Further interest rate rises predicted: How to stay ahead
We're almost half way through 2018, and it's likely that you've already thought ahead about some things. Maybe you're planning a trip abroad during the summer holidays, or you're a really eager Halloween costume aficionado (and we won't mention those who are already thinking about tinsel and stockings!).
But have you thought about interest base rate rises?
They're not as exciting as holidays and parties, granted, but it is important to act now if you are going to protect your finances from the impact of the predicted increases over the next 12 months.
What's likely to happen?
According to experts, the Bank of England (BoE) is likely to raise the base rate twice in 2018, with another two increases expected to follow next year (Source: EY ITEM Club. Naturally, all financial predictions should be treated with an amount of scepticism, however, it seems certain that when rate rises do come, they will be gradual in nature.
Nonetheless, borrowers should not underestimate the impact on their personal finances, nor should savers overestimate the benefits of them.
If the predictions made come to fruition, the base rate may increase by as little as 0.25% each time, but that will still be a minimum increase of 1% over the next 24 months. Whilst it might not sound like much (especially if you remember the late 80s and early 90s), it is likely to impact you.
What will an increase mean for you?
There are two sides to the potential effects of base rate rises; the negative impact on borrowers, and the benefits it can bring for savers.
For borrowers:
Last year, it was estimated that 3.9 million homeowners had variable, or tracker mortgages (Source: Council of Mortgage Lenders). That means that just over two fifths of homeowners face a rise in monthly repayments every time the base rate is increased.
Variable and tracker rates are, by definition, not fixed. Therefore, when the BoE increases interest rates, this rise is passed on by the mortgage lender to those people with these types of mortgages, pushing up their monthly payments.
If you have a tracker or variable mortgage, the first thing is to understand how much your mortgage payment will increase by if interest rates rise, then ask if you can afford it. If not, it is time to start looking at your options. These include:
- Moving to a fixed rate mortgage
- Cutting back on other expenses to free up the money to cover the increased payments
- Use the time you have to head off any rises and start putting a financial buffer in place which can absorb the extra costs for a while
Fixed rates are usually offered on a fixed-term basis, so it is likely that you will need to shop around every two-to-five years to find a product that suits your needs.
For savers:
Increases in interest rates are mostly good news for anyone building their savings. Whether it's to be used as a deposit on your next home, or you are concentrating on making sure that you have enough to live on in retirement, higher interest rates should give you better returns on your savings.
However, it is unlikely that providers will be rushing to pass any rate rises onto their customers, so where you choose to keep your money now, will matter in the long run. That means that you will need to shop around if you are to see the best possible growth in your savings.
It is also important to keep inflation rates in mind. Even though they may show signs of having peaked last year at a post-Brexit-vote high, it is still tough for savers to find a real return on their money and this is unlikely to change anytime soon.
Our three top tips for finding the best saving account are:
- Shop around; using more than one comparison tool
- Consider differ types of account; could locking money away in fixed-growth options be better for you?
- Do your research into how providers reacted to the previous rate rise; if they were reluctant to pass the increase onto savers, they are unlikely to act differently during future rises
Where to go from here
Whether you're currently borrowing or saving (or, most likely, a mix of both) you will undoubtedly be looking for ways to stay ahead of the potential base rate rises over the next 24 months. The best way to do this is to engage with a financial planner or adviser to develop a strategy and gain insights which will enable your money to work for you and allow you to meet your financial goals.
For more information, or to get started, feel free to get in touch.
Gender pay gap does not need to continue into retirement
Historically, men have received more money annually from the State Pension than women. In a recent Which? survey it was shown that over 20 years, women would receive £29,000 less on average than men; however there are a few factors at play that mean the annual discrepancy may be largely offset. These include women receiving their state pension earlier than men at 60 and not 65. With the state pension age now being very close to equalised, how will this effect women going forward - will they continue to take a reduced annual benefit than men?
How the State Pension is calculated
To be eligible to receive any State Pension, you must have at least 10 years of National Insurance contributions on your record. How much you receive each week will depend on how many qualifying years you have in total, and to receive the Full State Pension, you will need a minimum of 35.
