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As Carillion liquidates we review workplace and private pensions

As Carillion liquidates we review workplace and private pensions

In the news recently leading construction company Carillion went into liquidation. As with British Home Stores and with Tata Steel the workplace pension fund is short; in Carillion’s case by an estimated £580m. This workplace pension deficit has placed an additional burden on the Pension Protection Fund (PPF). It is expected that the PPF will take over the pension scheme if Carillion goes into administration. Though current Carillion retirees will not see any changes to their pension terms, existing employees that are soon to retire may see their funds cut by as much as 20%; and top-earners may have some of their pensions capped.

Why some workplace pensions are in trouble

Though workplace pensions are not new, the Roman army had them from around 30 BC, struggling funds are a relatively recent phenomena. There are two main drivers of this change.

Defined Benefits (DB) pensions guarantee pensions linked to an individual’s pay. Years ago, this meant that firms could slow down pay increases for staff, but make up lower wages with increased pension funds for retirement. Funding pensions, however is a challenge. There is a growing retired population and a shrinking tax contributing working population. Effectively the pensions candle is burning at both ends.

In 1960 the average life expectancy of a British male was 75 years, and for females it was 80 years. Now the average life expectancy of a British male is 83 years, and for females it is 85 years. But also, the amount of tax available to go towards later-life living costs: healthcare and the NHS, public transport, infrastructure and state pensions is in decline.

And though the Chancellor has taken steps to buoy the Pension Protection Fund it is clear that some workplace pensions, particularly Defined Benefit ones are becoming too costly to sustain.

The appeal of private pensions

Private pensions (also known as Defined Contribution schemes) where; an individual saves from their earnings into a pension fund, can run alongside workplace pensions and state pensions, or be the main pension scheme for the saver. Contributors must be aged 18 years’ old and also be a UK resident. Tax relief is available on private pension contributions, which makes this a particularly attractive savings ‘vehicle’.

In addition to the above, contributions are invested in funds which benefit from a tax-efficient status. When choosing to draw benefits from the plan, up to 25% of the fund can be taken which is also tax-free.

Personal Pensions are extremely flexible in comparison to DB schemes. Finally, when taking benefits from the private pension fund, there are no restrictions on the amount of money that can be withdraw at any one time.

Though HMRC proposes to increase the minimum retirement age for pension schemes from 55 to 57 by 2028, the state pension retirement age will increase to 67, meaning that private pensions can fund an earlier retirement.

It is clear, with the sad demise of the likes of Tata Steel, BHS and Carillion, that both Defined Benefit and Defined Contribution pension funds can be complicated. As ever we would advise you to speak to a local Independent Financial Advisor about pensions, retirement planning or any other financial concern that you have. Please call our team of Chichester based IFAs on 01243 532 635 to arrange a consultation.

To discuss pensions, retirement and investment plans with us please ask to speak to Richard Smith.

To discuss Life, serious illness, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

To discuss mortgages & insurances please ask to speak to James Mayne.

Charitable giving; Snowdrop gives hope

Charitable giving

According to the World Giving Index the UK is a charitable country. The Charities Aid Foundation index rates 140 countries against three indices: helping a stranger, volunteering time and donating money. The UK takes eleventh place behind the Netherlands in tenth position, Ireland in eight position, Canada in seventh position and the US in fifth position.

Myanmar (Burma) is in first position, 51% of residents saying that they had volunteered, 53% claimed to have helped a stranger and 91% donating to charity. The Charities Aid Foundation believes that: as Theravada Buddhism is practiced by the majority of Myanmar residents Sangha Dana – the practice of supporting Buddhist monks – may contribute to this giving lifestyle.  In the UK 28% volunteered, 64% helped somebody and 58% donated money to charity. Below the UK’s position eleven on the World Giving Index, in all of the other Western countries giving was in decline during 2017 compared to 2016.

Snowdrop gives hope

In keeping with the UK’s giving nature here at MarchwoodIFA we support local Chichester-based sick children’s charity Snowdrop.

