FCA highlights need for adequate protection cover

Back in February, the Financial Conduct Authority (FCA) released its latest Financial Lives Survey. Firstly, and unsurprisingly, it revealed the severe strain the COVID-19 pandemic had put on the nation’s finances. Secondly, around a quarter of UK adults were showing signs of poor financial resilience, including over-indebtedness, low savings and low or irregular earnings.

The survey was carried out in two stages, with the first analysing the period between August 2019 and February 2020, and the second examining the financial impact of COVID-19 between March and October 2020. Even before the pandemic struck, there were points of concern among some of the more positive findings, including a general lack of protection insurance cover.

The protection gap

Positively, the number of people holding an insurance product of any kind increased to 88% in 2020, from 81% in 2017. However, with 53% of respondents holding no protection products at all (albeit less than the 57% that said the same in 2017), the FCA highlighted what it called ‘a significant protection gap’.

The gap was particularly pronounced among young adults aged between 18- 24, as well as vulnerable consumers and those who lack confidence in managing their finances. Concerningly, many people who fit these criteria have families who, were they to die or become too ill to work, would suffer significant financial hardship. Younger generations and those in vulnerable groups may have many pressures on their finances, but it is important to take out adequate protection cover if possible – perhaps with familial help and encouragement, depending on the circumstances.

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.

Sudden Wealth Syndrome: coping with a windfall

You’d be likely to feel happy and excited if you received a large windfall suddenly or unexpectedly. Whether you’re receiving an inheritance, have become a successful entrepreneur, or perhaps you’re selling your business, the reality is that for many, sudden wealth can feel overwhelming.

It can even result in a recognised psychological condition called ‘Sudden Wealth Syndrome’. Symptoms vary from person to person, but can include feelings of isolation, uncertainty about the future, or fear of losing their new-found financial stability.

Adapting to a new financial status can lead to poor mental health and even result in self-destructive behaviour, such as excessive spending or risky investments. Unfortunately, news stories about people who won millions in the lottery before losing it all, or getting into debt, are all too common. Our mental state has a significant impact on how we handle our money, in fact 46% of people who struggle with debt were found to have a mental health issue1.

How to avoid the negative impacts of sudden wealth

Although we can’t avoid all the negative feelings associated with sudden wealth, there are things we can do to safeguard our finances:

  • Don’t act in haste – take your time before making any decisions. In the meantime, put your windfall into an easy-access savings account(s), within Financial Services Compensation Scheme limits, where it can accrue interest

•     Stay under the radar – Sudden Wealth Syndrome can lead to anxiety and paranoia that people only like you because you have money, so by keeping things discreet, it will help alleviate these feelings and assist clear decision-making

•     Take professional advice – investing or spending large sums without advice can be catastrophic for your finances. It’s vital to take professional investment and tax planning advice.

To ensure your new-found wealth works hard for you and your family, we’re on hand to help you make wise decisions.

1Money and Mental Health Policy Institution, 2019

The value of investments and income from them may go down. You may not get back the original amount invested.

News In Review

“If we are serious about going for growth, then 2022 has to be a year of detail and delivery”

During a week which saw the government confirm it was cancelling the Leeds leg of the HS2 high-speed rail line, the Confederation of British Industry (CBI) said more needed to be done to end the North-South divide and ensure economic growth was evenly spread around the UK. Speaking in South Shields during the CBI’s annual conference, the business group’s Director General Tony Danker said, “benign neglect” in parts of the country over decades had led to a “branch line economy” and warned that levelling up could not be left to the free market alone.

The Prime Minister also addressed the conference on Monday, speaking about his green industrial revolution. Responding to Mr Johnson’s speech the CBI Director General said, “By making decarbonisation one of our economy’s big bets for growth, we can create the high value sectors, firms, skills and investment needed to level up the economy.” Mr Danker added, “If we are serious about going for growth, then 2022 has to be a year of detail and delivery.”

Input prices hit fresh high

A closely-watched survey released on Tuesday suggests the UK economy continued to grow in November. The preliminary reading of the IHS Markit/CIPS Composite Purchasing Managers’ Index (PMI) dipped to 57.7, marginally down from October’s final figure of 57.8. With any value over 50 representing expansion, this latest reading does indicate a strong rise in private sector output.

