danielashby

Ethical pensions: Considering where your money is invested

Considering ethics when investing has slowly been on the rise over the last couple of decades. However, even if it's something you think about with your investment portfolio, you may not have factored in your pension(s). As contributions are often deducted from your salary automatically, they can slip your mind.

Yet, whether you have one or multiple pensions, they're likely to be one of your largest assets. After all, employee contributions typically span decades over your working life, coupled with employer contributions, tax relief and investment returns. As a result, if ethical investing is something you're interested in, including your pension in such decisions is worthwhile.

What is ethical investing?

Put simply, ethical investing is about incorporating your personal views into how and where you invest. Much like ethical shopping means actively choosing some products and avoiding others for ethical reasons, it's the same concept with investing, Whilst you might choose the Fairtrade fruit at the supermarket, for example, you'd choose the companies that pay a fair wage to invest in.

It's about having a goal that goes beyond simply delivering returns on your money. For example, encouraging green energy innovation, fairer working practices across the global supply chain, or reducing environmental degradation. Some refer to ethical investing as having a double bottom line; the returns and the positive impact you hope it will encourage.

Ethical investing is often filled with jargon and you may have heard the practice of incorporating values into investing as sustainable, responsible or green investing; they all broadly mean the same thing. Ethical investing can then be broken down into three key areas, referred to collectively as ESG:

• Environmental: These link to sustainability and the depletion of resources. Environmental considerations may be using energy efficiently, managing waste, or reducing deforestation.
• Social: The social issues that relate to how a company treats people. This could cover relationships in communities where they operate, diversity policies, and labour standards throughout supply chains.
• Governance: This term focuses on corporate policies and how a company is run. Among the areas covered are tax strategy, executive remuneration and protecting shareholder interests.

When it comes to pensions, incorporating ethics may mean switching to a different fund or actively selecting ethical investments if you have a SIPP (Self-Invested Personal Pension).

Growing interest in Ethical Pensions

Research conducted by Invesco highlights a growing demand for pension products that reflect ESG principles in some way:

• 82% of people would favour part of their pension(s) automatically going to a company which meets a certain ethical standard
• 72% of defined contribution (DC) pension members want their scheme to include ethical investments in its default fund
• 46% would choose a fund that only invests in 'socially and environmentally responsible companies' with returns of 6%, rather than a fund that delivers returns of 6.5% but invested in all types of companies
• If a fund only investing in 'socially and environmentally responsible companies' and one investing in all types of companies both had the same historic returns of 6%, 60% would rather invest in the responsible option

The drawbacks of investing ethically

Whilst ethical investing does allow you to back companies that align with your values, there are drawbacks to consider.

First, ethics are highly subjective. Whilst your pension provider may offer an ethical fund to choose from, it might not align with your values. As a result, you may have to compromise.

Second, considering ethics is a growing trend among businesses, but you will be limiting your investment opportunities. This may mean that returns are lower due to choosing ethical investments.

Finally, validating claims that companies make in their corporate social responsibility (CSR) reports can be difficult, as can measuring the positive impact of investments.

As demand for ethical investment continues to grow, it's likely these issues will become smaller. However, they are worth considering if you're interested in investing your pension ethically. Remember, your pension should provide you with an income throughout retirement. Other factors need to be considered alongside ethics too.

Investing your pension ethically

If you decide you want to invest your pension ethically, how you do so will depend on the type of pension you have.

• If you have a Workplace Pension, you'll be automatically enrolled in the default fund. However, many providers now offer an ethical option that you can easily switch to, often through logging in online. Here, you should be able to see the ESG criteria set out, as well as historic performance.
• A Personal Pension typically works in the same way as a Workplace Pension, except you can choose which provider you want to use. As a result, you can screen out those that don't offer an ethical fund.
• If you have a SIPP, you can either choose investments personally or select a fund, giving you far more control over the ESG elements you want your investment to incorporate.
• With a Defined Benefit pension, you don't have control over how your pension is invested. However, many have begun to embed some ESG practices into their investing principles, having responded to action from members to do so.

If you'd like to discuss how your pension is invested and the income it's projected to deliver at retirement, please contact us.

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.

by danielashby

The World In A Week - Thucydides' Trap

Last week we wrote about the deterioration in outlook and this week we write about the actual fallout. We saw safe havens rallying as fears of a recession increased markedly; gold hit a six-year high and US stocks had their worst trading day in 2019.

This was led by lacklustre economic data for global manufacturing and exports. Commodity prices continued to fall, and inflation pressures remained low. Escalating trade tensions threaten to turn into a full-blown currency war, as China retaliated from Trump's threat of additional tariffs beginning next month. Global recession risks are firmly on the mind of central banks, if not the markets, which is why the interest rate cuts from New Zealand, Thailand and India came as a surprise.

