Time to act if you have a 'Pensioner Bond'
For those who invested in 65+ Guaranteed Growth Bonds in 2014 and 2015, it is time to think about what to do with the returns.
What are 65+ Guaranteed Growth Bonds?
In 2014, NS&I (National Savings and Investments) released a series of bonds for those aged 65 and over. Known as 'pensioner bonds' they offered 4% taxable interest per year, for three years (Source: NS&I). As this was much higher than the market average, they were very popular, and 1.1 million people invested a total of £13.7 billion (Source: NS&I)
The first bonds, launched in January 2015, are now due to mature.
Those who invested the maximum of £10,000 will have a total of £11,300 to reinvest once their bonds mature.
That means that, if you were one of the thousands who invested in these bonds in 2014/15, you have an important decision to make; and you may not have long to act.
So, what are the options?
1. Do nothing
You may wish to leave your money invested in NS&I bonds. However, once the current bonds mature, it will automatically be reinvested into Guaranteed Growth Bonds. These offer a much lower return of 2.2% per year. But, once transferred, your savings are locked in for three years; early access incurs a penalty of 90 days' interest. (Source: NS&I)
This might seem like a suitable option. Your savings are secure and appear to continue growing. However, with inflation hovering around 3%, interest of 2.2% means that your money will lose value over the three years it is invested.
On the other hand, the 2.2% growth is guaranteed, so it may be a viable option if you are more risk-averse and just want to keep your money safe, rather than inflation-proofed.
2. Put your returns into a savings account
Of course, your money needs to be held somewhere, but with most guaranteed interest rates sitting below 2%, the returns on your savings currently won't beat inflation and you will lose value in real terms.
Why is this?
Put simply:
• Inflation is the rate at which the cost of goods and services increases year-on-year.
• Interest is the rate at which your money grows year-on-year.
If your money is growing at a slower rate than the cost of items you want to buy, your buying power is reduced.
3. Invest the cash
You can take the cash out of the bond once it has matured and invest it as you wish. Of course, all investments carry risk and there is a possibility that you could end up with less than you put in to begin with.
But, if you want the higher growth and returns, it may be a favourable option. Especially if you have other capital in savings and a stable income which supports your lifestyle. If you have money which has been tied up for three years already, which you have not needed to access, you may be more willing to take the increased risk.
What to do if you have 65+ Guaranteed Growth Bonds
Whilst we cannot tell you here how to manage the returns you will get from your matured 65+ Guaranteed Bonds, we can tell you that acting soon is a must. NS&I are sending letters to those people who invested in the bonds when they were available, to ensure that they are aware of the upcoming maturities.
However, if you have moved to a new house or have a loved one who purchased bonds but has since passed away, you will need to contact NS&I to access the returns.
You can get in touch with NS&I here.
The importance of advice
Talking to an independent financial adviser should be your first port of call when making any financial decision. However, if you haven't thought about talking to a professional before, this is an ideal reason to start.
A financial adviser will be able to analyse your circumstances. They will then take your aspirations and objectives into account when offering advice and products which will help you to continue to grow your assets.
Whether you're hoping to increase your income, supplement a loved one's living costs or leave a legacy when you die, a financial adviser will help you to make decisions to work towards those goals. This means that you can be comfortable and confident in your financial decisions and stability.
So, why not give us a call?
Please note:
The Financial Conduct Authority does not regulate NS&I products.
Beaufort Analysis 266 - Letting the air out of the balloon
Investors have grown accustomed to global equity markets climbing to new highs, but last week was the first time, in a long time, that we witnessed a true return to market volatility.
Driven by rising inflation and an increase in bond yields, the VIX, a measure of market volatility, saw its biggest ever daily jump. In percentage terms, the index leapt +116% from +20.00 to +37.32; the last time we observed a significant jump in the VIX was when China devalued its currency in August 2015, this caused the Shanghai Composite to fall c.8.5% and a spike, albeit brief, in volatility. This increase in volatility remained elevated throughout the week with the VIX hitting an intra-day level of 50.30 midweek, before collapsing to low 20's and spiking again towards the end of last week, on the back of heightened market sensitivity to macro data.