Help and care is provided by Snowdrop to sick children and their families in the home. In many cases families want to learn how to use medical equipment, such as nasal gastric tubes for feeding, and need the support of a qualified nurse. Having a sick child can also put a strain on the family’s time; medical carers are able to give parents, guardians and siblings a much-needed break. As much as 70% of Snowdrop donations go directly to sick children and to their families. Very often a family member may have to give up work to free up time to care for a sick child, which means that financial help is needed. Caring for a sick child and getting to hospital can be very costly. By way of example a return taxi fare to Great Ormond Street for a bone marrow or a kidney transplant costs over £160. Parents travel thousands of miles to take their children to hospital; Snowdrop has Family Volunteers who take families to and from appointments in their own cars to ease this burden. Snowdrop has bereavement counselors and continues to grow expertise in this area. Recently Snowdrop founder Di Levantine and counselor Phil Portway have worked with trainee-teachers from Chichester University to develop a bereavement-counseling guide for teachers.  Currently bereavement is not included in the teacher-training curriculum. The Snowdrop resource is proving invaluable for schools and teachers where a pupil is diagnosed with a life threatening, or a terminal illness.

If you would like to make a donation to Snowdrop please click here.

If you would like any advice on critical or serious illness policies, many of which offer automatic children’s cover payable as a lump sum, please contact MarchwoodIFA on 01243 532 635 to arrange a consultation.

As ever we would advise you to speak to an Independent Financial Advisor about your finances. We have specialists that are able to discuss specific options with you.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

Autumn budget was one for the young

Autumn budget was one for the young

In many ways Chancellor Hammond’s autumn budget was one for the young; especially for those that aspire to be homeowners. In the recent general election 60% of voters aged 18-24 voted Labour whilst 61% of over 64’s voted Conservative. It is unsurprising that the budget addressed this Labour voting group.

How the budget helps young people in work

Key to keeping young people in work; is the requirement that they are able to live a commutable distance from jobs. As the majority of work is located in cities, there were changes made to housing provision in urban areas. The plan the Chancellor said is: “ to build high-quality, high-density homes, in city centers and near transport hubs.”

  • An enquiry into planning permission was launched on 22 November. The enquiry will look into affordable housing and brownfields developments where wasteland could be freed up if planning restrictions were lifted. The enquiry results will be delivered before the spring budget.
  • Commuting budgets will stretch further with the introduction of a rail-card for 25-30 year olds. Plans to ensure that new homes are built with electric car charging stations have been put in place. A commitment of £400m has been made to a new ‘charging infrastructure fund’ for electric cars. An extra £100m has been put towards helping people to buy electric cars. Though fuel duty is frozen there will be a temporary rise, from April 2018, on Company Car Tax and on Vehicle Excise Duty on all new diesel cars. This does not affect commercial vans used by tradespeople.
  • There will be tougher penalties for development companies that acquire land and ‘bank’ it, without building on the land. Councils will also be given the power to charge 100% of council tax on empty properties that are located in sought-after areas.
  • Five new garden towns will be created in the Oxford-Milton Keynes-Cambridge areas as part of an economic growth initiative.
  • In keeping with the extension of garden towns the Transforming Cities initiative £385m will be pledged to projects to 5G and full-fibre broadband.
  • Stamp duty up to £300,000 is abolished on homes under £500,000 for first time buyers. The first £300,000 is exempt from stamp duty only, after that normal stamp duty rates apply. For example on a £500,000 home 5% stamp duty would be due on the remaining £200,000.
  • A pledge to build 300,000 new homes per year until the mid 2020’s was made, with an additional £15.3bn in this budget taking total housing budget to £44bn.
  • The minimum wage was increased to £7.83 per hour.
  • Also increased is the personal tax-free allowance which; will go up to £11,850.
  • The 40% tax threshold will increase to £46,350.

Thankfully there were no more changes since last years’ autumn budget to ‘pension freedoms’ that were introduced in April 2015.

The NHS will receive an additional £6.3m of funding.

Duty on beer, wine, cider and spirits is frozen.

An additional £1.7bn will go towards improving transport in English cities.

