How everything has changed ! When I first started my career, in the late 80's, it was in life assurance sales, we weren't consultants, we weren't advisers and neither we were financial planners or wealth managers. We were sales people. It was sales that counted and our managers said the best route to a close, and to have the client signing on the dotted line was to disturb. To create the fear factor. I don't think I was tremendously good at following the party line.
I wanted people to buy from me because I was nice. However, as life and my career has gone on, I' have realised that those stories designed to disturb are rooted in someone's real life experience. So as we go into Hallowe'en here's a belated attempt to disturb you into taking action.
1. If you waited until you are 35 to make the same pension contribution you could have made at age 25, your pension fund at state retirement age will be 67% lower.
2. If you are a 53 year old, you have 168 months before reaching state retirement age and if you want to quit working that's 168 pay packets or salary slips to get as much saved as possible.
3. It costs £154,400 to raise a child to the age of eighteen. Add on a further £47,000 if you want to help them through university. How would your children fair financially if they lost your income and how would that effect their future ?
4. £31,627 per annum is the value of a Mum if she was to go on the payroll. £23,971 per annum the value of a Dad and £23,946 the value of the annual amount of domestic work a parent does around the home.
5. 61% of Dads own life assurance and 51% of Mums own life assurance. Only 13% of parents own income protection and when asked 49% of parents didn't know how long their savings would last if they lost their income due to ill health or disability. If you lost your income through ill health, how would your lifestyle be effected and what plans would you have to cancel ?
6. It is estimated by the government that total receipts for inheritance tax will be £3.3 billion for the tax year 2013 /2014. Less than 4% of estates had to pay inheritance tax and it is sometimes called the voluntary tax for the well advised but do you know what the impact would be on the beneficiaries of your hard earned wealth ?
7. There is no inheritance tax to pay on transfers between spouses and civil partners. Just because you own property ( bricks and mortar) jointly and one party dies it doesn't mean the survivor has no inheritance tax to pay. I see a lot of fathers and sons owning property jointly, mothers and daughters, fathers and daughters etc and where there is no spousal exemption the survivor is deemed to inherit the deceased's half of the property and this becomes assessable for inheritance tax, with the usual rules for the nil rate band applying.
Sources: The Cost of Delay in Pensions Calculator - Scottish Widows
The Value of a Parent 2013 Research - Legal and General
House of Commons Standard Note SN93 - Author Antony Seely - Parliament UK Briefings
Don't hesitate to get in touch if any one of those seven points has made you think and question your financial planning. Here to help.
It was one of those mornings, pelting with rain in which everyone and their brother took to their cars and caused gridlock on Sheffield's roads. Fortunately I had left enough time to get across town to the Advanced Manufacturing Park , where Sheffield Life and Pensions Society were hosting a breakfast presentation from Sam Simpson, the Bank of England's northern representative.
With a cup of tea and a chocolate croissant we sat down to listen to Sam as he gave an overview of the role of the Bank of England and the contents of the Financial Stability Report. As well as setting interest rates, the bank actively monitor and report on risks to the UK economy. You can view the slide presentation at the foot of this blog.
I have to admit that much of the content was possibly more on topic for the investment analysts and discretionary fund managers in the room, but in between "signs of compressed risk premia and increased spreads" there was information of more immediate impact for my clients, especially if you have found it difficult in recent times, to get the mortgage of your dreams.
We are still in an unprecedented period of low interest rates, apparently the lowest for 320 years, I never knew records were kept for so long ! This has led to investors perhaps taking more risk than they need to in the search for yield plus an expansion of credit, both of which were judged to be negative. But the B.O.E doesn't want to put interest rates up by any great amount, as this would impact on household economies, which on average have £200 left at the end of the month, according to their research.
A great deal of work is done by the Bank of England in assessing short term risks to financial stability caused by house price inflation. Although prices in Sam's home of Scotland have only risen by 5%, London has risen on average by 17% in the last year. In order to keep a check on indebtedness the bank has ordered to significant measures:
"When assessing affordability, mortgage lenders should apply an interest rate stress test that assesses whether borrowers could still afford their mortgages if, at any point over the first five years of the loan, Bank Rate were to be 3 percentage points higher than the prevailing rate at origination.
"The Prudential Regulatory Authority and the Financial Conduct Authority should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum. The recommendation should be implemented as soon as is practicable."
If you add this to the impact that the Mortgage Market review has had on the level of new mortgages being offered, you will appreciate why mortgage borrowing has become more difficult and why you need to have a larger deposit than before. The Bank of England are well aware of "leakage" where borrowers denied a residential mortgage are turning to the buy to lector sector for lending solutions. In view of this they have recommended that the same checks and measures apply to the Buy to Let sector.
Interest rates will inevitably rise and Sam informed us that the likelihood would be frequent small increases in the region of 0.15% beginning in March 2015.
Let's see if it is the case and let's see if regulation of the Buy to Let sector will create a fairer market for first time buyers seeking to make a home and landlords seeking to make an investment.
I don't know whether the focus on investment analysis had rubbed off in anyway but the rest of this week's client work seemed to be more dominated by analysis. There was much work to do on moving clients pension funds onto the open architecture that platforms provide and I am pleased to report that our platform fees are lower than the popular d.i.y. provider based in the west of England. I am also pleased to report that clients with generalist insurance company managed funds can benefit from improved performance with less volatility. More about that in another blog.
My thanks not only to Sheffield Life and Pensions Society for putting on this event but also to Jason Hallam of Investec for agreeing to look at a bunch of share certificates. My client who has enduring power of attorney for his father's financial affairs has become a little overwhelmed with all the paperwork. His father has made some interesting share purchases but alas has lost the capacity to let us know which are current and which have been sold. I look forward to my meeting with Jason.
Click here to access the Bank of England presentation on the Financial Stability report.
Whilst reading the blog articles please be aware of the following:
Welcome to the blog curated by Jill Turner. The pages are not intended to give advice, they are just the real life stories from a real life financial planner and the wonderful people I get to meet.
I want the pages to be engaging, informative and purposeful.
The information contained within this blog is based on our understanding of current government proposals and tax
law, both are liable to change in the future.
Jill Turner is a member of the Personal Financial Society