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Coming to terms with market turbulence

stansherlocstg on March 27, 2020

Calculator and laptop
  • Financial Planning

Coming to terms with market turbulence

 Coming to terms with market turbulence 

As a direct consequence of the COVID-19 outbreak, global stock markets are suffering a period of turbulence. When markets move significantly it can prove very challenging to hear through the noise and focus on the bigger picture.

Lessons from history

Over recent years many investors have become used to a variety of political, financial and economic factors impacting markets, from the Brexit Referendum and subsequent prolonged uncertainty, to the global financial crisis and even further back to the dotcom bust in the early noughties. Although markets do not respond well to periods of uncertainty, fluctuations go hand in hand with stock market investment; and while market movements can be concerning, experience has taught us to expect the unexpected.

It is important to remember that some market turbulence is inevitable; markets will always move up and down. As an investor, putting any short-term fluctuations into historical context is useful. Investors with diversified portfolios, who stay in the market, have typically been rewarded over time.

Plan and focus, be strategic

Instead of being too worried by turbulence, the best strategy is to be prepared. It is best to stick to your well-defined plan and diversify your holdings, as well as expecting and accepting market movements. Your plan will be tailored to your objectives, in line with your attitude to risk and will take into account your financial situation, which will stand you in good stead to weather short-term market fluctuations.

In it for the long haul

Even though it can be difficult to ignore daily market movements, it is vital to focus on the long term, and remember that turbulence also presents investment opportunities. Investment requires a disciplined approach and a degree of holding your nerve if markets descend. Investment professionals know that markets can fluctuate and will inevitably go down as well as up from time to time. The worst investment strategy you can adopt is to jump in and out of the stock market, panic when prices fall and sell investments at the bottom of the market.

Keep calm and carry on

On the day of the Budget, the outgoing Chairman of the Bank of England, Mark Carney and the Chancellor, Rishi Sunak, were keen to highlight the temporary nature of the downturn, that is worth bearing in mind. Both the BoE and the Chancellor have taken steps to support the UK economy, which should also help to calm the markets. The BoE has cut interest rates on two occasions and expanded its bond buying programme, known as quantitative easing. Meanwhile, Mr Sunak announced a package of emergency measures for UK businesses worth £350 billion.

As Rudyard Kipling wrote, it is important to “keep your head when all about you are losing theirs” – a clear head will certainly stand you in good stead through these challenging times.

Market turbulence is a timely reminder to keep your investments under regular review – that is what we do best. Please rest assured we are working hard to manage the fluctuations, so your money has the best chance of growing for the future.

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.

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Self-employed? Prioritise your pension

stansherlocstg on February 21, 2020

Life Insurance
  • Financial Planning

Self-employed? Prioritise your pension

​Self-employed? Prioritise your pension. Since the introduction of automatic enrolment, over 10 million eligible employees have been signed up to a workplace pension scheme. But for self-employed people, no such scheme exists, meaning that many of those who work for themselves are struggling to prioritise their pension. 

While there are many benefits to being your own boss, including the flexibility to work your preferred hours, better work-life balance and tax-deductible expenses, pension provision is unfortunately not among them. The Pensions and Lifetime Savings Association (PLSA) estimates that a single person could need around £33,000 per year to maintain a comfortable standard of living in retirement, so it’s advisable to start saving as soon as you can.

Concerns about later life

While 74% of the UK’s self-employed workforce believe it’s important to save for retirement, according to recent data, just 24% are actively contributing to a pension. Reasons for not contributing include; a low or variable income often associated with self-employed work, exclusion from auto enrolment and a perceived lack of flexibility compared to more liquid investments.

Don’t rely solely on the State Pension

The full State Pension is currently £168.60 per week, or just over £8,750 per year – not an amount that many could live on while maintaining the living standards they’re used to. The amount you receive also depends on your National Insurance contributions – you need to have 30 qualifying years to receive the full amount.