As ever we would advise you to speak to an Independent Financial Advisor about your finances. To discuss your finances with one of our local Chichester IFAs please call 01243 532 635 to speak to one of our experts. We have specialists that are able to discuss specific options with you.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

The Southeast housing market remains strong

The Southeast housing market remains strong

Though the rate of house price growth in Q3 (July, August & September) in London has fallen by 0.6% year-on-year; house price growth in the Southeast has remained strong at 3.9%. The average house price growth rate in the UK was at 2.2% for the same quarter, the UK average house price being £210,982. In the Southeast the average house price is £277,519, compared to £471,761 in London.

Looking at the bigger picture the rate of house-buying (residential transactions) has slowed to around 5% and is level with 2013 transaction rates. After the 2008 financial crisis homeowners were reluctant to move. The rate of transactions fell to its lowest rate ever in 2009; during this period, a house would typically change hands every 25 years.

How has homeownership changed?

Restrictive planning policies mean that there are 50,000 less new-builds per annum than there were in 1981. As the cost of living has risen and wages have fallen or stagnated houses have become less affordable for many young and working-age people. Saving for stamp duty, estate agent fees and a deposit is a challenge. The average deposit for first time buyers is now roughly equivalent to a years’ salary. An ageing population is a less mobile one; retirees are reluctant to downsize when, for many, their home is their most valuable asset. Council tax was last updated over 20 years’ ago in 1993; the most expensive homes are taxed relatively leniently which disincentives homeowners to move. At the other end of the spectrum stamp duties have risen substantially amounting to a 30% increase per residential transaction, since 1997.

On the increase too is the number of single homeowners now at 30%. Not surprising then to learn that one in three of Britain’s housing stock has two or more spare bedrooms. Overcrowding, the number of people compared to the number of bedrooms, however is rising. The number of people willing to commute to work for two hours or more rose by one fifth from 2011 to 2016 according to property analysts Hudson and Green. Holding onto a good job and the property that is afforded by it seems to be a priority.

What are the options to save for a deposit?

There are some specific options to save into an Individual Savings Account (ISA) that earn a government bonus 25%. This is to encourage both saving and homeownership.

Which ISA is suitable depends on whether a would-be homeowner is a first-time buyer, or a buyer that is aged over 18 years but under 40 years’ old.

Help to buy ISAs are for first-time home buyers. They are for each individual buyer not for each individual home; meaning that groups of buyers can save for a deposit together. Individuals can save up to £200 per month and can open the ISA with a deposit of £1,200. The government will top up the Help to Buy ISA with a maximum of £3,000 if the total savings are at £12,000.

Lifetime ISAs can be used to buy a first home or to save for later life. Individual savers must be aged between 18-40 years’ old, and can save up to £4,000 per annum until they are 50 years’ old. The capped savings of £4,000 per annum count towards an individual’s annual ISA savings limit. The government will add a bonus to savings of 25%, a maximum of £1,000 per annum. The Lifetime ISA can be invested in stocks and shares or held as cash or invested as a mix of cash and stocks and shares.

Can mortgage repayment terms be lengthened?

Longer mortgage repayment terms are increasing in popularity, however the interest that is paid back over a longer term is significantly higher that if the mortgage is paid back over 25 years or less. Here are some examples of monthly mortgage payments and total interest on a repayment mortgage of £150,000 with longer repayment terms.

Longer term repayment mortgage comparison of £150,000 mortgage with an assumed interest rate of 2.5%

Term Monthly payment Total interest
20 years £794.85 £40,764
30 years £592.68 £63,365
40 years £494.67 £87,442

*Source L&C Mortgages

As ever we would advise you to speak to an Independent Financial Advisor about your finances. To arrange a consultation with Marchwood IFA please call 01243 532 635. We have specialists that are able to discuss specific options with you.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

Staying healthy for a longer working life

Staying healthy for a longer working life

At least half of the babies born in 2000 in the UK are expected to live into their hundreds. The average life expectancy of 50% of babies born in 2007 in the UK is 103, and in Japan it is 107. Current retirees, those aged 65 plus, are enjoying relatively good health and also, despite retiring earlier, frequently are not ready to stop working altogether. The current life expectancy for pensioners is 85. Though some suffer chronic illnesses, they are diagnosed and treated sooner; meaning that (thankfully) the survival rate and life expectancy of this generation has steadily increased since the 1950’s.

