December 2021 - Agile IFA

As a parent or grandparent, you may be thinking about ways you can build a nest egg for children or grandchildren. It’s a step that can give them financial security as they become independent.

According to the Royal Mint’s 2021 Savings Report, 93% of parents say a savings account for their children is important. And more than 8 in 10 have already set up such an account. This guide looks at some of the steps you can take to improve the financial security of your children and grandchildren, including:

Opening a savings account
Using a Junior ISA
Investing on their behalf
Making pension contributions.

Download Building a nest egg – How to create financial security for your children and grandchildren to learn more.

Please contact us if you’d like to discuss building a nest egg for your children or grandchildren.

A new variant of Covid-19, dubbed “Omicron”, is affecting some countries around the world, and it could lead to further restrictions in the coming months. The variant comes as supply chain issues caused by the pandemic continue to affect businesses and households.

UK

The UK’s latest GDP figures suggest the economy is lagging behind other G7 nations. The UK’s economy is still 2.1% below its pre-pandemic level in the final quarter of 2019 after growth slowed to 1.3% between July and September 2021. In contrast, France is just 0.1% below pre-pandemic output, while the US economy is already larger than it was pre-pandemic.

Despite suggestions that the Bank of England (BoE) would increase its base interest rate to combat inflation, the Monetary Policy Committee voted to leave it unchanged at a record low of 0.1%. The BoE also said it expects inflation to peak at around 5% next April. If inflation reached this level, it would be the highest rate in a decade and is more than double the BoE’s 2% target.

High rates of inflation could affect both households and businesses. According to the Institute for Fiscal Studies, the average worker would need a pay rise of over 7% just to maintain their standard of living. So, it’s not surprising that a YouGov poll found that UK consumers are feeling less optimised and worried about their finances.

Energy is one of the household expenses that has surged in price. In November, another five energy firms collapsed, including Bulb, which has 1.7 million customers, amid rising fuel prices. Since the start of August, more than 20 energy suppliers have failed.

Supply chain challenges may be part of the reason why the UK is falling behind other economies. The IHS Markit PMI (Purchasing Managers Index) shows the manufacturing industry is growing but struggles with supplies and staff shortages are hampering potential growth.

Data from the CBI also demonstrates the effect shortages are having on prices. New factory orders reached a high not seen since at least 1977, but price expectations have also climbed to a 44-year-high to offset some of the challenges factories are facing.

Staff shortages could be good news for jobseekers. According to the Recruitment and Employment Confederation, active job postings in the first week of November reached a record high of 2.86 million.

In other news, Royal Dutch Shell is planning to shift its tax residency from the Netherlands to the UK as part of a shakeup. The company has said the move will help strengthen its competitiveness. It will also drop “Royal Dutch” from its name. The decision follows a landmark ruling earlier this year in the Netherlands that said Shell must cut its 2019 CO2 emissions by 45% by 2030.

Europe

The European Central Bank’s (ECB) chief economist Philip Lane commented that tightening monetary policy now to temper inflation would be counterproductive. Inflation reached 4.1% in October, more than double the ECB’s target. Rising inflation means prices are rising. In Germany, factory-gate prices increased by 18.4% in the year to October, the largest rise since 1951.

According to the European Commission, inflation is also affecting consumer confidence. The rising number of Covid-19 cases is also likely to be having an effect, with Austria entering full lockdown and Germany reintroducing emergency measures to control the spread of the virus.

Dutch container shipping group Maersk commented that there was no end in sight to the supply chain crisis. Despite disruptions, the group posted record quarterly revenues as freight rates increased sharply.

US

Much like the UK, the US continues to struggle with supply chains issues and inflation.

The IHS Markit PMI fell from 60.7 in September to 58.4 in October. While still growing, the pace is slowing as factories struggle to meet the demand for new orders.

Inflation has also reached a 30-year-high of 6.2%. This has led to the US Federal Reserve starting to taper the stimulus programme that aimed to support the economy during the pandemic. As well as affecting businesses, inflation has dampened consumer confidence. The University of Michigan’s Consumer Sentiment Index fell to its lowest level since 2011.

Figures show that October was a good month for jobseekers. The US added 531,000 jobs in October and revised the figures for August and September upwards. Since the record losses in April 2020 caused by Covid-19 restrictions, the US has added 18 million jobs. However, the total number of new of jobs is still more than 4 million short of pre-pandemic levels.

US pharmaceutical giant Pfizer has lifted its full-year sales forecast as Covid-19 vaccine sales rise again. The company reported sales of $24.1 billion (£18.1 million) between July and September, a 130% increase year-on-year.

