Category: Financial Adviser Blog

If you are nearing retirement, you may have been particularly worried about the impact of recent market volatility on your pension assets and perhaps you are reassessing your retirement plans. There are several things to consider if you are planning to retire, which will depend very much on your own circumstances.

Since pensions freedoms were introduced in 2015, there are many more options available to retirees. Sudden retirements used to be the norm. People would stop work completely one day and be fully retired the next, perhaps receiving a regular income from an annuity. It is now possible to take a more gradual journey into retirement – making use of this flexibility in how you draw funds could be sensible in times of uncertainty.

Consider your timescales
If your planned retirement is 5 to 10 years away, there is a reasonable time for your savings to recover from the recent market volatility, but you should still take action:

• Review your retirement age.
• Consider increasing your pension contributions.
• Talk to us about your attitude to risk and appropriate fund switches.

If you have less than five years to retirement, your pension pot may not have been exposed to market volatility as much as you think. You may have benefited from a lifestyle option on your pension which is designed to ‘lock in’ investment growth as you approach retirement, by switching funds to less risky assets. This option is not suitable for everyone, particularly if you intend to keep your pension pot invested and use income drawdown to give you an income in retirement.

If you are retiring this year and your pension pot has taken a hit, you could consider delaying retirement until markets recover, but this may not be an option for everyone.

Advice is key
One of the biggest risks in uncertain times is to act in haste and make rash decisions.

Getting financial advice is crucial in making the right decision. We can help you consider all your options, including reviewing whether any other assets could be used to provide an income, so that your pension stays untouched.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

KEY TAKEAWAYS

• If you are nearing retirement you may be worried about recent market volatility on your pension assets
• Advice will depend on your own circumstances
• Pensions freedoms have introduced more options, including a gradual step into retirement
• Timescales are important but options should be reviewed at each stage
• If retirement is 5 to 10 years away – review your pension ages, funds and consider increasing contributions
• If retirement is less than five years away – you may be locked into a lifestyle approach
• Advice is crucial if your only option is to retire this year and your pension pot has taken a hit
• Don’t act in haste – talk to us for advice.

Estate planning encompasses not only preparing your finances to ensure your assets are protected for your loved ones once you are gone, but it’s also about ensuring you have enough money to live on.

It starts with obtaining a comprehensive view of your assets. Assessing the value of your estate and ensuring the right documentation is in place is a first port of call (such as Wills, Lasting Powers of Attorney (LPA), and the formation of any relevant Trusts).

Valuing your estate
In order to establish the value of your estate, first calculate the total worth of all your assets, including your home, any other property, money and savings, shares and investments, business equity, cars, jewellery and other personal possessions. Determine the value of

non-monetary assets, by applying a realistic market value. Any gifts which incur Inheritance Tax (IHT) should be added to the value of assets. Then deduct debts and liabilities from this amount to establish the total value of the estate.

Deductions include any outstanding bills, mortgage debt, loans, credit cards, overdrafts, and funeral expenses.

Wills*, Trusts and LPA
Putting together a clear plan, that details your wishes regarding how you’d like your estate to be managed upon your death, will ensure when the person looking after your estate applies for probate they will know what your wishes were. A vital part of successful estate planning is ensuring you have a valid Will in place. Trusts are also a useful way of managing money or other assets on behalf of beneficiaries. There are various types of Trusts which provide an alternative to direct inheritance or transfer of certain parts of an estate, giving you control over who receives what and when. There are 2 types of LPA, ‘health and welfare’ and ‘property and financial affairs’ which are worth establishing at an early stage.

IHT
Estate planning can also help you reduce the amount of IHT payable. With expert planning, you can legitimately reduce the amount of IHT payable and pass on assets to your family as intended. For individuals, the current IHT nil-rate threshold is £325,000, and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. Beyond these thresholds, IHT is usually payable at a rate of 40%.

Since April 2017, there has also been a main residence nil-rate band, which applies if you want to pass your main residence to a direct descendant (e.g. child or grandchild). For the 2020-21 tax year, this allowance is £175,000. Added to the existing threshold of £325,000 this could potentially give rise to an overall IHT allowance of £500,000 for individuals, or £1m for those who are married or in civil partnerships. It is important to note larger estates will find residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m.