Many retirees currently choose to draw a pension before they are 65 however often they continue to work. In fact, degree educated 65-69 year olds in the UK are more likely to be in employment and also earn more than unqualified 16-24 year olds.

Though longevity is something that we are all grateful for it is also an economic dilemma. This is because the burden on the young (work force) to support an ever aging one is increasing. And though, to ease this burden, the government plans to increase the retirement age to 75 by 2040…

…Our noughties (2000+) children will be in their forties and facing at least another 30 years of work by 2040.

How do we stay healthy to support a longer working life; and a happy later life?

We have asked Ben Hanton, Elitas gym founder and owner to provide some health advice for working age and later life people. As we age there are a number of important health markers that decline every year, here are some of the main ones:

  • Physical strength;
  • Bone mineral density;
  • Muscle mass;
  • Insulin sensitivity.

Though the decline of these health markers is part of a natural ageing process, we can reduce the decline by making lifestyle changes to exercise, diet and physical activity.

As regards physical activity, the recommended daily amount of steps to be taken is: 10,000 – dog (or grand children) walking could help to achieve this target.

Weekly moderate aerobic exercise of 150 minutes (around 20-25 minutes per day) is also recommended. This could include fast walking/slow jogging, dancing, tennis, kickboxing, participating in or coaching team sports, and swimming.

Two bouts of strength training; which includes using light weights or your own body weight – calisthenics, is enough to dramatically reduce the risk of almost all forms of disease.

As regards nutrition:

Refined carbohydrates – found in cakes, processed foods, biscuits are to be avoided, as are sugary drinks and also alcohol.

Whereas vegetables, fruit and protein should be consumed regularly.

The most effective way to remain healthy into later life is to choose exercises that the individual finds productive and enjoyable. Avoid high impact activities eg road-running and activities that are overly repetitive. Think too about posture when exercising. Posture should be symmetrical and activities should be undertaken whilst standing up or lying down, not whilst seated in an office chair. To get the most benefit from activities make the exercise intense and do exercise or activities in short bursts.

If you are finding this fitness advice a little complex speak to a local personal trainer, they should be able to create a fitness regime with you that meets your needs. Making big lifestyle changes all at once is a big task. It is advisable to choose one small change rather than trying to do everything at once.

So How do we plan for a longer working life?

Whether you are of working age or enjoying later life we at Marchwood IFA would advise you to regularly consult your Financial Advisor as your lifestyle and finance goals and income needs change.

To arrange a consultation with Marchwood IFA please call 01243 532 635. We have specialists that are able to discuss specific options with you.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss mortgages and insurances please ask to speak to James Mayne.

Brains v brawn; is a university education worth the investment?

Brains v brawn; is a university education worth the investment?

As this year’s undergraduates prepare for university and parents and grandparents unlock savings to fund degrees, we ask: Is university education worth the investment?

Firstly – let’s take a look at university education costs:

  • From September 2017 universities in England and Wales may charge up to £9,250 (~$11,940) per annum for tuition fees. Standard degree courses last for three years bringing teaching fees in at a total investment of £27,750.
  • The introduction of two-year fast track degree courses has not reduced this three-year course tuition price as they cost £28,000 in total.
  • Average living costs are estimated at £12,000 per annum, though London prices are considerably higher. But, taking average living costs the total living costs for a three-year degree are £36,000.
  • The student loan interest rate was recently increased from 4.6% to 6.1% meaning that new under-graduates would pay an additional £5,800 in interest on tuition fees alone.
  • Assuming a standard three-year degree course with interest on tuition fees at 6.1% plus average living costs for three years that brings the sum of the total investment to £69,550.

