The best (retirement) gift for your child?

With the cost of children’s birthday presents and parties often totalling hundreds of pounds – could there be a better way to provide for your child or grandchild? 

Investing in a pension for your child can provide numerous long-term benefits and go some way to helping them secure a financially stable future. Setting up a pension for your child can also help teach them about the importance of saving and investing for the future. 

Who can set up a child’s pension? 

A parent or legal guardian can set up the pension; this can be done as soon as the child is born. 

Who can contribute? 

If you’re a grandparent keen to help out, the good news is that anyone can contribute into the pension, as well as godparents, relatives or friends. As a parent, you manage the pension saving plan until the child turns 18. 

What happens when they turn 18?  

Whilst they gain control at 18, they won’t be able to access the money until they reach the normal minimum pension age. 

How much can you contribute?  

Under current rules you can pay up to £2,880 into a children’s pension each year. This will then receive basic rate tax relief, so the government will boost this to £3,600. The majority of people setting up a children’s pension won’t pay this much in, instead choosing to make smaller contributions, which will still build up over time and benefit from tax relief. 

Why choose a children’s pension? 

It may seem odd thinking about a pension for your child when they are so young, but not only will it help your child later on in life when they think about retirement, but also help with the amount they might contribute into their pension during their lifetime, potentially freeing up more money to fund other life events. 

What about a Junior ISA (JISA)? 

Another worthwhile tax-efficient children’s saving option is a JISA. One key difference between children’s pensions and JISAs is that with the latter, your child can access the money when they turn 18. With any pension, the money can only be used to save for retirement. 

The early bird 

Investing in a pension plan for your child can provide them with the financial security they need to achieve their goals in the future. By starting early, they can benefit from compound interest and reinvested dividends, tax benefits, and the potential to grow their savings over time. 

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.  

Unaffordable deals trap mortgage prisoners

The Financial Conduct Authority (FCA) has been reported to estimate over a quarter of a million homeowners are trapped on mortgage deals because their lenders have become inactive or unable to authorise new products1. 

What could change? 

Many of these ‘mortgage prisoners’ are no longer able to keep up with repayments, prompting campaigners to reiterate their calls for government action to free the prisoners from unaffordable deals. 

After the latest Bank Rate rise, the situation has worsened, especially for those on variable or tracker rates. In total, more than 750,000 households are now at risk of mortgage default, according to the FCA. 

1FCA, 2023 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Think carefully before securing other debts against your home. 

News in Review

“With food price inflation likely to slow in the coming months as we enter the UK growing season, we expect wider inflation will continue to ease”

The latest figures from the Office for National Statistics (ONS) highlight that the Consumer Prices Index (CPI) increased by 10.1% in the 12-month period to March 2023, down from 10.4% in the year to February. A poll of economists had predicted that inflation would fall below 10% in the month, but soaring food and drink prices meant the fall was only 0.3%.

Although lower than the peak of 11.1% last October, double-digit inflation is persisting. Among the most notable upward contributor to CPI was the food and non-alcoholic beverages sector, where prices rose by 19.2% in the year to March. This annual rate is the highest seen in over 45 years. Products with the largest price jumps included olive oil (49%), milk (38%) and ready meals (21%).

Chief Executive of the British Retail Consortium, Helen Dickinson, predicts that food price inflation is likely to slow in the coming months, “While households will be pleased to see that inflation may have passed its peak, prices are still high… With food price inflation likely to slow in the coming months as we enter the UK growing season, we expect wider inflation will continue to ease.”

She continued, “Prices for consumers will remain high, especially as household bill support is lifted. Retailers remain committed to helping their customers and keeping prices as low as possible, by expanding value ranges and offering discounts for vulnerable groups.”

Following the latest inflation figures there are expectations that the Bank of England will look to raise Bank Rate again in May as inflationary pressures persist.

UK inflation is higher than in many other western countries, including France, Germany, Italy and the US. Official data released last week showed eurozone headline annualised inflation had eased to 6.9% from 8.5%. It is reported that persistently high core readings indicate European Central Bank policymakers will look to raise interest rates again at their next meeting in early May.

Retail sales impacted by the weather

UK retail sales data released by ONS on Friday show a higher decline in sales volumes than expected, with early estimates registering a 0.9% fall in March, following a 1.1% rise the previous month. Volumes were impacted by soaring inflation, food availability and the wet weather dampening shopping activity, with people choosing to stay at home. The data release goes on to state, ‘Looking at the broader picture, sales volumes rose by 0.6% in the three months to March 2023 when compared with the previous three months; the first three-month on three-month rise since August 2021.’