Moving over to politics, Angela Merkel and the SPD have reached agreement to form a coalition government. Whilst this is good news for Europe and a result that could foster deeper EU integration, SPD members are required to approve the deal, which may not be as simple as it first seems. The US remains in partial shutdown, although progress has been made; the Senate have announced a 2-year budget deal and an extension of the debt ceiling until 23rd March. The deal was approved by the Senate and now requires approval from the House, again, this may not seem as simple as it first seems. Immigration remains a contentious issue in the US and some members are unlikely to back the bill unless open dialogue can be held around this thorny topic. Brexit negotiations remain muddled. The next key event will be a speech from Theresa May, in which she will outline the future relationship Britain wants to have with the EU.
We have continually highlighted over the last 6 months that the market will not move higher in perpetuity and that there is likely to be a pullback at some stage. We view the current volatility in the market as 'normal' and remind clients that inflation and rising bond yields are typical catalysts for markets to recede. However, we view recent market moves as healthy and believe letting the air out will allow markets to consolidate their gains, before moving higher, albeit at a lower pace.
Looking out to the week ahead, the main focus will be on US inflation data, which, should this show signs of softening, will provide a support level for markets. If not, we are likely to see further market volatility as markets adjust to a more normalised environment.
Timely support from Beaufort Financial for Ark Cancer Centre Charity
THE dynamic team at a thriving financial firm have given timely support to Ark Cancer Centre Charity by adopting it as their Charity of the Year for 2018.
The team at Beaufort Financial chose World Cancer Day on February 4 to announce that they will once again be supporting Ark Cancer Centre Charity's mission to raise £5million towards a trailblazing cancer treatment centre that will help and support people in the Hampshire Hospitals NHS Foundation Trust (HHFT) area.
It's the third year in a row that the Beaufort Financial team have backed Ark - and several members of the company have played key roles in the success story that has seen the charity's fundraising campaign hit £1.8m.
Beaufort Financial, which has clients in Hampshire, Berkshire, Buckinghamshire and the South of England, offers a comprehensive service to clients looking for a personal, bespoke approach to their financial affairs.
Some members of the firm have taken part in half-marathons and fundraising cycle rides - including JOGLE16 (John O'Groats to Land's End) and the Ark to Arc ride - which have collectively raised well over £100,000 for Ark.
Beaufort Financial director Mark Dolby, who was inspired to support the charity after losing close members of his family to cancer, said the team are delighted to be supporting Ark for a third year.
Mark said: World Cancer Day, when everyone is encouraged to unite in the fight against cancer, was the perfect day for Beaufort Financial to announce that we have chosen to renew our Charity of the Year support for Ark.
I and other members of the team have been delighted to support the charity over the last two years. We look forward to continuing to make a difference in 2018 as we raise more funds for, and awareness of, Ark's campaign to raise £5m towards the new cancer treatment centre.
Ark Cancer Centre Charity trustee Merv Rees said: The team at Beaufort Financial are great Our Partner supporters of Ark Cancer Centre Charity and the cancer treatment centre project, and I am delighted and grateful that they have chosen to back the charity again in 2018.
The £5m that Ark Cancer Centre Charity is raising will ensure a range of support services and complementary therapies are available alongside chemotherapy and radiotherapy treatments in a calm and uplifting environment.
The new centre will largely be funded by HHFT, and it will most likely be built on the existing Basingstoke hospital site.
Beaufort Analysis 265 - A Bad Moon Rising?
Last week we witnessed a phenomenon not seen for 152 years; a Super Blue-Blood Moon Lunar Eclipse! The second full moon of January was not only larger than normal, it was a certain hue owing to the total eclipse as seen by some in North America, Australia and Asia.
It marked a week which saw most stock markets lose ground after their strong start to the year, with indices in Asia recording their worst falls since 2016. Both UK and US main indices fell around 4% over the week, with the Dow losing 666 points on Friday. The 10-year Treasury yield, which sets the cost of money for the world, has risen to 2.8%, it's highest level for 4 years, as US earnings grew at their fastest rate since 2009, driving speculation that the Federal Reserve will lift interest rates more aggressively. Rising bond yields are unsettling equity markets as returns from stocks look relatively less attractive due to their risk.