There is another simple way of passing money to the next generation which allows for gifts to be made from surplus income. Conditions apply, and advice would be needed to ensure the gifts are made in the right way. We can talk you through the options and help you to find the most appropriate choice.

We can help
We can give you advice to ensure your money ends up with the people you want, for the reasons you choose. We can show you how much money you will need, help you to pass on assets in the most effective way, and work with you to reduce or manage an Inheritance Tax bill.

*Will writing and LPAs are not a part of the Openwork offering. Openwork Limited accepts no responsibility of this aspect of our business. These products are not regulated by the Financial Conduct Authority.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Key Takeaways

• Estate planning involves protecting assets for your loved ones and ensuring you have enough money to live on
• To value your estate, calculate the value of all assets, then deduct debts and liabilities
• A vital part of successful estate planning is ensuring that you have a valid Will in place.
• Trusts are a useful way of managing money or other assets on behalf of beneficiaries.
• There are 2 types of LPA, ‘health and welfare’ and ‘property and financial affairs’
• Estate planning can help you reduce the amount of IHT payable
• For individuals, the current IHT nil-rate threshold is £325,000 and £650,000 for a married couple or civil partners
• There is a main residence nil-rate band (currently £175,000), which applies if you want to pass your main residence to a direct descendant
• For larger estates residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m
• A simple way of passing money to the next generation is gifts made from surplus income
• We can advise you to ensure your money ends up with the people you want in the most effective way and work with you to reduce or manage an Inheritance Tax bill.

Another great insight to the world of financial markets is now available from OMNIS.

 

 

Please click here to go to the in-depth article

A fantastic insight to the world of financial markets is now available from OMNIS.

 

 

Please click here to go to the in-depth article

 

A letter sent out to my clients recently, offering some perspective on the recent turbulence in financial markets. It’s the time in the market that counts, not ‘timing’ the market. With a long term view, short-term gyrations are uncomfortable, but should not detract you from the plan. If you’d invested £1 in UK equities in 1925, it would be worth £9,100.00 today. That £1 investment will have been through world war 2, high inflation, dot com crash, 2008 financial crisis, referendums, plus many more events that cause a seismic shock to the markets.

—

It would be wrong to suggest that the news from the financial markets is not uncomfortable and concerning. The media has reported daily and we can all see what is happening and the uncertainty created.

At periods like this it is sometimes healthy to do what the standard investment disclaimer tells you never to do – and to look at past performance. History tells us of previous times of disruption and uncertainty on financial markets and, within our own experiences, the recession of 2008 is a relatively recent memory. On each occasion the financial market recovered. The chart below goes back to 1926 and provides helpful context. Financial markets rise and fall – it is the actions of investors and their investment professionals that determines the long-term impact on individual outcomes.

Already we have seen encouraging shifts from those countries which first experienced COVID19 and are starting to emerge from the peak spread of the virus. While we do not expect a smooth or fast return to a more normal market environment, we do expect that a return will happen.

It is the view of our investment experts that the current period of intense disruption will pass. Moreover, if the authorities succeed in containing the spread of the virus, and if increases in bankruptcies and unemployment are limited, our experts believe the stimulus being put in place by central banks and governments could fuel an exceptionally strong economic recovery in the second half of the year. In 6 months’, time we will hopefully have entered a new phase of market stability with every possibility of new investment value and opportunity. Based on our experience it is best to stay in the market, and not incur the cost of missing on active periods of market recovery. This can have a negative effect your long-term returns.

Our Investment Approach

While we are in the current environment our principles of investment management hold firm.

Understand attitude to risk: As your adviser I have worked closely with you to make sure that your portfolio is closely matched to your own view of risk and comfort with loss. The current markets will be giving you pause for thought but I trust that we have matched your investment position to your individual situation. If you are finding that your attitude to risk is changing let’s talk and make the appropriate changes at the right time.

Invest for the long term: Our position, that value is driven by time in the market rather than a moment in time, is unchanging. Now is admittedly, a moment in time of extreme disruption but we hold our position. Economies and financial markets will steady and recover, and a longer-term approach to investing delivers better returns over time

Diversification is vital: Our investment principles are underpinned by a structured and disciplined approach to diversification. Your Omnis portfolio is designed to ensure diversification of investment, asset class, fund manager and fund without any effort on your behalf.

