A simple tweak could fix pension Triple Lock dilemma

You may have become aware of a yet another problem emerging for the Chancellor, in the form of rapidly rising wage growth, even though this might only be fleeting. The following article by Lois Valley of Money Marketing explores how Rishi Sunak might look to alter the terms of the State Pension ‘Triple Lock’, without abandoning it completely. 

“A simple tweak could provide the answer to the chancellor’s triple lock dilemma, Quilter has suggested.

It said chancellor Rishi Sunak could use a three-year rolling average figure for wage growth to avoid a large increase in expenditure expected next year.

The triple lock ensures that the state pension is guaranteed to be uprated each year by wage growth, inflation or 2.5%; whichever is highest.

Wage growth was negative in 2020 but earnings have bounce-backed sharply this year with the winding down of the furlough scheme as the economy re-opens.

The latest figures from the Office for National Statistics (ONS) showed earnings (including bonuses) increased by 7.3% in the three months to May 2021, up from 5.6% last month.

It suggested they could increase even further over the coming months before the final reading is taken in September.

The Office for Budget Responsibility (OBR) has forecast that earnings growth could rise to 8% in the next two months.

This resurgence in wage growth will have a dramatic impact on state pension uprating if the chancellor maintains the triple lock in its current form.

Quilter head of retirement policy Jon Greer said the triple lock will uprate in the following way below.

*Assuming uprating of 7.3%, rounded to the nearest 5p based on full entitlement.

This assumes earnings growth remains at 7.3%, and Consumer Price Index (CPI) inflation stays below this figure.

Yesterday’s inflation data showed an increase in CPI to 2.5%.

Greer suggested that, by keeping the triple lock in place, the 7.3% uprating will cost the government an additional £6.7bn in 2022/23.

This is £4.4bn more than if the state pension increased by CPI inflation or 2.5% only.

Meanwhile, the tweak outlined above would uprate the state pension by 3.4% in 2022/23 to give pensioners the following weekly income.

*Assuming uprating of 3.4%, rounded to the nearest 5p based on full entitlement.

This methodology would provide a short-term solution to the wage volatility experienced this year.

It would also save the government £3.5bn next year compared to maintaining the triple lock in its current form, Greer suggested.

“Real wages aren’t really growing by 7.3% when you remove the distortionary impact of Covid on the labour market,” he said.

“The chancellor has said there must be fairness between taxpayers and pensioners in setting the state pension increase, and one way this could be achieved is by basing the earnings-growth element on a three-year rolling average figure.

“That way, state pensions will still increase by a generous 3.4% next year, but the exchequer will save £3.5bn and preserve some semblance of intergenerational fairness.

“Ultimately, debates around the triple lock often get linked to the overall level of the state pension but that is another matter entirely.

“Tweaking the triple lock doesn’t mean a state pension cut. This is about how it maintains its value fairly over time.”

Also commenting on the issue, Steve Webb, partner at LCP, said: “The triple lock was designed to give a steady boost to the value of the state pension which remains one of the lowest in the Western world. But it was not designed for a period when average earnings figures are as volatile as at present.

“The chancellor may well be tempted to use an ‘adjusted’ average earnings figure for the April 2022 uprating as this might ‘get him off the hook’ this time round.  But if he does so he should also re-commit to a strategy of building up the value of the state pension thereafter.

“This is particularly important to growing numbers of women who have worked in the private sector, who may have very modest workplace pensions and are heavily dependent on the state pension.”

I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Sequencing Risk

I was drawn to the following article in last week’s Sunday Times because Adam and I have been doing some work on just this for a client who is contemplating taking a substantial regular income from his Pension Fund. The article highlights the surprisingly different retirement someone might enjoy, depending on whether investment returns are good or bad during the early stages of the withdrawal process.

Most financial planning tools are deterministic in that they assume investment growth is delivered in a nice orderly fashion but nothing could be further from the truth of course; it is common to see double digit rises or falls in year, only for the long term average to remain fairly stable. We need to be cognisant of this when helping clients devise a strategy that allows them to live a full life without fear of, either running out of money, or dying with too much and leaving dreams unfulfilled. It can be something of a tightrope and it is why Financial Planning must be a dynamic process and not just a one-off exercise.