Qualifying years can be accrued in three ways:
- By paying National insurance through an employer or self-assessment
- By receiving National Insurance Credits, which are awarded by claiming some State Benefits
- By making voluntary payments
Where is the gender gap?
The main reasons for the gap in pension benefits are: women are more likely to work less hours, women have historically earned less than man, have taken time off work or leave employment altogether for periods of time during their lives to take care of children and or elderly and infirm relatives.
The new flat rate of state pension benefit that was introduced in April 2016 (currently £164.35 per week) is designed to rectify the previously mentioned issues that currently negatively affect women. In the past, a part of the state pension was based on earning and the more you earned the more you would receive from the state in retirement. This has been replaced and you are now awarded a flat credit for each year you earn more than £6,032 per annum no matter how much you actually earn in any one year.
Childcare and National Insurance credits
Parents who receive Child Benefit and are caring for a child under the age of 12 receive National Insurance credits automatically. If a parent is not entitled to Child Benefit they should still apply and ask for no payments as this will activate the automatic credit and count towards the state pension.
Grandparents and other family members aged over 16 but under state pension age that provide care for a child aged under 12 may also be able to get Specified Adult National Insurance credits. These are not credited automatically and need to be applied for (using form CF411A).
State pension credits for carers
If you receive Carer's Allowance, you'll automatically receive credits on your National Insurance record and therefore credit for your state pension.
Understanding your State Pension should be seen as part of the wider retirement planning process. So, to make sure that you have enough retirement income to achieve your goals, you can:
- Calculate how much you will get:
Using a State Pension forecast calculator, you can see how much you will have when you stop working and need to access your pension.
Knowing how much you will have if you don't make any changes to your current situation will help you to identify any shortfall.
- Fill in any gaps in your record:
You can view your National Insurance record and make any voluntary contributions by clicking here.
- Evaluate your other pensions:
Knowing what you can expect to get in retirement income from your workplace or personal pensions will give you a better idea of the overall income you can expect to receive when you stop working.
- Seek financial advice:
Research has shown that those who engage with a financial adviser or planner could put an additional £98 toward their pension each month. This equates to an extra £3,654 in annual retirement income for later life.
Talking to a financial planner will also enable you to make better financial decisions and create a plan which will see you meeting your long-term retirement goals by making adjustments and changes in the short-term.
To get started, please feel free to contact us.
UK homeowners more financially stable than other countries
UK adults who own their home are less vulnerable to financial shocks than those in other countries, according to HSBC.
Financial resilience
The UK has the second lowest number of people who would struggle to cope if mortgage interest rates increased by 2%; worldwide, 22% of people would face instability should interest rates rise, in Britain, it is just 16%.
Even a 5% rate rise would only negatively affect 35% of the UK's homeowners, compared to almost half (47%) of the global population.
Big spenders, bad savers
The study also shows that, on average, UK mortgage holders spend 34% of their monthly income on repayments, 4% below the global average. However, despite the tendency to spend large amounts on housing, many people looking to buy a house will struggle to save a large enough deposit. Globally, 80% of prospective homebuyers find saving a deposit to be difficult, compared to 84% of people getting ready to buy in the UK.
Despite this, current UK homeowners take an average of just four years to accumulate their deposit. While the worldwide average is a year longer, and French buyers spend around seven years saving.
One of the reasons behind the length of time people spend saving is growing deposit aspirations; 69% are planning to put a 20% deposit down. The main source of this money is regular savings at 78%.
So, whilst buying a house in the UK might be tough, it is comparably easier than in many other countries.
How interest rate rises affect homeowners
Tracie Pearce, HSBC UK's Head of Retail Products says:
Interest rates have been at historic lows for many years, and many people who got onto the property ladder in the last decade have never experienced anything else. In fact, the recent increase in the UK's Bank of England Base Rate would be the first time they have seen one.
Many home owners are heading into uncharted territory having entered the housing market with record low mortgage rates. They may have taken out a fixed rate that is due to come to an end or are on a Tracker rate and will possibly see their rate creep up over time.
While it is positive to see UK homeowners' resilience and confidence in their finances, it's important they are conscious of potential interest rate rises and how they might affect household budgets.