Consumer confidence – a “sudden flow of optimism”

According to the latest consumer confidence measure on Friday from GfK, despite cost-of-living pressures, British consumers were their most upbeat in over a year this month as they took a more positive view of the health of the economy and their own financial circumstances. The rebound in April was clear, with the index rising six points to -30 in April, the highest level since February 2022. In addition, a measure regarding personal finances over the forthcoming year rose eight points to -13, and expectations for the UK economy in general rose six points to -34.

Client Strategy Director at GfK, Joe Staton commented on the findings, “As food and energy prices continue to rise, and inflation eats into wages, the cost-of-living crisis is a painful day-to-day reality for many. But are all consumers buckling under the pressure? On the evidence of April’s confidence figures, the answer is no. Instead, there’s a sudden flowering of optimism with big improvements across the board.”  Mr Staton continued, “The brighter views on what the general economy has in store for us, with April’s six-point rise cementing a 20-point improvement since January, could even be seen as the proverbial ‘green shoots of recovery.”

Private sector growth

Business activity has grown for the third consecutive month, the latest purchasing managers’ index (PMI) has shown. In April, service sector growth underpinned the fastest rise in UK private sector output for a year, with firms reporting resilient consumer spending, according to the latest survey results. The index registered a score of 53.9 this month, up from 52.2 in March, and above analysts’ consensus forecasts of 52.5.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

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.

All details are correct at time of writing (26 April 2023)

Rising prices adding to retirement costs

It can be difficult to understand what funds you’ll need to finance the retirement you dream about and how this compares to your projected pensions income. It’s even harder to keep track when the cost of living is spiralling. 

Setting standards 

The Pensions and Lifetime Savings Association (PLSA) developed its Retirement Living Standards1 to help us to picture what kind of lifestyle we could have in retirement at different levels and what a range of common goods and services would cost for each level. 

The cost of a Minimum lifestyle for a single person has increased from £10,900 in 2021 to £12,800 in 2022, a rise of 18%. For a couple, an income of £16,700 required in 2021 rose to £19,900 (19% increase). Costs factored into this lifestyle include – £96 for a couple’s weekly food shop, eating out about once a month, a week’s annual holiday in the UK and some affordable leisure activities about twice a week. But there is no budget to run a car. 

Want more than the minimum? 

At the Comfortable Retirement Living Standard, retirees can expect more luxuries like regular beauty treatments, three weeks, holiday in Europe each year and theatre trips. The weekly food shop for a couple in this lifestyle amounts to £238 per week. At this level, the cost of living increased 11% to £37,300 for one person and 10% to £54,500 for a two-person household. 

How much do I need to save?  

For a comfortable retirement PLSA estimate that a couple who are both in receipt of the full new State Pension would need to accumulate a retirement pot of £328,000 each, based on an annuity rate of £6,200 per £100,000. 

Your lifestyle, your choice 

If you’re concerned about your retirement planning we can help you prepare for the lifestyle you want to enjoy. Retirement planning involves visualising your key goals for your retirement years and setting up a plan to help you achieve those goals through financial planning. 

1PLSA, 2023 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

Mortgage holders impacted

Rising rates have been a feature of the mortgage market for almost a year. Following the latest Bank Rate rise, how should mortgage holders react? 

What happened? 

With Bank Rate at its highest level in 15 years, in the short term, this will affect anyone with a tracker or variable rate mortgage through higher repayments. Those with fixed-rate mortgages are protected for now but could be forced to pay more when their current deal ends. 

What next? 

With inflation still high, the Bank of England is expected to continue increasing Bank Rate until the middle of 2023, at which point it is predicted to peak. 

Interest rates seem high now after a decade of ultra-low figures, but the current rates fit into longer-term market cycles. 

Finger on the pulse 

We’re here to keep things in perspective and help you find the most suitable mortgage for your needs. 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

Rebounding investor confidence

A recent survey1 suggests investors are becoming more confident despite ongoing challenges on the economic front. While this is certainly encouraging, maintaining a long-term outlook and retaining a strong sense of discipline in investment positioning remains a prerequisite for any successful investor. 

An air of optimism 

It’s fair to say 2022 was a turbulent year for global markets with the war in Ukraine, soaring inflation and rising interest rates weighing heavily on a difficult 12-month period. Towards the end of the year, however, markets did stage a cautious recovery despite ongoing fears of a looming recession. 