Manufacturing and construction in the UK has slowed since the start of the year. The Purchasing Managers' Index (PMI) showed lower readings and prices rising their fastest for 25 years, with car manufacturing in the UK falling for the first time since 2009. Construction activity reduced in 2017 as commercial and infrastructure projects came to an end and in January, housebuilding fell due to muted demand and supply, with approved mortgages by lenders now at a three-year low following the interest rate hike last November. The shortage of properties helped push house prices up 0.6% over the month. Consumer confidence, however, jumped by its largest margin in a year in January, although it is still lower than a year ago as with job security remaining a concern.
Meanwhile, Theresa May, while on a trip to China securing £9bn worth of new trade deals, had to rebuff criticism of her leadership and Brexit negotiations saying she is not a quitter. The Prime Minister insisted that European nationals arriving during the post-Brexit transition period will not have the same rights as those who arrive before, contrary to EU's insistence, and that she is committed to taking Britain out of the EU customs union.
Beaufort Analysis 264 - Now in 3D!
The centre of the economic and financial world was temporarily relocated to the Swiss Alps last week. The annual World Economic Forum (WEF), held in the alpine town of Davos, brings together the good and the great of politicians, economists and central bankers. For the first time in a decade, the mood and rhetoric emanating from Davos was cautiously optimistic. The International Monetary Fund (IMF) upgraded its forecast for world economic growth to 3.9% for this year and next, noting the ongoing strength of both Asia and Europe as key momenta for global growth. While the US tax changes will likely provide a boost over the short-term, the IMF warned that risks to growth remain over the medium-term.
One notable exception from last year's meeting in Davos was the then newly inaugurated US President. This year was different as Donald Trump decided to honour the proceedings with his presence. It was an uneasy encounter as under his supervision, the US is questioning the benefits of international co-operation and proclaimed its intentions of looking after its own interests. So while the WEF promotes international collaboration on security treaties, open markets and attempts to address such challenges as climate change, Donald, sets out to look after number one, even at the expense of longstanding allies.
Another hallmark of Trump's disordered administration has been the weakness of the Dollar. The negative sentiment towards the reserve currency of the world has been stubbornly persistent since the turn of the year. The recent US government shutdown, as written about in Beaufort Analysis 263, has clearly not helped matters, while the breakthrough in Germany's coalition talks adds more pressure from the Euro. This was compounded at Davos with the following comment from Treasury Secretary Steven Mnuchin: A weaker Dollar is good for us as it relates to trade and opportunities. It is extremely unusual for a Treasury official to make such a blatant a comment aimed at weakening their currency; the down side of this verbal coercion of currency depreciation, is a currency or trade war erupting.
The good news about Dollar weakness is that it loosens global financial conditions, so equity markets have been a main beneficiary. To think this weakness will continue indefinitely is dangerous. The yield on short-term US Treasuries now exceeds that on US equities and with the hunt for yielding assets continuing unabated, the demand for US dollar backed assets could reverse.
Beaufort Analysis 263 - Not open all hours...
The key story from last week was the partial shutdown of US government. Now in it's third day, the Senate was in session over the weekend and have proposed a short term fix which will extend government funding until 8th February; on the assurance that there will be a separate vote on legislations to protect child immigrants brought to the US. The Senate is likely to vote on this later today. There have been 18 government shutdowns in history, with the longest shutdown lasting 21 days. Historically, this has had little impact on markets and the latest S&P data is testament to this; the index has now passed it's longest period without a 5% pull back since 1928.
Whilst the US faces uncertainties, the same cannot be said for Europe. In Germany, Merkel has moved a little closer towards forming a coalition with the SPD with delegates voting 56% in favourof pursuing formal talks. It is thought that talks could start as soon as today and, if negotiations run smoothly, could be complete by early February. Horst Seehofer, leader of the CSU party stated that a new government could be sworn in by the first half of March.
Looking forward to the week ahead, the Bank of Japan (BoJ) and the European Central Bank (ECB) meet on Tuesday and Thursday, respectively. We do not believe there will be any change to policy but reiterate how central banks continue to impact upon the investment landscape.
