Efficient Wealth Update – October 2021
Shocking State Pension Underpayments
If you are a regular reader of our Efficient Wealth Update, you will know that saving for your future, in particular via pensions, is always a hot topic. We often warn people against solely relying on the State for their future income, and shocking news from last month (September 2021) has only added further fuel to this fire.
Headlines last month told that 134,000 pensioners are owed c.£9,000 each because of a huge error on the part of the Department of Work and Pensions. This is appalling news, but it is made even more heart-breaking when you learn that those most heavily affected are women, widows and those over the age of 80, who are all statistically more likely to rely in the State Pension in retirement. To add further insult to injury, the number of people owed money could be even higher, and some experts predict that some individuals could be owed in the region of £100,000!
So, who has been affected and how has this happened? And, even more importantly, what should you do if you think you’ve been neglected by the State?
The DWP has indicated that the errors are most likely to impact pensioners who first claimed prior to April 2016, when the new State Pension was introduced. Many of these individuals did not have a complete National Insurance record, so may not have received the increases they were entitled to.
State Pension rules are notoriously complex, and sadly, the DWP use outdated IT systems and still place a heavy reliance on manual input from case workers. This coupled with staff shortages due to Covid-19, confusing instructions and poor training, have all led to this terrible mistake.
The DWP have now started an onerous and costly process of reviewing all cases and contacting all pensioners who have been affected. The Department reviewed 72,780 at-risk cases between January and September of this year and has now paid £60.6 million to 11% of them. It is prioritising those who are widowed or over age 80.
A spokesperson from the DWP has emphasised that correcting these underpayments is a top priority, and that anyone impacted will be contacted and paid what they are owed. They also stated that they have now introduced better systems and controls to significantly reduce errors of this nature moving forward. It is hoped that normal service will be resumed by the end of this month.
If you are concerned that you may have been affected, we encourage you to get in touch so that we can assess your situation. If you are owed any payments, you should be contacted shortly, but doing your own research is always valuable.
The Intergenerational Planning Boom
In a recent survey conducted by analyst firm AKG (October 2021), 54% of Financial Planners said that the demand for intergenerational financial planning has significantly grown in the past year. To compound this further, nearly 9 in 10 Financial Planners expect demand for inter-generational advice to continue to boom over the next 5 years.
But why is involving your children in your financial planning so important? And why do so many of us now want to make our children understand the impact of our own financial strategies?
When it comes to our hard-earned money, you would have thought that many of us would prefer that our children had little to no input in our financial planning decisions! We are living in the age of ‘The Bank of Mum and Dad’, so shielding the details of your wealth from the ever-demanding, cash-ravenous eyes of you ‘adult-children’ seems like the smartest move. However, the inclusion of your dependents in your planning could not only benefit them but could also be pivotal to your financial success.
It possibly won’t shock you to know that the ‘Baby Boomers’ (the generation who were born between 1946 and 1964) are paying out £44 billion each year to their adult children. Young adults are becoming increasingly financially dependent upon their dear, old parents; with 25- 29 years olds being the biggest culprits, demanding up to £2,599 each year to spend on bills, cars and weddings. The ‘boom’ has fizzled out to be replaced with ‘gloom’ in this generation, so it’s time to rekindle the spark and excitement surrounding your wealth.
Education is the best way to help your children. If they are ever to escape the vicious cycle of debt, poor financial choices and impetuous spending, they need to fully understand the impact this will have on their future. Including your children in your financial planning, both at home and at reviews with your adviser, will put them in a strong position in terms of their knowledge and enable them to see the clear benefits of strategic financial planning. It will also enable them to take ownership of the financial responsibilities they have; for both of your futures.
Involvement in planning and financial awareness are the key components in evolving ‘the Bank of Mum and Dad’ into your child’s own successful, financial strategy. In an ideal world, your children will inherit your wealth, so it is crucial that they know how to maximise this gift and reduce the amount of risk they take. It’s also important for your future; plotting out your retirement strategy will give you a much clearer perspective. You will be able to enjoy your hard-earned money much more and realise your retirement goals. Start encouraging your children to take an interest in financial planning; both of you will benefit.
Leaving a Legacy through Asset Protection
Why do we want to build wealth? Is it so we can buy plush homes, drive fast, sleek cars or sun ourselves in exotic climes? Or is actually for a far more personal reason: So that we can give our loved ones a comfortable, secure and enriched life?
For some people, filling our lives with exotic holidays, plush homes and sleek cars is a key motivation to make money; however, most of us also want to help those who we love by leaving behind a legacy that will give them the best start in lives, or enable them to continue to live out their lives with confidence and certainty.
But is just making money enough to guarantee this?
To help bring some clarity, clear-cut answers and confidence to this topic, we have teamed up with leading lawyer Jane Cowley who is a partner and family law specialist at Geldards LLP- a national legal practice with offices in Derby, Nottingham , Cardiff and London.
Taking place on Wednesday 24th November at 1000, our free webinar will show you how to:
- Avoid hefty Inheritance Tax Charges.
- Ensure that your house and capital are protected against third-party risks
- How to protect your legacy in the event of relationship breakdown or relationship changes within your family.