A rigorous and focused Governance process:  We have built a robust governance process. Every aspect of the current market turbulence is being monitored with experience and care. Our investment team only work for the clients of advisers within the Openwork network. They are only managing your money and the money of other people like you. Their sole priority is your financial well-being in every aspect of their work.

Our approach to investing is designed to insulate your money from the full turbulence of today’s markets. To ensures that you are well placed to be protected from impact during market turbulence and poised to take advantage of market opportunity when markets recover.

The portfolios that we recommend are matched to your appetite for risk and to your desired outcomes over the long term. Early indications even at this point show that this approach is working. Omnis investments, who manage some of our core portfolios, are providing performance updates on the Omnis website. If you would like to talk about your portfolios specifically, I am here to talk with you at any time.

Changes to how we work

It is our responsibility to support the continuation of good health across our community, while providing you with the support you need. So, we have taken the following steps within our practice to preserve our availability and service to you (to adjust as needed):

• Face to face advice is a cornerstone of our practice but your health is more important. We are now working remotely and practicing reduced social contact across the team.
• To stay in touch with you we have a range of technologies available – from the simple telephone call to online video chats using any one of (skype/ teams/ facetime) we can connect with you without requiring travel or close contact.
• Some of our processes may be a little slower at times due to remote working or absence within the team, but we have confidence that you can still expect the same levels of care and diligence in every aspect of our work for you.

Importantly our firm is part of Openwork which is a partnership that has collectively provided financial advice for over 45 years. Together we have seen many changes in financial markets and provided support and guidance to two generations of clients, in good times and in bad.  Operationally this gives us strength and there are contingency plans operating across both our office here and everyone in Openwork to maintain that strength on your behalf.

The challenges we currently face will pass, and our main hope is that our team here, our clients and our communities emerge in health and strength.

Your sincerely

Adam Cockerham FPFS

Chartered Financial Planner

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested. 

Past performance is not a reliable indicator of future performance and should not be relied upon.

Providing a retirement windfall for your child

Planning ahead and starting early can really help when it comes to building up a financial future for the children in your life. The Junior ISA (JISA) is a popular choice for many, but one often overlooked investment option is the ability to open a pension for your child, to help set them up for retirement.

Increasingly popular choice
Although retirement is a very long way off for your child, putting some money aside now means they can be one step ahead when they come to plan their retirement. Any parent or legal guardian can set up a pension, which will automatically transfer to your child once they reach the age of 18, at which time they can continue to contribute or leave the savings invested. Under current rules (which may be subject to change in the future) they can access the pension from age 55.

A valid option, worth considering
In addition to your own pension contribution allowances, people often don’t realise that they can also put money into someone else’s savings. If the recipient is a non-taxpayer, as most children are, they are still entitled to tax relief on any contributions made. Pension rules allow anyone to pay contributions on behalf of a child, so other family members such as grandparents can get in on the act too.

HMRC data indicates over 60,000 families have opened pension plans for their children. As personal pensions come with no minimum age restriction, many people opt to open one when their child is born.

Know the numbers
Current pension rules allow you to put up to £2,880 a tax year into a pension for a child. Tax relief of 20% means that this is then topped up to £3,600. No further Income Tax or Capital Gains Tax will be payable on the investments held in the personal pension, until your child starts taking benefits, (which currently cannot be before age 55). If you start pension contributions once a child is born and used the full allowance, the contributions would cost just under £52,000 over 18 years, and this, under current rules would be topped up by around £13,000 in tax relief.

Assuming growth in investments over the period, when the child reaches age 55 currently, they would have a sizable pension pot to draw upon, the spending power of which will of course depend on the passage of inflation over the intervening years.

Getting the balance right
Aside from retirement provision, you also need to consider providing financial assistance for more pressing priorities, such as university fees or money for a house deposit, or a wedding perhaps. Any pension savings won’t be available to help children with these financial priorities earlier in their adult lives. So, ideally a pension for your child should be regarded as part of a wider plan, rather than the only investment embarked upon.