Preparing for a financial shock
The research shows that 41% of people are willing to stretch themselves financially to buy a better home. Consequently, leaving a larger safety net in place is sensible, because without it, the smallest financial shock could leave you in danger of:
- Being unable to make mortgage payments and potentially losing your home
- Falling behind on essential costs, such as household bills
- Falling into debt and negatively impacting your credit score
- Needing to borrow from friends and family to make ends meet
There are two forms of financial protection which can make riding out an income shock, or interest rate rise much more manageable:
1. An emergency fund
Emergency funds can be used for all kinds of financial trouble, from a broken-down car, to home repairs, or even to cover the costs of medical equipment after an accident.
Put simply, an emergency fund is money which can be used if your income cannot cover an essential expense. It is recommended that this fund is equal to three-to-six months of living costs just in case your household unexpectedly loses an income.
This will also provide a buffer if your interest rates rise more sharply than expected.
2. Insurance
The purpose of insurance is to pay out when something goes wrong. It is something that you never want to need, but you always need to have. There are three types of insurance to consider, which will protect you and yours from the financial implications of ill health or death:
- Life Insurance: Pays out a lump sum if you die of an illness which is covered within the terms of the policy
- Critical Illness Cover: Pays a lump sum or income upon diagnosis of a serious illness
- Income Protection: Replaces a portion of your income if you are unable to work due to illness or injury
The importance of financial planning
Taking financial advice and having a clear plan of action surrounding your finances can keep you financially confident and stable, no matter what trouble you may face. A good financial plan will include safeguards to protect you and your family, should the unexpected become reality.
To talk about the best ways to reinforce your family's financial stability, get in touch.
Are you in a financially compatible relationship? And does it matter?
Almost two thirds (60%) of people believe that financial compatibility is one of the most important factors in a successful relationship, according to Scottish Widows.
But what is financial compatibility?
Like any part of a relationship, financial compatibility is multi-faceted and will look different for every couple. However, the research states that incompatibility includes a lack of shared financial aspirations and different attitudes to spending and saving.
Signs of financial incompatibility
You may be in a financially mismatched relationship if:
- You wish your partner was better at saving
20% of people feel this way and it could be a sign of differing priorities where money is involved. It may also signify that you see the future differently to one another, if one of you values spending over saving, you're likely to feel the friction.
- You feel like your savings have been impacted by your partner's spending
Being unable to reach your financial targets can be frustrating, especially if the reason is your significant other. This feeling is shared by more than a quarter (27%) of people and rises to 41% for couples who are working toward living together.
- You have a lack of shared financial goals
The feeling of taking different approaches to finances can easily put a wedge between partners. 17% of people have felt that they and their partner have different financial goals and that their relationship has been strained as a result.
Communication could be the key
A lack of communication and shared planning could be the main reason why so many people feel that their partner's attitude towards finances is so different from their own.
The research shows that people who form relationships in later life are more likely to discuss finances from the beginning, with 34% of over-55s doing so, compared to just 8% of 18-to-34-year-olds. Furthermore:
- 11% of people do not tell their partner how much they earn
- 57% of people don't know how much their partner has in the bank
- 25% of married people admit to keeping money separate from their spouse's
So, more communication is necessary.
Should financial incompatibility be a deal breaker?
Not necessarily.
However, it may simply be down to a need to talk more openly and communicate with one another. It is nonsensical to expect your financial aspirations to be perfectly aligned if you have never sat down and discussed how you think money should be treated.
Catherine Stewart, retirement expert at Scottish Widows, said:
It's important that couples - at any age - have open and honest conversations about their finances to make sure they have an understanding of their individual longer term financial goals.
Some people may be more inclined to focus financial conversations on big life events like buying a house, having a family, or taking time out from work to travel together. Life after retirement should also be on this list; having a good understanding - early on - of each other's retirement goals will help to ensure couples can work towards a realistic joint financial plan.
A meeting of minds
Creating a joint financial plan is an important step in any relationship. It could be signal of commitment, or that big changes are planned. Either way, the simple act of talking about your finances, both as individuals and as a couple, will strengthen your bond and give you the opportunity to address any differences of opinion.
