Mini Budget Summary Summer 2020
Key Headline Announcements
On Wednesday, 8 July 2020, the Chancellor, Rishi Sunak, pledged to protect, support and create jobs and get pubs and restaurants going again as he unveiled a package to kickstart the economy’s recovery.
While updates to the associated Treasury Direction and HMRC’s Guidance are awaited, the key updates are as follows:
Job Retention Bonus
- The Chancellor announced new job retention bonus for employers who bring back furloughed staff.
- UK Employers will receive a one-off bonus of £1,000 for each furloughed employee still employed as of 31 January 2021.
VAT
- VAT on food, accommodation and attractions has been cut from 20% to 5%, a £4bn boost for the industry.
- This will save households £160 per year on average.
- VAT will be reduced from 15 July 2020 until 12 January 2021
Stamp Duty
- The Chancellor announced a temporary holiday on stamp duty to help revive the property market.
- Previously, there was no stamp duty on transactions below £125,000 (or £300,000 for first-time buyers).
- Now, homebuyers will be temporarily exempt from paying the Stamp Duty tax for the first £500,000 of any property price.
- It takes effect immediately from 8 July 2020 until 31 March 2021.
Kickstart Scheme
- £2 billion ‘Kickstart Scheme’ to create thousands of fully subsidised jobs for 16-24 year olds, claiming Universal Credit at risk of long-term unemployment. Funding covers 100% of National Minimum Wage for 25 hours a week for a 6-month employment term.
- It will also pay £1,500 for every new apprentice above 25.
- For the next six months, the Government will pay businesses up to £2000 for every new apprentice.
50% Meals Discounts
- Every Briton, including adults and children, will be given an "eat out to help out" discount.
- Meals eaten at any participating restaurants, on sit-down meals and non-alcoholic drinks, Monday to Wednesday in the month of August will be 50% off at up to £10 per head.
£3bn Green jobs plan
- The Chancellor announced a £3bn package of green investment to help create thousands of jobs.
- The grants will cover at least two thirds of the cost, up to £5,000 per household.
The Quick Guide To Bonds
When it comes to investing, it’s probably stock markets and shares that come to mind. Yet the average investment portfolio uses various asset classes to deliver returns and manage risk. One important part of your portfolio may be bonds.
Bonds can also be known as gilts, coupons and yields, which, along with other financial jargon, can make it difficult to understand how they fit into your financial plan. This quick guide can help get you up to speed.
What is a bond?
In simple terms, a bond can be thought of like an IOU that can be traded in the financial market.
Bonds are issued by governments and corporations when they want to raise money. When you purchase a bond you effectively become the issuer of a loan, receiving payments for the loan in the future. There are typically two ways that a bond pays out:
- A lump sum when the bond reaches maturity
- Smaller payments over the term, this is often a fixed percentage of the final maturity payment
If you’re viewing a bond as a loan, the lump sum at maturity would be like receiving your initial investment back whilst the small payments are equivalent to interest incurred. Bonds can be a useful asset to invest in if you’re focused on creating an income rather than growth.
Unlike stocks, you don’t have any ownership rights when you purchase a bond. As a result, you won’t benefit if a company performs well and you’ll be somewhat shielded from short-term stock market volatility too. Whilst all investments carry some risk, bonds are usually classed as a lower-risk asset than traditional stocks and shares.
That being said, it is possible to lose money when investing in bonds. This may occur if the issuer defaults on payments or you sell a bond for less than you paid. You should consider investment time frames, goals and risk before you decide to purchase government or corporate bonds.
Buying and selling bonds
Individual investors can purchase bonds, usually through a broker, as can professional investors, such as pension funds, banks and insurance companies. Initially, government bonds are often sold at auctions to financial institutions with bonds then being resold on the markets.
If you buy a bond, you have two options: hold or trade.
If you choose to hold a bond, you simply collect the regular repayments and wait until it reaches maturity, when you’ll receive a lump sum.
