by Mark Bugden | Aug 8, 2013 | Financial Planning, General News, Retirement Planning
Saw this and it does help to explain how it may effect different people, saver, pensions and mortgages.
Hope it helps!
Mark
Author: Tahmina Mannan, Joanna Faith – IFAonline | 07 Aug 2013
The Bank of England (BoE) has announced it will not raise the base rate of interest from 0.5% until unemployment falls to 7% or below.
Governor Mark Carney, just over a month into the role, has said the 7% mark represents the point at which the BoE will “reassess” its interest rate policy. The unemployment rate currently stands at 7.8%.
The BoE’s median forecast for unemployment in two years is 7.3%, according to today’s inflation report, but Carney said longer-term forecasts are uncertain.
The Office for Budget Responsibility (OBR) said in its March Economic and Fiscal Outlook that it expects unemployment to peak at 8.0% in 2014 before falling back to 6.9% in 2017.
This means there is a very real possibility that interest rates will remain at 0.5% for at least four years.
We look at who is set to win and lose from Carney’s interest rate announcement…
SAVINGS
Those most negatively affected by Mark Carney’s proactive stance will be savers. The bank will likely tolerate above-target inflation over the next few years, meaning real interest rates will remain negative.
After 53 months of savings hell, it is little wonder savers are dropping like flies.
According to the Trade Union Congress (TUC), the rate of household savings has dropped by 43% in the past year, partly due to families struggling with rising prices and partly due to the lack of incentive to squirrel away money for a rainy day.
Campaign group Save Our Savers said that although the financial crisis was caused by debt in the first place, this policy continues to favour borrowing at the expense of savings.
The campaign group said that four and a half years of 0.5% base rate have failed to invigorate the economy yet have stolen over £220bn from the nation’s savers’ and removes consumer’s spending power.
Simon Rose of Save Our Savers said: “The Bank of England has failed to meet its inflation target for most of the past seven years. Now it clearly has decided to ignore even higher price rises, inflicting continuing misery on the majority of Britons, in the hope that the same policies that have failed the country since the crisis will somehow magically work in in the future.”
Danny Cox, head of financial planning at Hargreaves Lansdown, said: “Interest rates on cash deposits aren’t going to rise anytime soon and certainly not significantly for three years it seems. That said, the Funding for Lending Scheme, which has depressed interest rates further, is due to end next year so there may be a little improvement then, unless it’s extended.”
PENSIONS
Those investing into pensions should benefit from more stable and, hopefully, rising stock markets. Pensions are a long term investment and in most cases investors should keep saving regardless of short term news.
Forward guidance will bring clarity to annuity rates which have been subject to questions over rises for some months. We now know annuity rate rises are unlikely for 3 years.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “For those with a small pension pot or who need certainty, it now makes sense to get on with buying an annuity; for those with larger pension pots or who can tolerate some investment risk, it makes sense to park the idea of buying an annuity for a few years and look to income drawdown instead.”
Meanwhile, John Fox, managing director of pension provider Liberty SIPP, said today’s news is “disastrous” for pensioners who already rely on savings for their retirement income.
He said: “As Mark Carney basks in the plaudits, many pensioners will be wringing rather than clapping their hands.
“The Governor’s commitment to what’s likely to be an extended period of low interest rates is disastrous news for pensioners who rely on savings for their retirement income.
“Such loose monetary policy may stimulate the wider economy, but the inflation side-effect it is likely to trigger will erode the spending power of anyone struggling to live on an annuity.”
MORTGAGES
The Bank of England itself has said in the past month that mortgage borrowers would struggle with monthly repayments if interest rates rose by as little as 2%, unless the rise was matched with a similar rise in UK incomes.
Therefore it goes without saying that those looking for a new mortgage, or already with one, will be relieved not to see their monthly repayments shoot up.
Danny Cox of Hargreaves Lansdown said: “Lower for longer interest rates and an easing of bank’s currently strict lending criteria will improve the mortgage market and we could see already ultra-low mortgage deals improve further.”
It is also worth noting that the UK’s recovery is largely underpinned by the housing market continuing to strengthen – which will require more people to want to get on the property ladder, more housing transactions and housing development.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The outlook for the housing market continues to improve as increased mortgage availability, better rates and more choice at higher loan-to-values combine to make buyers more confident about their ability to get funding.
“It is still too early to describe the housing market as being in rude health, however, as there is a worrying lack of stock, which is the main driver behind the latest rise in house prices. However, the number of transactions is also on the rise.”
by Mark Bugden | Aug 2, 2013 | Financial Planning, General News, Pensions, Retirement Planning
Changes to the State Retirement Age
With the Government’s seemingly endless tinkering with the State Retirement Age it is easy to lose track of when you can expect to receive your State Pension. We have moved a long way from the days when men retired at 65 and women at 60.
The following is a summary of where we are at and what further changes the Government is proposing to make to the State Pension Age (SPA).