Speaking to a financial planner or adviser as a couple will give you the opportunity to combine your goals with professional insight into the strategies and methods available to help you to achieve them.
For more information, or to speak to a financial planner or adviser, get in touch.
Spring Statement: An update for EIS and VCT investors
The recent Spring Statement included an announcement that the government will consult on how venture capital investments in start-up companies can be structured.
Venture capital schemes, including Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) deliver capital to start-up and small businesses while, subject to certain rules, investors qualify for tax-relief on their investments.
Patent Capital Review
The announcement comes after the government published the Patent Capital Review, aimed at unlocking £20 billion of long-term investment in innovative UK businesses, via venture capital schemes.
The new consultation is primarily aimed at understanding the funding requirements of innovative, knowledge-intensive companies, as well as how a new way of structuring Enterprise Investment Schemes (EIS) might work.
The 'Financing growth in innovative firms: Enterprise Investment Scheme knowledge-intensive fund consultation' document issued by HM Treasury said: The government sees the venture capital schemes as being increasingly focused on growth and innovation in the future. Evidence gathered during the consultation suggested that knowledge-intensive firms - which have high growth potential but are R&D - and capital intensive - have the most difficulty obtaining the capital they need to scale up. The EIS and VCT schemes are therefore being significantly expanded for knowledge-intensive companies. The government also announced that it would consult on a new EIS fund structure aimed at improving the supply of capital to such companies.
One of the ideas under consideration is to provide additional incentives to investors, including the possibility of exempting, rather than deferring, the gains on other assets when investments are made into an EIS.
However, it is understood that the government is not considering introducing a new EIS structure, reducing the three-year minimum holding period for EIS investments, or increasing the tax-relief available to investors.
VCT and EIS Tax-relief
Subject to certain criteria VCT, EIS and SEIS investments attract tax-relief, making them popular with those investors prepared to accept the significantly higher levels of risk associated with this type of investment.
VCT investments qualify for upfront tax relief equal to 30% of investments made in to new shares. If the investment is sold within five years, the tax-relief must be repaid.
EIS and SEIS investments qualify for tax-relief of 30% and 50% respectively. However, they must be held for at least three years, otherwise the tax-relief will be withdrawn.
Furthermore, gains on VCT, EIS and SEIS investments are exempt from Capital Gains Tax (CGT) and further relief is available if the investment is ultimately sold at a loss.
There are limits on the maximum tax-relief that can be claimed on VCT, EIS and SEIS investments.
Speak to us
The consultation closes on 11th May 2018, and more information can be found by clicking here.
If you would like to know more about the government's consultation or the tax benefits of investing in a VCT, EIS or SEIS please contact us, we'll be glad to help.
Divorce: Why you might be paying the price for decades to come
Getting divorced is an expensive process.
It can also take years, or even decades to fully be free of the effects.
During the process, you are likely to be affected emotionally, physically and financially, but over time, the first two effects will lessen. Unfortunately, the financial effects are often the slowest to heal.
According to research from Prudential:
- The annual income for divorcees is £3,800 less than those who have never been divorced.
- 23% of retirees will take significant debts into retirement with them, compared to 16% of non-divorcees.
The good news is, whatever the circumstances surrounding your divorce, it is possible to get yourself into a financially stable position again.
Richard Collins, Charles Russell Speechlys Family Law Partner, says:
We are beginning to see many more people divorcing just prior to, or during retirement. These decisions can only be made easily if there is proper financial provision in place for both spouses' retirement.
The fact that divorcees tend to have lower debts than their married counterparts may be down to the courts encouraging a clean break between divorcing couples where a clean break is affordable.
This allows divorcing couples to regain control over their own finances and consider how they want to plan for their separate futures. Many divorced couples re-evaluate their spending and finances after divorce and take this opportunity to build a stable financial future for themselves including growing enough pension provision for their retirement.
I've seen people post-divorce relishing their independent financial status and seizing the opportunity to make financial decisions for themselves, knowing that they are building up wealth and securing their future.
Your first priorities should be:
- Housing
Having somewhere to live in the short and long term is the most vital thing to consider when separating or divorcing. If you are staying in a shared home, will you be able to afford the payments now you are alone?