However, there is also a secondary market for selling bonds to other investors. If this is your plan, the fluctuations in price are important to consider as well as the value the bonds offer other investors. If you intend to sell, it’s important to understand the maturity and duration of the bond, as well as understanding the demand in the secondary market.
Whilst we’ve mentioned above that bonds can shield you from some of the stock market volatility, that doesn’t mean bond prices don’t change. Numerous factors can affect the value of bonds, from the interest rate and other Government policies to the demand for bonds. These movements can affect the expected yield, which can end up negative meaning the repayments add up to less than what you paid.
How do bonds fit into your investment portfolio?
Bonds are just one of the assets that are used to create an investment portfolio that suits you.
If you’re investing for income, rather than growth, choosing bonds to make up a portion of your portfolio can deliver a relatively reliable income stream.
One of the key things to consider when investing is your risk profile. Typically, bonds are considered less risky and experience less volatility when compared to traditional stocks. As a result, they can be used effectively to help manage investment risk. The lower your risk profile, the more likely it is that your portfolio will include a higher portion of bonds. Of course, other assets can be used to adjust and manage your risk profile too and not all bonds have the same level of risk.
The most important factor when creating an investment portfolio is that it matches your risk profile and goals. If you’d like to chat to us about how bonds are used to balance your portfolio, please get in touch.
Please note: 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.
The Danger Of Holding Too Much Cash
How much of your wealth do you hold in cash? Whilst it’s often viewed as the ‘safe’ option, there is a danger of your assets losing value in the long term and holding too much in cash too.
It’s easy to see why people choose to hold large sums in cash. As it’s something we handle every day, whether physically or digitally, it can seem more tangible than other assets. The Financial Services Compensation Scheme (FSCS) also protects up to £85,000 should a bank or building society fail per individual. The combination of these factors may mean you view cash as the most appropriate way to hold wealth.
However, cash does lose value and this is particularly true in the current low-interest climate.
Interest rates have been at an historic low for more than a decade following the 2008 financial crisis. The Bank of England has recently cut rates even further. In March, as it became apparent Covid-19 would have an economic impact, the central bank slashed the base interest rate to just 0.1%, the lowest level on record.
Whilst potentially good news for borrowers, the rate cut isn’t positive for savers. It means your savings aren’t likely going to deliver the returns they once were, especially if you compare the current rates to the pre-2008 ones. Before the financial crisis, you could expect to enjoy interest rates of around 5%.
At first glance, lower interest rates can seem frustrating but don’t mean there’s any need to change how you hold assets. After all, your money is secure and whilst it might not be growing very fast, it’s not going down, right? This is true if you’re just looking at the amount that’s in your account. However, in real terms, the value of your savings will be falling.
Inflation: Affecting the value of savings
The reason the value of cash savings falls in real terms is inflation. Each year the cost of living rises and if interest rates fail to keep pace with this, your savings are gradually able to purchase less and less.
The Consumer Price Inflation (CPI), one of the measures for calculating inflation, for April 2020 suggests the inflation rate was 0.9%. This figure was down on long-term averages due to coronavirus restrictions, however, it’s still higher than the base interest rate. As a result, the spending power of cash savings will have fallen.
Year-to-year, the impact of inflation can seem relatively small. Yet, when you look at the impact over a longer period, it highlights the danger of holding too much in cash.
Let’s say you placed £30,000 in a savings account in 2000. Following almost two decades of average inflation of 2.8% a year, your savings in 2019 would need to be £50,876.75 to boast the same spending power. With low-interest rates for more than half of this period, it’s unlikely a typical savings account would help you bridge this gap.
When is cash right?
Whilst inflation does affect the spending power of cash savings, there are times when it’s appropriate.
If you need ready access to savings cash accounts are often suitable, for example, if you have an emergency fund. When you’re saving for short-term goals (those less than five years), a savings account should also be considered. Over short saving periods, inflation won’t have as much of an impact and can preserve your wealth for when you need it.
