Premium Bonds – Are they worth holding?

Clients and friends often ask me about the wisdom, or otherwise, of holding Premium Bonds and I usually direct them to the excellent article by Martin Lewis on the subject on his website moneysavingsexpert.com. Last Sunday however, there was a really helpful article in the Money Section covering the odds of actually winning, which I thought you might find of interest (see below).   

“A saver with £1,000 stashed in Premium Bonds would have to wait more than 200 years before they had a 50/50 chance of winning £50.

You would have to hold the same stake for 1,155 years to have a 50/50 chance of a £500 prize, 3,466 years for a 50/50 shot at £1,000 and more than 60,000 years before an even chance of winning £5,000, according to Andrew Zelin, a data scientist.

Approximately £111 billion was saved in Premium Bonds in March — half of all the deposits in the Treasury-backed National Savings & Investments.

Premium Bonds, which have been around since 1956, give holders the chance to win money in monthly prize draws. The money the bank would have paid out in interest is pooled and paid out in prizes ranging from £25 to £1 million. Most customers do not win; there are 3.3 million prizes each month and more than 21.4 million Premium Bond holders. Fewer than 100 monthly prizes are worth more than £5,000.

The Premium Bonds are advertised as having an annual prize rate of 1 per cent, indicating that for every £100 paid into the bonds, an average of £1 is paid out.

You buy £1 bonds and each has an equal chance of winning — the more you buy, the more your odds improve.

NS&I says you have a 1 in 34,500 chance of winning £25 from a £1 bond. The same bond has a 1 in 56.2 billion chance of winning £1 million. The maximum you can hold is £50,000.

Ernie (the NS&I’s electronic random number indicator equipment) generates random numbers for the prizes.

According to Zelin you would wait eight and a half years before £25,000 of Premium Bonds had a 50/50 chance of winning £50. You would have to hold them for 46 years for a 50/50 chance of winning £500 and 139 years for £1,000. If you saved £25,000 in an easy access account over nine years, getting the average interest rate each year, you would have made more than £1,000.

Even those with the maximum £50,000 stake would need to keep them for 23 years to get a 50/50 shot at winning £500, 69.3 years before you had the same chance of winning £1,000 and 1,215 years to get a 50/50 chance of the £5,000 prize. If you held them for 64,398 years you would then have a 50 per cent chance of winning one of the two monthly £1 million jackpots.

Zelin, who analysed the figures on behalf of the Family Building Society, said: “There is nothing wrong with Premium Bonds, but savers need to know the true chance of winning and the fact that the 1 per cent return rate is not really an interest rate at all.”

The main benefits of Premium Bonds is that they are easy to understand and to access and also, because NS&I is a government-backed bank, your money is 100 per cent protected, however much you deposit across the bank. Other institutions have deposits up to £85,000 guaranteed by the Financial Services Compensation Scheme.

In a low-interest-rate environment the fun aspect of the prize draw is the reason that many parents and grandparents choose Premium Bonds for children. You can buy them in a child’s name.

Quilter, a wealth management company, said a child’s savings would have grown at more than double the rate if they had been invested in a stocks and shares Junior Isa (Jisa) over the past ten years, rather than Premium Bonds.

If £3,600 (the maximum allowed at the time) had been invested in a stocks and shares Jisa in 2011, it would be worth nearly £10,000 now. A Premium Bond stake of the same amount is likely to have won just £400. Even a cash Jisa, with an average rate of 4.3 per cent in 2011, would now be worth £5,258.

“It’s natural that parents and grandparents want to give their children the best start in life, and many are thinking about gifting their lockdown savings to brand-new members of the family,” said Rachael Griffin from Quilter.

“Some people remain worried about the volatility of investing, but with an 18-year horizon, putting money to work in the market can give significantly higher returns than more popular products such as Premium Bonds.”

NS&I said that the bank had paid out more than 3.2 million prizes worth more than £93 million in the September 2021 draw, from £25 to £1 million.

In August a winner from Devon bagged £1 million with a holding of £1,001, and a month later a winner from Hertfordshire won £25,000 with just £55 saved.

NS&I said: “The odds are currently fixed at 34,500 to one and the fund rate is at 1 per cent. The rate and odds are subject to change. The number of eligible bonds change each month, which makes comparisons to other financial products difficult.”

The smallest stake to win £1 million was held by a woman from Newham, east London, who had just £17 worth of Premium Bonds. She won in July 2004.

In the past ten years seven children under 16 have won the £1 million Premium Bonds jackpot.”

In summary, I believe Premium Bonds have a place for guaranteed, instant access savings but I don’t really regard them as investments ……… unless you do win big, in which case they could turn out to be the best investment you’ve ever made, unlikely though that is.

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

Inflation; some interesting numbers!

We all know that inflation erodes the purchasing of one’s money over time and that compounding of even seemingly small rates of inflation can have a big impact over many years.

Here are a few numbers…

• The UK inflation rate has just hit an annual rate of 3.2%. That’s up from 2% in July. It’s the biggest monthly increase since the ONS began measuring inflation in this way (i.e. using the Consumer Prices Index – CPI) in 1997.