Timing is everything when you think about taking your pension – Imogen Tew

“There are many things you have to think about when investing in retirement: how your money will fare in the stock market, how long you may need an income for and whether the amount you withdraw from your pot each year is sustainable.

The calculations do not stop there, though. You must also think about timing, because the rhythm of stock market changes can have a huge impact on how long your pension pot lasts.

This is called “sequencing risk”. It is created by the timing of weak or strong years of investment returns as you start to spend your pot. Weak or negative investment performance in the early years will have a much bigger impact than if it happens later, because of compounding.

In rising markets your pot will earn interest, and then interest on that interest if it is reinvested. If you start withdrawing money when markets are falling, your pot will shrink faster, and the results can be calamitous, as figures from the pensions company LV show.

After 15 years, a £200,000 pension pot, averaging 5 per cent growth a year and providing a £12,000 income, would be seven times bigger if it delivered strong investment growth and then made losses, compared to making a weak start at the beginning of your retirement.

If the pot had investment growth of 20 per cent in the first year, then settled to average 5 per cent growth across the 15 years, it would grow to £232,963. If it took a 20 per cent hit in the first year but still averaged 5 per cent growth over 15 years, it would deplete to £32,585, despite both pots averaging 5 per cent growth a year.

Sequencing risk is often overlooked in retirement planning, but management of income withdrawals can have a huge impact on how long your pension pot lasts.

When markets fall and you sell investments to provide an income, it amplifies the impact because more investments would have to be sold at the lower value to provide the level of income.

You can expect a £200,000 pension pot to last 31 years, assuming that you take an income of £12,000 and have growth of 5 per cent a year. The same pension would run out after 16 years if your money took a 20 per cent hit initially and averaged 5 per cent over the first 15 years.

There is nothing you can do about the market falling as you hit retirement, but you can take steps to mitigate the impact. Here is how.

A sustainable income

In any market conditions you should ensure that you are drawing a sustainable income. This means ideally living off just the yield of your investments to begin with, and drawing down capital later in your retirement.

Taking 4 per cent from your pot each year is typically considered a safe bet because your investments are likely to earn this back in growth (although nothing is guaranteed).

If markets are falling, could you reduce the amount you take to, say, 2 per cent? This would minimise the impact on your pot and is known as dynamic spending, where you take a flexible approach to how much you withdraw.

If you are aiming to live just on the yield from your pot, you can calculate roughly how much you will have by looking at previous years’ yield.

It pays to have some fixed- income assets and to invest in companies that pay dividends which can help to maximise the income from your pot.

Look elsewhere

If you have other sources of income, such as an annuity or a final salary pension, they could see you through a market downturn so that you don’t have to take money from a pot invested in the stock market.

Laith Khalaf, a financial analyst at the wealth manager A J Bell, recommends keeping a cash buffer in your fund, even in retirement, to see you through any market downturns.

Allocating assets

A well planned pension strategy, with enough of your portfolio allocated to liquid assets, can help to mitigate sequencing risk, according to Greg Winter from the wealth manager Tilney. By having some of your pot invested in more liquid assets such as bonds, which are less volatile and should behave differently to equities in times of market stress, you might meet your short-term needs without having to sell equity-based investments to maintain your income. A multi-asset fund, run by a fund manager who switches between markets, could be a solution.”

Current Pensions legislation allows for withdrawals to be adjusted up or down to suit prevailing conditions and also for ad hoc withdrawals to be taken, where appropriate. This flexibility coupled with regular planning reviews should ensure that we are able to help our clients walk the retirement income tightrope with a degree of confidence.   

I hope you fund the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Fancy a comfortable retirement?

As we wait with bated breath for news on Coronavirus restrictions being removed, I thought you might find the article below, I saw in the Times last week, of interest.

The figures quoted look remarkably low to me, but I suspect that reflects the fact that we live in a relatively affluent bubble in the South-East.