However, when setting money aside for long-term goals, investing may be a better option that’s worth considering.
Investing: When should it be considered?
Investing savings means you have an opportunity to beat the pace of inflation with returns, therefore, preserving or growing your spending power.
However, investment returns can’t be guaranteed and short-term volatility can reduce values. For this reason, investing as an alternative to cash should only be considered if your goals are more than five years away. This provides an opportunity for investments to recover from potential dips in the market.
If you’d like to talk to one of our financial planners about the balance of your assets, please contact us. Our goal is to align aspirations with financial decisions, helping you to strike the right balance.
Please note: 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.
Cashflow Planning: Helping To Answer ‘What if…’ Questions
When you begin making a financial plan, you could be looking several decades ahead, and we all know the unexpected can derail even the best-laid plans. So, as you’re setting out goals, it’s not uncommon to wonder if you’d still be able to meet them if things outside of your control have an impact.
When you start putting together a financial plan one of the valuable tools that can put your mind at ease is cashflow planning.
What is cashflow planning?
Cashflow planning is a tool that helps forecast how your wealth will change over time. We can use this to show how your assets will change in value in a range of circumstances, such as average investment performance or income withdrawn from a pension. It’s a step that can help you have confidence in the lifestyle and financial decisions you make.
However, the variables can be changed to highlight the impact of what would happen if things don’t quite go according to plan. Whether it’s down to a decision you make or something out of your control, cashflow planning can highlight the short, medium and long-term consequences on your finances and goals. As a result, it can be a useful way of answering ‘what if’ questions that may be causing concern.
Answering ‘what if’ questions
If you’re asking ‘what if’ questions relating to your financial plan, they can be split into two categories: the ones you have control over and those that you don’t.
Those that you do have control over often stem from wanting to take a certain action but being unsure if your finances match your plans. These types of questions could include:
- What if I retire 10 years early?
- What if I provide a financial gift to children or grandchildren?
- What if I take a lump sum from investments to fund a once in a lifetime experience?
Often with these questions, there’s something you want to do, or at least thinking about, but you’re hesitant to do so because you’re worried about the long-term impact. You may need to consider the effects decades from now, which can be challenging. Cashflow planning can help provide a visual representation of the impact a decision would have.
We often find that clients’ finances are in better shape than they believe, allowing them to move forward with plans with confidence.
The second type of ‘what if’ questions, those you don’t have control over, often stem from worries about the future. These could include:
- What if investments returns are lower than expected?
- What if I passed away, would my partner be financially secure?
- What if I needed care in my later years?
Cashflow modelling can help you understand how these scenarios would have an impact on your short, medium and long-term goals. It can highlight that you already have the necessary measures in place, allowing you to focus on meeting goals.
Alternatively, you may find there’s a ‘gap’ in your financial plan. However, by identifying this, you’re in a position to take steps to put a safety net in place. If you’re worried about the financial security of loved ones if you were to pass away, for example, this could include purchasing a joint Annuity, providing a partner with a guaranteed income for life, or taking out a life insurance policy.
Confronting concerns about your future can be difficult, but it’s a step that can lead to a more robust financial plan that you have complete confidence in.
The limitations of cashflow planning
Whilst cashflow planning can be incredibly useful, there are limitations to weigh up too.
First of all, how useful the forecasts are will be dependent on the data that’s input. This is why it’s important to consider assets and goals when gathering information, as well as keeping the data up to date.
Second, cashflow planning will have to make certain assumptions. This may include your income over an extended period or investment performance, which can’t be guaranteed. This is combatted by modelling different scenarios and stress testing plans, helping to give you an idea of how your financial plan would perform under different conditions.
Cashflow modelling is just one of the tools that can support your financial plans and it can be an incredibly useful way of giving you a potential snapshot of the future and easing concerns. If you’d like to discuss your aspirations and the steps you could take to ensure you’re on the right track, please get in touch.