If you would like to learn more, or book your place, please click here
2022 Interest Rate Rise Predictions
Economically speaking, the onset of Autumn has cast a rather bleak shadow over the UK. With fuel shortages, empty supermarket shelves, the end of the Furlough Scheme and the folding of some energy providers, the last few weeks have undoubtedly been a testing time for us all.
Against this backdrop, Andrew Bailey, the Governor of the Bank of England, has done little to assuage our fears. In a recent statement, Bailey warned that inflationary pressures ‘appeared to be worsening rather than improving’ and that ‘a rise in interest rates next year are more likely’. With inflation rates at 3.2% and rapidly creeping towards the 4% mark, and a record-low base rate of just 0.1%, it would certainly appear that a correction will soon be on its way.
Increasing interest rates will release some of the pressure of inflation, but it will also slow the pace of economic growth. Whilst a boost in interest rates may be the news that savers have been praying for over the last few years, for anyone concerned with mortgages, or indeed the country’s post-Covid recovery, this may feel like a coup de gras. But what does it mean for buyers and borrowers?
During periods of inflation, land and property prices tend to rise. And, whilst interest rates are low, lenders are able to offer more competitive mortgage deals. This would indicate that now really is the time to sell or indeed secure a better rate on your mortgage.
But we can almost hear the clock ticking on this period. Now that the Furlough Scheme has ended, there are growing fears that unemployment will rise once again, putting further strain on the economy, and almost force the Bank of England’s hand to increase interest rates and burst the inflationary bubble.
Many experts believe that the landscape for 2022 will become significantly clearer in December of this year (2021), but until then, if you are thinking of selling your property or re-mortgaging, we encourage you to act quickly to try and secure the best prices.
If you would like to speak to our expert Mortgage Adviser, please get in touch by emailing [email protected] or calling 01572 898060.
Charlie’s Mini Blog
On Sunday 3rd of October, I finally got the opportunity to run The London Marathon. At the start of the year, I set myself a clear goal to run a marathon in under 3 ½ hours and as the year went on, I ran 26.2 miles on a number of occasions, but never got below 3.48, so I knew London was my last chance to hit the goal. I set off at an 8-minute mile pace, which would deliver me in on my targeted time, but with no real idea as to whether I’d be able to maintain it for the duration of the race. Previously, the longest I’d held that was for 13 miles, so to hit my time was going to be a struggle.
Through the excitement of being allowed out and about in London, the euphoria and enthusiasm of the crowd and the inspiration of some incredible runners, after 13 miles I was feeling good. So good I’d got my pace down to 7.40-minute miles. Was I going too fast?
As the race continued, to my astonishment, I was confident I could maintain that pace, and I might blitz the 3.30 target, and I was feeling good. That is until I started to do the comparison of the distance I had run on my watch compared to the distance I still had left in real life. I was having to weave through the crowds, and it seems that has quite an impact on your distance over a marathon. I was knocking out 7.40-minute miles but was potentially going to miss my 3.30 time.
At 23 miles, the point where the marathon fatigue really starts to bite, I realised I actually needed to up my pace to ensure getting to the line on time. Mentally I was too tired to do accurate maths, so I decided it was better just to run as fast as I could, give it everything I had and let nature take its course; and it worked, just. By the finish line I had run 27.12 miles, nearly a whole mile further than the required, and as I fell across exhausted, I could see a time of 3.28.
Elated and exhausted, I considered the result. Had I not set that goal, would I have hit a sub 3.30? My initial theory and calculations had failed me as due to the extra distance, 8-minute miles were not going to be enough, however despite that, the power of setting a clear goal and having complete focus on it, brought it home. My 26.2-mile time of 3.21 was far faster than I thought possible, and I have no doubt hitting the big goal was what dragged me over the line.
So, as we head towards the end of the year, what goals do you need to hit to consider 2021 a success? And what goals can you start to construct for 2022. The more specific and simple they are, the more chance you have of hitting them.
Whilst I originally ran the marathon for SPARKS (now part of Great Ormond Street Hospital), our charity for this year is CALM to help support people affected by and bring awareness to suicide. If you would like to help us support either charity, just check out our JustGiving pages here.
Sparks: https://www.justgiving.com/fundraising/efficient-ltd
CALM: https://www.justgiving.com/campaign/efficientportfolioxcalm
Book Recommendation
I resisted reading The Subtle Art of Not Giving a F*ck: A Counterintuitive Approach to Living a Good Life by Mark Manson for a long time, as the title felt like a marketing gimmick. Then a friend whose opinion I rate highly recommended it, and I decided to reconsider. One thing is for sure, if you don’t like swearing, this is not the book for you. If you don’t mind reading a torrent of colourful words with some wisdom thrown in, I can honestly say I’ve not laughed as much through a personal development book almost ever.
According to Manson, there are only so many things we can give a f*ck about, so we need to figure out which ones really matter. While money is nice, caring about what you do with your life is better, because true wealth is about experience. The book is a grab-you-by-the-shoulders-and-look-you-in-the-eye moment of real talk, filled with entertaining stories and profane, ruthless humour, and is a refreshing slap for a generation to help them lead contented, grounded lives. Proceed with caution!
