March 2022 - Agile IFA

Throughout February, tensions between Russia and western countries caused concern for investors. As Russia invaded Ukraine, stock markets around the world fell and it’s expected that volatility will continue.

If you’re an investor, remember to keep a long-term outlook when reviewing your portfolio, and if you have any questions, we’re here to help you.

UK

Inflation continued to be a significant influencing factor in the UK in February.

According to the Office for National Statistics, inflation reached a 30-year high of 5.5% in January. This led to the Bank of England (BoE) deciding to increase its base interest rate. While still relatively low at 0.5%, it was the second increase the Bank made in three months, and several policymakers wanted a steeper increase. As a result, the interest rate could rise again this year.

While rising inflation is affecting the cost of living overall, food and energy prices are rising rapidly.

Market analysts Kantar suggests that the annual shopping bill in the UK is set to rise by around £180 this year. Energy prices for many families will increase even more sharply. Energy regulator Ofgem will increase the energy price cap on 1 April 2022 by 54% to £1,971. This decision is expected to affect around 22 million customers.

Once inflation is considered, disposable income will shrink. The BoE expects disposable income to fall by 2% this year and by 0.5% in 2023. This would represent the biggest fall in living standards since comparable records began 30 years ago.

With this in mind, it’s unsurprising that a YouGov poll found that UK households have a gloomy outlook about their financial prospects.

Official figures show that, while GDP in the UK fell by 0.2% in December 2021, over the final quarter of last year it increased by 1%. Consulting firm EY now expects the UK economy to grow by 4.9% this year. This is down from its previous forecast of 5.6%, largely due to the squeeze on household spending power.

Trade and the effects of Brexit also continue to affect businesses across the UK.

UK exports in 2021 to the EU fell by £20 billion when compared to 2018, according to data from the Office for National Statistics. A survey conducted by the British Chambers of Commerce suggests that many businesses are facing post-Brexit challenges. 71% of UK exporters said the post-Brexit trade agreement wasn’t helping them.

While the overall figures paint a picture of an economy that is struggling to recover after the pandemic, there are some companies and sectors that are doing well. TUI, for example, reported that UK summer holiday bookings are up by a fifth when compared to pre-Covid levels.

Europe

The European Commission (EC) cut its forecast for growth in the eurozone as inflation affected economies. The EC now expects the eurozone to grow by 4% in 2022. This compares to its forecast of 4.3% in November 2021.

Inflation in the eurozone reached a record 5.1% in January – significantly higher than the 4.4% forecast. The figure is more than twice the European Central Bank’s target of 2%.

While inflation is presenting some challenges for households and businesses, there was some good news in Europe. The eurozone unemployment rate fell to a record low of 7%, which compares to a rate of 8.2% a year earlier.

Investors in eurozone bonds may also have benefited from high levels of inflation. In expectation of an interest rate rise, bond yields have lifted.

Danish shipping firm Maersk also demonstrates how some firms have profited from the current situation. Thanks to the global economy rebounding, the firm posted record profits.

US

Much like the UK and the rest of Europe, the US is experiencing high levels of inflation. According to the Bureau of Labor Statistics, inflation hit 7.5% in January – a 40-year high.

Unsurprisingly, consumer confidence has been affected by the pressure caused by high inflation, as well as the economic outlook. The University of Michigan’s consumer sentiment barometer fell to its lowest levels since late 2011.

Some key figures suggest that the US economy could be struggling to recover from the effects of the pandemic. The US manufacturing sector’s Purchasing Managers Index in January was at a 15-month low with a reading of 55.5. While the figure still represents growth, slower demand and firms struggling to hire staff meant the pace is slowing.

In addition, ADP Jobs reported an unexpected drop in jobs in January as businesses cut 301,000 positions. The leisure and hospitality industry was the hardest hit.

Statistics also show the US trade deficit has reached an all-time high. The gap between imports and exports jumped by 27% in 2021.

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.

ESG investing means considering environmental, social, and governance factors when deciding how to invest.

ESG investing continues to grow and more investors are considering how they reflect their values in financial decisions. It covers a broad range of areas, but here are some of the trends that are set to affect ESG investing this year.

The rise of net zero pledges

As part of commitments to reduce companies’ contributions to climate change, many firms have already made pledges to reduce their carbon emissions. In 2022, it’s expected that more will make net zero pledges.

A net zero pledge means a company commits to removing as much carbon from the atmosphere as it adds. This will involve companies reducing the amount of carbon they produce by making changes to their operations.