What does this have to do with Thucydides' Trap? Thucydides was a Greek historian who wrote about the inevitable war between Sparta and Athens, which was caused by the growth of the latter and fear of the former. The trap is being replayed between the rise of China and the fear of the incumbent US, which initially manifested itself as a trade war and looks set to evolve into a currency war.

To add to the current climate of woes, the UK's economy contracted for the first time in seven years. The second quarter shrunk 0.2% compared to the previous three months, predicated on increasing Brexit concerns, stock-piling ahead of the original Brexit date and of course and the effect of global trade tensions. The signs could not be clearer for the Conservative government not to take any undue risks with the economy.

There are some silver linings if you dig deep enough. The weak second quarter was payback for a strong first quarter, which saw manufacturers accelerating production ahead of the March Brexit date. These inventories have now unwound, as well as many factories scheduling routine maintenance for April, all of which reduced output for the second quarter. The contraction cannot be fully laid at the feet of Brexit though, as manufacturing and services globally are struggling, amid the trade war tensions and mixed signals from the Federal Reserve.

What is clear though, is the obvious solution for the government in order to give the UK economy a restorative boost, is to avoid the precipice of a no-deal Brexit.

by danielashby

How do we approach ethical investing?

We hear stories from our clients of advisers they have approached in the past (before they met us) who tried to dissuade them from either investing ethically or giving to charity at that time.

Why is that?

For the majority of cases, advisers on-going pay is based on the amount of their client's money they invest. This is called 'Funds Under Management' and the larger the amount invested, the larger the on-going pay.

However, we work in a slightly different way, in that we base our recommendation on the client's goals and objectives. If your goal is to donate to charity during your lifetime rather than on death, we help you understand how to do that and how much you could give - and we are proud to base our success on the satisfaction of our clients.

Recently we held a seminar with some trusted professional connections from an accountancy and solicitors' firm to advise on exactly how to donate to charity now.

What do we do?

We create a bespoke financial plan with you, based on your circumstances, including your goals and objectives. We will always encourage clients to ensure that they have enough capital for an emergency fund, and to give you the lifestyle you want, now and in and retirement. We will then add in charitable payments in a way that shows you how it affects your budget so that you can start giving straight away if that is your wish.

Ethical investing

We are in an increasingly socially conscious world - where more clients are looking to invest ethically, a trend which many believe will only continue to rise.

Ethical investing varies in that some companies may have a low carbon footprint, some investments may not hold tobacco companies, some may focus on charitable donations or on religious beliefs. Through our fact-find, we can advise on the right investment choice to meet both your social and financial objectives.

How do we make a difference?

We do not just advise our clients on charitable giving and ethical investing, as we believe the proof is in us doing it ourselves.

We spend a lot of time raising money for local charities (Ark Cancer Centre Charity and Berkshire Community Foundation are our main charities for 2019), we also give our staff a day off a year to work for a local charity. We run charity quiz's, walk on fire, run the London Marathon, completed a 500-mile bike ride and an amateur boxing event all to raise vital funds. So far in 2019 we have raised over £16,000 and given over 300 hours of our time, and we still have more events to come, such as a Sleep Out overnight for Launchpad Reading.

by danielashby

The World in a Week - Dialling Down

The US Federal Reserve was in the limelight last week; Fed Chairman, Jerome Powell, delivered an unsurprising rate cut at his press conference, the first reduction in a decade. The 25bps clip was termed a 'mid-cycle adjustment' with Powell emphasising that the cut was not part of a steady trajectory of rate reductions and was merely a means of 'insurance'. Markets fell sharply on this news, which was not the 50bps that some had hoped for. While markets initially took a dive, towards the end of his speech, Powell clarified that this did not mean further cuts are completely ruled out.

Other key news from Powell's press conference was the Federal Open Market Committee announcing that they would bring quantitative easing to a standstill, selling off bonds previously bought in quantitative easing purchases. Originally, this move was scheduled for September but has been brought forward to August, Powell was clear that this move was to demonstrate that the Fed were exercising prudence, and not with a view that a potential recession was looming. The US economy remains in rude health, although trade wars continue to weigh on general sentiment.

On the topic of Trade Wars, Trump confirmed a further 10% of tariffs on £300bn worth of Chinese imports to the US, effective on 1^stSeptember 2019, which was delivered by tweet, of course. Markets reacted badly, stocks and commodities, notably oil, toppled, on the gloomy implications this could have for economic growth. It is uncertain how China will respond, but given their intervention in their currency market, firstly preventing the currency from strengthening too quickly, and more recently, weakening too quickly, currency could well be China's chosen method of retaliation or more fittingly, their Trump card. As we write, the symbolic level of 7 Yuan to 1 US Dollar was breached, this is the lowest level since the Global Financial Crisis, which indicates at best a Superpower showdown and at worst, a full-blown trade war.