You may be entitled to support or state benefits to help you to find affordable housing and stabilise your finances.
- A financial safety net
One of the best ways to improve your financial stability, is to build up a financial buffer or safety net. Ideally, this should be equal to three-to-six months household expenditure. Try to hold your emergency fund in an instant-access account, even if that means compromising on interest rates.
At this point, it is also worth updating your will, as divorce will render your current one invalid.
Top tips for maintaining your financial stability during divorce
1. Handle the process practically
Don't rush into decisions. It is understandable that your head will be ruled by your heart at a time like this. However, financial decisions can affect you for life, so it is vital that you allow your sense of logic to step in and override any rash commitments you may be tempted to make.
To give logic a fighting chance, it may be worth discussing your ideas and thought processes with a friend or family member you trust.
2. Get your paperwork in order
Take care of your current obligations first, whether that's cancelling payments, changing your address with your bank or updating your nominated beneficiaries on your life insurance. Most of these can be done over the phone or online and, whilst they are small tasks, they can often feel very important and will give you a sense of accomplishment and control.
3. Re-evaluate your goals
What you want out of life may have changed since you last thought about your finances. During a calm moment, you should think carefully about what you want your life to look like and your ideal financial situation. Make some notes as you rediscover your priorities and keep them in a safe place; you will need them again.
4. Prioritise financial protection and retirement
If you haven't already invested in insurance, now is the time to take out Life Insurance, Critical Illness Cover and Income Protection. If you are living alone, or have dependants, the peace of mind is worth it.
Once the immediate threat of emergency is covered, it's time to think more long-term. Research has shown annual income is less for divorcees, but how can you avoid letting that affect the quality of your retirement?
You have three options:
- Making up the shortfall with bigger pension contributions.
- Accepting that you will have less to live on and adjusting your lifestyle accordingly.
- Staying in work for longer to earn more money and continue to build your pension.
Of course, you may have had plans to grow old with your ex and gracefully mature together. Now you have the opportunity to rethink that plan and replace it with your own aims and desires. Think about what you want your retirement to look like, then use a retirement income calculator to determine how much you will need to save to achieve it.
5. Make a plan
Now that you know what you want and what you need to get there, you can begin to put a plan in place to make sure that you keep your finances on track. To do this, you will need to find ways to bridge the gap between your current circumstances and your desired lifestyle. Which may seem impossible, but there are many options to consider.
Of course, if you would prefer the hard work to be done for you, you could consult an independent financial planner…
6. Consult a professional
Independent financial advisers and planners are experts at finding the solutions and strategies to bring you closer to your financial goals.
The main benefit of talking to a professional is the knowledge that they are clued up on the many types of product available and will have access to knowledge that you will not. That means that you can be secure in the knowledge that the products and methods suggested are the most suitable for your circumstances.
To rebuild your financial stability and confidence, get in touch.
Giving money to charity? Six mistakes to avoid
As a nation, we gave over £9 billion to charity last year. (Source: Charity Aid Foundation)
In addition, 53,000 legacies were left, totalling £1.4 billion (Source: Legacy forecasting)
That's something to be proud of.
However, we also gave more than £5 billion to the tax man in Inheritance Tax (IHT) (Source: Office for Budget Responsibility (OBR)). What if you would prefer for that money to be given to good causes instead?
Making gifts to charities achieves three things:
- It makes you feel good
- It helps animals, people and communities in need
- It puts that money immediately outside of your estate, and is exempt from IHT liability
You can give more, and make the most of your ability to help, by avoiding these six common mistakes:
1. Not using Gift Aid
Gift Aid allows UK charities to reclaim the tax they would otherwise lose on your donation. When donating, you usually need to put a mark in a box to signify that you would like to use Gift Aid on your donation.
Doing so means that the charity can keep more of the money you have given and put it to use toward causes that you believe in.
In the 2016/17 tax year, Gift Aid enabled charities to reclaim £1.27 million which would otherwise have been lost to tax. (Source: Gov.uk)
2. Donating at the wrong time
We all feel more generous at Christmas, but the causes you support need funding all year round. In addition, a regular, monthly donation is much better for both you and the charity. This is because you help them to make an income each month, and it makes your own budgeting much easier.