Re-assessing your finances in the New Year
The festive period can bring with it a great deal of financial stress; more so than at any other time of the year. So, when opening your bank or credit card statement in January, it may be the case that you are nearing or have exceeded your credit limit.
This often sparks an overall assessment of your financial position for the New Year ahead. It usually makes sense to clear existing expensive credit card and other unsecured loan debt. At the same time, you may also be considering raising additional finance for home improvements, a car purchase or (especially during these cold, grey days) a holiday.
Consolidation of existing debt, even with raising additional monies at the same time, can considerably reduce your monthly outgoings if the right solution is found.
Your first port of call is normally your existing bank or high street lender for a further advance, but your request will be declined if you do not meet the present underwriting requirements.
Your attention may then turn to re-mortgaging away from your current lender. This can of course be done, but in some instances a re-mortgage is not a viable option because of the following circumstances:
- The existing mortgage is a low Base Rate Tracker on an Interest Only basis, and to re-mortgage would ultimately be more expensive on a monthly basis.
- The existing mortgage is on a Fixed Rate and has punitive redemption penalties.
- Since taking out the existing mortgage there has been some impaired credit registered against you.
- You have a low credit score and will subsequently not pass a new lenders' affordability criteria.
Taking into account the above, a 'second charge' mortgage may be a option. Second charge mortgages have secondary priority behind your main (or first charge) mortgage. They are a secured loan, which means they use the borrower's home as security. This may be a viable option because:
- Second charges are not as expensive as you may think, with rates available from as low as 4% and with the vast majority having no early redemption penalties.
- A second charge can convert a re-mortgage decline into an accept because of differing underwriting criteria.
- Second charge loans are available for people with an impaired credit history.
- A second charge term can exceed the existing mortgage term and hence pass affordability criteria.
- Speed is normally of the essence when raising additional finance - second charge loans can be completed in weeks.
Whilst the circumstances that lead to a request for financial assistance may be quite daunting , in most cases there are options available to help resolve your monetary situation.
For more information on how our sister company Beaufort Capital Solutions can help you, please contact Clive Willson on 07966 074195 or email: cwillson@beaufortcapitalsolutions.co.uk
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice, the precise amount will depend upon your circumstances.
Seven changes you need to know about in 2018
As we head into 2018, with a new financial year a few months away, the government is preparing to introduce several changes. These will come into effect in April, and it is likely that you will be affected by at least one of them. Being prepared is the key to making the most of the changes and deadlines that are approaching.
To ensure that you are informed about the upcoming changes to allowances, savings and pensions, here are the seven biggest things you need to know about.
- Higher Lifetime Allowance
As inflation hit 3% in the second half of 2017, Philip Hammond announced in the Autumn Budget that the Lifetime Allowance would rise accordingly, from £1 million to £1.03 million.
The Lifetime Allowance dictates how much you can hold in your pension before tax charges are potentially applied. For example;
- 25% lifetime allowance charge applies to funds in excess of the Lifetime Allowance if they are placed in drawdown or used for annuity purchase
- 55% Lifetime Allowance charge applies to excess funds if they are withdrawn as lump sums
- Increased Personal Allowance
The Personal Allowance is the income you can receive each year before starting to pay Income Tax. It's currently £11,500 but will be increasing to £11,850 in April. That means that, during the financial year 2018/19, you can benefit from an extra £350 tax-free income.
The government has previously announced that they are aiming to raise personal allowance to £12,500 by 2020.
- Dividend Allowance decrease
Although the change was announced in early 2017, the dividend tax-free allowance will fall from £5,000 to £2,000 at the beginning of the next tax year. This means that business owners and contractors who work for a limited company structure will pay tax on annual dividends of more than £2,000.
- Auto-enrolment contributions increase
Automatic enrolment for all eligible employees into workplace pensions reaches its final stages for existing employers this year. In addition, the minimum contributions made by both employees and employers will rise.
Currently, both parties are required to contribute 1% of qualified earnings. However, from April, this will increase to a minimum of 2% from the employer and 3% from the employee. And will rise once again in April 2019 to 3% for employers and 8% in total.