Asia

Japan, the third largest economy in the world, highlights how some countries are still struggling to recover from the pandemic. The country’s economy shrank by 0.8% in the third quarter of 2021. The fall was deeper than expected and was linked to global supply disruptions, as well as businesses cutting back their spending plans.

Tighter restrictions in China have led to Yahoo ceasing trading in the region. Yahoo blamed a challenging business and legal environment for the decisions. The company added that it was committed to the “rights of our users and a free and open internet”. The move follows a similar decision from Microsoft, which has said it will close LinkedIn’s Chinese site.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

As we head into a new year, it’s common to think about the changes you could make to your life to improve your wellbeing and reach your goals. Taking steps to instil positive habits at the start of 2022 could set you up for greater wellbeing in the long term.

If you’re thinking about making a resolution this year, listing your priorities now and in the future can help give you some direction and lead to a habit that will have a long-lasting impact. Here are seven positive habits that could help you, whatever your goals are.

1. Create a routine and stick to it

Your daily routine can help improve your mental wellbeing. From setting a regular bedtime to eating at the same time every day, a consistent routine can reduce stress and help you focus on the important things. Finding a routine that works for you and your lifestyle could deliver a health boost.

A routine is also a good way to instil other habits that you may want to adopt. If you want to improve playing an instrument or learn a new craft, carving out a dedicated time each day or week to focus on this can help ensure you give these goals your full attention.

2. Think about what makes you happy

What makes you happy or gives your life purpose?

Regularly spending time thinking about what is important for you can help you make decisions that will lead to a lifestyle that brings your more joy. Yet, it’s something that many people don’t do. According to an Aegon report, only 4 in 10 people think about what gives their life joy.

It can be as simple as thinking about what you’ve enjoyed the most in the last week or what you’re looking forward to, but it’s a habit that can improve your mindset. Making a habit of doing this can help steer decisions to those that will make you happier and give you clear priorities when you think about the future.

3. Increase your physical activity

When your body is healthy, your mental health improves too. Physical activity is an excellent positive habit to adopt that can mean you’re able to make the most of your life. Not only will it improve your physical health, which can help keep you active and independent later in life, but it can reduce stress and leave you feeling happier.

Making exercising, from a brisk walk to swimming, part of your routine is a great way to improve wellbeing.

4. Get outdoors more

Being outdoors can make you happier and healthier, especially if you head to a place filled with nature.

Being surrounded by trees or other natural sights has been found to lower blood pressure and stress. It can instantly boost your mood and improve your focus too. A habit of going for a walk through your local park, or visiting national parks and nature reserves in your free time can improve your mental health and provide a chance to exercise outdoors.

5. Embrace mindfulness

Modern life can be stressful and mean it’s difficult to focus on the present. If you find that your mind wanders to other tasks or plans instead of enjoying the present moment, mindfulness can be a useful practice.

Mindfulness is a type of meditation where you focus on what you’re feeling in the moment. It aims to relax the body and minimise stress. It can help you recognise how emotions are driving behaviours and it can help you make positive changes to your life. Just five minutes a day to practice mindfulness can boost your mental wellbeing.

6. Make time to spend with people

Setting out time to spend with other people can be hugely rewarding.

That may be time to focus on your family and friends or to find opportunities to meet new people. Socialising is good for a variety of reasons. It can not only stave off the feeling of loneliness and boost happiness, but it can help improve memory and cognitive skills. Making an effort to meet up with people physically or stay in touch digitally can make your life richer.

7. Make a long-term plan

Don’t just focus on the changes that could improve your life now, but look at what you want to achieve in the future. It can mean you’re able to look forward to the things you plan to do and relieve the worries you may have. Setting out what life you want to lead in 10 or more years can put you in control.

Despite the benefits, just 1 in 3 people have a concrete idea of their future self, according to the Aegon report. Just 13% of people have a plan to reach money goals that could help them achieve their aims. While you may have a vague idea about what you want your future to be like, a concrete plan means you’re far more likely to reach these goals.

This is something financial planning can help you with. We’re here to help you think about your long-term lifestyle goals and the steps you can take now to ensure you have the financial means to reach them. Please contact us to arrange a meeting.

The UN Climate Change Conference (COP26) took place in November in Glasgow. The climate change summit brought together countries to discuss how they can tackle the global issue. It was the first time since COP21, which took place in 2015, that parties were expected to enhance their commitments to climate change.

The outcomes were disappointing for some, with activists arguing they did not go far enough. Yet, an agreement was made that, while not legally binding, sets the global agenda on climate change for the next decade.