The question we are asking ourselves is whether Trump's recent increase in tariffs, was a strategic move to force the Fed to cut interest rates further and stimulate the US economy, the fallout of this action will be seen in the coming weeks.

by danielashby

The World In A Week - The Greatest Showman?

Headlines were dominated by the Conservative Party leadership contest, which saw the expected outcome of a victory for Boris Johnson. In his inaugural speech as Prime Minister, Johnson said his priorities were to deliver Brexit, unite the country and defeat Jeremy Corbyn.

With around 14 weeks in which to deliver Brexit, Johnson wasted no time in reshaping the Cabinet, culling 15 ministers in order to surround himself with a team that share his views. There will be a lot of hard worked required, for both the UK and EU, to find a resolution in just three months that could not be achieved over the past three years. Particularly when Parliament is only scheduled to be in session for around 21 days during this period and the EU already reiterating its hard stance.

When it comes to rhetoric, Mario Draghi has the crown amongst central bankers. The current head of the European Central Bank (ECB) signalled that he would be prepared to cut interest rates in order to tackle a slowdown in the eurozone economy. He said the risk of a recession was low, however the outlook is worsening, blaming the trinity of Brexit, trade wars and geopolitical uncertainty. His comments also marked the seventh anniversary of this infamous I will do what it takes speech, in which he pledged to keep the eurozone intact in the summer of 2012, the height of the sovereign crisis that was sweeping throughout Europe. These words were enough to see off the spectre of collapse and action did not have to follow for several years. However, the ECB's greatest showman has his final curtain call, stepping down in October, but looking to leave a clear path for this successor.

The final showman is also a central banker. Jerome Powell, the chair of the Federal Reserve, meets with his fellow members of the Federal Open Market Committee on Tuesday and Wednesday. Having spent the previous week building expectations for a significant rate cut, last week saw this being walked back with the art of managing expectations being stretched beyond creditability. Prospects are for a 0.25% cut to US interest rates, given us some substance to the continuing and increasingly confusing rhetoric over the past seven months.

Politicians have always been showmen of a sort, but now we have the heads of the world's most influential central banks joining them on the front burner. We expect to be inundated with forward guidance during the summer, but it is autumn that we need to see action with Brexit as well as the central bankers.

by danielashby

Charitable Giving with Tax Consideration seminar at Donnington Valley, near Newbury

Clients, professional advisers, fundraisers and guests attended a charitable giving with tax consideration seminar this month at Donnington Valley Country Club. It was co-hosted with local philanthropy group Berkshire Community Foundation, accountancy practice Ross Brooke and law firm Gardner Leader.

Berkshire Community Foundation

The incoming Chief Operating Officer of Berkshire Community Foundation (BCF), Jon Yates described how BCF works with professional advisers, notably accountants, solicitors and financial advisers to help corporate fund-raising initiatives. The motto," Think global, think local and give local" reflects BCF's remit to provide advice, distribute grants and raise the profile of local charities and communitygroups addressing identified need across Berkshire, as well as to inspire philanthropy and charitable giving.

Over £1m had been distributed to some 224 charities in 2018, Jon said as he showed a video of the Electric Eels Down's Syndrome synchronised swimming team, which recently came fourth in the world championships. BCF funds rehabilitation of those involved with gun crime, and highlights the disturbing fact that there are some 2,600 victims of modern slavery in the county.

Jon explained the key role professional advisers have in philanthropy and that the tax breaks available to philanthropists really benefit the charities BCF supports. Indeed, BCF's Business Philanthropy Club provides the structure for clients of professional advisers who wish to give. He added that there was a lot of money in dormant or inactive trusts that could be used to support needy groups. An example is the Stevens Family Fund established to support the widows and orphans of the workers of the Reading biscuit tin factory, a key supplier to the Huntley and Palmers biscuit factory, which closed some decades ago. As there are no widows nor orphans of the factory left, the trustees of the fund were delighted that the remaining £154,000 held in trust has now gone to the deprived of Reading.

Tax-subsidised charitable giving

Phil Kinzett- Evans, Newbury-based tax partner of accountants Ross Brooke, outlined the benefits to donors of tax-subsidised giving, explained gift aid and gave examples of basic, higher and upper rate tax payers. Phil also talked through how tax liabilities could be mitigated whilst making charitable donations, as well as explaining the rules on carry back and how corporation tax can be mitigated on corporate charitable donations. Pay roll giving or give as you earn (GAYE) is another area that benefits both the donor in terms of tax mitigation as well as the charity, concluded Mr. Kinzett- Evans.