- Help to Buy ISA / Lifetime ISA transfer deadline
Any deposits made into a Help to Buy ISA before April 2017 can be transferred into a Lifetime ISA (LISA), without impacting the annual Lifetime ISA allowance until 5th April 2018. This could give you a double bonus. You can put twice as much into your LISA this year, and still receive the 25% bonus when you buy a house or retire.
- Basic State Pension increase
Each year, the Basic State Pension increases in line with whichever is higher out of:
- The rate of Inflation
- Average Earnings growth
- 5%
This is known as the triple lock system.
In October 2017, inflation reached 3% and set the bar for the State Pension's 2018 rise.
If you already receive a State Pension, this is good news. Those people entitled to a full basic State Pension will now receive an extra £4.80 per week.
- Higher Income Tax rates in Scotland.
In the 2017/18 tax year, Scottish Income Tax rates for earned income are:
- Up to £11,500: Tax-free Personal Allowance
- £11,501 to £43,000: 20%
- £43,001 to £150,000: 40%
- over £150,000: 45%
However, from April 2018, proposals have been made to change them to:
- Up to £11,850: Tax-free Personal Allowance
- £11,850-£13,850: 19%
- £13,850-£24,000: 20%
- £24,000-£44,273: 21%
- £44,273-£150,000: 41%
- Above £150,000: 46%
This is quite a difference which will affect Scottish taxpayers at all income levels.
Making the most of the 2018/19 financial year
A lot of changes are happening at the beginning of the new financial year. So, make sure that you are informed and able to maintain your financial security when they come into effect. The three main ways to stay on top of your finances are:
- Staying informed
- Knowing how the changes affect you
- Seeking advice
For more information about how the new financial year could affect you, contact us.
2018: A big year for auto-enrolment
2018 marks 10 years since auto-enrolment was first debated in 2008. As the new financial year approaches, we look at what April 2018 has in store for workplace pensions.
What is auto-enrolment?
Introduced into law in 2011, auto-enrolment will be in its final roll-out phase this year. This means that, from April, eligible employees from all sizes of business should be included in a workplace pension (unless they have chosen to opt out).
Eligible workers are those who:
- Are aged between 22 and the current State Pension Age (which you can check here)
- Meet or exceed the earnings limit. This is currently £10,000 or more each year/£833 per month/£192 per week, but this is reviewed yearly and may to change
- Have a contract of employment (i.e. subcontractors and non-contracted partners will not count)
Employees who do not fit these criteria can ask to join the workplace pension on an individual basis.
The end of the five-year phase-in period
Since auto-enrolment came into effect, nine million people have been enrolled; one million of whom joined during 2017. (Source: Department for Work and Pensions (DWP)) During the first few months of 2018, small businesses will be joining the ranks as part of the final stage of auto-enrolment's introduction.
February 1st is the final phase-in deadline. After which, all employers will be under immediate duty to enrol new staff members who are eligible.
Contribution changes
Perhaps the biggest change we'll see, is the change to the minimum contribution levels. Currently they are:
- 1% employer contribution
- 2% total contribution (meaning at least 1% employee contributions if the employer pays 1%)
From April, the minimum contribution levels will rise to:
- 2% employer contribution
- 5% total contribution (meaning at least 3% staff contribution if the employer pays 2%)
12 months later, in April 2019, these minimum contributions will increase once again to:
- 3% employer contribution
- 8% total contribution (meaning at least 5% employee contribution if the employer pays 3%)
Many companies and experts have expressed concern that raising the minimum contribution amounts will encourage employees to opt out of their workplace pension.
Currently 10% of people opt out, but experts have warned that the number could rise to 21.7% in 2018 and 27.5% in 2019 (source: Your Money).
However, it appears that those worries may be unfounded, as just 4% of people have made up their mind to leave their workplace pension when the increase comes into effect. Fortunately, half of employees are committed to their scheme:
- 50% will definitely stay in their workplace pension
- 34% are unsure what path they will take
- 12% will consider leaving their scheme
- 4% will definitely opt out
(Source: Aviva)
What's almost certain, though, is that those who opt out will face a financially difficult retirement.
Other potential changes
In late 2017, the Government indicated that they would extend auto-enrolment to those aged 18 and over. However, this won't happen until the mid-2020s. Currently, employees who are under the age of 22 must request to join their employer's workplace pension. While those under the age of 18 will not usually be eligible for employer contributions to their scheme.