It is a shame that the main assumptions Which? Magazine have used for Income Drawdown are not included but one which did catch my eye was that it was assumed income would be exhausted at age 85, which is quite close to average life expectancy for a man of 65. The obvious problem arises if you happen to be in the 50% who will live longer than average but have no income left. Our Financial Models all assume life expectancy of 100 for this reason and even age 100 these days may not be long enough for some people.

“The price of a comfortable retirement for a couple encompassing holidays, hobbies and alcohol has been found to be £26,000 a year.

Research by the consumer magazine Which? suggests that while £18,000 a year will cover the “essential” needs of a couple, an extra £8,000 annually will help to provide for meals out as well as short-haul European holidays.

And if health club memberships, long-haul holidays and a new car every five years are desired, then £41,000 a year would be required.

For a single person Which? calculated that £13,000 would cover the basics, £19,000 a comfortable retirement and £31,000 the more luxurious items.

Which? surveyed nearly 7,000 retirees in February about their spending to develop retirement targets for one and two-person households.

It said that savers needed to be given more clarity about their pension savings and what incomes would be required to sustain certain standards of living.

Jenny Ross, its money editor, said: “For many people, the events of the past year will have caused them to rethink their retirement plans and brought the amount of money needed for later life into sharper focus. “Our research shows that most people will need to be putting away significant sums if they want to ensure they can enjoy a comfortable retirement — but many do not have access to the clear and accessible information they need to help them plan.”

Which? found that, on average, couples need a pot of about £155,000 alongside their state pension to produce the annual income for a comfortable retirement of £26,000 using pension drawdown — or just over £265,000 through a joint life annuity.

For single-person households, a comfortable retirement would need a pot of about £192,290 alongside a state pension to produce an annual income of £19,000 using pension drawdown, or £305,710 through an annuity, the research suggests.

The calculations for pension drawdown were based on the saver drawing off all their income over 20 years from the age of 65 and also made certain assumptions about investment growth, inflation and charges.

According to the survey, retirees in two-person households spent about 14 per cent less on recreation and leisure and 10 per cent less on transport than before the coronavirus pandemic, but spending on cars, groceries and charity donations had risen 6 per cent.”

Please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Vantage EBI Earth – Further Information

As we move closer to the implementation of the EBI portfolio changes, I wanted to update you with more detail on why I am recommending the new Vantage Earth portfolios, as well as some operational developments with timings and cost.

Why switch to Vantage EBI Earth?

EBI has been working over the past 12 months to create a portfolio which allows you to:

1. Maximise returns for your level of given risk and

2. Combine Environmental, Social and Governance (“ESG”) screening criteria.

I have previously spoken about ESG so I will speak mainly here about the investment strategy.

Firstly, it is worth mentioning that the investment strategy is prioritised over ESG. This means the goal of Vantage EBI Earth is primarily to maximise your return for your given level of risk. The secondary objective is to cut carbon emissions to meet the conditions of the Paris Climate Agreement and to exclude certain sectors (such as weapons manufacturers) where the investment strategy allows.

The following goes into some light technical detail, but it is worth gaining an understanding how this approach is likely to be of benefit to you. The table below shows important characteristics of your current investment solution; Vital EBI UK Bias, compared with the newly constructed portfolio Vantage EBI Earth. The table only provides an illustration for Portfolio 100, the highest risk option.

There are three characteristics we regard as important when selecting appropriate investments for our clients:

1. Risk/volatility

2. Maximum historical loss

3. Expected return

When choosing the optimal investment solution for my clients, my primary objective is to ensure that the investment returns are maximised for any given level of risk. I also want to make sure my clients are comfortable with the highest historical loss associated with each portfolio, given previous market corrections.

Looking at the table, there are two points I would like to highlight:

1. The columns relating to risk (Volatility/Risk and Maximum Historical Loss) are lower for Vantage EBI Earth compared to Vital UK Bias.

This means you are taking less risk with Vantage EBI Earth.

