Archive for June, 2014

Fund supermarket price wars

Friday, June 27th, 2014


Fund Supermarket Blog ImageThese are trying times for supermarkets, be they the conventional kind or simply online invest-ment sites.

In the first instance Morrison’s, Tesco and M&S have all posted profit alerts and seen significant declines in sales, indicating that customers are becoming ever more selective and refusing to hand over money out of a sense of loyalty alone.

This is market economics at its best; supermarkets will inevitably respond to spending signals and innovate, offering new and more attractive goods and services.

The same process is occurring in the way in which we invest in funds using funds supermarkets, which have recently seen fees tumble for everyday investors.

In decades past when an investor wanted to place their savings in an investment fund or spread their nest egg across several funds often paid a large commission to a fund manager or a bro-ker.

In most instances it is hard to see exactly what investors get in return for these fees, with man-aged funds on average failing to out perform, or even worse, under performing compared to other investment vehicles.

A fund supermarket is a platform, normally online, that allows the investor to place their money in a range of funds.

The investor can use one account and invest in dozens of funds, keeping their own personal funds in an ISA or other tax efficient savings account.

The fund supermarket is also where fund managers or brokers also go to find funds to invest in, and previously they were able to arrange their own charges with the supermarket.

The costs of fund supermarkets have fallen recently due to new government rules forcing them to make their charges clearer.

Typically, a charge of about 1.5 percent (working out at £300 per £20,000 investment) was be-ing levied, which over the course of the life of an investment can work out at some considerable costs.

Since transparency has been introduced to the industry fund supermarkets are being forced to offer increasingly more attractive deals with the major players having to offer reduced invest-ment charges on scores of funds.

Knowledge in the investment world is always empowering and the customer has made the in-dustry have to work a lot harder.

At present it is estimated that nearly £150 billion is tied up in UK investment funds, so the over-all savings to the ordinary investor are going to be enormous.

The new generation of low cost funds that are coming on to the market offer the prospect of cheaper investment in the foreseeable future, which, in these still austere times is welcome news.

The laws surrounding financial advice and selling prohibit me here from making any kinds of suggestions or even discussing the benefits and features of individual products, I am a financial blogger, not an advisor.

That said, the only real suggestion I can give is to take some independent financial advice be-fore you invest, the cost of an advisor’s time will be far less in the short run than the price of an over priced fund (they are still out there, by the way, waiting to ensnare the unwary investor).

With more transparency comes more data so the range of options open to someone looking to buy into a fund can be quite dizzying; this is why it pays to get professional advice in order to take advantage of changes that have been set up to benefit you.


Why Do A Third Of UK Families Lack Life Insurance?

Friday, June 20th, 2014


Blog Image 23 June 2014Life insurance can be the financial buffer which stops a painful bereavement becoming a financial catastrophe.  While there’s more to life than money, an effective financial plan recognises the fact that everyday actions have a financial value.  To put it another way, if we were left unable to carry out these activities, we’d have to pay someone else to do them for us.  Notwithstanding this, however, a third of families in the UK are without life insurance, which raises the question of why.

Lack Of Money

This is the single most obvious reason for people not having cover.  In one sense it’s completely understandable.  Most people are feeling the squeeze just now and for those who are struggling to make ends meet; it’s tempting to dismiss life insurance as a nice-to-have.  It’s all the more tempting for younger people who may think of it as something they can buy “in a few years”.  Unfortunately not even younger people are immune to death and when they die the effects can be particularly devastating.

Younger children are the most demanding in practical terms.  They effectively need 24/7 supervision, which can place a tremendous strain on a surviving partner.  While children require less direct supervision as they age, they have other, less tangible needs.  The most obvious of these is for a good education.  These needs can be much more challenging to satisfy with only the income of the surviving partner.

Lack Of Confidence

Some people feel deterred from sorting out their financial affairs because they think it will be too complicated.  These people are likely to get particular benefit from seeking help from a professional financial adviser.  Money can’t buy happiness but lack of money can lead to a lot of misery.  This means that most people will benefit hugely from having a financial plan to ensure that they can meet their financial goals over the years.  This is more than just exercising good money management on the family finances.

It’s about understanding what’s important in your life, which will vary depending on the life stage you have reached.  One constant however is the need to protect what really matters to you, be it your health, your children or your home.  While single people who are renting a home and have no dependents may be able to afford to ignore life insurance, for most people with children it’s a must.