Current Rules
These were introduced in the Pensions Acts of 2007 and 2011 and were designed to increase the SRA for women to 65 and then to 66 and 68 for both men and women.
| WHEN |
WHO |
BORN BETWEEN |
NEW SPA |
| 2010 to 2018 |
Women |
April 1950 to December 1953 |
SPA increases gradually to 65 |
| 2018 to 2020 |
Men & Women |
December 1953 to April 1968 |
SPA increases to age 66 |
| 2044 to 2046 |
Men & Women |
|
SPA increases to age 68 |
Proposed Changes
The Pensions Bill 2013 proposes to make further changes which are likely to be made law by the end of the year. This introduces a SRA of 67.
| WHEN |
WHO |
BORN FROM |
NEW SPA |
| 2026 to 2028 |
Men & Women |
April 1960 |
SPA increases to age 67 |
Confused – well you’re probably not alone. Enter your details in the following website www.gov.uk/calculate-state-pension to get your expected SRA under the current rules but remember that it could well change again if the last few years are anything to go by. In fact, the Government has stated that the SRA will be reviewed every five years with the next review taking place in 2017.
Don’t forget that in addition to the above, the Government will be replacing the current two tier State pension that is comprised of the basic state pension and second state pension (S2P – previously SERPS) with a flat rate pension from April 2016 paying a maximum of around £144 a week in today’s money if you have made National Insurance Contributions for a minimum of 35 years.
by Mark Bugden | Jul 11, 2013 | Financial Planning, General News, Lifestyle Financial Planning
For all of you that have children! – Mark Bugden
As reported in IFAonline.co.uk
Author: Joanna Faith
IFAonline | 10 Jul 2013
The average cost of putting a child through school in the UK is now £22,596, which works out at £1,614 per child, per school year.
According to research by Aviva, the annual bill for sending a child to state school has grown by 11% in the last five years.
Coupled with government efforts to raise the school leaving age to 18 by 2016, this means the total bill for sending a child to state school has increased by more than £6,000 since 2008.
In total, UK parents can now expect to fork out a staggering £12.9bn just in the 2013/2014 school year on the everyday costs associated with their children’s education. This includes:
• £3bn on school meals and packed lunches (£379 per child)
• £3bn on transport to and from school (£369 per child)
• £1.5bn on uniform and shoes (£186 per child)
• £473m on sports kit (£59 per child)
In addition, UK families spend an average of £558 per child, per year on out of school care.
The cost per family ranges from those who spend nothing each month to those who have a much greater need for support and spend upwards of £160 each month.
And for those parents able to find the additional budget, extra curricular activities could add a further £1,268 per year including up to £480 on music lessons and £120 on school trips.
However, there is also evidence of families cutting back where they can. Parents are using their cars less on the school run in 2013 compared with 2008, suggesting increasing fuel costs are having an impact.
Just over a quarter of all parents currently drive their children to school (27%) compared with a third back in 2008 (33%). Instead, more than half of all parents say their children typically travel either on foot (47%) or by bicycle (3%).
And despite the 11% rise in the annual cost of schooling since 2008, exactly half of parents feel comfortable that they can afford all the expenses of sending their children to school (50%) – with nearly one in five saying they feel very comfortable (19%).
The Aviva ‘school sums’ index also shows:
• More than one in ten parents (11%) have moved house to live in a ‘better’ catchment area, with the quality of local schools ranked as more important than transport links and proximity to family and friends when moving home.
• More than one in four parents (28%) has bought a tablet for their children for educational purposes.
• One in four parents (26%) say they aren’t saving to support their children’s university education because they cannot afford to.
The average cost of putting a child through school in the UK is now £22,596, which works out at £1,614 per child, per school year.
Louise Colley, protection distribution director for Aviva says: “The majority of children in the UK are taught through the state system, but it’s clear from our research that this is far from ‘free’ for parents! With even the basics adding up to more than £1,600 per child, per year, this is a significant challenge, particularly for parents on lower incomes.
“Every parent wants to do the best for their children, especially when it comes to schooling, so it’s no surprise to see that many parents are funding educational extras such as overseas trips and additional tuition. All the same, it’s shocking to see how quickly the cost of these adds up.”
by Mark Bugden | Feb 24, 2013 | Financial Planning, General News
Saw this and hoped you would find it interesting, Bank of England also held the base rate again today. Mark
Mortgage Solutions | 07 Jan 2013 | 10:08 Hannah Smith
UK interest rates will stay at historic lows for four more years as the economy struggles to return to normal growth levels, Citi has predicted.
The investment bank said it expects the Bank of England to maintain rates at 0.5% until mid-2017, the Mail reports.
The central bank cut rates to this level in March 2009 at the height of the financial crisis.
Citi cut its 2013 growth forecast from 0.8% to 0.4% and said output will rise by only between 0.5% and 1% in 2014 – far below the Treasury’s estimates.
It said the Bank of England will leave interest rates at 0.5% until mid-2017 – a year longer than expected – as it battles to restore the economy to health.