You may even find that you can afford to donate more overall by giving a small amount each month, rather than a yearly lump sum.
3. Not reviewing subscriptions
Monthly subscriptions and Direct Debits can be easy to forget about and you could be donating for longer than you planned to. Make sure that you are reviewing your budget regularly so that your budget makes financial sense.
You may even find that you can afford to donate more, as your circumstances change.
4. Failing to research
Charities have dominated the headlines for all the wrong reasons lately, so make sure that you know who gets your money and how it is used. Investigate the allocation of funds and make sure that a larger proportion of your donation is used to help the cause, rather than funding the lavish lifestyle of the CEO.
Consider where your donations are going. Remember that donations to local charities will have a more immediate and visible effect, but national organisations are able to reach further and hold more power.
5. Not keeping records
Charitable donations are exempt from IHT, but you may need to prove that you have donated the money. Keeping your proof of donation is the best way to do this. It is worth keeping these documents with your will, as the eventual executor of your estate may need to rely on them.
If you like to regularly review which organisations you support, it may be worth keeping a log of when your donations start and end.
6. Not leaving legacies
Remember that you can write charitable donations into your will and they will be immediately exempt from IHT, this is a great strategy for reducing your estate after your death. However, it is important to keep this updated with the right charity information, as well as the right amount.
If you find yourself in need of a will review, or maybe you still haven't written one, Will Aid Month offers the chance to have your will completed by a professional in return for a voluntary charity donation.
For further help with estate planning and giving money to good causes, get in touch.
Homeowning: The naivety of youth
Buying a house.
It's one of the biggest commitments your child will have to make when they grow up, but research from Halifax shows that many children and teens aged 11 to 21 are in the dark about how buying a house actually works.
What do they think?
Among all 11-21-year olds, there is a widespread belief that the average price of a first home in London is between £50,000 and £200,000. In fact, the average price of a first home in London is more than twice that, at £422,580.
There is a difference in beliefs among the age groups within the 11-21-year old bracket.
11-14-year olds
The youngest teens believe that:
- Mortgages are unlimited (20%)
- Their parents will pay for their house (33%)
The top three places to look for a property, according to this age group are:
- The internet (36%)
- A 'house shop' (33%)
- The bank (27%)
The priorities of 11-14-year olds upon moving into their new house are also interesting, with young teens most anxious to:
- Meet the neighbours 32%
- Get Wi-Fi 24%
- Buy a sofa 12%
- Throw a housewarming party 5%
15-17-year olds
For those in their mid-teens, expectations seem quite pessimistic; 23% of 15-17-year olds believe only rich people own their own homes, whilst 25% think that it will take 20 years of saving to gather enough for a deposit.
18-21-year olds
Among older teens and young adults, opinions seem to be more realistic, with home ownership of high importance to 59%. However, some aspects remain tinged with naivety, as:
- 27% expect to own property by the age of 25 (the average age of first time buyers is 31, rising to 32 in London)
- 10% define Stamp Duty as money used to buy stamps
- 23% of males and 5% of females think that they will need a deposit of £5,000 - £10,000 (the current average is £32,321)
- 31% of males and 18% of females are counting on inheritance to pay off their mortgage
How can you educate your children and teens?
Opening the bank of mum and dad (and grandparents) is increasingly necessary these days. But giving money away is not enough. It is also our responsibility to prepare them for the house-buying process so that they can tackle as much of it as possible on their own two feet.
These five tips should offer a good foundation for that education:
1. Work it out together
Start by communicating and finding out what your child wants in life. The type of lifestyle they aspire to have will largely dictate how they work toward it. Explain that things are unlikely to fall into place as soon as they enter the adult world and that they may have to compromise on some aspects along the way.
2. Look at the options
Using the time they have before buying a house is necessary, to look at some of the available options, there are several sources of help, for example; calculators and government schemes.
Use online calculators to determine how much mortgages cost and how much your child is likely to need to save to buy a house. Then investigate how much buying a home costs when you factor in the legal and moving costs.
Secondly, read up on Lifetime ISAs, Help to Buy schemes and Shared Ownership. These are all designed to get young adults onto the property ladder and could turn out to be the helping hand your child needs.