• But that is only one aspect. The chart below tracks (broadly) the hike in prices across a range of goods and services since 1970 (Source: MoneyWeek).

Wages over the same period have broadly risen by 20x. House prices have gone up more than 65X over the same period. If wages had gone up by as much as house prices over the period, the average salary would be around £95,000.

• Cheap debt has (at least) in part fuelled this rise in prices…think house prices and “top-end” motors. House prices have also been pushed northwards by a limited supply.

• If you consider other items such as a washing machine, these are not financed (typically) by debt and hence we see a lower multiple. Globalisation and the deflationary pressure on labour costs may also have an impact.

Inflation is of course, the enemy of the saver, particularly one who is risk averse and who sees investing in the stockmarket as akin to gambling.

The following statistics are taken from a video from Dimensional Fund Advisors (DFA) entitled the Impact of Inflation; although the DFA stats refer to the US, the same principles apply here in the UK:

In order to have kept up with inflation, an investment of $1 in the S&P 500 Index in 1926 would have needed to have been worth $14 by the end of 2017. By 2017 that investment was actually worth an incredible $533!

The same investment in One Month US Treasury Bills (a proxy for cash) would have only been worth $1.51 by the end of 2017, representing a significant reduction in purchasing power over the period.

Investments in stocks and shares might suffer from volatility from time to time (perceived risk) but over the long haul, they have proven to a be more than effective hedge against inflation. Surely the real risk comes from being too cautious and watching inflation chip away at one’s wealth in real terms, as the years roll by.

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

Why is the tax system such a mess?

This is a question I have often asked myself, wouldn’t it be simpler just to tear up the current system and start again? I have been thinking about this over the past couple of weeks as we learned of the introduction of the new National Insurance levy or ‘Social Care Tax’. We will all have own views on whether a rise in NI contributions is the fairest way to tackle the Social Care problem and I don’t intend to get into that here but on the central point of how messy our tax system is, I read the following article in the Times on Monday with great interest.

The article was written by Paul Johnson, Director of the Institute for Fiscal Studies.

The mess of our present health and tax systems is a product of history  

“History casts a longer shadow than we might suppose. The modern A1 largely follows the route of the old Roman road, which itself followed ancient trackways, in use for perhaps thousands of years before. I’m sitting writing this in London because ancient peoples recognised the advantages of its defensible position on the Thames convenient for trading routes between England and the Continent. So ran my thoughts as the prime minister spoke on Tuesday last week, announcing a reform to the funding of social care.

It is not merely our roads and our cities that are where they are as a result of decisions made long ago. The same is true of the structure of our taxes and of the welfare state. Why are we in the mess that we are in on social care? Because of decisions made back in 1946, which themselves harked back to a previous era. As Nick Timmins, the country’s foremost authority on the history of the welfare state, has written: “Why is it all so hard? Partly thanks to history. The modern origins of what we now call social care lie in the National Assistance Act of 1946. Its opening sentence — passed in the same years as the legislation that established the NHS — boldly claimed to ‘abolish the poor law.’ But it didn’t quite.

The NHS remains largely free at the point of use and open to all, with entitlement to treatment still essentially dependent only on a clinician’s judgment that you need it. Social care, by contrast, remains first needs-tested and then means-tested — the shadow of the infamously stringent poor law relief lingers on.”

The NHS, meanwhile, exists in its present form because of how it was originally conceived and legislated back in the 1940s: paid for by general taxation not, as in much of continental Europe, through a system of social insurance; GPs never fully part of it, self-employed contractors to the NHS, the original privatisation, consultants, powerful and largely self-regulating. It is as it is because it is, and it seems impossible to challenge or unpick despite ample evidence that other systems work just as well, if not better.

Our university system is still in thrall to Oxbridge because the Stamford Oath of 1333 effectively made it impossible to establish other universities until its abolition in 1827. Other countries, including Scotland, have more ancient seats of learning and hence a less hierarchical higher education system, because they imposed no such duopoly. Our largely pointless and disruptive national exams at age 16 exist because that’s when most young people used to finish education. A-levels replaced the broader Higher School Certificate in 1951 and have remained much the same ever since.

The same principle applies on the other side of the ledger — how we raise taxes. National insurance contributions were first introduced in 1911 and were, in the 1940s, central to Beveridge’s idea of a contributory pension and benefit system. I still recall NICs being referred to as “the stamp” (perhaps they still are) after the stamp cards that recorded flat-rate contributions on the basis of which entitlement to flat-rate benefits were earned.

The remnants of that flat-rate system remain today in the form of the upper earnings limit. The historical relationship between contributions and entitlements is now just that: historical. No such relationship now exists, yet the folk memory lingers on, one of the reasons that national insurance is, supposedly at least, still a relatively popular tax. Which, in large part, is why it was effectively NICs that were raised to pay for last week’s announcements.

No doubt the newly minted “health and social care levy” will take on a life of its own over the next decades and perhaps centuries. Commentators will be stroking their chins in a hundred years wondering why the chancellor decided to raise this rather cumbersome and inequitable levy rather than raise the basic rate of income tax to 10p in the pound.

