements for insurers. While we do not believe Aviva has a ‘fortress’ balance sheet, it does offer a compelling valuation and dividend yield.”

Capital Surplus

Aviva has tripled its capital surplus in the last 4 years. The company reports that currently, its Solvency II coverage ratio remains near the top of its working range of 150% to 180%. This means that its net income after tax is around 150% to 180% the value of its short and long term liabilities.

In 2015, Aviva amassed £2.7bn in cash generation. £0.4bn of this came from Friends Life, an internal part of Aviva, management actions and one-offs. Ms Knill expects “more management actions to come and expect more strong cash flow in 2016 as the Friends Life integration continues. Management are guiding to 5-10% of Solvency II capital generation in 2016.”

As of March 2016, Aviva published preliminary results reporting a Solvency II ratio of 180% and a surplus of £9.7bn. They therefore consider themselves among the strongest placed and most resilient of the U.K. insurers with a low sensitivity to market stress. They state that they are monitoring any technical implications and will adapt accordingly.

For help and advice moving forward please do not hesitate to contact us.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Uncertainty Ahead If The U.K. Votes To Leave The E.U.

On Thursday 23rd June, the U.K. will vote in a referendum to decide whether or not to remain in the European Union.

A pro-leave outcome would send shock-waves through the U.K. and internationally.

Political Change

David Cameron and George Osborne have tied themselves to the ‘remain’ campaign, should the public vote against them, their authorities will be severely weakened. Cameron could step aside immediately, in the midst of economic turmoil or stay and honour the decision of the people. The result will mean a shifting of power towards the ‘leave’ campaigners, notably Michael Gove and Boris Johnson.

Rival Pictures Of ‘Brexit’ Painted By Campaigners

Osborne claims the timescale for exiting is strict and that he will immediately activate article 50 of the Lisbon treaty, setting in motion a negotiation to be completed within two years. Vote Leave campaign director, Dominic Cumming says this is “mad and like putting a gun into your mouth and pulling the trigger”.

Pressure from the E.U. makes triggering article 50 highly likely by the autumn. One of its creators, former Liberal Democrat M.E.P. Andrew Duff claims “the clause puts most of the cards in the hands of those that stay in.”

The E.U.’s Reaction

An E.U. official stated that “it will be imperative to prevent the Brexit contagion gripping other countries”. This could see the major powers within the E.U. push to make sure seceders are seen to be the losers in negotiations. Leave campaigners believe however that over the summer the E.U. will come to consider the value the U.K. brings to the union.

So What Will Happen?

Huge issues such as the U.K.’s membership of the single market and the free movement of E.U. citizens will become bargaining chips between large institutions with the outcomes dependent on individuals fighting with their own agendas.

Until next time when we may know if we are in or out.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Further Crackdown expected from HMRC on high net worth tax

Pinsent Mason have reported that the HM Revenue & Customs recent crackdown on tax avoidance is likely to be extended with the government having caught half a billion pounds extra since they started the campaign.

According to a Freedom of information requested by the law firm, HRMC reported that they collected £494m worth of income tax between 2014 and 2015 through their investigations into tax avoidance schemes.

Paul Nobel, the Tax Director for Pinsent Mason had warned advisers and accountants to beware of this success.

“High-net worth individuals and other wealthy taxpayers are likely to face further scrutiny as a result – both here and abroad”

HMRC has stepped up their investigations since 2012 especially following the extensive media coverage of celebrities participating in such activities, targeting actors, musicians, sports starts and comedians.

In April 2014 the Counter Avoidance Sirectorate was created to crack down on the use and promotion of such avoidance schemes and HMRC has also published a list of arrangements which run contrary to its rules.

Tougher powers have be introduced to find and demand disputed tax. The accelerated payment notices, which have caused some controversy have been part of these, where upfront payment of the tax under question within 90 days when the use of an avoidance scheme is suspected.

HMRC continue to be given new powers and tools to help them crack down on these avoidance cases.