3. Create a plan
Now that you know where your child wants to be in the future and how much will be required to achieve that, you can work with them to create a plan. Consider how old they are and how much they will be able to afford as their income increases over time and work out a rough guide to get them homeowner ready in their 20s.
4. Check their credit and find ways to improve it
Of course, this is aimed at older teens and young adults, but it is never too early to learn about the impact of a credit score and what they can do to keep it healthy as they transition into adult life.
If your child is not old enough to have credit, you could show them your own credit profile and explain the different aspects and how they impact on the ability to access credit.
5. See a financial planner together
It may be worth taking you child along to an appointment with a financial planner so that they can see how important finances are in adult life. However, if your child is already over 18, maybe they would like to start seeing a financial planner themselves?
Either way, why not give us a call to see how we can help?
Hope for savers as Cash ISA interest rates begin to rise
The past decade has been miserable for savers.
Low interest rates, coupled with prolonged periods of relatively high inflation has meant that capital held in savings accounts is guaranteed to lose value.
However, research now shows that there might be a light at the end of the tunnel, especially if you have a Cash ISA (Individual Savings Account).
Boost for Cash ISAs
According to MoneyFacts, both the average interest rate and number of ISA products available has increased consistently during the first two months of 2018.
Both Instant Access and 18+ month fixed-rate ISAs saw an increase in rates between December 2017 and February 2018, resulting in:
- Instant Access rates jumping to 0.78% from 0.68%
- Fixed rate ISAs rising from 1.38% to 1.46%
They might seem like small increases, but they can make a big difference to your savings, especially if you are using your ISA Allowance in full each year.
Looking at the bigger picture, the upward trend in both interest rates and ISA popularity are both positive signs for those who have already put their money into an ISA account.
Should you open a Cash ISA?
Whether you have never had one, or are thinking about reviving an old account, the rate rises should be seen as a catalyst for reviewing your interest rates.
Before deciding whether a Cash ISA is the right vehicle for your savings, it is important to know how it works and what you can do with it. In brief:
- A Cash ISA holds your deposits and interest is added on a tax-free basis
- Cash ISAs are available through banks and building societies
- You must be 16 to open an Adult ISA, but parents and grandparents can open a Junior ISA before this age, and you can hold both a Junior ISA and Cash ISA from 16 to 18
- Each year, you can deposit up to £20,000 into ISAs. If you have a Lifetime or Help to Buy ISA, your allowance will be spread across the two accounts
- Instant Access Cash ISAs allow you to withdraw your savings whenever you want, while some Cash ISAs will require that capital is stored for a set amount of time
Making the most of your Cash ISA
If you're already paying into a Cash ISA and want to make sure that you are getting the best returns on your deposits, there are three things you can do:
1. Check your rate and shop around
Compare your own rate to those available elsewhere. You can do this either online or in person but be sure to check a range of comparison websites to get a balanced perspective.
Consider the unknown. There are a variety of banks that you have probably never heard of; both challenger banks and Islamic banks are on the rise and may be able to offer you something better than you will find on the high street.
Islamic banks operate without paying or charging interest but offer profit instead. These banks operate in a different way to the firms you are used to but could still be a viable option for your savings.
Before settling on a bank or building society, make sure that they are protected by the financial Services Compensation Scheme (FSCS), this guarantees that your savings (up to £85,000) are not lost, should the provider go under.
2. Move your ISA
You can only open one Cash ISA in a tax year. But if you have noticed that the rates on another bank or building society's products are better than your current ISA account, don't be afraid to transfer your existing savings over.
If you choose to do this, you will need to make sure that your new bank or building society accepts transfers and complete an ISA transfer. Remember that you do not need to close your first account or withdraw your savings, as the two providers will carry out the transfer on your behalf.
3. Make use of your allowances
The Annual ISA Allowance is currently £20,000 per year. That means that you can make deposits up to that amount, spread across your ISA accounts, each year.
The Personal Savings Allowance allows you to earn up to £1,000 each year through savings income or interest, without incurring tax. However, this allowance is not affected by ISA accounts, so you are free to use another type of savings account to hold any deposits outside of your ISA allowance in a tax-efficient manner.