Lack Of Clarity

All life insurance products ultimately belong to one of two types.  There are life policies, which are open-ended and term-assurance products which are for a fixed period.  Notwithstanding this, providers try to differentiate their products in the eyes of the public by customizing them to specific markets.  They may also offer special deals. All of this can easily confuse customers and put them off taking out life insurance at all.

Fortunately, a provider will be happy to explain exactly what their offerings do and do not provide to help you make an informed decision.

Source: 35% of British families have no financial safety net in place at all to cope with a sudden loss of income according to Legal & General research.


Prospects for savers and investors in 2015

Friday, June 13th, 2014


Savers Prospects Blog ImageIs it almost five years since Gordon Brown was Prime Minister? Has it been nearly half a decade since he offended pensioners in Rochdale and announced that he loved the TV show Glee?

Indeed it has, and in the next twelve months we as prospective voters will be wooed with various offers and inducements to vote for an ever growing list of parties in the next general election.

In 2010 the outlook was grim; the Conservative Government offered austerity as a solution to the nation’s deficit and the Labour Party promised roughly similar measures. We had shopped, spent and frittered our way into an epic economic calamity, so we were told, and the economic medicine that would be administered would be bitter.

Four years on and we face a very different set of circumstances. As a nation we’ve done the tough part and since 2008 weathered a longer economic downturn than even the Great Depression of the 1930s.

The economy is booming with inflation low, rising house prices, and growing employment, which means that voters might reasonably expect some kind of reward for their forbearance over the last four years. Also, we as a population are as open to bribes from our elected masters as anyone else.

So what might 2015 have in store for those who take an active interest in their financial futures? Until the manifestos are published and the speeches are made, it’s impossible to say for sure, but we can make a few educated guesses about what each party offers the saver and investor.

The Conservative Party

One of the policies reputed by the Daily Telegraph to have been presented to George Osborne by an influential policy group is the abolishment of a compulsory retirement age.

This change would have a major impact on the pensions industry and would present individual savers with both challenges and opportunities. It is evident to most casual observers that today’s 65 year olds are substantially different from their counterparts thirty or forty years ago, and many still have much to offer the economy.

However, for the policy to have appeal it must present potential retirees with the option to stop work as for many, this is a cherished opportunity to enjoy some of the best years of their lives.

After the recent shake up of the annuities market, some insurers and pension companies might be relishing a postponement of the date when pensioners claim their policies. It might not be beyond the realms of possibility that they offer inducements to later claimers, encouraging retirees to work on for a few years.

The Labour Party

Whilst parts of the nation have complained bitterly about the austerity measures of the last four years, a recent poll shows that voters still hold Labour largely responsible for the financial crisis.

The Labour Party launched a document on its proposed economic policy in March 2014 (far from being anything as concrete as a manifesto) based on a nation wide consultation. Some of it makes for quite interesting reading from a personal finance point of view, though as with all things written by politicians, you have to read between the lines a little.

Labour have pledged to separate retail and investment banking, thus keeping the deposits of ordinary savers a lot safer in the event of another financial crash.

Overall the tone of the document threatens sanctions against ‘casino’ bankers, but there is another element to the document that will be potential welcome news (if it ever happens, that is).

A proposed break up of the big banks, as suggested by Labour, might well introduce fresh competition to the high street and usher in an era of deals that favor the savers and investors. The policy document also pledged to take action against mis-selling scandals, the likes of which have blighted the lives and the finances of savers and investors over the last two decades.

The Liberal Democrats

Also engaged in a nation-wide consultation at the moment are the Liberal Democrats. Their position is complicated by the fact that if they are to wield any influence at all, it will be as part of a coalition government.

This will mean that certain policies affecting personal finance might be endorsed and others quietly dropped.

On the issue of personal finance, savings and pensions, the workplace pension that was introduced last year will, under the Liberals, continue to be rolled out across the UK. This is likely to happen whoever wins the next election; however, there seems to be some commitment to protecting low and middle income pensioners’ incomes, preventing them from falling behind the rest of the population.

Perhaps the most interesting policy, and one echoed by the Conservatives, is that of taking low earners out of income taxation altogether. The party have aspirations to end income tax for those earning £12,500 and under by the year 2020.

Fine Words Indeed…

Most pundits agree that the outcome of the next general election is almost impossible to predict, with opinion polls giving a wide variety of potential outcomes on an almost weekly basis.