If you’re an investor, agreements and governmental policies that relate to climate change could have an impact on your portfolio. For instance, reducing certain activities or penalising companies that pose a risk to climate change agreements could mean that some of your investments aren’t as profitable as they once were.

So, what was agreed at COP26 and how could it affect investors?

The COP26 agreement

Among the key parts of the agreement are:

For the first time at a COP conference, there was a plan to reduce the use of coal. However, after an intervention by China and India, the plan to “phase out” coal was watered down to “phase down”
Over 140 countries signed up to a forests and land use pledge, with the leaders of countries home to 90% of the plant’s forests committed to halting land degradation by the end of the decade
Around 20 countries have said they would end overseas funding of fossil fuels by 2022
Almost 100 countries agreed to slash methane emissions by 30% by 2030
World leaders agreed to phase out subsidies for fossil fuels, although no dates have been given
Countries pledged to support developing countries coping with the effects of climate change and help them switch to clean energy alternatives
Financial organisations controlling $130 trillion (£96 trillion) agreed to back “clean” technology and direct finance away from industries that burn fossil fuels.

While parts of the agreement may have been watered down, the outcome shows a commitment to moving towards cutting out the use of fossil fuels. These steps aim to keep temperature rises within 1.5C above pre-industrial levels. Rises above this are predicted to cause “climate catastrophe”.

However, a report in the New Scientist, suggests the pledge put forward in Glasgow doesn’t go far enough. Research estimates that current climate plans would lead to temperatures rising 2.4C. As a result, world leaders and businesses could find that they face increasing pressure to make further commitments.

The effects for investors

While the outcome of COP26 may not have an immediate effect on your investments, it does suggest that political and regulatory scrutiny will increase.

A UK commitment at COP26 highlights the increased scrutiny businesses will face. By the end of 2023, all large companies and public enterprises will be required to publish a net-zero transition plan.

Companies that don’t start taking action against climate change could face two challenges:

As regulation changes, they could find that activities are hampered or that costs begin to rise. Business leaders will need to consider how they can operate when global commitments are being made to cut fossil fuels and preserve the environment.
Companies that fail to make changes could also find that negative press and customer views have a direct impact on sales and operations. Again, it could affect the profitability of a business.

Investors should be aware of the impact that climate action could have on their investments and the level of risk they’re taking. Taking climate action into consideration when making investment decisions, doesn’t just mean reducing your exposure to some areas. It can also mean seeking opportunities.

As fossil fuels are phased out, the reliance on renewable energy and electric vehicles will rise. For some investors, these industries could present an opportunity.

Should you start considering climate change in your investments?

As an investor, you may already consider other factors that aren’t financial when you’re making decisions. Adding climate change to these considerations can help align your portfolio with long-term outlooks.

However, it’s just as important to keep things like your risk profile and goals in mind. If you’d like to talk about how climate change could affect your investments over the long term, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

You may have seen inflation in the headlines recently. While the cost of living rising is normal, the rate of inflation has increased over the last few months.

The Bank of England (BoE) has a target to keep the annual rate of inflation around 2%. However, the current rate of inflation is 4.2%, the central bank’s figures show. The rate of inflation used is the Consumer Price Index (CPI), which collects the prices of around 700 items. This is then used to calculate how prices have increased.

There are steps the BoE can take to reduce inflation. One of these is to increase interest rates. While there have been hints that interest rates could rise, the Monetary Policy Committee (MPC) decided to keep rates at historic lows in November. An interest rate rise would have been welcomed by many savers who have suffered from low interest rates for more than a decade.

With the MPC deciding to hold interest rates for now, it’s worth seeing if you’re getting the most out of your savings.

Most accounts will be offering an interest rate that is below the rate of inflation. Over the long term, this gap can mean your savings lose value in real terms. While the figure may grow as interest is added, inflation means that it will buy less. For short-term savings, inflation will have little affect but if you’re saving over several years, it can add up.

Are you getting the most out of your savings?

While you may not be able to change the interest rate, there are some steps you can take to give your savings a boost.

1. Take advantage of offers to move your account

Some banks and building societies offer new customers incentives to move. Taking advantage of these could give your savings a boost.

These incentives could be a one-off deposit to your account or a higher rate of interest for a defined period. Even a small incentive can help you keep up with inflation. Keep an eye out for offers that you’re eligible for. While switching accounts can seem like a chore, it’s often a simple process and banks can even transfer direct debits and standing orders for you.