Start a pension for your child today
With the full State Pension currently £168.60 a week, this is certainly not enough on its own to provide a comfortable retirement, so why not set the wheels in motion to provide a retirement windfall for your child? It’s also a great way to introduce your child to the concept of long-term saving. Families thinking about how to save and invest most efficiently during 2020 shouldn’t overlook pensions for children. Even if the full allowance isn’t contributed, any money saved could still provide a valuable nest egg at retirement.

If you would like to know more about investing for children, please get in touch.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

If you weren’t sure how Financial Advisers added value to your financial wellbeing, then this graphic might just help you visualise it.

As yet another general election looms over the UK population, you could be forgiven for not quite feeling in the festive spirit. I think we can all agree no one really wants to be thinking about politics and the future of the country in December. I’m sure we would all much rather be sipping mulled wine and searching for the perfect Christmas tree.

With more uncertainty in the air we know that many of you might be concerned about what may lie ahead for your investment. It can be tempting at times like these to make short term decisions in an attempt to protect your money from the prospect of adverse market conditions. As understandable as this is, it goes against a basic principle which all investors should endeavour to follow – ‘time in the market, not timing the market’.

What do we mean by this? Well, it is quite normal for markets to rise and fall and Omnis strongly believe that with any uncertainty comes opportunity. They are both active and agile in approach and well positioned to be able to take advantage of these opportunities as they arise. Simply put, the Omnis aim is to use market fluctuations to buy low, sell high. By being an active investor, we are always looking for these opportunities.

As always, diversification – the concept of not having all your eggs in one basket – is a key investment principle which all investors should follow. Diversification is central to the Omnis approach when managing your money and key to protecting against unfavourable market outcomes. Omnis fund ranges, and portfolios are spread across a multitude of top tier fund managers, sectors, geographies and investment types. So, you can rest assured that your Omnis investments are being carefully managed with your long-term investment goals in mind.

We ensure your portfolio is only taking on as much risk as you are comfortable with, to meet your long-term financial goals. That’s why our partnership with your Omnis is so important to us.

Omnis are a long term active investment manager, and consider the wider, longer term impact of short term economic or political events. There will always be changes and challenges – it’s important to remember, that investing should not be considered with a short-term view.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

 

I’m not one for written musings. At least not in a professional capacity. I’ve had an experience in my work as a Financial Adviser recently, that left me feeling compelled to write it down and share it with others. If it changes just one life, it will be worth my time.

 

I met a family earlier this year for the first time. Husband had good household earnings, pension planning opportunities as a higher rate taxpayer to be considered, a company Director and above all, father of three. Fairly typical structure, it would seem.

 

We talked about health, dependents, and the future, as you would expect, and I was informed that the client (the husband and father), had been diagnosed with a rare heart condition back in 2017. The condition had meant he would be on medication for the rest of his life.

 

‘Do you have any cover in place?’ I asked them.

 

‘I’m not sure, I think there was something we took out with the mortgage 5 years ago, but I have no idea what it is’ the Gentleman’s wife replied.

 

I responded, ‘Let’s try and find it and see, just in case there is any illness provision on there, you never know’.

 

After some searching, we came across some paperwork from a well-known life insurance provider. I won’t mention who, for reasons that will become evident shortly. Having assessed the paperwork, it turned out that the gentleman’s condition was listed under a critical illness segment of his policy. Six figure potential pay-out.

 

With a cause for cautious optimism, I told them that I think they may have a legitimate claim, but not to get their hopes up as it has been over two years since diagnosis. After a number of weeks of scrambling for medical information from consultants who had moved around hospital trusts, the provider eventually had everything they needed.

 

Due to some intricacies in the policy wording, the client’s claim had been rejected because the condition was not yet severe enough to trigger the critical illness payout.

 

We appealed with further evidence to the contrary. We involved other consultants who had worked with client at various points in his health investigations. We fought, and fought, and fought.

 

It was rejected yet again as the heart reading was 1% healthier than what it needed to be, in order to trigger a claim and be deemed as permanent, despite meeting the diagnosis and all other parameters. It was described as a borderline case, a ‘grey area’. In my opinion, anything right on the line should give benefit of the doubt to the client, always. Otherwise, we risk deteriorating consumer confidence in the provisions they pay for. And rightly so.

 

At this point it was looking unlikely. I had calls with the Ops director, regional managers, underwriters, claims management teams and everybody in-between. I felt I was failing. I couldn’t stop thinking about it.