1. The simulated historical return is higher for Vantage EBI Earth.

This means for each unit of risk you are taking your expected return should be higher.

Using a car journey analogy, it is expected you will arrive at your destination (say, retirement) quicker (higher return) and the ride is expected to be smoother (less volatility along the way).

Given the above, we have concluded that Vantage EBI Earth is likely to be a more robust suite of portfolios than Vital EBI UK Bias. For this reason, I am recommending you move your existing investments with EBI into the corresponding, risk-rated Vantage EBI Earth portfolio. As explained in my earlier e-mails, my wife and I will be moving our own investments and pensions into Vantage EBI Earth, as soon as the portfolios become available.

Timings

EBI originally aimed to bring the portfolio changes in early May but they have subsequently communicated to me that this has now slipped by several weeks. This is due to regulatory delays due to COVID-19 and is completely outside of EBI’s control.

Cost

As previously mentioned, EBI has negotiated institutional discounts for the new portfolios of between 0.06% to 0.11%. This means you are gaining access to the new range at a cheaper rate than would have been the case without EBI’s institutional buying power; I should point out that these portfolios are not available to the general public.  

In my previous e-mail I made a cost comparison which showed that the new portfolios were a little cheaper than the old. Unfortunately, EBI had not included in its figures its own annual fee of 0.12%, this has obviously increased total costs slightly, they have apologised for this omission. EBI have now corrected the cost comparison table and the updated figures can be seen below.

Despite this very small increase in overall costs, I remain satisfied that the benefits of the new range of portfolios more than make up for this. Although this is my recommendation, you will be under no obligation to make these changes, if you do not wish to do so.

Please do not hesitate to contact me if you have any concerns or questions relating to the planned improvements. 

I will be writing to you again to seek your permission to implement the recommended changes, over the course of the next few weeks.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Introducing StayPrivate our Secure E-Mail Service

This is just a short note to introduce our new secure e-mail system called StayPrivate. StayPrivate ensures that important e-mails are kept secure, allowing us to communicate safely and privately with you.

You will continue to receive non-sensitive e-mails from us in the usual fashion. However, IF an e-mail contains personal or sensitive information, such as Statements/Valuations/Personal Financial data etc., we will send it via StayPrivate. The message will still arrive in your usual e-mail account, but to access its content you will need to click on the secure link and set your own four-digit PIN. This could be a PIN you already use elsewhere, thus avoiding the need to come up with yet another unique number.  

This will take you straight to your own secure area within StayPrivate, where you can read, download, and reply to communications. You will also find a convenient history of all previous secure e-mails you have sent or received.

There is no need to download any software or set any complicated passwords, but for extra convenience, you can download the StayPrivate app onto your mobile device – available free on from both Apple and Google app stores, if you wish.

With cybercrime on the increase and the growing importance of online privacy and security, we are committed to ensuring the safety of your personal data. We believe that implementing StayPrivate is an important step in enabling us to keep your information safe.

If you have any queries, please do not hesitate to contact to us. I hope you will have a great experience with StayPrivate and that you will agree, this is a significant positive step.

As always, if you have any questions about the above or any other related financial matter, please do not hesitate to get in touch.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

ESG Brief Update

I do hope you are keeping well and beginning to take advantage of the gradual easing of some of the lockdown restrictions, seeing family in the garden and maybe even popping out to the pub! I shall be visiting my local this evening armed with gloves, a hot water bottle and a woolly hat, I can’t wait!

As the heading suggests, this is just a very brief note with reference to my communications on the introduction of Environmental, Social and Governance (ESG) screening within the EBI Portfolios.

EBI had hoped to be completing this by mid-April but it now looks as though the new portfolios will not be fully ready until 6th May but as I am keen to make the changes to my own investments first (just to ensure all goes smoothly), realistically it will be mid-May before we roll out the changes to our clients.

I will be in touch again in due course.

Have a lovely weekend in the meantime.

As always, if you have any questions about the above or any other related financial matter, please do not hesitate to get in touch.

