30 January 2013

Getting the Best Savings Rate?

Savings rates seem to be on the way down again.
The general view seems to be that the Government's "Funding for Lending" scheme is to blame. That provides additional capital to the banks that they need, so that they no longer need to offer good savings rate to attract your money. (OK the Government is providing your money too since that's all it has, but you know what I mean!).
Our website has some links to the latest rates and our monthly newsletter has a regular link (sign up on our website). But as a couple of examples: Cheshire BS is offering 2.5% on an Easy Access ISA, and Principality BS is offering 2.3% on a 30-day notice account.
As usual, banks and building societies are not interested in good service (only my opinion) and will generally reduce the rate after an initial period, hoping you will leave your money there, of course. So keep vigilant.

28 January 2013

Should I ... Top Up my State Pension?

Although the State Pension is likely to change from 2017 (see my Flat Rate State Pension post), until then you may still have the option to top-up your pension if you are not expecting the full amount.
You would be entitled to less than the full amount if you have less than 30 years of National Insurance contributions (or have been receiving equivalent state benefits). That might have happened if you were working abroad, a low earner at some time, or if you were unemployed and didn't claim benefits.
But if you have less than 30 years of contributions you can pay HMRC a lump sum to buy extra years. These are "Voluntary Class 3 National Insurance contributions". You will normally get invited to make that payment if HMRC detect that you have a gap in your National Insurance contributions.
If this applies to you it may be well worth your while making that payment. On the other hand it may not! Take a look at HMRC's own information on http://www.hmrc.gov.uk/ni/volcontr/toppingup.htm.
For a consumer view you could try http://www.moneysavingexpert.com/reclaim/increase-state-pensions which has a calculator (not updated recently, though, so beware).

23 January 2013

Facts and Opinions - Flat Rate State Pension

Here's some facts about the Government's recent proposal:
  • £144 per week (£7,488 per year), but increased with inflation by the time it starts
  • Will increase each year by the higher of earnings, prices, or 2.5%
  • It won't apply to anyone whose State Pension Age comes earlier than 2017 (and perhaps later than that)
  • Requires 35 years of National Insurance contributions for the full amount (currently 30 years)
  • At least 10 years contributions before any State Pension is given
  • State Pension Age will increase with life expectancy
  • Couples will qualify (or not) as individuals - no more married couples rate
  • The State Second Pension (was SERPS) will be closed and contracting out will be abolished (already abolished for Defined Contribution pensions)
  • Previously contracted out employees will have to pay 1.4% more National Insurance contributions on relevant earnings - including most public sectors employees
  • The baseline State Pension will be adjusted to take account of periods of being contracted out (details not known yet)
  • It will avoid mass means-testing - no more Pensions Credit which put some people off saving, while others didn't claim and should have
  • The Minimum Income Guarantee will remain (£142.70 per week currently)
  • There will be no more inheritance of pension entitlement for widows and divorcees
  • The self-employed will be better off since they cannot currently gain entitlement to more than the Basic State Pension

And here's some opinions (mine):
  • The State Pension is worth having - you would need around £150,000 in your own pension plan to get the equivalent income
  • This is a good simplification of a complex system
  • In spite of what the politicians say this is not the end of tinkering with the pensions system - similar claims were made in 1998, 2002, and 2006

21 January 2013

Beware Restricted Financial Advice

I seem to be saying "beware" a lot at the moment. Part of the reason for that is the new financial advice regime which started on 1st Jan, and the fact that its worst points are only now becoming clear. So in spite of the FSA supposedly protecting consumers*, the best advice, as ever, is "buyer beware".
The new regime includes what the FSA calls "restricted advice" (see my previous blog on The New World of Financial Advice for an explanation). But the big issue with this approach - which would be fine if everyone is clear what they are getting - is that it is NOT clear at all. Many large financial advice firms now only offer "restricted advice" not "independent advice" but don't make that clear, and that also applies to most building societies.
The likelihood is that if you engage with a building society "adviser" you are actually dealing with a Legal & General salesman. Although commission is now banned, the advice fee is only charged if you go ahead with the product recommended. Sounds an awful lot like commission to me. What has changed?! Restricted advice is fine if you know what the restriction is and are happy with that.
* The Treasury Select Committee has just said that the FSA left consumers exposed to some of the worst scandals in financial history, and failed to pick up on major failures in the making. It urged the FCA (which will take over from the FSA this year) not to pick up where the FSA left off. Hmmm.