Obtaining a degree in England can cost more than obtaining one from a state funded university in America, but lower cost tuition fees are applicable to in-state American students only. Otherwise tuition fees at American state and private universities are higher, in general, than those of universities in England and Wales.
Europe is an option for EU and for EEA members where over 30,000 international degree courses are offered. The average annual tuition fee for a BSc degree in Europe is: €4,500 (~£4,160) and for an MA it is: €5,100 (~£4,715) or around half what English and Welsh universities charge. In Germany and also in the Netherlands courses are taught in English and the cost of living is lower than it is in England or Wales.
But to return to our initial question:

Brains v brawn; is the outcome worth the investment?
Put simply – yes – graduates do earn more than non-degree qualified people.
However…
How much more graduates earn (in comparison to their peers) and
How soon they start to earn more than their peers does not have such a simple answer.

In addition to the Teaching Excellence Framework (TEF) – launched by government to assess the quality of teaching delivered by UK universities; the Department for Education (DfE) measures ‘education outcomes’ by analysing the income tax returns for graduates five years after they have graduated. The government hopes to add weight to TEF benchmarking by using DfE analysis of graduate earnings. Currently the majority of universities charge maximum tuition fees regardless of the subject studied or of the prestige of the academic institution.

The Economist has appended further ‘study data’ including: subject studied, which university the graduate studied at, the location of the university, school exam results, family income, age and whether or not graduates attended private school to predict ‘expected earnings’ and match that with actual earnings.

Here are the main take-outs of the Economist findings:

  • Graduates that studied a maths related subject (economics, engineering, medicine, veterinary science and maths) earned more;
  • Universities that selected under-graduates that had performed particularly well at school and also used selection criteria produced better-paid graduates.

By way of example dentistry and medicine graduates earn £47,000 per annum five years’ after graduating whereas creative arts graduates earn £20,000 per annum. The most selective universities produce graduates that on average were earning £40,000 per annum five years after graduating compared with non-selective universities whose graduates were earning £20,000 per annum on average – this regardless of subject studied.

Based on the Economist’s university impact on earnings analysis there is good news for universities local to Chichester-based MarchwoodIFA; Portsmouth, Bournemouth, Brighton, Southampton Solent and Chichester universities were all ranked in the top 15 for boosting graduate earnings, with Portsmouth university taking first place.

And how does a university education play out over time?
The main factor influencing later-life income is a degree qualification. The UK still favours services industries – finance, media, management consultancy and tech; where intelligence impacts the quality of service. Over a quarter of degree qualified 65-69 year olds are in employment, compared with 14% of the same age group that did not qualify beyond secondary school. In fact degree qualified 65-69 year olds are more likely to be in employment that unqualified 16-24 year olds.

The gap between rich and poor disposable income in retired households, grew by one third between 1984 and 2014; the same pattern of a growing rich and poor gap is true of working age households. This would indicate that investing now in a university education for a young person may well be a worthwhile long-term ‘future earnings’ investment.

As always, we would advise you to seek financial advice from your IFA.

To arrange a consultation with Marchwood IFA please call 01243 532 635. We have specialists that are able to discuss specific options with you.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

To discuss insurances and equity release please ask to speak to Hamish Gairns.

To discuss mortgages & insurances please ask to speak to James Mayne.

 

*British pound conversions to USD and to EURO as at 25 Aug 2017 published exchange rates.

Drawdown pensions; why they appeal

Drawdown pensions – why they appeal

Recently the Financial Conduct Authority (FCA) has expressed concern at the growing number of retirees that are drawing down on their pension funds rather than buying annuities with them.

Drawdowns – (capped or flexible) are where a pension pot is left invested but an amount is taken as income.

Annuities – where the pension pot is used to buy a regular income from an insurance company.

Changes to the way in which pensions can be spent and invested were triggered by the launch of pension freedoms in 2015. Though designed to give retirees and over 55’s more choice, many are choosing drawdowns without seeking professional advice from a finance expert – 5% prior to 2015 but now that figure is at 30%. Without professional advice seniors may pay too much tax, miss out on benefits, or on other investment growth.

Most seniors that drawdown entire pension pots have:

  • Relatively small savings at £30,000 (or lower) and;
  • Have other sources of income.

Drawdown monies are most often used to:

  • Clear loans, for example mortgages (whole or in-part);
  • Make purchases such as home repairs, cars or holidays;
  • Invest in property, stocks and shares, bonds or other investments;
  • Save into another fund.