Graham Ponting CFP Chartered MCSI

Managing Partner

Lack of transparency over fund charges!

I was quite shocked and very disappointed to read the following article in the Money Section of the Sunday Times yesterday.

It appears that, even in 2021, some providers are still able to disguise the true cost of buying and holding funds on their investment platforms. This is particularly galling to me because the rules around cost disclosure for Financial Advisers are so very clear and rigorously enforced.  

The article below was written by David Blenchly:

Fund fees that are three times more than you think!

“Investors are asked to pay on average almost twice as much in fees as the “at a glance” costs shown on the websites of the largest investment platforms. In some cases, the full cost of buying and holding a fund is almost three times as much as the charge advertised on the fund overview page, according to research from SCM Direct, the wealth manager run by Alan and Gina Miller, who campaign for greater transparency in the investment industry.

Two decades on from research by the City regulator — the Financial Services Authority at the time — showing that up to 50 per cent of fees were hidden, little has been done to rectify the problem, Alan Miller said.

“In any other area this would almost certainly be deemed illegal or mis-selling,” he said. There is no regulation to stipulate exactly how and where full charges should be displayed.

SCM’s research looked at the breakdown of fees on Hargreaves Lansdown and Fidelity for the 20 largest funds within the UK All Companies sector.

It found that the average at-a-glance net charge shown on Hargreaves for funds in the sector was 0.78 per cent. Yet when platform costs, transaction costs and performance fees were factored in, the full charge was 1.5 per cent.

The average fees on the initial page of Fidelity’s site were 1.07 per cent. Yet the total charge was 1.49 per cent, including performance fees and platform costs.

For the JPM UK Equity Core fund, Hargreaves showed a net charge of 0.33 per cent. When all the charges were added up, the fund cost 1.09 per cent.

On Hargreaves, investors must click on the “costs” tab at the top of the fund page to learn of all the charges. A Hargreaves spokesperson said: “Our fact sheets clearly detail all the costs investors will pay for their investment including the platform fee, and after deducting the savings HL clients enjoy.”

For Fidelity you must click on the “charges & documents” tab for more, but not all, fee information.

“We do not show the service charge here as it can vary for different customers,” Fidelity said. Fidelity gives no breakdown of how much this might add up to.

It added: “We are careful to ensure customers know what they are paying for. The key stats page and the charges and documents page show the fund charges clearly. We highlight, ‘Please note that service charges will also apply.’ The cost of a fund and service charge is shown in the pre-sales illustration document.”

Summary

I am genuinely concerned that some investors eschew financial advice because they think it is too expensive and that they can do better on their own by investing via sites such as Hargreaves Lansdown, mentioned above. When we actually look at this equation properly, we see that access to high quality financial advice is actually very affordable by comparison.

As an example, a client with Clearwater will pay the following for our full, comprehensive Financial Planning service. The annual percentage figures assume an ISA portfolio of £500,000 invested on Transact and in Portfolio EBIP 60 (the most popular portfolio):

As we can see from the article above, the real average cost of investing with Hargreaves Lansdown is 1.50% per annum and not the 0.78% per annum advertised. Thus, the true, additional cost of engaging the services of a Chartered Financial Planning firm amounts to just 0.092% per annum; I like to think we are worth it but you will be the better judge.

I completely agree with the Millers that this wilful lack of transparency by these platforms should be illegal or, at best, deemed mis-selling.

For the record, the Clearwater charges outlined in the table are fully inclusive, including an allowance for trading, as is required by the Financial Conduct Authority.

As always, if you have any questions about the above or any other related financial matter, please do not hesitate to get in touch.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Enhancements to our investment proposition – Further Information!

As promised in my e-mail on this subject last week, I am writing today to provide you with some more information on the decision by EBI to apply Environmental, Social and Governance (ESG) screening to all their Portfolios and also, the move from the EBI Vital to EBI Vantage service.

I will provide some more information on the Vantage service first.