Accessing your pension: Annuity vs Flexi-Access Drawdown
In the past, the majority of people saved for retirement over their working life, gave up work on a set date and used their pension savings to purchase an Annuity. However, as retirement lifestyles have changed, so too have the options you’re faced with as you approach the milestone. If you’re nearing retirement, you may be wondering if an Annuity or Flexi-Access Drawdown is the right option for you.
Since 2015, retirees have had more choice in how they access a Defined Contribution pension. If you want your pension to deliver a regular income, there are two main options – an Annuity or Flexi-Access Drawdown – to weigh up. So, what are they?
Annuity: An Annuity is a product you purchase using your pension savings. In return for the lump sum, you’ll receive a regular income that is guaranteed for life. In some cases, this can be linked to inflation, helping to maintain your spending power throughout retirement. As the income is guaranteed, an Annuity provides a sense of financial security but doesn’t offer flexibility.
Flexi-Access Drawdown: With this option, your pension savings will usually remain invested and you’re able to take a flexible income, increasing, decreasing or pausing withdrawals as needed. Flexi-Access Drawdown provides the flexibility that many modern retirees want. However, as savings remain invested they can be exposed to short-term volatility and individuals have to take responsibility for ensuring savings last for the rest of their life.
There are pros and cons to both options, and there’s no solution that suits everyone when considering which option should be used. It’s essential to think about your situation and goals at retirement and beyond when deciding.
It’s worth noting, that pension holders can choose both an Annuity and Flexi-Access Drawdown when accessing their pension. For example, you may decide to purchase an Annuity to create a base income that covers essential outgoings, then using Flexi-Access Drawdown to supplement it when needed. It’s important to strike the right balance and other options could affect your decision too, such as the ability to take a 25% tax-free lump sum.
5 questions to ask before accessing your pension
- What reliable income will you have in retirement?
Having some guaranteed income in retirement can provide peace of mind and ensure essential outgoings are covered. But this doesn’t have to come from an Annuity. Other options may include the State Pension or a Defined Benefit pension.
Calculating your guaranteed income can help you decide if you need to build a reliable income stream or are in a position to invest your Defined Contribution pension savings throughout retirement. If you decide Flexi-Access Drawdown is an appropriate option for you, it’s a calculation that can also inform your investment risk profile.
- What lifestyle do you want in retirement?
When we think of retirement planning, it’s often pensions and savings that spring to mind. However, the lifestyle you hope to achieve is just as important. Do you hope to spend more time on hobbies, with grandchildren or exploring new destinations, for instance? Thinking about where your income will go, from the big-ticket items to the day-to-day costs, can help you understand what income level you need.
- Do you expect income needs to change throughout retirement?
This question should give you an idea of how your income will change throughout retirement. Traditionally, retirees see higher levels of spending during the first few years before outgoings settled, with spending rising in later years again if care or support was needed.
However, your retirement goals may mean your retirement outgoings don’t follow this route. If you decide to take a phased approach to retirement, gradually reducing working hours, you may find that a lower income from pensions is required initially. Considering income needs at different points of retirement can help you see where flexibility can be useful.
- Are you comfortable with investing?
Flexi-Access Drawdown has become a popular way for retirees to access their savings. There are benefits to the option but you should keep in mind that savings are invested. As a result, they will be exposed to some level of investment risk and may experience short-term volatility. Before choosing Flexi-Access Drawdown, it’s important to understand and be comfortable with the basics of investing.
Investment performance should also play a role in your withdrawal rate. During a period of downturn, it may be wise to reduce withdrawals to preserve long-term sustainability, for instance. This is an area financial advice can help with.
- Do you have other assets to use in retirement?
Whilst pensions are probably among the most important retirement asset you have, other assets can be used to create an income too. Reviewing these, from investments to property, and understanding if they could provide an income too can help you decide how to access your pension.