Inflation expected to fall 

The final quarter of last year also witnessed a rebound in investor sentiment, with the same survey reporting a seven-percentage point rise in confidence in the global economy, although this was before the recent woes in the banking sector. This optimism was driven by hopes that inflation has now peaked and is set to continue falling in the months ahead; a view reflected in the International Monetary Fund’s latest economic musings2 which predict global inflation will drop from 8.8% in 2022 to 6.6% this year and 4.3% in 2024. 

Young guns 

Data from the survey also revealed a majority of investors were either positive or ambivalent about last year’s market volatility and its impact on their investing mindset. This was particularly true for younger investors with three-quarters of 18 to 34-year-olds either positive or indifferent compared to six in ten over-55s. This variation will partly reflect differing retirement time horizons, with younger investors more able to adopt a longer-term view. 

Investor discipline is key 

This is clearly encouraging as maintaining a long-term philosophy based on prudent risk management principles and avoiding panicked decisions has always been a key element for successful investing, maintaining discipline in investment positioning. In practice, this means achieving an appropriate level of diversification and understanding how to blend investments – that’s what we do. 

1eToro, 2023 

2IMF, 2023 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.  

News in Review

“The UK economy has lost momentum”

New data from the Office for National Statistics (ONS) shows that the UK economy flatlined in February as strikes by public sector workers weighed on growth. Despite consensus estimates from a poll of economists forecasting a 0.1% increase in the month. The flat month-on-month performance can be attributed to the offsetting of construction growth by striking workers.

In more positive news, ONS revised up its estimate for January’s economic growth from 0.3% to 0.4%, meaning the UK is well positioned to avoid contraction in the first quarter of this year. This upward revision means the economy would need to reduce by 0.6% in March for Q1 to record a contraction. In response to the data release, Chancellor Jeremy Hunt said the economic outlook was “brighter than expected” with the UK “set to avoid recession.”

Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales (ICAEW) expects recession fears “are likely to stalk the UK for some time” as borrowing costs and higher taxes offset falls in inflation and government support for energy bills. She commented, “These figures suggest that the economy has lost momentum as sky-high inflation and strike action continue to drag on key drivers of UK GDP, notably services and industrial production… a struggling economy and strong likelihood of materially lower inflation should give the Monetary Policy Committee sufficient scope to keep rates on hold next month.”

Last week the International Monetary Fund (IMF) cautioned in their latest World Economic Outlook that they expect the UK to be one of the most poorly performing major economies in 2023, with expectations of a 0.3% reduction. The UK and Germany are the only two G7 countries predicted to contract this year.

“The system is in a much more robust condition”

After the recent unrest experienced in the financial sector, with the collapse of Silicon Valley Bank and the purchase of failing Credit Suisse, speaking at an IMF meeting last week, Bank of England (BoE) Governor Andrew Bailey commented, “I do not see the evidence that we’ve got on our hands what I would call the makings of a 2007/08 financial crisis. I think the system is in a much more robust condition – that’s the first point of defence.”

Believing that the reforms established following the 2008 financial crisis are being effective, Mr Bailey also feels that authorities are now better equipped to deal with any potential problems, “The post-crisis reforms to bank regulation have worked. Today I do not believe we face a systemic banking crisis. When I look at the UK banks, they are well capitalised, liquid and able to serve their customers and support the economy.” A review is being conducted into the bank deposit insurance scheme.

Banknote demand at 20-year low

Worldwide demand for banknotes is at its lowest point in 20 years, according to De La Rue, which produces a third of the world’s banknotes. With the rise of card and contactless payments, cash usage has fallen sharply in the UK. In 2017, debit cards overtook cash as the most popular payment method for the first time; only 15% of payments are now made in cash, compared with 60% a decade ago.

Unemployment rate rises again

Job vacancies have fallen for a ninth consecutive month, according to latest official unemployment data released by ONS on Tuesday. The uncertain economic outlook is impacting job certainty, the figures suggest, but the employment rate edged up to 75.8% in the three months to February.

About 220,000 more people were seeking work between December and February than in the three previous months. In the same period, however, the unemployment rate rose to 3.8%, up slightly from 3.7% in the previous quarter.

Annual growth in regular pay, excluding bonuses, was 6.6% between December and February, ONS said. However, with prices rising at more than 10% in recent months, regular pay fell by 2.3% when adjusted for inflation.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

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.