In addition, the number of companies that engage in carbon offsetting is also expected to rise. This will allow firms to offset those emissions they can’t remove from their process by supporting projects that remove emissions.

Some companies have already made net zero targets, including Microsoft, BT, Sainsbury’s, and PwC. The range of companies that have already committed highlights how it’s a trend that will cross different industries.

However, investors still need to keep greenwashing in mind. Greenwashing is where a company brands products or initiatives as eco-friendly when this is not the case.

Analysis conducted by the NewClimate Institute found that the climate pledges of 25 of the world’s largest companies in reality only commit to reducing their emissions by 40%, not 100% as terms like net zero suggest.

Addressing the social effects of climate change

Climate change has been high on the agenda for ESG investors for years. Now, social factors are gradually being incorporated into this to understand how the consequences of climate change and policies will affect people and communities.

It’s a complex area that can cover many different things. For instance, it may consider how the direct consequences of climate change, such as more extreme weather events, will affect communities and how companies should respond to these events. Or it may look at how the transition away from fossil fuels will affect the progress of countries that are still developing.

The push to consider the social effects of climate change is partly being driven by a pledge made at the COP26 climate conference in November 2021.

The conference brought together governments and other parties to agree on action towards climate change goals. During the conference, more than 30 countries pledged to support workers and communities that will be harmed by the transition to a green economy.

As ESG becomes more mainstream, we’ll likely see more issues that combine the three core areas in some way to tackle complicated challenges.

Scrutinising supply chains

The last two years have highlighted how important supply chains for businesses are, and just how global.

Due to the pandemic, many firms experienced a disruption in their supplies and operations, with the effects being felt across entire supply chains. Even now, some businesses are still struggling to access the materials and products they need to operate at the same level they did before the pandemic.

A robust supply chain can provide security for businesses. On top of this, whether a supply chain reflects a company’s ESG commitments will also come under closer scrutiny.

While this trend can provide more confidence for ESG investors, reviewing complex supply chains could present challenges for both companies and investors.

Pressure for companies to pay their “fair share”

The amount of tax that companies pay in the regions they operate has made headlines in the last few years. Again, the effects of the pandemic mean this trend will be in the spotlight even more.

As governments were forced to borrow more money to provide health and social support during the pandemic, taxes are expected to rise. As the tax burden increases for individuals, it’s anticipated there will be growing pressure for businesses to pay their “fair share”, particularly if they benefited from government support during the pandemic.

While large companies hire whole teams to ensure they pay the correct amount of tax in each jurisdiction, these teams will also use loopholes and reliefs to pay as little tax as possible. As pressure grows for companies to pay a “fair share” it will be interesting to see how this translates to company policy and investor action in 2022 and beyond.

Increasing demand for standardised reporting

As greenwashing becomes a key concern for investors, there will be an increased demand for regulation and reporting standards.

At the moment, it can be difficult to hold firms accountable if they make claims or set vague targets in their reports. This can also make it challenging for investors to compare different investment opportunities against their ESG criteria. To combat this, there will be an increase in demand for more standards.

This is a process that the Financial Conduct Authority (FCA) has already begun. Last year, the FCA published a discussion paper on potential criteria for classifying and labelling investment products that would provide investors with more clarity. However, it’s likely to be a slow process and many years before standard reporting is seen across the industry.

Get in touch

Would you like to consider ESG factors when you invest or review your investment portfolio? We’re here to help you understand how investing can help you reach your goals.

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.

Official figures show that the amount paid in Inheritance Tax (IHT) has increased again. As the IHT thresholds are set to remain the same despite rising inflation, more people will need to consider how IHT could affect what they leave behind for their families.

According to a report in FT Adviser, IHT receipts between April and November 2021 totalled £4.1 billion. It represents a rise of £600 million when compared to the same period a year earlier. HM Revenue and Customs (HMRC) also said it expects receipts to be higher over the next reporting period due to higher wealth transfers during the pandemic.

In addition to this, in 2021 the chancellor froze two key thresholds for IHT for five years. Usually, these allowances would increase in line with inflation but will now remain the same until 2026. For some families, this will mean they face a larger IHT bill when a loved one passes away.

If your estate may be affected by IHT, planning is important as there are often steps you can take to reduce how much IHT is paid on your estate.

The IHT nil-rate band for the 2022/23 tax year is £325,000 and will remain at this level until 2026. If the total value of your estate is below this threshold your estate will not be liable for any IHT.