We know that retirement planning involves many decisions that can have a long-term impact. We’re here to offer you support throughout, including assessing your options when accessing a pension. If you have any questions, please get in touch.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
Lockdown Checklist: 6 Financial Steps To Take During The Pandemic
If you’ve been putting off reviewing your finances, the lockdown is the perfect opportunity to complete some tasks that could help make sure your finances and plans remain on track. With potentially more time on your hands, here are six things to do during the stay at home period.
- Review your will and Power of Attorney
It’s estimated that more than half of UK adults don’t have a will in place and even more haven’t established a Power of Attorney. These two legal documents are vital for ensuring your wishes are carried out. Even if you do have both these in place, take some time during lockdown to review them.
A will is the only way to ensure that your wishes are carried out when you pass away. If you already have a will, you can write a new one or add a codicil to make amendments if your wishes have changed. It’s generally a good idea to review your will following life events and every five years.
A Power of Attorney gives someone you trust the power to make decisions on your behalf if you’re unable to do so. Losing the mental or physical capacity to make your own decisions isn’t something anyone wants to think about, but a Power of Attorney is important. There are two types, one covering health and wealth decisions and the other covering finances, you should have both in place.
- Update your pension expression of wishes
Did you know your pension benefits aren’t usually covered by your will? Instead, you should complete an expression of wishes with each pension provider, stating who you’d like to benefit from your pension savings if you pass away. As pensions do not form part of your estate for Inheritance Tax purposes and are likely to be one of your largest saving pots, they’re a valuable asset to consider as part of legacy planning.
- Find out if you have any ‘lost’ pensions
Over the years you may have accumulated several pensions as you switch jobs. If the pension is relatively small or the employment was from some time ago, it’s easy for pensions to become ‘lost’. Luckily, the government has a service that can help you find lost pensions and start taking them into account when it comes to retirement planning. You can find the contact details for workplace and personal pension schemes here.
- Check your National Insurance record
It’s simple to check your National Insurance record, you can do so here. This tracks how many full years of National Insurance you’ve paid, as well as any National Insurance credits you’ve received, such as when taking time out of employment to raise children or care for someone. Why is this important? You need to have 35 qualifying years on your record to be eligible for the full State Pension when you reach retirement age. If you have gaps, it may be possible to pay voluntary contributions. The sooner you know there’s a gap, the better position you’re in to make the right decision for you.
- Evaluate financial protection
If you already have financial protection in place, now is a good time to review the policies. As circumstances and priorities change, the policies that are right for us change too.
Whether you have an income protection policy, critical illness cover or life insurance, you should take some time to understand what each policy covers and whether they remain appropriate for you. Life events may mean that your current protection needs to be updated. These events could include starting a family, paying off your mortgage or starting a new job.
If you don’t currently have any sort of financial protection in place, it’s worth considering what would happen if your income suddenly stopped, you were diagnosed with a critical illness or the position your family would be left in if you were to pass away. It’s not something anyone wants to think about, but doing so can help you put steps in place to safeguard your and your family’s future.
- Consider making gifts now
The current situation has placed a lot of people under pressure financially. Whilst your finances may be secure, your loved ones may not be in the same position and you may want to provide some support.
If this is the case, making use of the gifting allowance can make sense. Gifts are classed as Potentially Exempt Transfers when given. This means they can be considered part of your estate for Inheritance Tax purposes if you die within seven years of them being received. However, some gifts are considered immediately outside of your estate. This includes the gifting allowance. Each tax year, you can gift up to £3,000 to loved ones, which can be carried forward a year if unused, under this rule.
Other gifts that are immediately exempt from Inheritance Tax include those that are given from your disposable income.
During these times of uncertainty, we know that you may be worried about your finances and long-term plans. We’re still here for you, please get in touch if you have any queries about the above checklist or other aspects of your financial plan.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your circumstances, tax legislation and regulation which are subject to change in the future.
The Financial Conduct Authority does not regulate will writing or estate planning.
Why You Should Have A Power Of Attorney In Place
Millions of Brits haven’t named a Power of Attorney. It may seem like something you can put off for a while, but it’s something we should all have in place.