The FCA found that an undercurrent of ‘pensions investment distrust’ lead many retirees to drawdown and move money out of their pension pot. Over 70% of seniors accessing retirement funds are aged under 65 years’ of age.

The FCA have said:
“Drawdown is complex and [retirees] may need more support and protection.”

As the shape of our economy and ageing population changes it is hardly surprising that retirees wish to invest differently. We would advise however that anyone looking to change their pension investments should speak to an independent financial advisor, but also one that specialises in pensions.

We cannot advise generically on the best investment for you we would ask that you please book a pensions/investments consultation either with Hamish Gairns or, with Richard Smith.

But we do have some lifestyle and health tips especially for over 55’s.

  1. Identifying and fulfilling a sense of purpose has been found to lead to a longer life. Patrick Hill and Nicholas Turiano conducted the longer life research at Oxford University. The good news is that finding a sense of purpose can happen later in life to the same effect.
  2. Creating a retirement plan that gives prominence to what people want to do, and how they want to live in later life helps to shape conversations around finance and inheritance planning. We would suggest that finances that compliment a retirement plan are discussed with a retirement specialist IFA.
  3. As the UK population is an ageing one, putting health at the centre of a retirement plan is a good idea. It might be that joining classes and groups takes the grind out of physical and mental exercise. And activities that are completed in groups enable participants to extend their social circles. Learning a language, or to dance is proven to keep minds and bodies active.

Here’s to enjoying many later years.

Contact MarchwoodIFA for pension, investment, mortgage, equity release, and living inheritance planning advice: 01243 532 635.

Falling income; budget and savings planner

Falling income
Here in the UK though we have enjoyed strong economic growth and low unemployment figures, earnings are still low. In fact inflation-adjusted average earnings are 4% lower than they were before the financial crisis in 2008.

This is despite the introduction of a national minimum wage in 1999. Currently the National Living Wage (NLW) for 25 year olds and above is £7.50 per hour. The government plans to raise the NLW to £9.00 per hour by 2020. This is a measure to help the lowest paid. Recent finance news has highlighted the growing gap between rich and poor; and how globalisation has exacerbated this situation. By 2020 it is projected that around 3m people will be paid at a higher rate because of the NLW. It is also expected that the NLW will make up 60% of median earnings by then. When the minimum wage was introduced in 1999 it made up 45% of median earnings. But, though the NLW is generally thought to increase productivity, it does not necessarily close the wealth gap.

And a net result of increasing wages bills for business owners; particularly small and medium size businesses, is that they make less hires. This also pushes companies towards automisation, and outsourcing to save UK labour costs.

The rising cost of living
Throw into our stretched income melting pot the rising cost of living: fuel and groceries growing prices pushed inflation to 2.3% in April of this year; the highest rate for more than three years. And it’s not just icebergs that have got pricier (67.2% more costly from Jan-Feb) it’s also business equipment such as laptops. Computers increased in price by 2.3%, from Jan-Feb, having been 5.1% cheaper throughout 2016. It is fair to say that both households and businesses are feeling the pinch.

How to reduce costs
There are economies to be made with some living costs such as: mobile phones, computers, internet, streaming media, landline phones and also utilities. Some reputable providers of ‘better deal’ information and services include: Which? YouSwitch and (part of the Curry’s retail chain) KnowHow. All of this can help to save domestic and company overhead costs.

Why a savings pot is handy
In March of this year the Office for National Statistics (ONS) warned that the household savings ratio had fallen to a record low since records began in 1963; at below 4%.
Perhaps, this is not surprising given falling wages and the rising cost of living but; having money put by in case of essential repairs (your boiler, your car) is a good idea. The recommended amount to have in your savings pot is enough to cover three months’ living costs, which would include a mortgage (if you have one) and any other regular financial out goings. So, the start for calculating how much you need in a savings pot is a finance plan.