It must be stated that at the moment, all such pronouncements by each political party are not election promises by any stretch of the imagination. They are strong indications of what those promises might be, however.

The improvement in the country’s economic fortunes allow some scope for politicians to offer inducements to vote for them and the incumbent chancellor invariably saves his most attractive giveaways for the pre-election budget.

The most recent budget had a range of attractive inducements for savers and investors but the next one it’s suspected, will be a source of glad tidings; One thing that the polls seem to agree on is that in order to get an overall majority in the coming election, the government will need a considerable amount of public goodwill and what better way to get it than to cut taxes and make saving more worthwhile and borrowing easier and cheaper?


5 Facts You Should Know About Annuities

Friday, June 6th, 2014


5 Facts About Annuities BlogAnnuity is a term that until recently everyone had heard of but few of us not of retirement age knew what it meant. The March 2014 changed that. Suddenly annuities became big news and exciting stories about the possibility of Ferrari driving pensioners were splashed across the newspapers.

This article is a quick look at the changes to annuities and how they will affect you, so the first thing to do is to explain specifically what annuities are, and how they have changed.

An annuity is an insurance policy that people saving for their retirement can buy at retirement and it will guarantee a fixed annual payment for life, so it essentially acts as a private payment. Here are the five changes you need to know about.

1) Annuities Are No Longer Compulsory

On certain types of pension, an annuity policy has been mandatory in the past. Defined contribution pensions have been subject to hefty penalties for savers who have not opted into an annuity, whereas state pensions and final salary pensions have been exempt.

The mandatory nature of this policy has obviously been very popular with the insurance companies, who have seen a fixed and sizeable amount of money flow into their coffers every year.

To bring annuities policy on defined contribution pensions into line with other types of pension, the Chancellor of the Exchequer George Osborne has removed penalties for retirees who don’t take a policy out.

2) Good News For Retirees, Bad News For The Insurance Industry

The changes that the government has introduced allow greater flexibility for pensioners who are planning their futures, but they have hit the insurance companies hard, with nearly £5bn wiped off share prices following the announcement.

Having greater flexibility in your pension plans can only be a good thing, despite sensational tabloid headlines that now pensioners could access their entire fund in a lump sum and buy a racehorse, yacht or luxury car with it.

Most retirees will be far more sensible than this; the new rules could enable them to spend a portion of their overall pension on paying off outstanding mortgages and debts.

3) You Can Buy An Annuity If You Want One

It must be said here that annuities haven’t been banned, plenty of people will still purchase them and get good use out of such policies.

By removing the punitive charges on defined contribution pensions that don’t have an annuity policy, savers have the opportunity to use some of their lump sum for other purposes before purchasing an annuity if they choose.

There are of course alternatives to buying annuities which may be worth investigating, the main two being the capped and flexible draw down plans.

These policies allow you to keep your wealth invested but to draw in income from it as well. The capped drawdown has a fixed limit on how much can be withdrawn, which will be a percentage of the limit set by the Government Actuary Department.

This figure is set based on the age of the saver and the percentage of it that can be drawn down can be anywhere between zero and 150 percent of this. If this seems restrictive, then a flexible drawdown policy may allow you to access an unlimited amount of the pension pot as you see fit.

4) Joint Annuities Are Also Worth Considering

If you are married or in a civil partnership, it might be worth considering taking out a joint annuity policy together if you are both retiring at roughly the same time.

When one or other partner passes away in later life, the surviving retiree will continue to receive payments based on the combined contribution of both pensioners to the annuity policy.

This means that the right policy can potentially act as an annuity and, to some degree as a life insurance policy (however, as with all such things, it is important to read the terms and conditions and ensure this is a suitable policy for you). As insurers are likely to have to pay a policy for longer, you can be sure they will make their money back in one way or another, either with higher fees or lower annual rates.

5) Annuities And Long Term Care

Whilst the market for annuities has been liberalised there are still several good reasons for considering such policies, the main one being the cost of long term old age care.

A long term care annuity works much like any other annuity policy but is typically not paid directly to the policy holder.

Instead it will be paid out directly to the care provider, meaning that if in the event of infirmity in old age, the policy holder is not saddled with the responsibility of arranging care payments.

Overall there is much to be positive about in the annuities market, they are still useful financial products, but since the end of the virtually compulsory enforcement of the annuity, insurers will have to offer more competitive deals to secure your custom.


© 2018 Maxim Wealth Management. Web Design Glasgow Adeo Group