Citi also said it expects ratings agencies could strip the UK of its AAA rating next year as the government and Chancellor George Osborne(pictured) grapple with its mounting debt.
Michael Saunders, chief UK economist at Citi, said: “We think the UK will lose its AAA rating in 2013. The economy is likely to disappoint again in 2013. We expect that growth will stay weak in 2014,” according to the paper.
Standard & Poor’s, Moody’s and Fitch – the world’s three biggest agencies – have all put the AAA rating on ‘negative outlook’, and several economists expect to see a downgrade in 2013.
Last week leading thinktanks warned the UK could be teetering on the brink of a triple-dip recession.
The Centre for Economics and Business Research (CEBR) said the UK will probably have negative growth in Q4 2012 and could see a weak Q1 2013 as well. It put the UK’s chance of slipping back into recession at 50/50 unless the government manages to stimulate growth.
Meanwhile, the British Chamber of Commerce (BCC) urged the government to make bold moves to steer Britain away from the “point of no return”.
Could be good news if you have a mortgage but I hope we do not have a triple-dip recession! Mark
by Mark Bugden | Dec 21, 2012 | Financial Planning, General News
I hope you find this useful, just keeping you updated! – Mark
Mortgage Solutions | 18 Dec 2012 – Vicky Hartley
UK CPI inflation remained at 2.7% in October, broadly in line with economists’ expectations, as RPI inflation fell from 3.2% to 3%.
The Office for National Statistics said CPI was subject to both “significant upward and downward pressures” between October and November.
Food, non-alcoholic beverages, gas and electricity prices exhibited the most upwards pressure on the headline rate, with falling fuel prices among the largest downwards pressures.
The data means CPI inflation remains in excess of its 2% target, and policymakers are beginning to broach the possibility of the threshold being scrapped or modified in future.
Incoming Bank of England governor Mark Carney suggested earlier this month that it could be beneficial for central banks to target nominal GDP (a mixture of GDP and inflation rates) rather than simply focusing on price stability.
M&G head of retail fixed income Jim Leaviss has said the changing debate is evidence of a concerted “central bank regime change”.
Sterling strengthened slightly to $1.6216 against the dollar on the latest inflation figures, towards the top end of its 2012 range.
The currency has strengthened against the dollar in recent days as the Federal Reserve unveils more easing measures and the Bank of England is seen as being more reticent to ease.
RBS analysts have said this month that betting on a fall in the GBP/USD exchange rate is one of their top trades of 2013, anticipating that the UK’s deteriorating fiscal position will put pressure on the pound.
by Mark Bugden | Jul 20, 2012 | Financial Planning, Pensions
Worth reading if you are a higher rate tax payer but it could mean you need to do a tax return! – Mark
Author: Jenna Towler
IFAonline | 20 Jul 2012 | 07:00
Categories: Pensions – Retail| Tax Planning
Topics: Prudential| Higher rate taxpayers
More than half higher rate taxpayers are failing to claim full 40% tax relief on their pension contributions, research commissioned by Prudential has found.
The provider said this works out to more than 290,000 employees, missing out on almost £300m every year.
The research also found fewer than one in five (19%) higher rate taxpayers knew whether they had claimed tax relief or not, while only 22% said they did claim all the pension tax relief they were entitled to.
It added, this relief could be worth an additional £1,020 every year to a higher rate taxpayer.
According to HM Revenue & Customs, 55% of the estimated 900,000 higher rate taxpayers in the UK contribute to defined contribute (DC) schemes.
Prudential said these workers bring home an average salary of £51,580 and make contributions of £425 each month.
Basic rate 20% tax relief is received automatically at source and is worth £85 on a monthly contribution of £425. But the additional 20% relief available for higher rate taxpayers – which is unclaimed by most – is worth another £85 a month or £1,020 every year.
Prudential is urging higher rate taxpayers to act now to claim tax relief that they may have missed out on in previous years. People who are required to complete an annual tax return can claim for their pension contributions from the 2010/11 tax year if they act before the end of January 2013.
Those who don’t need to do a tax return can claim for relief for as far back as the 2008/09 if they act before the end of October 2012.
Members of occupational pension schemes receive basic and higher rate tax relief automatically through their payroll.
But members of personal pension schemes, including group personal pension schemes (GPPs), self-invested personal pensions (SIPPs) and stakeholder pensions, only receive basic rate 20% tax relief automatically.
They need to claim the additional relief through their annual tax return or by informing HMRC.
Matthew Stephens, Prudential’s tax expert, said: “It’s astonishing that so many people fail to claim this valuable tax relief, which could help enormously in meeting the cost of retirement. Surely no one would knowingly turn their nose up at a potential £1,020 extra tax saving?
“The good news is that it’s possible to claim backdated tax relief, for up to three years for those who don’t need to complete a tax return, and this money could make a large extra contribution towards their pension fund. Our research figures demonstrate clearly that a majority of higher rate taxpayers could take immediate steps towards boosting their retirement pot.”
About a third of higher rate taxpayers who contribute to a personal pension have to fill in an annual tax return.