It is estimated that lowering the minimum age threshold will mean that 900,000 more people will be automatically enrolled into a workplace pension.
If you are a business owner, employer or employee, to discuss how the pension changes might affect you, feel free to get in touch.
Pension Freedoms: Ignorance isn't bliss
Real knowledge is to know the extent of one's ignorance.
Attributed to Chinese philosopher Confucius, this timeless phrase has never been more apt than when applied to the topic of Pension Freedoms.
A new report, from Old Mutual Wealth has revealed that many 50-60-year olds are uninformed about Pension Freedoms, with:
- 45% not knowing about Pension Freedoms at all, or not knowing how the new rules affect them
- 37% not knowing how or when they should access Pension Freedoms
Why is knowledge important?
Pension Freedoms are perhaps the biggest revolution to take place in the retirement arena in the past 20 years. Used well, the reform means that you can retire early, in a way which is more flexible and suits your lifestyle.
That freedom has given many people more control over their finances. It means that you can take lump sums from your pension pot for big purchases, or to help loved ones financially, as well as planning ahead to leave larger legacies to your loved ones.
However, the new-found freedoms come with potential dangers and pitfalls. For example, withdrawing too much, too soon could leave you facing financial difficulties later in life.
Current concerns
Research from AJ Bell has shown that some pensioners may run out of money within 12 years, due to three factors:
- Withdrawing too much each year
- Underestimating how long they will live
- Spending money frivolously
44% of over-50s choose to withdraw over 10%, a figure usually considered to be unsustainable, of their pension savings annually. Worryingly, the biggest group of people doing so (57%) are aged 55 to 59. As well as over-withdrawing, more people are taking money without planning for the future, as:
- 47% take ad-hoc lump sums
- 35% rely on an income of regular withdrawals
In addition, the same age group (55-59) severely underestimate how long their pension will need to last, with:
- 51% estimating that their pension will need to last for 20 years or less
- 24% believing that they will need to make their pension last for less than 10 years
The combination of large withdrawals and a lack of planning for the future means that many people are at risk of running out of money part way through their retirement. According to the Office for National Statistics (ONS), the life expectancy for someone who is currently 55 is:
- 81 for men
- 85 for women
That means that pensions may need to last for more than 25 years for both sexes.
Another concern is the reasons behind the withdrawals. Whilst Pension Freedoms means that you can access the whole pension fund for any reason; it doesn't necessarily mean that you should.
AJ Bell's research shows that 40% of 55-59-year olds make withdrawals for day-to-day living costs (a pension's intended purpose). Meanwhile, a quarter (25%) have used Pension Freedoms to make luxury purchases, including holidays and cars.
Using your pension wisely
Pension Freedoms are in place to give you more control over the way you use your pension savings. However, it has never been more important to plan ahead and make sure that you are using them in a way which benefits you both now and in the future.
It might be tempting to withdraw large amounts and go on a spending spree; but that could potentially leave you exposed to financial danger for the rest of your life.
So, how can you use the Pension Freedoms reform to meet your needs?
There are four key points to remember:
- Have an open mind: Old Mutual's research revealed concerns that consumers may be choosing the "path of least resistance" by accepting the drawdown option offered by their pension provider without shopping around. It can be all too easy to stick to what you know and reject any new options out of comfort. But a little research could go a long way toward making the most of your pension savings.
- Avoid the threats: Unfortunately, the new rules have inspired a range of new scams and fraud attempts. Stay vigilant and never accept an unsolicited offer. Always verify companies through the Financial Conduct Authority (FCA). Secondly, remember that your pension pot may have to last for 20, 30 or 40 years. Spending too much, too soon could cause you financial difficulty in the future.
- Take advantage of the opportunities: taking advantage of pension freedoms could help you retire early, or more flexibly, in a way which suits your preferred lifestyle. It can also help you leave a legacy to younger generations.
- Seek advice: Research from Unbiased has shown that people who take financial advice save an average of £98 more each month, which leads to an additional £3,654 in annual retirement income.
For more information on Pension Freedoms and how your retirement could be affected, feel free to contact us.