A Power of Attorney is a legal document which gives someone you trust the ability to make decisions on your behalf if you’re unable to do so. Thinking about lacking the mental or physical capacity to be independent and make decisions isn’t something anyone wants to do. However, it can happen and having a Power of Attorney in place can provide you with some security if it does happen.
Being unable to make your own decisions is often something we associate with old age and dementia in particular. As a result, naming a Power of Attorney can seem like something that’s fine to put off for a few years or even longer. Yet, accidents and illnesses can strike at any age. It’s important to note that a Power of Attorney can make decisions on your behalf on a temporary basis as well as a permanent one. If you were to recover and in a position to take control of decisions again, you can do so.
You may think that you wouldn’t need someone to act on your behalf, that everything would stay on the course you’ve set out. But even being unable to make decisions for a few months can have a lasting impact. There are two types of Power of Attorney to consider when looking at what would happen if there was no one making decisions on your behalf.
Health and welfare: This relates to areas such as medical care, moving into a care home and life-sustaining treatment. You may have clear ideas about what you’d like to happen should you become ill. A Power of Attorney allows you to discuss these with a loved one who will then be able to make these decisions.
Property and financial affairs: This type of Power of Attorney allows a trusted person to manage your bank, pay bills and collect your pension. It can help ensure your finances remain secure and commitments are met. Even a few months could have an impact if someone isn’t able to access your accounts to settle bills, for example.
It’s also important to note that no one has the automatic right to make decisions on your behalf, this includes spouses and civil partners.
What happens if there’s no Power of Attorney?
If you don’t have a valid Power of Attorney in place, an application would need to be made through the Court of Protection. The Court of Protection can decide if you’re able to make your own decisions, make an order if you lack the mental capacity to make decisions, or appoint a deputy to make decisions on your behalf. The process can be costly and lengthy, delaying decisions that may be important. It’s a process that can be stressful for both you and your loved ones.
4 reasons to have a Power of Attorney
- A Power of Attorney should be part of your financial plan when considering ‘what-if’ scenarios and putting in place measures to ensure your security and plans stay on track as much as possible.
- It can provide financial security if something were to happen by enabling someone to take control of your finances, including ensuring payments are met and you’re able to access income.
- It’s also an opportunity to make sure your care and health wishes are met by discussing them with your trusted Power of Attorney.
- The legal document also supports loved ones, without one in place it can be difficult and time consuming to go through the Court of Protection to act on your behalf.
Supporting other estate plans
Naming a Power of Attorney should be done alongside a wider estate plan too. This may include writing or reviewing your will and considering a potential Inheritance Tax bill when you pass away. Putting these pieces in place together can ensure a cohesive plan that is aligned with your wishes. If you’d like to discuss legacy planning and safeguarding your future, please get in touch.
Please note: The Financial Advice Authority does not regulate Power of Attorney, will writing or estate planning.
Dividends And Coronavirus: Will Your Income Be Affected?
As businesses have been hit by the coronavirus pandemic, some have decided to cut dividends and regulators are adding pressure for others to follow suit. This may leave a hole in your income if you rely on dividends.
According to reports from The Times, investors have suffered a dividend cut of at least £600 million as some of the UK’s biggest businesses aim to conserve cash during the coronavirus pandemic. A wide range of business sectors has been impacted by the virus and resulting lockdown, leading to profits tumbling. As a result, firms have taken steps to hold cash as a buffer and, in some cases, regulators have stepped in. The UK banking regulator, for example, wants banks to suspend dividends temporarily. Some businesses are also using the government’s scheme to furlough staff, therefore taking money off the taxpayer, leading to questions around whether these firms should continue to make payouts to shareholders.
Why does this affect investors?
If you’re investing in growth stocks with a long-term plan, the recent market volatility isn’t likely to have a significant impact on your goals overall. However, it’s a different story if you rely on dividends to top-up your income.