The PMI survey also reported record cost pressures, with input price inflation rising at the fastest rate since the Index began in 1998, fuelled by higher wages and a spike in prices paid for fuel, energy and raw materials. This prompted IHS Markit Chief Business Economist Chris Williamson, to suggest the survey’s findings pave the way for a rate hike when the Monetary Policy Committee next convene in mid-December. Mr Williamson said, “A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December.”

Rate decision “finely balanced”

Speaking before release of the PMI data, however, two key Bank of England officials cast doubt on the certainty of a December rate rise. Governor Andrew Bailey told the Sunday Times that risks to the economy remain “two-sided”  with slowing growth and rising inflation. Two days earlier, at a conference in Bristol, the Bank’s Chief Economist Huw Pill had admitted the weight of evidence was shifting towards a rate increase but noted that the decision would be “finely balanced”. Mr Pill added, “I genuinely do not know today how I will vote.”

Retailers enjoy early Christmas cheer

Official data released last Friday showed retail sales grew more strongly than expected in October, following five consecutive months posting no growth at all. In total, sales volumes rose by 0.8%, with the clothing and toy sectors being the key drivers of growth. The latest GfK Consumer Confidence Index, released the same day, also brought welcome cheer to retailers preparing for Christmas, with November’s headline figure rising for the first time in four months.

Commenting on the retail sales data, British Retail Consortium Chief Executive Helen Dickinson said, “Retailers will be relieved by the improvement in sales as they enter the final straight in the run up to Christmas. Retailers are hopeful that demand will continue right through the golden quarter, however, challenges remain, with higher prices looming and many households facing rising energy bills.”

Borrowing down less than expected

Public sector finance statistics for October, also published on Friday, showed borrowing fell by less than analysts had predicted, with rising debt interest payments and the cost of the COVID vaccination programme offsetting higher tax receipts. In total, the government borrowed £18.8bn last month, just £200m below the figure recorded in October 2020 and £5bn more than the consensus forecast in a Reuters poll of economists. Despite the relatively disappointing monthly data, overall borrowing in the current fiscal year to date remains over £100bn lower than last year’s comparable figure.

Attempts to lower oil prices

The UK is set to release up to 1.5m barrels of oil from its strategic reserves, joining the US, China, India, Japan and South Korea in an attempt to bring down energy and petrol prices after Opec+ agreed to only increase production gradually.

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.

News In Review

“For all our disagreements, the world is undeniably heading in the right direction”

At a Downing Street news conference on Sunday evening, following the conclusion of the COP26 Summit, Boris Johnson hailed the climate deal as “game-changing”, before adding that it sounds “the death knell for coal power.”

Despite a late intervention by India and China, which resulted in the deal being altered to ‘phase down’ rather than ‘phase out’ coal, Boris Johnson acknowledged, “We can lobby, we can cajole, we can encourage, but we cannot force sovereign nations to do what they do not wish to do. For all our disagreements, the world is undeniably heading in the right direction.”

Though notably tinged with disappointment, the PM was positive that a tipping point has been reached in people’s attitudes, but cautioned, “The fatal mistake now would be to think that we in any way cracked this thing.” UN Climate Chief, Patricia Espinosa said the agreement reached at the Summit was a “huge step forward.”

Under the climate pact, countries have been asked to republish their climate action plans by the end of 2022, with more ambitious emission reduction targets for 2030. There is also an emphasis on developed countries increasing funding to countries already suffering the effects of climate change, beyond the current $100bn annual target. As part of the agreement struck in Glasgow, countries will meet again next year to pledge further major carbon cuts.

In a surprise announcement last Wednesday, the US and China agreed to enhance their climate co-operation over the next decade. In a joint declaration, the world’s two biggest CO2 emitters pledged to ‘recall their firm commitment to work together’ to achieve the 1.5°C temperature goal.

Q3 economic growth

As supply chain problems continue to weigh on the pace of the economic recovery, the latest data from the Office for National Statistics (ONS) shows that economic growth slowed to an estimated 1.3% in Q3, a significant slowdown from the 5.5% growth recorded in Q2. The UK expanded less than the ONS initially anticipated in July and August, when the ‘pingdemic’ essentially kept the economy flat, followed by a rebound in September, boosted by services output growth. In Q3, there was a fall in underlying inventories, reflecting some of the recent supply chain challenges and a negative contribution from net trade. The UK economy is currently 2.1% smaller than the final quarter of 2019, before the pandemic took hold.