2. Shop around for the best interest rate

Interest rates might be low across all providers, but there are still differences. Shopping around to find the best interest rate you can access can help you to close the gap between how much your savings are growing and inflation. As with the above, it’s often easy to switch your account.

3. Consider savings accounts with restrictions

Some savings accounts will offer a higher rate of interest but come with restrictions. This may include how much you can put into the account each month, or your savings being locked away for a defined period.

You should assess whether these types of accounts match your goals and would still leave you with an emergency fund. If they do, they can give your savings a welcome boost that could help you bridge the gap.

When to consider moving your savings to investments

As well as reviewing your savings, you should also consider if investing is right for you.

Investing does expose your money to some risk and volatility. However, if you’re saving for a long-term goal, it also presents an opportunity to earn returns that are higher than inflation to preserve your spending power.

If you have an emergency fund in an accessible savings account and your saving goal is more than five years away, investing the surplus savings may be right for you.

While all investments do carry some risk, the level of risk varies. So, it’s important to weigh up how much risk is appropriate for you. We’re here to help you understand investment risk and create a risk profile that matches your situation and goals. We’ll consider areas like your other assets and general attitude to risk.

If you’d like to discuss whether investing and getting the most out of your money, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The pension gap between men and women is closing. But, once life expectancy is taken into consideration, women still need to save an extra £185,000 for retirement, on average, according to the Scottish Widows 2021 Women and Retirement report.

The report finds that young women in their 20s today can expect to have around £250,000 in their pension by the time they retire. For men, the figure is £100,000 higher at £350,000. On top of this, women are expected to live for longer and pay for the associated care costs of this, so they need to add a further £85,000 to be financially secure throughout retirement.

To reach this goal, women in their mid-20s today will need to save an extra £2,500 each year, or £210 a month, until they retire.

Jackie Leiper, managing director of workplace savings at Scottish Widows, said: “It’s well known that the gender pay gap has a damaging affect on women’s retirement prospects. But women face a double whammy: even if we close the pension savings gap, pension equality would still not be achieved, because women need to fund a longer retirement and spend more on associated care costs.”

One of the reasons highlighted for the pension gap is the gender pay gap. The median salary for a man is £31,400, for a woman, it’s £20,500. It means even if men and women contribute the same portion of their salary to a pension, women are much more likely to face financial insecurity in retirement. Taking control of your pension before you retire can help you achieve long-term goals and have confidence.

3 things women can do to improve their financial security in retirement

1. Don’t forget about your pension when taking a career break

One of the reasons women have smaller pension pots on average is because they’re more likely to take a career break. Whether to raise a family, care for elderly relatives, or another reason, this can affect your retirement plans.

It can be easy for pensions to slip your mind when you’re not working, as contributions will often be automatically deducted from your paycheque. But this doesn’t mean you have to stop adding to your pension when you’re not at work. You won’t benefit from employer contributions, but you will still receive tax relief to deliver a boost to the money you put in.

You can add pension contributions to suit you. This could mean setting up a direct debit to take a specified amount regularly or adding one-off sums when you can. This flexibility means you can stop and start pension contributions depending on your circumstances.

2. Boost your current pension contributions

The report also measures the proportion of men and women that are deemed to be saving adequately for their retirement. This is defined as those saving a minimum of 12% of their pensionable earnings into a pension. This figure compares to the minimum auto-enrolment contribution of 8%.

The good news is that the gap between men and women saving adequately for retirement has closed. 6 in 10 men and women are now found to be saving enough for a comfortable retirement. Yet, that means 4 in 10 could still face financial struggles when they retire.

If you have the means to do so, even a small increase in regular pension contributions can have a large impact. These contributions will benefit from tax relief and be invested with the goal of delivering long-term growth. Over a career, the effect of compounding means your pension contributions can grow significantly.

3. Have a clear target for your pension

While the report gives an idea of how much women need to save for retirement, it can vary a lot for different people. If you’re still working, retirement can seem like a long way off, but thinking about your plans now can help you set a clear target and give you confidence that you’re on track. Answering questions like the below can help build an accurate pension target that’s right for you.

At what age would you like to retire?
Do you want to transition into retirement?
What kind of retirement lifestyle would you like?
What will your financial commitments be?

By taking this information, along with areas like life expectancy and expected investment growth into consideration, you can better understand if the steps you’re taking now will mean you can reach your retirement goals.

Getting to grips with your pension can be challenging. If you’re not sure where to start, we’re here to help you. Whether you’re still working or are ready to retire, we can offer advice and guidance to help you make the most of your pension contributions.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Whether retirement is over a decade away or just around the corner, you could face significant challenges that may affect the lifestyle you want. Learning more about these potential obstacles and taking steps to reduce their impact now could make heading into retirement smoother.