A dividend is the distribution of a portion of the company’s earnings paid to shareholders. Dividends are managed by the company’s board of directors and must be approved by shareholders through their voting rights. Dividends are typically paid in cash, but can also be issued as shares, and may be issued at regular intervals.
As a result, dividend-paying companies may be used as part of an income investment portfolio. These typically involve investing in well-established companies that no longer need to reinvest the majority of profits back into the business to reach goals. As a result, high growth businesses typically don’t pay out dividends.
For the most part, once a company has established dividends, investors expect this to continue, but that doesn’t mean they will. As even established firms face uncertainty in light of the pandemic and more are choosing to either freeze or suspend dividends in the short term.
Whilst historically dividends have tended to be less volatile than the stock market itself, this doesn’t mean they are a ‘safe’ investment. Investing for income, including dividend-paying companies, still comes with risks that need to be considered.
So, if dividends make up a portion of your income, what can you do?
- Reduce outgoings
If your income has been affected, the first thing to do is understand what it means for your finances in the short term. If there is a shortfall in covering essential outgoings, there are currently government-backed schemes in place to support households, including mortgage holidays. Where possible, it may be necessary to reduce outgoings temporarily to match the reduction in income.
- Use your emergency fund
Everyone should have a cash emergency fund they can fall back on should their income drop. Ideally, this should be easily accessible and have enough to pay for three to six months of outgoings. Often clients can feel reluctant to access this money they’ve put away for a rainy day, but it’s times like these that you’ve been saving for.
- Create an income from other assets
If your income from dividend-paying stocks has fallen, you could build an income stream from other assets that you hold. What’s possible and whether or not it’s the right decision for you will depend on a variety of factors. If this is something you’d like to discuss, please get in touch with us.
- Keep your investment plans in mind
If dividends have been reduced or halted altogether, you may be tempted to dump the stocks and look at alternatives. However, keep the bigger picture in mind.
Given the current situation, it’s likely many dividend-paying companies are in a similar position for the time being. A reduction in dividends can be a prudent move and ensure sustainability, therefore protecting your dividend income over the long term. If you’re worried about how secure a firm is, research why the changes to dividends have been made. A statement is often made available on the firm’s website. This may be able to provide you with some reassurance that the changes are temporary.
- Speak to us
We’re here to help ease concerns you have about your financial situation and what it means for your plans. This includes a reduction in dividend income. Whether you want to understand what it means in the short term or are considering making investment changes due to this, please get in touch with us.
Please note: 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.
5 Tips For Keeping Pensions On Track During The Pandemic
During the market volatility, you may be worried about what it means for your pension. We take a look at five things to keep in mind to ensure your pension and retirement stay on track.
For most of us, pensions are invested with the hopes of delivering returns over the long term and it’s something we plan to pay into over our working lives. But the current pandemic may have impacted on your plans and the current value of your pension.
If you’re worried about the impact of coronavirus on your pension, you’re not alone. Research from Aegon found that many pension savers are anxious about their retirement savings. Perhaps unsurprisingly, older generations that will have more saved into a pension and maybe nearer to retirement are the most concerned. The survey found:
- A third (33%) of 18 to 34-year-olds checked the performance of their investments in March, amid significant market volatility
- This compared to 53% of pension savers aged between 55 and 64
This divide was also reflected in who was paying attention to market movements. Some 72% of the older group were doing so, compared to 44% of younger savers. This is despite younger generations being more likely to take this time to make one-off investments, which 28% have done compared to just 10% of those approaching retirement.
For all generations, there is a risk that rash decisions will have a long-term impact. For those still building up their pension savings, this could include halting contributions as worries about job and financial security become a concern. For those accessing their pension, failing to factor in market downturns if taking withdrawals could also have an impact on long-term value.
So, what can you do to keep your pension on track?