HMRC has seen a surge in returns from investigations into tax affairs of high net worth individuals. The past year has seen an income of £29 for every £1 spent on the investigation process. That is a 60 per cent increase from 2014’s investigations.

£414m has been collected from the high net worth unit, which covers 6,000 individuals who have a net worth of £20m or more in 2014/2015.

The Committee of Public Accounts has concluded in their reports that the HMRC however are not doing enough to tackle tax fraud. They believe that “only limited progress” has been made in reducing losses through the crime.

Tax avoidance and evasion has once again been in the spot light recently with the leak of the “Panama Papers”. With everyone from the Prime Minister to actress Emma Watson named in these papers. The Financial Conduct authority has sent information requests to 64 implicated firms so far, but refused to be drawn on its preliminary findings.

For help and advice please do not hesitate to contact us at Hoskin Financial or Hoskin Home Loans

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

 

Who Wants To Be an ISA Millionaire?

ISA Millionaire

ISA Millionaire

Most of us will remember the hit TV show, Who wants to be a millionaire, while is was popular thousand of want to be millionaires would rush home to see if they could answer the questions.  Most of us have dreamed of becoming a millionaire and regularly tell everyone what we will be spending our lottery winnings on, however the odds of you winning a million are roughly a million to one so what would you say if we told you that the humble ISA could be your chance to reach that magic million.

Now don’t get us wrong this is not a get rich quick scheme, but if you are prepared to put away a few thousand every year and have the patience to watch it grow you are in with a great chance.

Can an ISA Really Make you a Millionaire?

The short answer is yes, by investing in stocks and share, by utilising your tax efficient friend, The individual savings account (ISA) allowance to the max. Not only is it possible, hundreds of savvy savers have already done it and with commitment and time you can join their ranks.

In 2015 Barclays stockbrokers reported that nearly 70 of its clients had achieved ISA millionaire status and there must be many more across their investment platforms. The truth is, none of them achieved ISA millionaire status over night because investing in stocks and shares rarely makes you a quick buck however as the saying goes “slowly slowly catchy monkey”. The downside is that you will need to invest a tidy sum each year. (There’s always a catch)

Credit where Credit is Due

The time it will take you to reach this financial milestone has been significantly reduced now that our Chancellor George Osbourne has expanded the ISA allowance. In the current tax year you will be able to invest up to £15,240 in a stocks and shares ISA, and pay no capital gains tax or income tax on your returns for the rest of your life. From next April things get even better because you will be able to invest a massive £20,000, which is a five-fold rise on Gordon Brown’s original Isa limit of £4,000.

This is definitely a slow burner, a recent report by Fidelity International highlighted it will take just over 24 years to become an ISA millionaire. This millionaire status assumes you continue to invest the maximum ISA allowance, increasing your contributions by 2% every year. It also assumes your savings will grow by 5% year on year, after charges. Your returns could grow faster of course or they may not reach this level, especially while interest rates are so low.

ISA to Grow Because Cash is to slow

If your dream is to hit the ISA million mark you will have to invest in a stocks and share ISA, although the risks are higher than the money in the bank savings plan, the rewards are potential much more lucrative. For example if you had invested £15,000 in the FTSE all share index in February 1996 you would now have the tidy sum of £51,866, compared to a mere £20,345 with the safer alternative. This equates to an extra £31,521, some would say, well worth the risk.

These figures also assume you reinvest all your dividends for future growth, which is of course the secret to long-term savings success. Without this reinvestment the FTSE 100 is still 11% below the 6,930 it hit on December 1999, but when you take into account reinvested dividends this swings to a 70% growth rate.

Back to ISA Reality

The figures shown above are achievable however not every ISA investor will become a millionaire, the majority of savers can not afford to invest £20,000 every year as life tend to throw up a few challenges but there is no harm in having a dream, after all investing £20,000 into an Isa is more likely than winning a million pounds on the lottery.

If you have any questions regarding savings and investments please visit our website where you can get free advice.

For help and advice please do not hesitate to contact us at Hoskin Financial or Hoskin Home Loans

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL