Client Newsletter – Q2 2015

Client Newsletter – Q2 2015

How platforms help to streamline your finances

It’s not that long ago that managing financial paperwork was a monumental task for all of us. If you wanted to put money into your investment portfolio, top up your pension plan or add to your savings account in no time at all you’d be knee-deep in correspondence and form filling. When it was time to complete your tax return, the paper just kept piling up.

Uncertainties Remain

The financial world is interpreting what the General Election result means. Many areas of personal finance were set for major turbulence had the result been inconclusive, but sterling and the stock market surged on 8 May with news of the Conservative party victory. However, some aspects of personal finance may still be affected by the election outcome, including property, income and inheritance taxes.Estate agents have widely predicted an upturn in property market activity as would-be buyers and sellers who put their plans on hold before the election re-enter the market.The narrow majority, absence of detail in some tax and spending plans and the EU membership question mean uncertainty has not been abolished.

Until a few years ago in order to produce your valuation report your adviser would have needed to phone or write to each individual fund manager or investment provider, wait for their replies and spend time compiling a consolidated report.

Now, thanks to the introduction of platforms, all this has changed for the better. Online platforms cut down on the correspondence, use leading-edge technology and provide a secure environment that enables you to hold all your assets in one place and view them whenever you like. Platforms are now well-established in the UK and over 90% of advisers regularly use them in some shape or form.

The benefits of using a platform are:

  • Secure and easy-to-use technology
  • Simpler administration for you and your adviser
  • Improved record keeping
  • Management of income payments
  • Faster, smoother switching of assets
  • Improved risk management
  • Faster real-time valuing, monitoring and dealing
  • Consolidated reporting and tax planning
  • Portfolio planning tools
  • Printer-friendly downloads

Platforms help investors and their advisers manage investments, hold them in a structured online environment, analyse them as they see fit, and when the time comes, sell them. Stocks and shares, life policies, unit trusts, open-ended investment companies (OEICs), exchange traded funds (ETFs) and tax sheltered investments like Individual Savings Accounts (ISAs) and self-invested personal pensions (SIPPs), off-shore and on-shore bonds can all be put onto a platform and viewed securely in one place by you and your adviser, 24/7.

Platforms automate many cumbersome and time-consuming tasks and reduce the administrative burden of managing a portfolio, meaning your adviser has more time to concentrate on the implementation, evaluation and development of your investment plans. With investments and policies centralised in this way, valuations are constantly up to date and reviews are quicker and easier to carry out. Decisions regarding investments can be analysed and implemented quickly and easily.

So, platforms work to the advantage of both investors and advisers. By providing an efficient joined-up solution to managing investments, they enable the focus to be on financial strategy rather than document management.

Life insurance – how to cover life’s major changes

Life insurance is one of those things that is all too easy to forget about once you’ve got a policy in place but you should remember to review your insurance plans as your situation and financial commitments change.

Life insurance isn’t just about providing a lump sum on your death, you can also protect against loss of income due to unemployment, accident or critical illness. Policies can be tailored and cover combined into the right plan to meet your needs.

Getting hitched

If you marry or enter into a civil partnership you should consider protecting your joint liabilities. You are likely to have more financial commitments and your partner might not be able to cope financially without your salary to rely on.

 

Getting on the property ladder

A mortgage is, for most of us, the biggest debt we’re ever likely to take on. At this stage, you’ll want the peace of mind that the loan would be repaid should you die.

A growing family

Starting a family can be an all-consuming experience, so it’s hardly surprising that life insurance isn’t always top of mind with new parents. There may no longer be two incomes coming in and there will undoubtedly be extra expense but the good news is that life insurance may be less expensive than you’d thought. If you’re the breadwinner, you might want to increase your level of cover and think seriously about insuring against unwelcome and unexpected events such as life-threatening illness, accident or unemployment.

If you’re a home maker, it makes sense to ensure that funds would be available on your death to meet the cost of the services you provide for your family, like housekeeping, care and supervision.

Retirement

Reaching the end of working life often prompts people to review their life cover. At this stage, your children probably won’t be as reliant on you for financial support and your mortgage may be reduced or paid off. However, you will no longer have life cover that you may have had as a benefit of your employment. If you have a spouse or partner who relies on your income, or if you want to ensure money is available for children or grandchildren, you could still benefit from life cover.

Forgetting to review your insurance over time could mean financial hardship for your family and might mean that you’re paying higher premiums than perhaps you need to; there may be more cost-effective policy options available to you. Why not review your cover with your adviser?

Is it time for a new mortgage deal?

If you’re currently thinking about remortgaging, you’re not alone. Whilst the Bank of England isn’t currently forecasting that rates will rise any time soon there’s no guarantee that they will stay low. And, of course, your mortgage payments probably represent one of your biggest monthly outgoings so it makes sense to ensure you’ve always got the deal that best suits your personal situation.

The general feeling is that we may all have become rather too complacent about low interest rates. So, it’s hardly surprising that many homeowners are looking to take advantage of low mortgage rates while they are still available. Recent research from legal conveyancing firm LMS shows that 64% of people surveyed had remortgaged to take advantage of a lower rate, whilst 24% did so to increase their mortgage and free up capital. The money was used for a variety of purposes – with 19% of respondents using the capital to fund home improvements, 9% to consolidate their debts and 1% to give their children a financial helping hand.

A more attractive deal?

In some cases homeowners can save hundreds of pounds a year by moving their mortgage to a more attractive rate with a different lender. Nearly two fifths (37%) of respondents surveyed by LMS who remortgaged were able to make a monthly saving of up to £500, and 3% were able to save more than £500.

This could help ease the family budget or provide spare funds which could potentially be saved tax-efficiently in an Individual Savings Account (ISA) or used as a pension top-up, all without adding to the size of mortgage (h4 there are fees associated with remortgaging).

Your options

If your current fixed-rate, tracker or discount deal is coming to an end, you may find your loan is moved to your lender’s Standard Variable Rate (SVR). The SVR is usually pegged to a percentage above bank base rate, and can be subject to change by the lender. Anyone on an SVR is vulnerable to interest rate rises when they come.

If you’re currently in a fixed-rate or tracker mortgage with early-exit penalties, there is no need to wait until it comes to an end. Your adviser can help you find a deal three months before your lock-in period finishes.

Another common reason for a remortgage is the chance to vary the terms of your loan to make it more flexible – for instance allowing you to make higher repayments and so shorten the overall mortgage term.

So is it time to think about your options? It makes good sense to check your current mortgage with your adviser to ensure that you’re on the most appropriate deal for your financial circumstances.

How to plan your pension under the new rules

The changes to the pension landscape are having a major impact on those about to retire and those in retirement but of course that’s only half the story. These reforms will have major implications for the future of every worker too.

The Pensions Commission has calculated that workers typically need an income equivalent to about two-thirds of their final salary to maintain their lifestyle in retirement. Whilst the figure will vary from person to person, what is clear is that a considerable amount of money is required in pension savings to enjoy a comfortable retirement.

As life expectancy rises, many of us can look forward to around 45 years in employment followed by 25 years in retirement, possibly living on until our nineties. Living longer in retirement may mean that care and nursing costs have to be factored into the equation. All this means that it’s vitally important to keep an eye on our pension pots at every stage of our working lives.

The cost of retiring early

Retiring at 55 may sound like a dream come true but to make this a reality will require shrewd planning. If this is your goal, then you’ll need to take every opportunity to maximise your pension contributions during your working life and have a good grasp of what you’ll need by way of income to fund your lifestyle in what may well be a long retirement.

The generous tax breaks should be enough of an incentive to encourage us all to save as much as we can. If you are a basic-rate taxpayer making a pension contribution, every £100 you save will effectively cost you just £80 once tax relief is applied. If you are a higher-rate taxpayer, every £100 you contribute would cost you just £60.

It really does pay to start contributing to a pension as early as possible. Someone saving £100 a month from age 25 to 65 will contribute the same as someone who starts 20 years later and puts away £200 a month. Based on a (projected but not guaranteed) 6% investment growth throughout, the early saver would have a fund of around £190,000 whilst the late starter would have built up a pot of around £90,000. Now we have more freedom to manage our pension provision, it’s more important than ever to carry out a regular review of existing arrangements with your pension adviser to ensure your contributions are high enough to provide a financially secure retirement.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up the repayments on your mortgage. A fee may apply for mortgage advice and, if applicable, you must ask your adviser for details before making any decision relating to a new mortgage as the actual amount will depend on your personal circumstances, but the typical amount is 1% of the loan value (on a typical £100,000 mortgage, this would be £1,000).

Your home may be repossessed if you do not keep up with the repayments on your mortgage.

The value of the investment can go down as well as up and you may not get back as much as you put in.

Financial advice you can count on

We provide services to help you improve your financial plans. We are experts in the field and aim to deliver information, advice and solutions which are clear and easy to understand.

We will help you throughout your lifetime and pride ourselves on our long standing client relationships. With Charles Derby, your plans will be kept under review so you can rest assured in the knowledge that expert assistance is always on hand.

Visit www.charlesderby.com or www.charlesderbywm.com
or contact your local Charles Derby Financial Adviser