Do you need financial advice?
If you find yourself feeling lost and confused when it comes to savings and investments, now is the time to seek independent financial advice.
A financial adviser will be able to give you tailored solutions to help you work toward the future you dream of, whatever that involves.
Ready to start planning your financial future? Get in touch.
The gender pay gap: even pensions are not immune
By the age of 50, men's pension pots are double the size of women's, according to research from Aegon.
Why?
- The gender pay gap
- Differences in working hours
- Family responsibilities
What is the gender pay gap?
According to the Government Equalities Office: The gender pay gap is an equality measure that shows the difference in average earnings between women and men. (Source: gov.uk)
The past three months have seen huge progress made in terms of equal pay and the gender gap. In December, the Equality and Human Rights Commission declared that all companies must disclose the difference in pay between male and female employees, alongside limitless fines for non-compliance.
January has seen large media focus on the 500 large UK companies shown to have a significant difference between male and female staff wages.
The Government Equalities Office reports that the gender pay gap is now at its lowest level since records began; 18%.
What causes the difference in lifetime income?
The opinions on this topic are hotly debated and vary widely from group to group. However, there are three factors which may affect the average lifetime earnings of women:
1. Industry and sector:
There are less female employees in high-paying industries.
Research has shown that certain industries pay proportionately higher than others. A great example of this is STEM industries (science, technology, engineering and mathematics). In 2016, a worldwide study showed that entry level positions in this sector pay, on average 20% more than other fields. (Source: Korn Ferry)
Further research has shown that, despite 13,000 women entering the STEM sector, the overall percentage of women working in these industries has fallen from 22% to 21%. (Source: WISE Campaign)
2. Time spent in work:
Throughout life, there are events which force women to stop working, or reduce their working hours, including pregnancy, childcare and caring for relatives or loved ones. This means that, over a lifetime, men are likely to have more working hours in total, than women.
In September 2017, women made up almost three quarters (73.55%) of the part-time workforce, whilst men accounted for 63% of all full-time employees. (Source: ONS)
In addition to this, men who work full-time are likely to work longer days. According to Statista, in the year to June 2017, men worked for an average of five hours more than women each week
3. Seniority:
Research from the Chartered Management Institute last year, showed that 66% of junior management positions are filled by women. Comparatively, senior management positions are more likely to be filled by men, with 74% of current positions held by males.
The same study found that, for women who are employed at a senior management level, pay is still disproportionate, with:
- Male directors paid an average of £175,673
- Female directors paid an average of £141,529
In addition, annual bonuses have shown a gender gap of 83%. Male CEOs receive an average annual bonus of £89,230, whilst females in similar positions receive just £14,945, on average.
How does that effect pensions?
People who earn more money can afford to put more aside for the future, it's that simple.
Given that employees are only automatically enrolled into a workplace pension, if their annual earnings reach £10,000 or above, it is likely that many part-time employees are not eligible. That means that many women, who have reduced their working hours may be left unable to save for retirement.
In 2015, government research showed that just two fifths of those who were eligible for automatic enrolment were female. (Source: Gov.uk)
The problem is further compounded by the fact that employer contributions are based on a percentage of earnings and the larger the contribution, the greater the level of tax relief.
What can you do?
There are many things you can do to improve your retirement income.
The only thing you shouldn't do, is nothing.
Of course, you can rely on the State Pension as a base income, if you have accrued enough credits to receive it. But it is unlikely that it will be enough to pay your living costs, any care needs you have and allow you to enjoy having more time to yourself.
To boost your pension savings, you can:
Ask to be included in your employer's workplace pension. Even if you fall below the earnings threshold, you can ask to be included in the scheme. The minimum contribution rates are due to rise in April, so be aware of how much you will lose in monthly income by doing so.
Start saving. Choose a vehicle which works for you, whether a savings account or pension, and start putting money away.
Seek independent advice. Research has shown that people who seek professional advice could save up to £98 each month toward their pension, giving themselves an additional £3,654 in retirement income each year.
Looking to make sure that you get an equal pension fund in later life? Contact us for more help and advice.
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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.