If you will be passing on your main home to your children or grandchildren, you may also use the residence nil-rate band, which means you can pass on an additional £175,000 in the 2022/23 tax year before paying IHT. Again, this allowance is frozen until 2026.

Both of these thresholds are for individuals. So, if you’re estate planning with a partner, you could pass on up to £1 million without IHT being due. This is because a spouse or civil partner can pass on unused allowances to their partner.

If the value of your estate does exceed these allowances, the standard IHT rate is 40%. It can significantly reduce what you pass on to loved ones.

7 things to do if your estate could be liable for Inheritance Tax

1. Value your estate

To understand what steps you can take to reduce a potential IHT bill, you must first understand what is included in your estate and how much it is worth. Your estate includes most of your assets, from property to material goods, and it’s important to accurately value items to make an estate plan that’s right for you.

As well as considering the value of assets now, you should also think about how they may change during your lifetime. Your home, for instance, is likely to rise in value significantly. In 2021 alone, house prices increased by 9.7%, according to Halifax house price index data.

2. Write a will

Even if IHT isn’t a concern, you should write a will. It’s the only way you can ensure your wishes are carried out.

From an IHT perspective, a will can help you make full use of your allowances. For instance, leaving your home to your child in your will means you can use the residence nil-rate band.

3. Pass on gifts to your loved ones

Some gifts could be considered part of your estate when you pass away for up to seven years. These are known as “potentially exempt transfers”.

In contrast, there are some gifts that you can make that are considered outside of your estate straight away. Making use of these can allow you to pass on assets to loved ones without worrying if they’ll be included in IHT calculations.

These gifts include gifting up to £3,000 each tax year, known as your “annual exemption”, and small gifts of up to £250 to individuals. If you’d like to reduce a potential IHT bill through gifting, please contact us.

4. Create a charitable legacy

You can leave gifts to charities in your will. Any gifts that you leave to charities will be considered outside of your estate for IHT purposes. As a result, you can use these gifts to bring the total value of your estate under IHT thresholds while supporting good causes.

In addition, if you leave at least 10% of your entire estate to charitable causes, the rate of IHT you pay will fall from 40% to 36%. For some estates, this could mean leaving more to loved ones.

5. Place your assets in a trust

In some cases, placing some of your assets in a trust can make sense. Using a trust may remove some of your assets from your estate so they are not considered when IHT is calculated. You may still be able to benefit from the assets held in trusts, for example, taking an income from your investments.

There are several types of trust and once set up it can be difficult or impossible to dissolve a trust. So, as well as considering the financial aspect, you should consider taking legal advice before moving forward.

6. Take out a life insurance policy

A life insurance policy won’t reduce the amount of IHT due. However, it can provide your beneficiaries with a way to pay the bill.

A whole of life insurance policy will pay out a lump sum when you pass away. You will need to pay policy premiums or the cover will lapse. You should also have an accurate value of your estate and the amount of IHT that will be due to ensure that the lump sum will cover the full IHT bill.

It’s important to note that the life insurance policy must be written in trust. Otherwise, the payout will be considered part of your estate and the amount of IHT due could increase.

7. Arrange a meeting with us

Depending on your assets and wishes, there may be other options that are appropriate for you. Please contact us to arrange a meeting with a financial planner to discuss what steps you can take to reduce the amount of IHT due on your estate and pass on more of your wealth to loved ones.

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

The Financial Conduct Authority does not regulate tax or estate planning.

The FIRE movement is a small but growing lifestyle movement. It stands for “financial independence, retire early”, and challenges the traditional path of working until you’re in your 60s before retiring. While the steps FIRE members take can be extreme, it does share some of its core principles with financial planning.

In essence, the FIRE movement involves extreme saving and investing to create a passive income that aims to allow members to retire far earlier than a typical person would. Over the years, several different variations of FIRE have emerged but the goal for all of them is to provide financial freedom which means members can live the lifestyle they want.

Here are five ways FIRE is similar to financial planning.

1. It encourages you to review your spending now

As part of the financial planning process, you will need to look at what your expenses are now. This can help you understand where your money is going and what steps you can take to reach your goals. This may include paying into your pension, adding to your savings, or creating an investment portfolio.

FIRE is an extreme example of this. Members are encouraged to evaluate every expense and purchase they make in terms of the number of hours they’ve worked for it. A common goal of the FIRE movement is to save 70% of your income. This will typically mean adjusting your lifestyle significantly now to secure the future you want.