Almost half of people see retirement as a time of financial freedom

The Great British Retirement Survey from interactive investor found that 45% of people who have yet to retire view this chapter of their life as a time for financial freedom. Without work commitments, retirement can provide you with the space to focus on the things you enjoy. Achieving financial freedom can provide peace of mind so you’re able to embrace the lifestyle you want.

When asked what they hope to spend retirement doing, travel came out top. 3 in 10 (29%) of respondents said travelling more was their top priority when they retired. Using retirement as an opportunity to spend time developing a new business or hobby was popular too. 42% of people yet to retire are looking forward to this.

While you may be optimistically thinking about a time when you don’t have to go to work, reaching your retirement goals requires careful planning. There are challenges those approaching retirement could face, and they may derail your goals. Here are five challenges modern retirees need to think about to create a secure future.

1. Managing multiple pensions

Gone are the days when employees would stay at the same company for decades. Today, it’s far more common to frequently switch jobs to learn new skills and seize opportunities. The downside to this is that you can end up with multiple pensions. This can make it difficult to assess if you’re on track, and when you consider their various charges and investment performance, you could be missing out.

The Great British Retirement Survey found that 66% of people yet to retire have more than one pension, and 15% have four or more. Worryingly, 6% don’t know how many pensions they have. Keeping track of where your retirement savings are is important, as it can be easy to “lose” them. In some cases, consolidating your pension can make retirement planning simpler.

The challenge of multiple pensions is set to increase. Auto-enrolment means most employees will now benefit from a workplace pension. So, it can be easy to accumulate many different pots throughout your working life.

2. Deciding how to access your pension

How you access your pension has become more complicated. Previous generations would usually have a final salary pension or purchase an annuity to deliver a reliable income for the rest of their life.

This changed in 2015 when the government introduced Pension Freedoms. Under the new rules, you can still purchase an annuity, but you can also take a flexible income through drawdown or withdraw lump sums if you have a defined contribution (DC) pension. These changes provide more flexibility, but they also mean retirees have more responsibility and need to understand the pros and cons of each option.

Despite the complexities of this, just 27% of retired people in the survey worked with a financial planner. Those deciding how to access their pension were far more likely to rely on their own research (64%) or read the financial press (42%). While these steps can be useful, they can mean you miss vital pieces of information, and it can be difficult to understand how the options relate to your circumstances.

3. Running out of money

How long do your retirement savings need to last? Retirement can last for decades, and it can make it difficult to arrange your finances to deliver the income you need. It’s why 41% of workers worry about running out of money. Almost 3 in 10 (27%) retirees are still worried they don’t have enough to last their lifetime.

A financial plan can provide you with confidence about your long-term finances, even if you decide to take a flexible income.

4. Being affected by stock market volatility

If you decide to access your pension through drawdown, your savings will usually remain invested. This means your pension will remain exposed to market volatility. You may also have investments outside of your pension that you will use in retirement.

After the sharp market dip at the start of the Covid-19 pandemic, almost half of both workers and retirees list market falls in their top-three financial concerns. Market falls can mean your assets are worth less, but keep in mind that over the long-term, markets have historically recovered.

When you retire, having a financial buffer in cash can help reduce the impact of market volatility. Several months’ worth of expenses in an accessible account means you won’t have to withdraw from your pension amid short-term volatility. When investment values fall you have to sell more units to achieve the same level of income. Having cash to fall back on can help preserve your pension for the long term.

5. The rising cost of living

Inflation has been big news recently, so it’s not surprising that 42% of those that haven’t retired yet rate it highly among their concerns.

The Bank of England has an inflation target of 2% a year. However, due to Covid-19 and supply shortages, inflation in the 12 months to September 2021 was 3.1%. The central bank has said inflation could reach 4% in the coming months. Higher levels of inflation mean that day-to-day and luxury costs are likely to rise for households.

When making a retirement plan, you need to consider inflation and how it could affect your spending power. Over a retirement that could span decades, inflation can have a significant impact. There are several ways you can consider inflation when putting together your retirement plan. This may include leaving some of your pension invested with the aim of delivering returns that keep pace with or outstrips inflation. Or you may purchase an inflation-linked annuity to maintain your spending power.

Effective retirement planning can help you highlight challenges and put in place a plan that means you can overcome them and focus on what’s really important to you in retirement. If you’d like to talk about your retirement and the steps you can take to create financial freedom, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.