How to do a finance plan
Simply put, a finance plan is a table where in the first column (A) you list income, and in the second column (B) you list costs or out goings. It is hoped that when you take B from A there is money leftover. This ‘spare’ income can be saved and invested. When drawing up a finance plan do not forget finance and insurance costs, if you do have loans including a mortgage or mortgages it is useful to detail:

  • When the loan ends
  • What the monthly payments are
  • What the interest rate is
  • Whether there are any penalties for early redemption
  • And – if you are planning around a mortgage – what the approximate value of the property is.

If you are unsure of a property value a check of (the post code + similar property type) on a property sales site such as Right Move or Zoopla; should give you a well-educated guesstimate of the value.
All of this information is very useful to have prior to meeting with your IFA, or if you are considering seeing an IFA for the first time.

Where to invest savings
When you are ready we would advise you to talk to a local independent financial advisor (IFA). Finance advisors have expertise in savings schemes including;

  • Stocks and shares ISAs
  • Cash ISAs
  • Lifetime ISAs

Also if you own your own home, or have more than one property your IFA can advise you on mortgages, re-mortgages and lifetime mortgages which can free up house wealth. If you draw a pension and this is your income; IFAs can advise you on retirement income, and living inheritance planning also.

In our fast-changing economy it helps to talk to an expert.

Contact Marchwood IFA to arrange a consultation with a financial services expert: 01243 532 635.

Housing market news; white paper reforms

Housing market news; white paper reforms

In February 2017 communities’ secretary Sajid Javid presented a housing white paper entitled ‘Fixing our broken housing market’ to government. According to Christine Whitehead of the London School of Economics there have been about 200 governmental housing initiatives since 2010, however; this paper does go some way to tackle planning permission, land banking and green belt development. All three issues are new-build supply blockers. The UK’s new home build target is 250,000 per annum, which was last met in the year 1979-1980.

New-build supply blockers

 ‘Fixing our broken housing market’ aims to force councils and big developers to boost the supply of new homes.

  1. The white paper proposes a new standardised framework for calculating what needs to be built by councils.
  2. Councils that miss their agreed new-build target may have to surrender ‘planning control’ to central government.
  3. Owning plots of land with planning permission on them and not developing them in a timely fashion (land banking) will result in ‘use it or lose it’ punishments where councils will be able to compulsorily purchase land.
  4. Extra help will go towards SME construction firms as regards bidding for new-build contracts.
  5. Higher charges will be levied against developers.

Many criticise the white paper for not going far enough the elephant in the room being the absence of any green belt development reforms. A late decision was made by the government to stand by existing green belt development restrictions ahead of the white paper being presented. Director general for the Institute of Economic Affairs Mark Littlewood said: “The only surefire way to bring down housing costs is to relax our highly restrictive planning laws. Not all greenbelt land need be sacrosanct so it’s a shame to see politics trump sensible economics.”

Regeneration expert Barney Stringer believes that releasing 60% of green belt within 2km of a railway station would create space for 2m new homes. Britain has the highest proportion of urban dwelling citizens, at 90%, of any large Western country. This is unsurprising as the majority of jobs are in cities and towns; and it now takes an average middle-income household 20 years to save up for a deposit for a house.

Long-term renters get some help

Some attention has been given to long-term renters or generation rent. The rate of homeownership, particularly amongst the young (25-34 years’ old), has fallen by 30 percentage points since 1992.

  1. Planning regulations are being changed to favour construction of affordable rental properties over homes to buy.
  2. Echoing a Labour party policy to extend rent tenancies, the white paper proposes three-year tenancies for some renters.

House prices and mortgage options

The price of houses in London has slowed, which has dampened the market for the whole of the UK. One year ago London house prices were rising by 15% year-on-year. However, from March 2016 to March 2017 house prices in London grew by 1.5%.

House prices across the UK as a whole for March 2017 were down 0.6% compared with February. The average cost of a home is £215,848 which; has been the case for almost a year.

