Efficient Wealth Update September 2018
Pension Transfer Times Debacle
As many of you may have experienced if we have helped you transfer your pensions, the waiting time for providers to release funds is bordering on the realms of ridiculous.
Recently, providers have been named and shamed in the media for the length of time it takes from a client requesting a pension transfer to their funds actually being received. It is far too long, and in some cases the arduous process even puts clients off wanting to transfer!
There are many reasons why pension transfers may be delayed, some of which are perfectly reasonable, but there are others which are just plain absurd. And it isn’t only pensions – switching any account has its difficulties. The problem is that each provider, and each department within the provider, requires different paperwork and has different requirements in order to action a transfer. With no standardised approach it is more difficult for businesses such as us, and individuals such as you, to make sure that everything the provider needs is gathered, especially when providers are not forthcoming about their requirements.
If you are going through, or have been through, a similar transfer process then you can relate to the predicament. Hopefully providers will start to realise the effect this can have on their customers and do something to make this process simpler and more efficient. In the meantime, we will always do everything we can to make sure transfers go through as quickly as possible for you.
Brace for Price Rises
Prices in the shops rose for the first time in 5 years, breaking a 63-month run of decreasing prices. And what was to blame? For once it really was the weather! This summer’s heatwave has a lot to answer for, and in this case, it pushed up the cost of fruit and vegetables.
Overall, shop prices increased by only 0.1% in August, but this meant they entered inflationary territory for the first time since April 2013 and saw food inflation at a seven-month high of 1.9%.
What does this mean? Basically, things are starting to get more expensive. Of course, we expected this for a whole host of reasons, including Brexit, but it has yet to come to fruition and so we may face a bit of a shock if these rises continue over the coming months and years.
The inflationary pressures faced by shops have so far been kept to a minimum for consumers, with stores absorbing a lot of the increases. However, pressure will continue to mount and substantial increases in costs are likely if the Brexit negotiations do not go to plan.
Cash LISA Market
As of 28 August, Nottingham Building Society have a Cash Lifetime ISA (LISA) available. They are one of only two providers offering a cash version.
This account can be opened with just £10 but you must go into branch to actually open it; however, an online version should be available by the end of this year.
To recap, a LISA allows those aged between 18 and 50 to save up to £4,000 a year towards a pension or a first home, tax free, with the promise of a 25% government bonus capped at £1,000 a year. However, withdrawal for any other purpose will trigger a 25% exit penalty levied by the government.
Whilst LISAs have received some negative press, they do have their benefits and a cash version could be suitable for someone with a very cautious attitude to risk or someone who needed to utilise the funds in a short period.
Whilst we would suggest that you speak to us before you decide what type of investment to put in place, it is good to know that more LISA options are coming to the marketplace for those where Stocks and Shares LISAs may not be appropriate.
Will You Get the Interest Rate Rise?
As I am sure you are all aware, there was an interest rate rise last month. For borrowers that is not good news, but for savers it is … or is it?
Nationwide were one of the first building societies to declare that their savers will not receive the full interest rate rise. Whilst tracker mortgages and loans on variable rates will see an increase in interest payments of 0.25%, interest on cash savings in the bank will only increase by 0.10%! So where is the other 0.15% going?
This move is likely to be replicated by many other high street banks in an attempt to increase their profit margins and seemingly disadvantage their customers. We should not really be surprised, as the same situation occurred when the rates last increased. Many of the larger providers applied a nil increase, with only the smaller providers looking after their clients and applying the highest increase for their customers. Maybe smaller companies are the way to go in the future.
We are forever hopeful that the banks and building societies will put their customers first, but I am sure we will see a repeat of our outrage at the next rate rise.
One-year Countdown for PPI
It was one of the biggest financial scandals that has resulted in £31.9 billion worth of compensation being paid out, with an estimated £10 billion yet to be paid.
Whilst not all policies were mis-sold, they were pushed on consumers who may not have wanted or actually even needed them.
Not all of the PPI will have been visible either, but will have been hidden within repayments, so it is worth looking into. Some people have agreed to have it investigated just to stop the incessant calls (!), only to find that they are actually due thousands of pounds in repayments without ever having known that they had been charged in the first place.
Obviously, you should remain vigilant for those companies that may be out to take advantage of you, but maybe don’t write off those PPI callers that do get in touch, especially if they are willing to look into it for you free of charge.
The deadline for a claim is 29 August 2019, so if you think you may be owed, don’t leave it to the last minute to find out. Nothing ventured, nothing gained.
Wonga Needs a Loan …
It has been increasingly reported that, as a nation, we are becoming more and more reliant on credit rather than the money we have in the bank. Now, some debt can be considered ‘good debt’ when interest rates are super low, and you have money in the bank ready to repay the debt if you need to.
Wonga is not good debt! Whether or not you have ever had to borrow from Wonga (hopefully not), you will no doubt be aware of them and their reputation for irresponsible lending. They regularly lend to those who they know cannot afford to repay the debt, and so the debt grows larger and larger. They were even found guilty of sending letters to customers who hadn’t repaid, posing as a solicitor and threatening legal action, and charging the client £9 per letter they sent. It is safe to say they have never been considered the most moral of companies!