 

Having consulted my network, we tried one more appeal before embarking on an arduous process with the Financial Ombudsman Service which had no guarantee of being successful.

 

With various discussions ongoing, they agreed to reopen the case for yet another appeal. I felt like I was beginning to develop a heart condition of my own with this, who knows what it was doing to my clients. I was also awash with guilt for getting their hopes up in the first place.

 

After 5 months of battle, arguments, stress, highs, lows and guilt, I am pleased to confirm that in November 2019 the provider overturned their initial two assessments, accepted the claim and paid my clients a sum of money that will alter their financial security forever, should the delicate health position take a turn or slow down earning capacity in the future.

 

It was the biggest sense of professional pride I have experienced in my entire life. It blew any fee-yielding, or complicated case, out of the water. I called them as soon as I found out that it was all over. Coincidentally and rather beautifully, it was also their anniversary, and in fact, a Friday.

 

Worth every minute, although I’m probably not the favourite person at said insurer!

 

What I’ve learned from this:

 

• Financial protection is single handedly the most important financial foundation you can give your clients. Some will never claim and may feel you’ve cost them money. But for the ones that do, they’ll thank you for the rest of their lives that you had the difficult conversations and made them pay a monthly fee to something that isn’t tangible, nor exciting.

 

• Never back down from a battle. I will never take no for an answer if I believe the client has just cause.

 

• Consider policy definitions and policy structure just as importantly as any other factor such as costs, number of definitions. The simpler the definition, the better for all involved, including the claims handlers!

 

• The weight of a large network behind you can make all the difference when dealing with providers.

 

• To always involve myself centrally to any claim, whether I advised on the original policy or not. An Adviser involved can make all the difference to the client outcomes. Enthusiasm at point of advice, vigor and tenacity at point of claim.

 

• It’s not all about the intricacies of financial planning. The basics are just as, if not more, important. I will never skirt over discussing protection ever again.

 

 

 

 

 

Understanding inflation and its impact on your portfolio is important because rising prices can reduce the value of the money you get back from your investments.

What is inflation?
Inflation is a term used to describe a rise in prices. In the UK, it is measured by the Consumer Prices Index including owner-occupiers’ housing costs (CPIH), the Retail Prices Index (RPI) and the Consumer Price Index (CPI). CPI is the most commonly quoted measurement and tracks the changes in prices of several hundred household goods and services including food, clothing and recreation. The Office for National Statistics publishes CPI figures on a monthly, quarterly and annual basis.

Prices increase for a variety of reasons, such as a rise in the cost of the raw materials used to manufacture goods, or tax cuts which encourage consumers to spend.

In the UK, inflation has drifted above the Bank of England’s (BoE) target of 2% since the Brexit referendum as political uncertainty has caused sterling to weaken against other major currencies. Weaker sterling means goods imported from outside the UK become more expensive.

Most other major central banks set a similar target because a healthy level of price rises reflects a strong economy. If inflation races ahead for any reason, the banks can use interest rates to get it back under control.

Why does inflation matter to investors?
Inflation reduces what is known as your purchasing power. In short, when prices rise, you can buy less with your money. This effect does not just impact your day-to-day spending though, it also eats into the returns generated by your investments.

Say your portfolio increased in value by 5% in a year. This is your nominal rate of return. However, prices rose by 2% during that time, consistent with the BoE’s target. To determine your real rate of return, you need to subtract the inflation rate (2%) from your nominal return (5%). In this case, the value of your portfolio increased in real terms by 3%.

Inflation proofing your portfolio
An investment portfolio should ideally be designed to deliver returns that beat inflation over the long term (five to ten years), even if it does not achieve this aim consistently throughout the whole investment period.

Bonds play an important role in the diversification of risk in your portfolio, but they may underperform when prices rise because payments become worth less. Fixed interest payments received by bond investors stay the same regardless of inflation, while equity investors earn a variable return which they expect, to some degree, to reflect changes in inflation. Alternative asset classes such as commercial property and commodities might also benefit from rising prices. Conversely, with interest rates at record lows since the 2008 financial crisis, holding cash will generate negative returns.

The value of your investments can fall as well as rise, and you could get back less than you invest.