All details are correct at time of writing (19 April 2023)

Starting early in the new tax year 

A new tax year has begun and with it comes the chance to start your tax planning early, but why rush when there’s almost a year to go? Here are a few reasons: 

  • You can take advantage of various tax allowances available for the year, such as your Individual Savings Account (ISA) and pension annual allowances 
  • You’re likely to benefit from having your money invested for longer. Some interesting research1 has found that an investor could potentially lose up to £25,000 over 25 years by investing the maximum into their ISA at the end of the tax year rather than at the start 
  • If you can’t invest a lump sum, you can set up a regular payment into your ISA or pension, to spread the cost over 12 months 
  • Avoiding the last-minute rush allows you to get everything done 
  • You can establish a system for keeping track of all your income, expenses and other financial transactions throughout the year, helping you to budget 
  • There is time to research your options and get financial advice to make informed decisions. 

Why not get the new tax year off to the best start – get in touch. 

1Vanguard, 2023 

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. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning. 

Selling your house this spring

If you’re planning to put your home up for sale, there’s a lot to think about right now. As the first daffodils start to bloom across gardens and verges, the housing market usually blossoms too. 

In 2023, with expectations of slowing demand and house price falls, it has never been more important to focus on the fundamentals of selling a house. Here are some things you should think about before the ‘For Sale’ sign goes up. 

Buyers aplenty 

The overall market might seem to indicate waning demand. However, to sell a house, you only need to find one keen buyer – and there are plenty still out there! 

The number of views of homes for sale on Rightmove soared by 20% between the week commencing 19 December and Boxing Day week1. The “promising activity and familiar patterns over the festive period… are good signs for the year ahead,” commented Rightmove’s Tim Bannister. 

Focus on what you can control 

With house prices forecast to fall, some potential sellers are rushing to the market and others are holding off until conditions stabilise. It is important, though, not to become fixated on market movements. 

Instead, focus on the things you can control. Making your house as marketable as possible before listing will help you maximise your chances of achieving a good price. Some easy ways to add value and ensure a speedy sale include: 

  • Removing clutter before viewings. Your house shouldn’t look empty, but prospective buyers need to be able to picture themselves living there 
  • Making minor repairs can reassure buyers they won’t have too much work to do when they move in. Small details can make a big difference 
  • Controlling the smells of your home can make a big difference to a viewing experience. A fresh spring scent might not seal the deal on its own, but it won’t put buyers off! 

Ask the experts 

Are you looking to move this year? Have you considered your mortgage options? Get in touch today to see how we can help get you moving this spring. 

1Rightmove, 2023 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments 

Spring Budget 2023 – key points 

Chancellor Jeremy Hunt delivered the Spring Budget on 15 March declaring it to be “A Budget for Growth.” The fiscal update included a range of new measures, starting with the latest economic projections from the Office for Budget Responsibility (OBR): 

  • The UK economy is expected to contract by 0.2% this year, with growth predicted to hit 1.8% in 2024 and 2.5% in 2025. A technical recession is expected to be avoided in 2023 
  • Inflation is predicted to fall from an average rate of 10.7% in Q4 2022 to 2.9% by the end of this year. This decline is partly due to the three-month extension to the Energy Price Guarantee (EPG), which the government confirmed on 15 March. 

The Chancellor’s strategy for growth focuses on four pillars ‘Everywhere, Enterprise, Employment and Education.’ Key areas within these pillars include: 

  • Investment for ‘Levelling-Up’ initiatives 
  • Providing the right conditions for businesses to succeed 
  • New measures to get people back to work, including childcare support. 

Pensions 

The spotlight also fell on pensions. To encourage over-50s to extend their working lives, the government is increasing tax relief limits on pension contributions and pots: 

  • The Annual Allowance will be raised from £40,000 to £60,000 from April 2023; the Lifetime Allowance (LTA) charge will be removed from April 2023, and the LTA will be abolished from April 2024 
  • The maximum amount that can be accessed tax free (Pension Commencement Lump Sum) will be frozen at its current level of £268,275 (25% of current LTA) 
  • From April, the minimum Tapered Annual Allowance (TAA) and the Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000. The adjusted income threshold for the TAA will also rise, from £240,000 to £260,000. 

In addition, previously announced State Pension increases from April 2023 are as follows: 

  • Basic State Pension – increase to £156.20 per week 
  • Full new State Pension – increase to £203.85 per week. 

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. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.