The EBI Vantage Service

I don’t intend to retype the contents of my earlier e-mail but in brief summary, the Vantage service provides for automatic rebalancing, automatic fund switches (when appropriate) and it reduces the amount of paperwork clients will need to sign. Hitherto, this service was available only at additional cost but as EBI has grown, it has been able to negotiate access to institutional fund classes which has led to cost reductions. The end result of this, is that Vantage is now cheaper than the Vital service which we are currently using.

The following table highlights the approximate cost savings for each Portfolio:

OCF stands for ‘Ongoing Charges Figure’ and is expressed as an annual percentage. The figures shown represent the total annual cost of the Investment Portfolio(s) but do not include charges to Clearwater (which are not changing) or wrapper costs.

An average saving of 0.05% per annum might not sound a great deal but for a Portfolio valued at £500,000, this equates to £250.00 per year, which I am sure most people will be able to find a better use for.

Moving to Vantage essentially means you will be getting more for less, and let’s face it, that doesn’t happen very often!

Turning now to the inclusion of ESG screening in all of the above Portfolios:

ESG

As above, I will not go over the content from the previous e-mail again but I have provided some links to our website below where you can find more information.

ESG Investing - ESG Screening   

This is an easily accessible infographic which explains concisely what ESG means.

ESG Investing – Traditional vs ESG Portfolios

This infographic highlights the key differences between the old approach and the new.

ESG Investing – Asset Allocation

Using Portfolio 60 as an example, this infographic shows how assets will be allocated within the Portfolios.

Earth Portfolios Brochure – 2021

This is a more detailed look at the principles behind ESG screening.

Summary

In very brief summary, the changes proposed are entirely positive, they will definitely lead to lower charges and it is hoped, higher returns. I have no axe to grind at all here, we (but not you) will be involved in a quite a lot of work implementing these changes but we will be receiving no additional fees whatsoever, our sole motivation, as it always is, is wanting to do the right thing for our clients.

There is nothing for you to do at the moment; I will be writing to you again in around mid-April, when the new Portfolios will be fully available. There will be one form for Transact Investors to sign but no form is required if you are invested on the Standard Life Platform, we will just need confirmation via e-mail that you are happy for us to effect these changes on your behalf.

I am very excited about these enhancements to our investment proposition and I will be first to be making the change, but if you do have any questions or concerns, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Enhancements to our investment proposition!

This is just a brief note to update you on some exciting developments from our investment partners EBI. A further, more detailed e-mail will follow next week but don’t worry, it’s all positive news.

You may recall that I wrote to you a few weeks ago discussing the availability of the EBI Earth Portfolios, this is a separate suite of investments running alongside the standard Portfolios; the main difference being that the Earth Portfolios are constructed using ESG screening.

As a reminder, ESG stands for Environmental, Social and Governance. What does that mean? Well, you could say ESG is the food equivalent of ‘free range’ or ‘organic’ options – it is the same food but farmed in a more sustainable way. Where applied to your investments – it is the same investment portfolio but created with an awareness of how the companies included manage their impact on the environment. Examples of the areas ESG is looking to improve in include the following:

• Environmental – Air & Water pollution, Biodiversity & Deforestation, Emissions, Energy Efficiency

• Social – Gender & Diversity, Human Rights, Labour Standards

• Governance – Executive Compensation, Bribery & Corruption, Board Composition

The key change is that, following extensive research, EBI have decided to apply ESG screening to ALL of their Portfolios, essentially rendering the non-Earth Portfolios surplus to requirements. Accordingly, we will shortly be asking for your permission to transition across to the new Portfolios. There will be no charge for these changes and as an enthusiastic supporter of the EBI process, I will be switching my own family’s investments, at the earliest opportunity.

These changes will not be happening until the beginning of April but I will be writing with some more information next week.

EBI have produced a wealth of material supporting their recommendations and this can be made available to you, on request.

The EBI Vantage Service

In addition to these portfolio changes, I believe now is a good time to move our clients from EBI’s ‘Vital’ service to their ‘Vantage’ service.