You can check your National Insurance contributions record at www.gov.uk/check-national-insurance-record

Sooner rather than later

The sooner you start saving into a pension, the longer your money has to grow, to benefit from added tax relief and the compounding effect of investment returns. Delaying, even by a few years, means you need to contribute a higher percentage of your income to achieve a comfortable retirement. Analysis shows that the cost of delaying pension contributions by 10 years, from age 25 to age 35, could result in your required pension contribution almost doubling.

Tax advantages

Paying into a pension gives you access to valuable tax breaks; you’ll currently get tax relief on contributions into a pension up to the value of £40,000 per tax year. If you’re a basic-rate taxpayer, you’ll get an extra £25 for every £100 you pay in and if you’re a higher-rate taxpayer, you can claim additional relief through your tax return.

What type of pension is best?

Flexibility and control over contributions is likely to be a priority for self-employed people. You may prefer to pay a smaller regular amount rather than a daunting lump sum. And don’t forget, if you have an existing pension, it may be possible to reactivate this.

We have expert knowledge of the range of pension options available for self-employed people, whether that is personal pensions, stakeholder pensions or self-invested personal pensions (SIPPs).

Talk to us

If you’re self-employed and need advice about your pension planning, please get in touch to discuss your options. We’re here to help.

The value of your pension investments can go down as well as up, so you could get back less than you invested

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Your pension savings, your future options

stansherlocstg on January 9, 2020

Life Insurance
  • Financial Planning

Your pension savings, your future options

Your pension savings, your future options

Why you should consider modernising your pension

As well as giving you greater freedom over how you access your savings, there are several other benefits when modernising your pension:

 – Take full control of your pension savings
 – Choose when and how to draw an income to suit your retirement planning
 – Keep your options open for drawing an income in the future
 – Optimise your tax efficiency – both on any money you might leave invested, and Inheritance Tax.

If your pension plan does not offer all four of these options, then you should think about switching it.
 

What else do you need to think about? 

There are other factors to take into account when switching to a modern pension.

Firstly, the chances are the costs will increase. You may end up paying as much as an extra 1% of the value of your savings annually. So, if you have saved £200,000, your provider could charge up to £2,000 more per year. And if you seek financial advice, your adviser may also levy a fee, either upfront or as an ongoing service charge. These additional fees eat into your pot, but you could equally benefit from the flexible access as well as greater visibility and control.

Another consideration is tax. Regardless of whether you stick with your current pension or switch to a modern one, your income – other than the first 25% of a partial or whole lump sum- is subject to your highest rate of tax. Seeking professional advice can help you access your savings in a tax-efficient manner.

There is certainly, plenty to consider and it is wise to regularly explore your current and potential retirement routes.
 

Thanks to pension freedoms introduced in 2015, savers over 55 have a wide range of options when it comes to drawing from your savings, and this brings opportunities although it’s also easier to make a mistake.

There are now essentially four main ways for you to access your pension savings:

1. Buy an annuity which guarantees an income, typically for the rest of your life but in some cases for a fixed period 
2. Flexi-Access Drawdown allows you to withdraw from your savings when you need to, while the balance remains invested
3. Take it all out as cash with the first 25% tax free and you pay income tax at your marginal rate on the rest, although you may face a hefty tax bill the following year 
4. Take part of it out as cash with the first 25% tax free with the rest taxed at your marginal income tax rate. You can do this as many times as you like until you no longer have any pension savings.

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.

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

Information contained in this article concerning taxation and related matters are based on Openwork’s understanding of the present law and current legislation.
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Does diversification matter?

stansherlocstg on December 2, 2019

Piggy bank with money
  • Financial Planning

Does diversification matter?

 When it comes to building your investment portfolio, you might have been warned about avoiding putting all your eggs in one basket. It’s wise to spread your money across a range of different investments. That way, if the value of one of them falls, it should have a limited effect on the overall performance of your portfolio.