The drop in prices is good news for would be house hunters and the government has developed three finance products to suit the changing homeowner market:

  1. Help-to-buy ISA – the applicant must be saving up for a first home. The government will contribute up to 25% on top of savings up to the value of £3,000 on top of individual ISA savings totaling £12,000.
  2. Lifetime ISA – the applicant must be a UK resident aged between 18-39 years’ old. One lifetime ISA per person per tax year may be opened with a maximum investment of £4,000 per tax year. The government will top up savings by £1,000 tax-free, per tax year (25%); if you have saved £4,000.
  3. Lifetime mortgages for over 55’s – the applicant must be a UK homeowner aged 55 or over, mortgages can be used to unlock house wealth, whether applicants are retired or not.

With a general election looming, we are sure that there will be more changes to housing policy and mortgage finance options. We would advise you to speak to an IFA. Here at MarchwoodIFA we have specialist mortgage, ISA and lifetime mortgage financial advisors. Please call 01243 532 635 to arrange a consultation.

Protecting nest eggs

Protecting nest eggs be they a pension, property, savings or other investments is of interest to most people that are in their 40’s and beyond. For one, the middle-aged are likely to have earned more than younger people which; means that they should have some investments that need protecting.

In the last 17 years the rate of pay (the number of people in work, divided by the number of hours that they work, and the income that they earn) has fallen from three to one. In addition the cost of living and inflation have both risen whilst interest rates on savings have fallen from 17% in the 1980’s to 0.25% now. This in turn has meant that young people have not had as much disposable income, and even if they did, putting savings in a bank account now yields a low return. The savings pinch has been felt in pension contributions, savings and investments and also in rising rent costs; as first-time buyers have struggled to save for a deposit and mortgage for a home.

The story for occupational or workplace and private pension enrolment is rather similar. Though private sector pension enrolment peaked in the 1960’s at around 8.1m, pension membership was at its lowest level in 2001 at 2.7m. The number of self-employed people has grown from 3.4m to 4.8m in the last 20 years, but private pension contribution has declined to 1:10 from 3:10 amongst this group. The age of guaranteed ‘final salary’ pensions which; was experienced by those born in the 60s and 70s is now over.

For those who are not yet retired private pensions are worth considering to top-up pension pots, here are some key points:

  • Contributions made into a pension are subject to tax relief.
  • A quarter of the pension fund value is available as a tax-free lump sum from the age of 55.
  • There is flexibility at retirement as to how you wish to draw your pension eg as an ‘income for life’ or perhaps as a ‘flexible drawdown’.
  • Flexibility with death benefits.

And for those who are drawing near to taking a retirement income, consideration could be given to protecting pension pots my making use of ‘Life styling’ options available on certain pension schemes. This allows the member to effectively de-risk their pension fund the closer they get to their nominated retirement age. This is done by moving parts of the fund over a period of time into more cautious investment areas such as fixed interest securities, gilts and cash.

The housing market has recently been described as static, by mortgage lender the Halifax and also by the Royal Institute of Chartered Surveyors (Rics). Average house prices have increased exponentially over time having been at £3,465 in 1966 and now being at £313,655 (Apr 2017). Though the government has launched first-time-buyer ISAs for homeowners, and the popularity of mortgages for the over 55’s is growing, there are still financial challenges for ‘rich retirees’ regarding insurances and protecting their inheritance whilst also enjoying later life.

There are a range of insurances to be considered:

  • Whole of life policies to protect investments until the end of life.
  • Convertible term policies for example to cover investments including mortgage final payments for a period of time.

And for would-be homeowners the help-to-buy or maybe a Lifetime ISA might suit.

  • To be eligible for a help-to-buy ISA the applicant must be saving up for a first home. The government will contribute up to 25% on top of savings up to the value of £3,000 on top of individual ISA savings totalling £12,000.
  • To be eligible for a lifetime ISA the applicant must be a UK resident aged between 18-39 years’ old. One lifetime ISA per person per tax year may be opened with a maximum investment of £4,000 per tax year. The government will top up savings by £1,000 tax-free, per tax year (25%); if you have saved £4,000.

Whatever your circumstances we would advise you to contact your IFA to obtain expert tailor-made advice. The fast paced changes of government and policy post Brexit means that the UK economy is a shifting landscape.

We are here to advise and help you on finance matters. Please contact one of our independent finance experts to discuss insurances, equity release, mortgages, ISAs, investments and pensions.

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