Jobs recovery continues

ONS figures released on Tuesday show that there were 160,000 more workers on payrolls in October than in September, despite the end of the furlough scheme. Job vacancies also hit a fresh record at 1.17 million in the three months to October, whilst the official unemployment rate fell to 4.3%. Sam Beckett, Head of Economic Statistics at ONS said, “It might take a few months to see the full impact of furlough coming to an end, as people who lost their jobs at the end of September could still be receiving redundancy pay. However, October’s early estimate shows the number of people on the payroll rose strongly on the month and stands well above its pre-pandemic level.”

Inflation rises

The cost of living surged to 4.2% in October, according to ONS Consumer Prices Index (CPI) figures released first thing on Wednesday morning. This is against a forecast of 3.9% and is the highest 12-month inflation rate since November 2011.

US and China virtual summit

The world’s two most powerful nations held talks in a virtual summit in an attempt to improve relations which had deteriorated during Donald Trump’s presidency. In the talks, which lasted for 3.5 hours, Chinese President Xi Jinping said “Humanity lives in a global village, and we face multiple challenges together. China and the US need to increase communication and co-operation.”

US prices rising at fastest pace for over 30 years

According to the Bureau for Labour Statistics, the latest US Consumer Prices Index highlights that prices have increased by 6.2% over the last year, primarily driven by increases in fuel and food prices. This represents the highest 12-month increase since the period ending November 1990. A sharp jump from September, when prices were rising by 5.4%, inflation has been a growing global concern as the impact of the pandemic permeates. New and used vehicles were also large contributors, as prices rise at pace.

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.

‘Flip the context’ and protect your hard-earned cash

Pension savers lost more than £2m to scammers in the first five months of this year. The average amount lost per victim so far in 2021 is a staggering £50,949 – more than double the £23,689 lost on average in 2020.

This is according to worrying research from the Financial Conduct Authority (FCA), which found that pension holders are nine times more likely to trust pension ‘advice’ from an online acquaintance than from a stranger they met face to face. To avoid losing your life savings, the FCA suggests ‘flipping the context’, and imagining what you would do if a stranger in the pub told you to put your pension into something they were selling.

Spotting scams

Have you:

• Been offered a free pension review out of the blue?

• Been guaranteed high returns?

• Been offered the opportunity to release cash from your pension under 55 years of age?

• Felt pressured into a deal, for example with a ‘time-limited’ offer?

• Been offered an unusual investment opportunity (often unregulated and high risk)?

If so, or if you have doubts about any investment opportunities related to your pension, get in touch.

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

“We think there will be some need to increase interest rates to bring inflation sustainably back to target”

Following many hours of discussions, the Monetary Policy Committee (MPC) decided to retain the Bank of England (BoE) base rate at its record low of 0.1% at its meeting last week. The decision was made despite predictions of inflation hitting a peak of 5% next April. BoE Governor, Andrew Bailey, clarified that inflation is currently being fuelled by “global supply shocks” rather than demand pressure on the UK economy. “Putting interest rates up, I’m afraid, isn’t going to get us more gas” he said.

In an interview last week, Mr Bailey said the MPC’s decision had been a “close call”, but that the Committee wanted to see “more evidence” of how the UK labour market was faring following the end of the furlough scheme, before taking further action. However, he stated that an interest rate increase was a likely outcome of future MPC meetings, concluding, “We think there will be some need to increase interest rates to bring inflation sustainably back to target. And we will be ready to do that.”

Global food prices hit decade high

Global food prices have soared by 30% in the past year to reach their highest levels in a decade, according to the United Nations Food and Agriculture Organisation’s (FAO) latest food price index, which tracks international prices of the most globally-traded food commodities. The index rose to its highest level since July 2011, to average 133.2 points in October, compared with 129.2 for September. One of the largest contributors is wheat prices, up 40% year-on-year. Supply chain disruption, political issues, labour shortages and factory closures are all said to be behind the current situation, while the impact of climate change is also said to have led to a poor harvest in many countries this year.

COP26: what has been agreed so far?

As the COP26 climate summit entered its second week, former US President, Barack Obama, arrived in Glasgow to address delegates about the role young people can play in the battle against climate change. Despite the country’s absence from global climate efforts for four years during the Trump administration – he urged that, “The US is back.”  Speaking to younger generations, he said, “I want you to stay angry, I want you to stay frustrated, but channel that anger, harness that frustration. Keep pushing harder and harder for more and more, because that’s what’s required to meet that challenge.”