The main benefit to users of the Vantage service is the availability of ‘discounted share classes’, more formally known as ‘institutional share classes’. EBI have negotiated for the benefit of investors, discounts worth an aggregated 0.11% on equity assets and 0.06% on fixed interest assets. This reduces the cost of the underling portfolio for you.

The Vantage service also provides automatic rebalancing and all future fund switches will be handled by EBI. They aim to minimise the frequency of rebalancing and the amount of trades; therefore, reducing the cost of rebalancing overall. EBI have recently analysed data to show that the rebalancing solution, along with the discounts they have obtained from fund managers has more than covered the management fee since inception for most portfolios. Their most recent study illustrates how the returns of Vantage portfolios, when compared to the same portfolio rebalanced annually, not only covered the 0.12% management fee, but also on average, added a premium to the returns (in all portfolios excluding the bond portfolio).

Lastly the Vantage services has the added benefit of reducing the amount of paperwork you need to sign.

Keep an eye on your Inbox next week for more information.

As always, if you have any questions about the above or any other finance related matter, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

The Budget!

Doubtless by now you have had an opportunity to digest the main provisions of the Budget last Wednesday.

I don’t normally send a list of the announced tax changes as these are widely available but if you would like a useful, easily digestible summary, please let me know as James Hay have provided me with a Budget Guide, which I will happily share with you.

I don’t think there were too many surprises announced last week, the Budget was mainly focussed on providing continuing support for businesses, at least while the social distancing restrictions remain in place. The true long-term damage to the employment market won’t become clear until the furlough scheme ends and businesses are once again responsible for the payment of their own workforces’ wages. How many companies have been kept artificially afloat through the Chancellor’s largesse, remains to be seen.

There were some tax rises through the back door, so to speak; some like to refer to these as ‘stealth taxes’ but on this occasion the Chancellor was not terribly stealthy at all, first leaking and then announcing boldly in the House of Commons that he was going to freeze a number of allowances. Inevitably this pulls more people into the tax net through a process known as fiscal drag. Following the Budget most people surveyed felt that this move was fair in that the country is facing an unprecedented debt mountain and at least it can be seen as progressive. It will also only have an impact on individuals as their pay rises, in terms of Income Tax and their pension fund value rises, in terms of the Lifetime Allowance. This move also enabled Rishi to stick with his pre-election pledge not to raise the main rates of Income Tax, even though the effect is essentially the same.

The Chancellor is on a narrow tightrope, he knows he must not let the debt get out of control and at the same time, he must not risk the expected economic recovery by taxing people too heavily so that they don’t feel able to spend when the economy finally reopens.

His increasing of Corporation Tax from 19% to 25% seems like a sensible move; our Corporation Tax rate of 19% was, by some margin, the lowest in the developed world and all he needed to do was reduce that margin. If we are still the cheapest place to setup shop then businesses will not be inclined to flee these shores, which is always the fear with higher corporate taxes. In addition, the man in street will feel that this rise does not directly affect him, forgetting of course that higher taxes will mean less money for dividends (most people own shares in their pensions and ISAs), less money for wage rises and the possibility of passing on the tax increase in the form of higher prices. In the end, we do all pay!

Inflation is a concern but I don’t think an immediate one. The stimulus that has been provided by effectively printing money and the money that has been saved by many during the pandemic coupled with a contraction in manufacturing and therefore supply, could see inflation rise above the Bank of England’s target of 2.0% per annum. The blunt instrument that is usually employed to tackle inflation is interest rates but I can’t see that being on the cards in the short-term, mainly because increasing interest rates, rather like raising personal taxes, could risk snuffing out the recovery. As a result, I expect the Bank of England to allow a little bit of inflation in the short-term, a side benefit of which is that the money we owe as a country will reduce in real terms. In addition, any rise in inflation is likely to be temporary, so I don’t think it will be seen as particularly worrying, as long as it is indeed, short-term.         

In very brief summary, we might have dodged some painful tax rises this time around but that doesn’t mean they are not coming.

These are just my thoughts of course and I might be entirely wrong (it has been known); we’ll just have to wait and see.

As always, if you have any questions about this piece or any other finance related matter, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner