: Economic data offers encouragement Concerns over the intensifying crisis in Syria dampened investor sentiment during August. Share prices declined and, in particular, volatility in the price of oil affected demand for shares in the energy sector. During August, the FTSE 100 index fell 3.1% while the FTSE 250 index fell 1.7%. By comparison, demand for smaller companies held up relatively well and the FTSE SmallCap index rose 1% over the month.
Winter 2012 / 13
Wells Financial is an independent financial advisor specialising in mortgage, insurance, pension and investment advice for individuals and small businesses.
The UK economy expanded at a strongerthanexpected rate of 0.7% during the second quarter of 2013, stoking hopes the recovery is gaining momentum. The British Chambers of Commerce raised its forecast for growth in the UK economy this year from 0.9% to 1.3%. The organisation also warned that the recovery is “not yet secure”, however, and pointed to external risks including the eurozone, China and the continuing crisis in the Middle East. All five leading UK banks – Barclays, Lloyds, RBS, HSBC and Standard Chartered – registered a profit for the first six months of the year for the first time since 2010, according to a report produced by KPMG. However, almost 20% of profits have been absorbed by the ongoing obligation to set money aside against potential liabilities, such as PPI claims. Moreover, KPMG warned that growth – not only in the banking sector, but also in the broader UK economy – is being hampered by the pace and scale of regulatory reform. Looking ahead, the report raised questions about longerterm prospects for competition and choice within the sector and emphasised the need to achieve the right balance “between prudence and growth”. Equities remained the bestselling asset class during July, achieving their highest sales since December 2010, according to recent data from the Investment Management Association. Global equity funds led the field, followed by the UK. UK equity funds achieved net retail sales of £392m during July, compared with a monthly average of minus £9m over the previous 12 months. Demand was primarily driven by investors’ appetite for funds in the UK Equity Income sector, which was the second most popular fund grouping during the month. Elsewhere, UK Smaller Companies was ranked 10th out of a total of 35 sectors. Meanwhile, having experienced a massive swell of demand during June, the mainstream UK All Companies sector dropped down the ranks, although overall net retail sales remained in positive territory.
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Managing Debt For many people, debt is a necessary part of everyday life – for example, few people are able to buy a home without a mortgage. If properly managed, debt can be a useful tool – but it is essential to remain in control. You are unlikely to receive more interest on your savings than you will pay on your borrowings. It is generally prudent therefore to concentrate on paying down your debts before you focus on savings. Nevertheless, you should still aim to have a cash buffer you can access in an emergency – as a rule of thumb, enough to last you for three months. Don’t ignore debt – it will not disappear. If you have debts on top of your mortgage, the most sensible strategy is to try to pay off any outstanding loans, using your savings if necessary. You should always clear your most expensive loans first, although you should check in case there are charges for early repayment. Debt consolidation services allow you to combine all your loans into one. However, they are a relatively highrisk strategy – their longterm cost can be very high, and they are usually secured against your house, putting your home at risk if you do not manage to keep up with the loan repayments. If you are having problems, take expert advice from your financial adviser or a free debt advice agency, or talk to the Citizens Advice Bureau. Above all, make sure you are in control of your debt. Don’t allow your debt to control you.
The benefit of advice The mortgage market is highly competitive and lenders constantly bring out new deals. They are required to provide Key Facts and illustrations, but many can only provide information – they cannot give advice on whether their loan or another provider's is best for you. In the UK, residential mortgage advice is regulated by the Financial Services Authority. Advisers use their research skills and sourcing systems to keep up to date with details of all the latest mortgage products so they can find the best rates and deals to meet your requirements. So, if you want someone to do the hard work, ask an independent expert. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Unemployment still a huge issue for Europe The slowdown in the eurozone’s manufacturing and services sectors eased during June, fuelling hopes the region’s economic downturn is starting to lose momentum. However, joblessness remains a huge problem, with the rate of unemployment in the eurozone rising to 12.2% in May, compared with 12.1% in April and 11.3% a year earlier. At a country level, the highest rates of unemployment were in Spain and Greece, where rates remain in excess of 26%. Youth unemployment remains a significant difficulty within the euro area and almost 24% of young people are now out of work. Again, the problem is worst in Greece and Spain, with youth unemployment rates of 59.2% and 56.5% respectively.
A new sheriff in town After an eventful decade at the helm of the Bank of England (BoE), Sir Mervyn King was duly replaced as governor of the UK’s central bank on 1 July 2013 by Mark Carney, the former governor of the Bank of Canada. Considerable anticipation has surrounded Carney’s accession, amid speculation he will seek to implement sweeping changes to the BoE’s approach to monetary policy. Carney believes the BoE faces “many and varied” challenges that fall into two key areas – policy challenges and institutional challenges. The principal policy challenges centre on the delivery of price stability while supporting economic recovery, boosting employment and promoting financial stability while, at an institutional level, he wants to increase cohesion within the Bank and to build a central support function that will reinforce every area of the BoE and its expanded responsibilities. In the coalition government’s Budget of March 2013, Chancellor of the Exchequer George Osborne expanded the remit of BoE policymakers to include an additional emphasis on economic growth . The accession of the 120th governor of the BoE has been marked by a flurry of interest and speculation, and Carney believes serving as BoE governor will mark the “pinnacle” of his career. He takes on the role at a unique time in the BoE’s history, as it assumes additional and widespread regulatory responsibilities.
Review your portfolio Once a financial plan has been put in place, it is tempting to believe the paperwork can simply be tucked away in a drawer and forgotten. However, like a wellkept garden, a financial plan needs regular tending to help it thrive. What should a financial healthcheck comprise? A financial review will first look at whether an individual’s goals – to retire at 60, say, or to fund school fees – have changed, perhaps following the birth of another child or a change of job. It should consider any need to save more or to switch to different types of investments to achieve the set goals. A review will also look at an investor’s progress towards their goals and examine whether their investments are performing in line with expectations. Fund managers, for example, will have good and bad periods but your financial adviser will be able to judge whether this is expected or a sign of a deeper problem. A portfolio will also need to be tweaked according to the wider economic environment. The 2008 financial crisis changed the investment landscape – for example, the low interest rates that have followed mean incomeseekers have had to work harder to achieve the same level of yield. While an event of this magnitude will hopefully not repeat itself in the short term, it highlights the importance of regular reviews and ensuring your financial plan continues to be appropriate.
Gender equality in retirement From 21 December 2012, the practice of using gender to calculate insurance contracts and annuity rates will be outlawed. In future, women who opt to receive drawdown pension income will find that their maximum amount of available income is determined using the same calculations as those used for men. In March 2011, the European Court of Justice ruled that the practice of considering gender when calculating insurance contracts and annuities contravened discrimination laws. More recently, HM Revenue & Customs issued new guidance for pension providers, ordering them to use the same rates for women as men when calculating their maximum drawdown pension from 21 December 2012. Income drawdown allows the individual to withdraw income from their pension fund while leaving the fund invested, thereby allowing it to benefit from any further growth. The amount of income that can be withdrawn from the fund is capped in order to ensure the pension pot cannot be drained. Traditionally, income drawdown rates for men and women have been calculated using two different tables – one for women and one for men. Because the life expectancy of the average British man is shorter than that of the average British woman, the amount of income a man has been able to withdraw from his pension fund has been higher than for a woman. However, the new rules will ban this practice, allowing women who opt for income drawdown to draw an increased level of income, while men’s entitlement will remain unchanged.
2013/14 limits for Isas For the 2013/14 tax year, investors are able to save up to £11,520 in an Isa, which represents a rise of 2.1% over the previous year. The maximum Isas contribution may be invested entirely in a stocks and shares Isa or up to half the amount – £5,760 – can be saved in a cashonly Isa. Investors who choose to put less than that amount in their cash Isa may put the balance of their allowance in a stocks and shares Isa. Do not forget one of the golden rules of Isa investing – if you do not use it, you lose it.