So far in Glasgow, we have seen a pledge to end deforestation backed by $14bn of private and public funds; a commitment from more than 100 nations to decrease methane emissions by 30% by 2030; a 46-nation-strong pledge to end coal power; and a pledge of £290m from the UK to help poorer countries cope with the impact of climate change.

Rishi Sunak’s speech on COP26’s Finance Day set out plans to decarbonise the City of London and he announced that listed companies in the UK will need to publish a transition plan that sets out their path to ‘green’ their businesses.

Addressing a rally of climate activists, Ugandan activist Vanessa Nakate said, “Leaders rarely have the courage to lead. It takes citizens, people like you and me, to rise up and demand action, and when we do that in great enough numbers, our leaders will move.”

US Central Bank reduces its bond-buying programme

The US Federal Reserve has announced that it will be scaling back the bond-buying programme implemented at the beginning of the pandemic to support the US economy. The $120bn worth of bonds the central bank has been purchasing monthly to keep borrowing rates low is set to decrease by $15bn this month due to the US’s economic rebound.

Markets update

On Monday, the S&P 500 closed above 4,700 for the first time after eight straight record-setting sessions but dropped back on Tuesday to close on 4,685.25 as key inflation data was released. The Dow Jones and Nasdaq Composite also closed down, at 36,319.98 and 15,886.54 respectively. European stock markets opened cautiously higher on Wednesday as investors digested soaring inflation in China and Germany.

Here to help

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

Boost the value of your home

Homeowners have benefited from double-digit house price growth in the last few months and many people are looking to boost the value of their home even further. Whether you’re planning extensive renovations or finishing touches, it’s important to understand which projects will add the most value.

Aim high

Loft conversions can add valuable space to a property and, according to research1, boost a home’s value by as much as 20%. After factoring in costs, this can represent a significant boost of more than 7% to the property’s value.

A privy price

Another big installation that might be worth forking out for is a shiny new bathroom. By maintaining the existing layout, you can keep the costs down and reap maximum profits. For a simpler project, a downstairs toilet can add about 5% in value.

Keep it simple

The research suggests that one of the best ways to add value to your home is by giving it an extensive lick of paint.

This easy, low-cost solution could add almost £5,000 to the asking price, based on an average property value of £255,000. Another project that will boost value without blowing the budget is installing a new boiler or central heating. Doing so could offer an estimated profit of about £2,500. Likewise, investing in double glazing might provide returns of around £1,400.

Think twice

There are some projects, however, that might not be worth the investment. Installing solar panels just before you sell might leave you out of pocket. The average fitting will set you back £2,727, nearly £1,500 higher than the expected boost to value (£1,273).

1GetAgent, 2021

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

Grandparents increased generosity during the pandemic

Most grandparents are familiar with the financial challenges faced by their grandchildren as they progress through education and into the world of full-time work. Costs such as university tuition fees can leave upcoming generations with substantial debts even before they enter the workplace, making it harder for them to save for a deposit on their first property purchase.

The impact of coronavirus has added a new dimension to the problem, with disrupted education and a battered economy raising uncertainties about future earnings potential. Many grandparents who have been fortunate enough to be able to help the next-generation-but-one along the rocky road to their lifetime dreams and ambitions, have been able to increase their help.

Evidence that grandchildren have often benefited financially from locked-down grandparents, unable to spend on holidays and eating out, has been provided through research conducted by Scottish Friendly Assurance Society. The financial mutual company surveyed a sample of grandparents who were already investing for their grandchildren to see what influence the pandemic had exerted.

Almost half increase their largesse

Responses showed that 47% of those grandparents had increased amounts given to their grandchildren during the previous 12 months. The main drivers were found to be a reduction in their own spending opportunities during the COVID-19 restrictions and a heightened desire to create a larger savings buffer for their grandchildren at a time of economic uncertainty.

Jill Mackay of Scottish Friendly commented, “There are grandparents who do have the discretionary income to put towards family savings and this can be a big support. It’s also encouraging to see grandparents deciding to invest more of their money rather than save it in cash.”

The value of investments and income from them may go down. You may not get back the original amount invested.

‘Cash is king’ mentality could prove costly

For many years, savers have seen cash as a safe, reliable option when building up a nest egg for the future.

However, inflation has the potential to seriously reduce the value of cash savings over the years. Whilst a modest level of price inflation is considered a marker of a healthy economy, high inflation rates will gradually erode the spending power of money – especially when combined with low interest rates. The higher the differential, the worse the impact will be.