- Maintain contributions
Given the current economic uncertainty, workers still paying into their pension may consider reducing or pausing their pension contributions. However, due to the effects of compounding even a relatively short break from making pension contributions can have a long-term impact. Keep in mind your own contributions will benefit from tax relief and, if you’re employed, contributions from your employer too. As a result, by halting your own contributions, you’re effectively giving up this ‘free money’.
If you find you can’t continue to make contributions, be sure that you understand the long-term impact and what it could mean for your retirement.
- Don’t make rash financial decisions
With bold headlines and falling values, you may be tempted to make adjustments to your investments or make larger withdrawals from your pension to keep it ‘safe’. However, it’s important to keep in mind that a pension is a long-term investment that should have considered the impact short-term volatility would have. Keep this in mind if you’re thinking about making a knee-jerk reaction to the current market movements.
Making rash decisions is something the Association of British Insurers (ABI) has warned about. Yvonne Braun, Director of Policy, Long-Term Savings and Protection at ABI, said: “Rushed financial decisions are rarely the right ones, even at this worrying and uncertain time. Lockdown will not last forever but the decisions you make today about your pension could impact on your standard of living for years to come.
“Now, more than ever, it is important to think longer term, consider your options and seek advice and guidance before making any decisions.”
- Review your portfolio
Whilst the media has focused on the fall stocks have experienced, for many pension savers, this isn’t all your portfolio is made up of. Your portfolio is likely to contain a mix of assets, which can help cushion the fall seen on global markets. You may have seen that the FTSE fell 30% due to coronavirus, but it’s unlikely the fall your pension has experienced is this high. In addition, markets have started to recover, they haven’t reached the levels they were at earlier in the year, but the fall isn’t as significant as it was.
If you’re worried about reading headline figures, looking at your own portfolio is likely to show the impact of volatility isn’t as bad as you first imagined. It can help put worries into perspective.
- Assess withdrawals if you’re accessing your pension
A dip in the value of pension investments isn’t usually something to worry about if retirement is some way off. If, however, your pension is in drawdown and you’re already making withdrawals, it’s worth assessing the impact these will have. As you’ll need to sell off more assets to receive the same income as you’d have done at the beginning of the year, this can deplete your retirement savings quicker. Where possible, temporarily stopping or reducing withdrawals can help your pension go further. Please contact us if you’re accessing your pension flexibly and want to discuss the rate of withdrawal.
- Speak to your financial planner
As your financial planner, we’re here to offer you reassurance and advice when you need it. Speaking to us about pension concerns you may have can help you understand the long-term impact of the current situation and create a solution where one is needed. If you’re worried about your pension, or any other aspect of your finances, please get in touch.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
A Financial Plan can provide a beacon of confidence in uncertain times
COVID-19 is affecting us all. It has impacted upon our daily life, routines, contact with friends and family and our finances.
I’ve experienced times recently, when worry and fear took over. We are in uncertain and unprecedented times, and it’s quite natural for us to feel emotions like this at times like this. It’s part of our makeup, it’s human nature.
We can also feel an urgent need to act, to help, to try and make changes to influence in a positive way and I expect we are all either doing this in some way or have witnessed others doing so.
Our protective instincts influence our thinking:
Is my family going to be ok ?
Are my clients going to be ok?
Is my business going to be ok?
Will my finances be ok ?
In times of uncertainty, like we are living through now, the power and true value of financial planning and having a financial plan can shine through, acting as a beacon of confidence.
You may be thinking or have thought of late:
How do the recent falls in stock markets affect me / us ?
Can I / we still have the retirement I / we hope for?
Can I / we help our children through university or with a deposit for their first home?
These are just some of the questions that a financial plan can help you to answer and visualise.
Our new 4 minute video explains more about financial planning and what a financial plan is:
https://youtu.be/DtKAQ5icSfw
Whilst face to face meetings are not possible right now, this doesn’t stop us from working with you and helping you with your finances.
We can meet with you virtually to bring your numbers to life and help take away any uncertainty or fear that you may have about your plans for the future. Please do get in touch to see how we can help you.