William Beveridge’s 1942 report served as the basis for the welfare state

Tax years run from the start of April because William Pitt followed the precedent set by the window tax when he introduced the first income tax in 1799. The date itself derives from the old quarter days. Many curiosities in the tax system date back to the 19th century. Other parts exist for quite different reasons than you’d think from economics textbooks. We economists are taught that there is a high tax on petrol because of the environmental costs that driving creates. That was not in the mind of David Lloyd George when he introduced petrol duty in 1909 — it was there to pay for the road network. Many of the bizarre rules about exactly what is and is not subject to VAT date from well before VAT was introduced in 1973 to replace the old purchase tax, itself introduced in wartime with the aim of reducing wastage of raw materials.

Things change, of course. William Beveridge must have spent decades turning in his grave as his vision of a welfare system based on contributions has been completely unpicked. Who, 50 years ago, would have predicted the virtual end of public sector housebuilding or the creation of a whole new leg of the welfare state through rights to free childcare? All services and taxes adapt as the country grows richer and as priorities change.

Yet, as the past week has demonstrated, you can’t understand present policy unless you understand history. Our social care system is the unfinished business of 1946 and the direct descendant of the poor law of 1834; the decision to fund it through a levy is a throwback to a time when we had a social insurance system. And that’s the trouble. If you want a rational system for tax, welfare and public spending, best not to start from here.”

I completely agree with Paul’s final point, we need a radical overhaul of the entire tax system to ensure fairness to all and to reduce complexity, the endless tinkering with a system that was designed for another time, helps no one. I think most people, including politicians from all parties would agree BUT, who is going to have the courage to take up this challenge?

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

ESG; Client Perceptions

As you know, we have recently been transitioning our clients into the new ESG range of portfolios offered by our preferred investment advisers, EBI. Speaking to many clients it has become clear that most had not heard anything about ESG prior to us bringing it to their attention. This did come as a surprise to me because it has been a very hot topic for Financial Advisers and our regulator, the Financial Conduct Authority (FCA), over the past 2 years or so.

Accordingly, I thought you might find the findings of a study by Invesco into the attitudes and perceptions of customers when it comes to the subject of ESG, of interest.

The following is by Invesco fund manager Clive Emery, it was published on 30th June 2021.

“2020 was the year environmental, social and governance (ESG) investment demonstrated it was as much about delivering outperformance as meeting personal values. Returns from some ESG funds exceeded those of their traditional counterparts by as much as 20 percentage points during the first nine months of that year1.

It is no wonder then that $45.6bn of new money poured into ESG funds during the first quarter of 2020 at a time when $384.7bn of investment was pulled out from the overall fund universe2. This trend looks set to continue.

Invesco recently surveyed 161 financial advisers and 201 advised investors3 to get their views on ESG and found a considerable and widespread appetite for these strategies.

The new reality is that every client is an ESG client, with nearly four out of five (79%) investors declaring that sustainability is important to how they invest. More than half (52%) of those not already investing sustainably plan to start doing so over the next 12 months.

It is clear that interest in sustainable investing is strong among all generations of investors, but it is also clear that the next generation exhibits the highest levels of interest; 90% of respondents aged under 45 say it matters that their money is invested responsibly, versus three-quarters of the over 60s. Undoubtedly then, the role of the financial services industry must be to support investors in meeting their responsible investment goals today, and also in the future.

The survey confirmed that knowledge levels are nascent, with inconsistent terminology making it harder for investors to get on board. More than two-fifths of investors say a lack of knowledge is the biggest barrier to sustainable investing and that there is too much jargon or confusing language.

Both advisers and their clients admit to struggling with the multitude of terms employed to classify the general landscape of ESG. Those surveyed were comfortable using adjectives, not acronyms. Responsible, sustainable, ethical and green were well used but perhaps less understood. While these terms are distinct, they are often used interchangeably. Interestingly, only 14% understood the term ESG.

In addition, terms used to describe the investment approach of sustainable funds were not well understood. Negative screening was the only ESG approach well understood by advisers and surprisingly this was the least understood phrase by investors. Conversely, sustainability focus was the only investment approach that the majority of investors understood.

It is apparent that investors could benefit from more guidance on sustainable investing, but the survey reveals that while advisers are enthusiastic about advising on ESG, that message may not be getting through, given that nearly 60% of investors say their adviser has not mentioned sustainable investing despite two-thirds (62%) of advisers having a framework in place for discussing the topic.”

In light of the very clear interest in sustainable investing, it was surprising to see in the last paragraph, that 60% of investors say their adviser has not mentioned it; clients of Clearwater do not now fall into that cohort.

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

1. Source: www.trustnet.com/news/7466122/esg-funds-beating-their-conventional-rivalsin-most-sectors-this-year

2. Source: www.morningstar.co.uk/uk/news/202274/investors-back-esg-in-thecrisis.aspx

3. Survey conducted January 2021. The quoted number of participants all responded/ participated in the research

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