In 2014 they did try to change things around: they wrote off £220 million worth of debt from 330,000 customers and brought in a new management team. It would seem that this, along with a £10 million cash injection a few weeks ago, was not enough to save them and they have gone into administration. Hopefully this is the beginning of the end for payday loans and the like, with consumers and regulators waking up to how much this ‘bad debt’ can affect the economy.
I’m not sure many will be queuing up to give Wonga a loan, at least not one with anything less than 3,000% interest!
Notes on Brexit
The milestone of the European Union (Withdrawal) Act 2018 passing into Law, which we reached in June, is the last official progress point on the issue of Brexit. The plethora of commentary broadcast in the media is another round of speculation, this time with the aim of apparently either ousting the Prime Minister from her seat as Conservative party leader or to construe the ‘No-Deal’ assessments as such dire outcomes that a further referendum is necessitated.
I am not convinced by these positions, so have not started stockpiling canned goods and medications just yet. However, we are seeing the big firms that we use in our industry, as well as most of the domestic firms in which we invest, making more solid ‘worse-case scenario’ plans. To be fair, if any firm associated with the EU has not at this point considered the impact on their business then they really are not the type of firm I want to be investing in; after all, diligence is the mother of good fortune!
The next big date for the Brexit diary is October when we expect to hear what the final deal consists of before it heads to Parliament and the European Commission to be voted on. We will keep you posted if anything is likely to impact you in the meantime.
New Research Shows Nearly Half of BTL Landlords Looking to Sell
Octopus Choice has issued research that shows that taken as a whole, Britain’s landlords are largely in two minds about whether to continue investing property or not.
The data reveals that 56% of buy-to-let investors want to keep or buy more properties, while 44% intend to exit the market.
Interestingly, of all who intended to exit the market only 23% stated the reason being due to tax changes. With 61% admitting they underestimated the costs of investing in this asset class.
Landlords are currently in a transitional period, with the tax potentially payable on their rental income changing for those who are utilising leverage across their portfolio. Until recently, landlords were able to offset mortgage interest payments against rental income. The tax relief is being phased out and was reduced in 2017 to 75%, and for the 2018-19 tax year the restriction is now at 50%. If you’re on an interest-only mortgage, you should be braced for an impact on your income.
If you wish to review your current portfolio position and see how upcoming changes will affect you then please get in contact with our mortgage team today at firstname.lastname@example.org or 01572 898 060. Daniel and Eric will be able to assist you in ensuring your portfolio is in the best position to ensure long term success within the buy-to-let space.
Book of the Month
This month’s book recommendation is ‘A Life Without Limits’, the amazing life story of Britain’s world conquering triathlete, Chrissie Wellington. Chrissie Wellington is the world’s No 1 female Ironman triathlete, the current quadruple World Champion and World Record holder. In 2009 she was voted ‘Sunday Times Sportswoman of the Year’ and in 2010 was awarded the MBE. She is the undefeated champion of Triathlon, having won nine Ironman titles from nine races. Her World Record setting race time of 8:19:13 at Quelle Roth Germany in 2010 slashed over 14 minutes from the previous record and where she was only beaten by six men. Her victory in Kona, Hawaii in 2007 finishing in 9:08:45 – five minutes ahead of her nearest rival – was described as the ‘biggest upset in Ironman history’ and ‘a remarkable feat, deemed to be near impossible task for any athlete racing as a rookie at their first Ironman World Championships’.
This book is not only inspiring, but Wellington also gives some really valuable tips about triathlons, and sport in general, so if you have ever thought about trying a triathlon, make sure you read this book!
Charlie’s Mini Blog
Last year I completed my first ever Half Ironman, the Vitruvian at Rutland Water: 1.9km swim, followed by 85km bike, followed by a 21km run. I wasn’t sure I would be able to complete it, as I had only run 13 miles once before that date, but I did, and I managed a total time of 6 hours. I was delighted.
Since then I have continued my training, but, with the exception of upping my swimming, the amount of time spent training has remained fairly consistent. Afterall, I run a number of businesses, and have a wife and 2 young daughters who need my time too. It isn’t easy to squeeze in 2 swims, 2 runs, and approximately 3 hours on the bike into each week. Time, after all, is our most valuable resource, and you cannot buy more of it.
When something is important, it is vital that you build it into your ideal week. Whether you are retired or working, it is important that you create your ideal week by design if you want to be truly happy, rather than letting it passively evolve and being reactive. Ensure you build in a balance of activities that keep your body, mind and relationships all stimulated, and you will create a far more fulfilling life.
This year, I completed The Vitruvian for the second time. I had hoped my continued training would shave around 15 minutes off my previous time. Much to my surprise, instead I managed to knock 45 minutes off last years’ time, coming in at 5.15. It just goes to show, if you plan your time effectively, not only can you create a happier life, you can also achieve more too!