How to diversify your portfolio

In practical terms, diversity involves investing in different asset classes across various countries and regions.

The two main asset classes in most portfolios are shares and bonds, and these behave differently. When you invest in shares, you buy into a company’s ongoing operations. The value of shares fluctuates according to the fortunes of the company, so they are riskier than bonds. Of course, the returns can be greater too.

A bond is effectively a loan to the issuer in return for a fixed interest payment. A government bond, such as a gilt, is considered among the least risky investments, as the UK government is unlikely to default, although returns can be lower.

Most portfolios will also diversify holdings across developed countries, like the UK, the US and within Europe, and regions such as emerging markets (EMs). Developed countries typically have relatively stable economies and stock markets comprising large, well-established companies. EMs on the other hand, are growing faster so they offer greater potential rewards, however, they tend to be more unpredictable, so they are regarded as higher risk.

How diversification works

During times of uncertainty, bonds usually rally as investors move their money out of shares and into safe-haven assets.

When the outlook improves, shares rebound as investors switch back to taking greater risk in return for what they hope will be a higher reward.

As for geographical diversification, any number of economic or political factors can weigh on the financial markets in one country or region without necessarily spreading into others.

Assets and regions are not always uncorrelated in the short term. Most asset classes fell towards the end of 2018 due to concerns about global trade, slowing economic growth and the prospect of rising interest rates. They then rose in tandem at the start of 2019. As long as your portfolio is well diversified, it should weather market fluctuations.

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

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Relevant Life Plan

stansherlocstg on November 25, 2019

Calculator and laptop
  • Financial Planning

Relevant Life Plan

Do you want to provide valuable life cover and financial security for your employees and your family in a tax efficient manner? A Relevant Life Plan could be the answer.

What is a Relevant Life Plan?

A Relevant Life Plan is an individual ‘death in service’ life policy that is affected by an employer on the life of an employee and is funded by the employer. It is a term assurance plan designed to pay a lump sum benefit if the employee covered dies or is diagnosed with a terminal illness during their employment, within the term of the plan.

Relevant Life Plans are similar to most other types of life cover but can be a very useful tax efficient alternative providing valuable death in service benefits.

Added peace of mind

The unique way in which Relevant Life Plans work mean you can effectively have the taxman help pay for the cover. While the cover is personal to your employees, the policy counts as an allowable business expense for tax purposes and employer’s payments do not count towards the employees annual or lifetime pension allowances.

In most cases Relevant Life Plan premiums and paid benefits qualify for full Income Tax relief, National Insurance relief and Corporation Tax relief.

What can you save?

A Relevant Life Plan could result in savings for a business when compared with a typical life policy. Premiums could be reduced by up to 50% if you’re a higher rate taxpayer and up to 40% for a basic rate taxpayer.

Mr A paying personally for life assurance

ABC Ltd paying for a Relevant Life Policy

Monthly premium from income after tax = £200

Monthly premium paid by LBD Ltd = £200

Pre-tax income needed to fund £200 at Income Tax rate of 40% and employee National Insurance at extra 2% rate = £344.83

No Income Tax, employee’s or employer’s National Insurance payable = £200

Employer’s National Insurance contributions at 13.8% on salary paid by LBD Ltd = £47.59

Total cost to = £392.41

No employer’s National Insurance contribution

Less Corporation Tax at 19% as an allowable deduction. Salary, Income Tax and National Insurance are allowable expenses against Corporation Tax Total cost = £317.85

Less Corporation Tax at 19%, as the plan is an allowable deduction Total cost to LBD Ltd = £162

Personally paying for life cover costs Mr A £317.85 a month. ABC Ltd paying through a Relevant Life Policy costs £162 a month. That’s a saving of £155.85 a month – over 50% less than paying for cover individually.

This information is based on our understanding of current legislation, taxation law and practice, which may change. The value of any tax relief depends on the individual circumstances of the investor.

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

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