The Financial Adviser's view

Andy Coles, one of our Senior Financial Advisers, who is also a Chartered Financial Planner, is a firm believer in educating clients about the benefits of charitable giving during their lifetime, rather than after death. But before contemplating supporting a charity close to one's heart, clients must consider the need to plan for emergency expenses, school fees and care home costs in the future, as well as day to day and one-off spending in retirement. Andy said that clients need to know what they can really afford to gift. Having gone through all income and expenditure Andy can put together a life plan that maintains a necessary level of income for a long retirement as well as to have the cash flow to support a charity gifting plan. Many clients appreciate seeing the benefit of their donations and the impact they have during their lifetimes; but it is important to know how and when to make a gift for the benefit of both philanthropist and beneficiary.

Mitigating Inheritance Tax AND boosting charitable donations

Concluding proceedings, Penny Wright, Partner in the Inheritance Protection Team at law firm, Gardner Leader and a specialist in philanthropy and charity law, explained how leaving 10% to charity reduces higher rate inheritance tax (IHT) from 40% to 36%. It is important to structure a gift to charity to mitigate IHT and boost donations and Penny gave an example of how £100,000 can be saved on a £2.5 million estate. Penny also explained the pros and cons of setting up a new charity for a special cause or finding an existing one which will fulfil the terms of a bequest.

by danielashby

The World in a Week - Quarterly Earnings Season for US Banks

The biggest US banks reported their second quarter earnings of 2019 last week and it was generally a robust quarter for them all, although Morgan Stanley and Goldman Sachs disappointed a bit by being the only major US banks to have revenues, net income and earnings-per-share all fall compared to a year earlier.

JP Morgan has the highest revenue at USD 29.6 billion although this is to be expected as it is the largest US bank. It also achieved the best year-on-year growth in revenue at 4%. JP Morgan's year-on-year growth in Net Income was up 16% too which was only surpassed by Wells Fargo at 20%.

Morgan Stanley disappointed with its year-on-year revenues down 3.5%, net income down 9.7% and earnings-per-share down 5.4%.

Goldman Sachs also disappointed with its year-on-year revenues down 1.8%, net income down 5.6% and earnings-per-share down 2.8%.

Share prices did not move much on their respective reporting days. However, Wells Fargo's share price fell 3.2% on Tuesday despite achieving the best year-on-year Net Income growth. The reason for this is that all banks rely heavily on Net Interest Income (essentially their lending rates minus their deposit rates) and Wells Fargo's Net Interest Income was down USD 216 million from the first quarter of 2019 and this predominantly caused its share price to fall 3.2%.

Decreased Net Interest Income is likely to be an issue for all US banks going forward though as the Fed is likely to reduce the Fed Funds Rate on July 31^st 2019. If this occurs, the lower rates will directly squeeze the banks' Net Interest Income and thus their total Net Income too.

At the time of writing, using the Fed Fund Futures market, there is a 75.5% chance of a 0.25% cut in the Fed Funds Rate on July 31^st. If a cut occurs it would prompt investors to be more cautious about US banking stocks, but it would be beneficial for US equities in general though.

One last bank to mention is the Bank of England as they announced on Monday that Alan Turing, the Bletchley Park mathematical genius, will be the face of the new £50 bank note in 2021.

by danielashby

The World In A Week - When less is more (Italy's income tax)

Is it possible for a government to increase its total tax receipt by cutting taxes?

Italy's government believes this is the case and they risked incurring a EUR 3 billion fine from the EU last Tuesday for pursuing it. In the end, the EU abandoned the fine but it remains sceptical of Italy's approach.

The issue is that Italy's debt-to-GDP ratio is 132% and this is an infringement of the EU's 60% limit. As well as this, the EU projects Italy's 2.1% budget deficit to surpass its 3% limit thus exacerbating the debt problem.

With Italy's economy at near recessionary levels (for example it edged into recession in the last half of 2018 and had a limp 0.1% growth in the first quarter of 2019) it is very difficult for Italy to generate the tax receipts needed to reduce its debt. The Italian government argues a fresh, dynamic approach is needed.

Italy is run by the coalition of Northern League (Lega Nord) and the Five Star Movement. The government advocates a flat income tax rate of 15% for those earning less than EUR 50,000. As reported by the Daily Telegraph, the Lega leader, Matteo Salvini, said 'If Italians had more money in their pockets to spend, the economy would receive a kick-start and the national debt would be reduced.'

In 1974 the economist Arthur Laffer proposed that it is possible for income tax rates to be reduced and still increase overall tax revenue. He suggested that reducing income tax rates to an optimal level incentivises spending and investment, creates more jobs and taxpayers and thus increases total tax revenue. It has worked before, for example the UK government in the 1980s adopted this proposal and slashed income tax rates and total tax revenue grew.

The most important thing though is the optimal rate as cutting tax rates below the optimal rate will have the undesired effect of decreasing total tax revenue. It will be extremely interesting to see if cutting income tax rates to 15% for the masses works for Italy.

by danielashby