17 January 2013

Where Should you Invest in 2013?

As I point out to my clients I am no economic expert, nor even an investment expert, in one sense. My role is really to read widely, watch what is happening and then form my own consensus opinion on the various issues relating to investments, and then explain it in terms that people can understand. So here are some bullet points on what I believe will happen in 2013.
Beware bonds!
Fixed interest investments from Gilts to corporate bonds and high yield bonds in particular have had a great run over the last year or two in terms of capital growth. My prediction is that it won't last. In particular gilts have a lot of room to disappoint, throwing in the air the standard approach to asset allocation.
Beware Europe!
There is still plenty of reason for uncertainty in Europe, although the Euro will remain as it is now and with all its current members thanks to political fudging. The basic problems have not been sorted out. That may result in investment values falling at some point in the year when the uncertainty re-surfaces, but in the meantime ride the rally.
Stick with Equities
In spite of wider problems, a diversified portfolio will still do well this year.
The FTSE 250 will do better than the FTSE 100
In other words, smaller companies are in a better position than the bigger ones. But both will be affected at some point in the year by another large fall (as we have had in the last two years). This might be triggered by another Europe problem, something in the Middle East, US political / economic problems resulting from the lack of fiscal agreement, or something else (there are enough candidates to trigger this).
No real UK growth
There is little prospect for a real turnaround in the economy this year. Individual companies will often do well, though.
Britain will lose its AAA rating
We are tetering on the edge of this and it will happen later in the year causing Government borrowing to be more expensive.
Interest rates will stay low
0.5% Base Rate will continue for most - if not all - the year. Inflation will continue to be present, though, and the Bank of England will start to increase the rate in about a year's time.
Emerging Markets will return to form
In 2012 investing in Emerging Markets was disappointing, largely due to Chinese growth slowing. That will turn around in 2013 making an investment allocation worthwhile.

11 January 2013

The New World of Financial Advice

Since 1st Jan the world of financial advice has changed. After 6 years in the planning, financial advisers have to work differently. There are 3 main changes:

1. No commission allowed on investment or pension advice

Hooray! So it should now be clear that it is up to the client and their adviser to agree how much the advice will cost, not for a product provider to decide. That will also remove the need for an adviser to recommend a product just in order to get paid. Real financial planning doesn't always require a product to implement a plan.

But it also means that the client will have to pay for the advice more directly - and that might put some people off.

2. Higher qualifications for advisers

Phew! That's a good thing - real financial advisers are knowledgeable professionals who keep themselves up to date, not product salesmen. But it was a lot of work to get there for many! Some estimates say that up to a third of advisers are no longer advising ... and that can't be good for consumers.

3. Independent or Restricted? >>>UPDATED<<<

Hmmm! Most people had got used to the idea that an Independent Financial Adviser wasn't linked to a product provider. Although it wasn't so clear that many advisers could only advise on a limited range of products (like bank advisers, and big firms like St James Place and Towry Law).

Now we have "Independent" and "Restricted", and I'm not sure that will make things clearer. Independent means two things: able to advise across the whole of the market (all providers) and also able to advise on all types of investment product. Restricted means "not independent" (yes, really that's how it's defined).

That leaves us with two problems: Firstly why is a financial adviser "restricted" - it could be because they offer a limited range of products, or even represent one provider (which should be a big red flag for consumers), or because they have declined to advise on a less common type of investment (which is less of an issue).

Secondly it is still not clear enough if a financial adviser firm is restricted (basically aiming to sell you their product range). Vouchedfor.co.uk (quoted in Investor's Chronicle) have just found that 8 out of the largest 10 advice firms are now only offering restricted advice, although in many cases you wouldn't know it from their websites.

Come on FSA, the whole idea of this costly shake-up was to make things clearer for the consumer. Get it sorted!

To be sure of the best result, make sure that you use an Independent adviser.

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