For several years, the Bank of England’s (BoE’s) target for inflation has been around 2%, allowing for inevitable short-term fluctuations; rates have typically been subdued since the 2008 financial crisis, as have bank interest rates. However, the Consumer Prices Index (CPI) – the official measure of UK inflation – has grown much faster this year as the economy recovers from the pandemic, a trend which may well persist beyond 2021. On the other hand, the BoE reduced its base interest rate to a record low of 0.1% during the first lockdown. Together, high inflation and low interest mean that those with excessive cash in the bank will see the spending power of their savings eaten away rather quickly.

Cash is no longer king

It is therefore surprising that a NatWest survey of over 2,000 people found that, of the 76% of parents and guardians who are saving and/or investing for their children, four in five are doing so exclusively in cash. Whilst commending parents for putting money away for their children, NatWest commented, ‘The purchasing power of these ‘safe’ cash balances actually goes backwards over the longer term.’

There is no denying that a healthy bank balance, in addition to appropriate protection insurance policies, serves as a reassuring buffer against financial shocks. However, a bank or savings account is rarely the best place for significant sums.

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 world is looking to you”

All eyes turned to Glasgow on Monday as world leaders convened for COP26, which is being hailed as the most important climate change summit since the Paris Agreement was struck in 2015. The next couple of weeks are set to be packed with important announcements about the future of the planet.

As Prime Minister of the hosting country, Boris Johnson opened the conference with a stark warning, “Humanity has long since run down the clock on climate change. It is one minute to midnight on that clock and we need to act now.” Other notable speakers included Sir David Attenborough, whose impassioned speech drew rapturous applause from the audience. “We are already in trouble, the stability we all depend on is breaking,” he said. “This story is one of inequality as well as instability. Those who have done the least to cause this problem are being the hardest hit.” He concluded, “The world is looking to you.”

The major announcements made so far include an agreement by more than 100 countries to end and reverse deforestation by 2030, a pledge by India to reach net zero by 2070 and announcement of a Global Methane Pledge which aims to limit methane emissions by 30% within a decade. Today, Chancellor Rishi Sunak will address the summit, as part of a day dedicated to finance, to outline plans to make the UK the first net zero financial centre.

Corporate tax in the spotlight at G20

A major corporate tax deal was agreed by leaders of 20 of the world’s major economies over the weekend at the G20 Summit in Rome. The agreement, which was proposed by the US and is set to be put into place by 2023, will see large businesses taxed on their profits at a rate of at least 15%.

Also included in the ‘Rome Declaration’ was a pledge to boost COVID-19 vaccine supply and a commitment to strengthen actions to halt and reverse biodiversity loss by 2030.

“Preparing for a new economy”

UK fiscal news in the last week was dominated by the Budget and Spending Review on 27 October. Rishi Sunak delivered his third Budget, declaring that it begins “the work of preparing for a new economy post-COVID.” He took the opportunity to announce that reducing taxes will be his “mission over the remainder of this Parliament.”

However, on Budget Day itself, no major tax changes were announced and instead, the focus was on spending. The Treasury had released a series of funding announcements ahead of the Budget, including statements setting out spending plans for health, education and transport. Specific spending pledges included £21bn on roads, £46bn on railways, £3.8bn on skills and training, £1.7bn in grants from the Treasury’s Levelling Up Fund for towns and cities, and £5.9bn in funding for the NHS to tackle the immediate backlog of patients awaiting treatment.

Last Wednesday, the Office for Budget Responsibility (OBR) latest forecast predicted that economic recovery will be quicker than previously anticipated, with revised figures suggesting that the UK economy will grow by 6.5% this year – an upgrade from March’s 4% figure. The forecast implies the economy will regain its pre-pandemic level by the turn of the year, six months earlier than previously expected. OBR predictions suggest the CPI measure of inflation will average 4% over the next year, peaking at 4.4% in Q2 2022. The Chancellor added, “The pressures caused by supply chains and energy prices will take months to ease” adding “it would be irresponsible for anyone to pretend that we can solve this overnight.”

Speculation rises ahead of MPC meeting

With the Bank of England (BoE) hinting at a Base Rate rise from the current 0.1% before the end of the year, the financial world is waiting with bated breath for the outcome of the BoE’s next Monetary Policy Committee (MPC) meeting on Thursday. Many mortgage lenders have already started raising rates in anticipation of a Base Rate increase.

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.