Guidance, Advice or ....?

Since my last blog at the beginning of the month, I've noticed that when it comes to pensions-both for the employer and individual there seems to be a mixture of feelings from confusion/put off, dismiss/defiance and embrace/welcome. So I guess this will be a blog of two halves, yet similar...let's carry on and you'll hopefully see where I'm coming from!

Individual

From an individuals' perspective, the amount of choice as to what to do with your pension pot has changed dramatically. at the beginning of the 21st century, the decision for the vast majority was when will you put funds into an annuity, not will you. Now, 15 years later, we can not only use an annuity, but also use out right to take what we want from our pension each year and vary it annually, to taking the whole pot as cash. With individuals being able to take benefits from the age of 55, it is incredibly difficult to work out the cause and effect of what we do today and how that will impact us (if at all) later on in life. Consequently the decision is postponed/put off.

I'm also seeing personally and reading about those individuals that want to take their pension pot as cash, without acknowledging the emergency tax that will be applied to the amount taken after the tax free cash element is taken. For example, according to statistics, the average pension pot size is £32,000. The tax free cash element is generally 25% of fund value (in this case,£8,000 and therefore, £24,000 is taxable and will be assumed that you earn this monthly amount every month!

With £24,000 equating to £288,000 for a calendar year, it is easy to see how 45% tax would be charged (as well as the loss of your personal allowance) on some of it (anything over £150,000 and 40% on the majority of it (£31,786-£150,000) and 20% on a bit of it (up to £31,785). On £288,000 a tax bill of  £115,742 is created, which is roughly 40%. So cashing in the aforementioned pot of £24,000 could mean £9,600 is removed in tax, leaving you to fill out a P50Z and claim back the tax taken which will be refunded to you....by HMRC.

So we've met confused and defiant, how about embrace?

there are more and more individuals discovering 'Moneywise.co.uk' as well as seeking out Financial Advice to help them make a decision. I'm seeing more 50yr olds that ever before, who are trying to understand the rules as they stand, so that when it comes to 55, they know the route they want to take-subject to no unforseen events happening.

Employers

With Auto Enrolment now rolling out to micro and start up businesses (I had my first letter last week, and there are two of us in the business), more and more employers need to look at the cause and effect of Auto enrollment, if nothing else, the fact that a companies' salary expense is going up by 1% a year over the next 3 years. Yet I am meeting quite a few who decided to throw away the letter from The Pension Regulator, only to find that the implementation of Auto enrolment is government driven and not a hoax, nor will it disappear if a change of government takes place as all parties have agreed to the policy. Yet, there are some employers who welcome the idea and look to implement it early,using it as a recruitment tool/retention idea.

Conclusion

As I said at the beginning, two different sectors, but common threads nonetheless. Taking either decision on your own can be daunting, because no one website can see you and your circumstances and no amount of website 'guidance' and can truly give you the advice needed. You will be able to get to grips with the options, but which option-or options (you can have multiples)-is right for you?

Thanks for reading,

Victor

Victor Sacks Dip PFS
Independent Financial Adviser


For a free face to face,non obligatory first meeting for those within 20 miles of Peterborough, or anywhere in the country via Skype, please visit my website: www.business-ifa.co.uk

Victor Sacks is an authorised representative of Ringrose Grimsley Ltd (www.rgl-ifa.co.uk) who are authorised and regulated by the Financial Conduct Authority No:228585

This blog is based on Victors' views and not to be considered as advice, and everyones' circumstance is unique.

My Beautiful Neighbourhood

My Beautiful Neighbourhood

The Band Space wrote a song in 1996 called 'Neighbourhood' so while listening to that tune, I thought about this blog post.

This is a picture of my street. Honestly it is, in fact I'm at the end of my drive, looking left. So why post this? well.....

Dependent on your neighbourhood, house prices have rocketed in recent years. My own house has increased in value by 30% in the two and half years I've owned it. Up and down the UK we are seeing huge increases in property values, due to a mixture of lengthy low level interest rates, Mortgage tightening, & demand outstripping supply and as long as huge swathes of the UK remain green and our rolling countryside to remain as such, interest rates remain low and very slowly increase (as expected) and mortgage lending remains under tight controls (as expected) we can expect more of the same. At this point the well used phrase of 'If you always do, what you've always done, you'll always get, what you've always got' doesn't seem so bad, does it? hence the huge drive for people who have significant equity in their house, bank account, ISA's or pension to invest in property. (Now before I go on, this is not a property bash post, this is an awareness and my opinion-that's all.)   

I can fully understand the drive to property. We are a unique country that strives to own its own house and not only that, continue to move (around 8 times is lifetime average) hopefully upwards, to the biggest house we can comfortably afford-unlike our European counterparts in Germany, who rarely move once they are in a house and our Scandinavian colleagues who mainly rent and use surplus funds to buy antiques, pottery etc. Yet investing into property (and only property) brings various risks to the table:

Liquidity Risk

My office took a call from a woman who required short term lending. She has a gearing ratio of around 70% on her property portfolio and one of her tenants is refusing to pay rent and she wanted to borrow £6,000 to start legal action-she has no cash herself as she invested it in property.
This was a genuine call made last week on 4th June. Now many will tut and roll their eyes and it may be rare. but I bet she isn't alone-No mortgage or Bank would offer any further advance to her. Living proof that you can have all the property you want, but you still can't break a brick off your investment property and take it to the supermarket to get your shopping.

Tenant Risk

How good is your tenant and want insurances and assurances do you have in place to cover such an event, or a gap in tenancy. Having investment property is great, but what happens when it is not producing an income?

Neighbourhood Risk

Neighbourhoods change. I was brought up in the East End of London. In the late 70's and early 80's immigration and strike action caused friction in many areas and those that lived there, couldn't wait to get out and now places like Hackney, Shoreditch, Bow are cool and trendy areas to live in. Who would've guessed it?

Correlation Risk

If everything you own is in one area then Correlation risk exists. By one area I mean any investment area: Cash, Stocks & Shares, Soft or Hard Commodities, Antiques, Property etc. because if that sector fails, then you have nothing that will grow. Suncream and Ice Cream generally get sold when the weather is warm, so if the sun is out, you're doing fine, but if its -7 out there, not much going on. Far better to be in Ice cream and Overcoats, if you get my drift.

Summary?

A little of what you fancy does you good; everything in moderation. We hear these platitudes daily, normally lifestyle related. But in the investment world, diversifying is king, Have property of course, but have some cash as well and some commodity stocks and Mutual Funds and Pictures, antiques, pottery.......

Take care

Victor

This blog represents a personal view and is not to be taken as financial advice as that can only be given when fuller circumstances are known


If my blog(s) have piqued your interest then do get in touch!

www.business-ifa.co.uk

Victor Sacks is an Independent Financial Advisers with Ringrose Grimsley Limited. They are authorised by the Financial Conduct Authority no 228585 www.rgl-ifa.co.uk