Archive | May, 2013

Does Anyone Plan to Fail? So Why Do So Many Fail To Plan?

6 May

I have recently been reviewing many stats. It seems shocking how many situations are so poorly planned out. I mean a slight financial hiccup and everything is at risk to fail – so why do so many not take precautions.

I’m not suggesting that you insure against life and everything but rather to evaluate and make sure the most important at least there is a ‘B’ Plan and possible even a ‘C’ Plan…rather than hoping everything will always be fine.

OK, I accept that as a Financial Planner I consider the options, scenarios and possible outcomes more than most but if you never consider – what happens when things go wrong? And in life, things always go wrong at some point – SO BE PREPARED!!!

Protect your income

The Daily Mail quoted a survey showing that 2 in 5 families could not survive more than 8 weeks without their main household income. Only 5% of employees have insurance that will pay out if they are off work through illness – but one in five workers will be off work for at least three months before they reach retirement.

The Mail surveyed the costs of protection, citing Family Income Benefit as a cheap form of life cover (£10,000 a year for 25 years at age 35 for under £10 per month) and Income Protection insurance to provide a long-term replacement income if you are off sick (at age 35, £1,500 per month to age 60 after 6 months off work costs under £25 per month).

For healthy young people, protection is cheap and can make all the difference to the family’s well-being if disaster strikes.  But do get proper quotes and beware the small print (don’t miss vital points, constraints, terms and conditions).


Cash Savings and Inflation Can Imposes 12% Losses

The Daily Mail reported that only 7 of 868 available UK savings accounts pays an interest rate above the latest annual inflation rate of 2.8% after the basic rate of tax (20%) is taken into account. Over the past 5 years, the spending power of £10,000 in the average savings account has dropped to £8,870 because inflation has persistently been above the interest rates paid on these accounts.

The insidious effect of inflation on the value of savings accounts really is a form of water torture for savers. And nobody expects interest rates to rise any time soon. If you rely on capital related income, such as deposits, income portfolios or alternatives – talk to us about income generation, investment and planning strategies, and alternatives.

Take Advantage of The Tax Amnesty

A  ‘tax amnesty’ for people with undisclosed bank accounts in offshore tax havens ends at the end of May 2013, as warned in the Daily Telegraph. Those who disclose before then will face lesser penalties, but the recent imprisonment of people on charges of tax fraud also sends the message that HMRC is steadily getting tougher and tougher on evaders.

HMRC has specific agreements with Switzerland, Lichtenstein, Guernsey, Jersey and the Isle of Man. Information-sharing agreements mean HMRC will be able to track down evaders more easily, so tax consultants advise coming clean before carrots are replaced by sticks.

Property Sales – Did They Shrink The House I’m Buying? 

The Financial Times ran an alarming story about buyers of properties discovering that the floor area of their homes was less than shown on agents’ particulars. It claimed discrepancies of up to 10% existed between the floor areas shown in different agents’ particulars about hundreds of London properties. Such differences are more than enough to make a significant difference to the market value. Experts advise you request your own surveyor to measure as part of their survey, and to query the floor area figure with an agent if you suspect it is wrong.

Make the Most of Retirement Savings

The Financial Times ran a 2-page feature on how to make the most of retirement savings. There is now a wide range of alternatives to the traditional annuity, including fixed-term annuities, investment-linked annuities, with-profit annuities, and the capped drawdown and flexible drawdown schemes. While some of these pose risks, the conventional level annuity also carries the risk that its real spending power will shrink in line with inflation.

 For many people, it makes sense to review all the options before making a decision. 

Annuity Service – DIY or Professional Advice ?

The Sunday Telegraph warned that DIY online ‘enhanced annuity’ services, where buyers seek the best income for life from their pension fund but do not technically get any advice, can be risky. The amount of ‘enhancement’, or extra income for life you get from your annuity, depends on the degree of ill-health you suffer. But you need to be quite precise about your condition, and slight variations can make large differences to the amount of income payable. It’s easy to get it wrong thanks to the medical jargon used in many applications. 

The Telegraph suggests that getting personal advice from a qualified adviser is the best way to ensure you get the best possible deal.


About to retire? Changing Terms Of Your Company Scheme Or Options Available – So What’s The Best Choice?

The Sunday Times reported that many companies are targeting employees approaching retirement with pension offers that could leave them much worse off.  Typically, this comes in the form of an offer of a higher pension provided you give up the right to all future increases. In one example, a man of 65 might be offered a starting pension of £26,000 instead of £20,000, which sounds terrific – but if he lives for the average 22 years and inflation averages 5%, he would be £240,000 worse off as a result of taking the offer.

Offers of this type are hard to evaluate, so we recommend you seek our advice before making a decision.

Is Gold Still Worth Buying – Or Are All Commodities Best Avoided?

A sudden 8% slump in the gold price to $1,400 per ounce prompted many newspapers to ask if the 12-year bull market in gold  – the price was just $263 per ounce in January 2001 – was over. Experts and fund managers cited fears about an impending sale of gold by Cyprus, big sales by some hedge funds and the end of worries about inflation as reasons for the slide. As ever, a minority of investors have kept faith in gold and still expect the money-printing efforts of central banks to result in rising inflation at some point, with gold seen as the best form of insurance against this possibility.

This may no longer be a good hedge against inflation, and with the weakness in global growth and the phenominal growth over the last 12 years in the value of this asset are we in for a period of stagnant growth or possible a decline in value. On a risk adjusted return basis, I believe there are alternate assets where the potential returns are higher and more expected and defined.

Don’t forget the taxman – when buying and selling online

A survey cited by the Sunday Times claims as many as 8 million people buy and sell items online. That’s twice as many as the number officially self-employed, so it may be that many of these people haven’t yet registered with the taxman. The self-employed section of the HMRC website sets out the basic rules – for example, you need to pay Class 2 NI contributions to qualify for the State pension. It’s important to remember that because you pay income tax (on your profits) in arrears, you need to set aside money for the tax payments that become due at the end of January and July.

Investors That Turn to Buy To Let Properties 

According to a specialist lender cited by the Sunday Times, over 29,000 landlords entered the BTL market for the first time in 2012, attracted by returns much higher than those available on deposit accounts. As a recent Financial Times feature on BTL made clear, the best net returns are secured by those who use borrowings to finance their purchases and offset mortgage interest against rental income.  Both papers featured the wide regional variations in rental yields available.

The pity was, they forgot to mention the work involved, the risks, the lack of liquidity, this is a long-term investment. There is no guarantee the rent is paid and that capital value will increase. Sadly, many actually lose money on the investment or could have made better returns in a fixed term deposit account.

Property as an investment can generate good returns. I suggest it is only suitable for some and the actual returns are precarious. I speak as both an experienced IFA (Independent Financial Adviser), so I have seen the success stories and the failures; and also, as a landlord myself – with all the problems, costs and hopefully successes in the future.