While both financial planning and FIRE assess what you’re spending now and the effect it will have on your future, financial planning has a greater focus on balance. That means finding a way you can reach short-term goals and live comfortably now, from going on holiday to enjoying hobbies, while still building long-term financial independence.

2. It puts long-term goals at the centre of your finances

The FIRE movement is all about thinking long term, and setting out your goals is part of financial planning too.

In the case of FIRE, the end goal is typically to retire as early as possible while still ensuring you have enough savings to last the rest of your life. For some members, this means they have a goal of retiring in their 30s or 40s and their financial decisions keep this in mind.

When financial planning, thinking long term is an essential part of the process. Your long-term goals may include retiring early, but other things may be important to you too. This could be supporting loved ones financially, travelling the world, or moving into your dream home. Financial planning helps you put these goals at the centre of your financial decisions.

3. It considers retirement early

When should you start thinking about retirement? While most employees will now automatically be paying into a pension, many don’t think about their contributions, or what kind of lifestyle they will enable until retirement is near.

The sooner you engage with a pension, the more likely you are to secure the retirement lifestyle that you want. Even a relatively small increase in your pension contributions while you’re younger can add up.

You may also find you’re missing out on opportunities for your employer to contribute more to your pension or that changing the way your pension is invested makes sense for you.

One of the positive things about FIRE is that it encourages people to start thinking earlier about what they want their retirement to look like.

4. It can provide members with more freedom

Financial independence can give you the freedom to focus on what you want. Having a passive income can mean you’re able to give up work or reduce your hours to spend more time on what’s important to you.

FIRE encourages financial independence through an aggressive saving and investment programme. Members will often have a significant target in mind when building up wealth, such as £1 million or 25 years of income, and will then manage these assets to take a small income that will last throughout their lifetime.

Financial planning can also help you secure greater financial independence. A financial plan helps you reach the goals you’ve set out, but it also considers your financial resilience. This can help protect you from financial shocks and provide you with greater freedom.

By working with a professional, you can have confidence in the steps you’re taking and have someone to talk to if you want to change your lifestyle.

5. It looks at ways to make your money work harder

With such large goals, the FIRE movement has a strong focus on making your money work as hard as possible to build up wealth and then deliver a passive income. This may mean actively reviewing savings accounts to find those with the highest interest rate, and will often mean investing aggressively.

Both of these things can help your wealth grow, but it’s important to review what level of risk is right for you when investing. Financial planning can help you balance risk with potential rewards – all with your goals in mind.

While investments with potentially high rewards can be enticing, they will typically come with higher levels of risk that may not be appropriate. We can help you build an investment portfolio that reflects your risk profile.

Financial planning can help you achieve financial independence and retire sooner if that’s one of your goals while striking a balance to deliver an income that means you can enjoy your life now. If you’d like to talk to us, please get in touch.

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 latest figures from the Pension Regulator prove that pension auto-enrolment has been a success – more people than ever are saving into a pension. Yet, research also shows that many people don’t think they know enough about saving for retirement.

Before the government introduced auto-enrolment in 2012, just 4 in 10 private sector workers were actively saving into a pension. Now, more than 70% of employees are taking steps to secure their retirement.

According to the Office for National Statistics, pensions represent the largest portion of private wealth in the UK. Individuals hold £6.4 trillion in pensions. The figure compares to £5.5 trillion in property and £2 trillion in cash.

The number of people saving for retirement is rising and the accumulated wealth in pensions is certainly good news, but simply paying into a pension isn’t enough to be sure of a comfortable retirement.

Engaging with your pension and understanding how it’ll create an income when you retire is crucial, and research suggests that many people aren’t confident about their pension knowledge.

6 in 10 people couldn’t confidently say how much they have in their pension

7 out of 10 people can confidently say how much they hold in their cash savings, and 53% said they could estimate the value of their property quite accurately, according to an Aviva survey.

However, just 4 in 10 say the same about their pension despite pensions representing a larger portion of wealth and being crucial for your long-term financial security.

Saving into a pension under auto-enrolment is an important first step, but if you’re not reviewing your pension and what it means for your retirement it could put your long-term wellbeing at risk. Closing the knowledge and confidence gap is just as important as encouraging more people to save through a pension, and it could help you get more out of your savings.

What happens when you pay into a pension?

If you’ve been automatically enrolled into a pension, your contributions will be deducted from your pay cheque, so it’s easy not to think about what happens to the money. But engaging with your pension can help to ensure you’re taking the steps you need to secure your retirement.

As well as your own contributions, in most cases, your employer will contribute on your behalf. On top of this, you will receive tax relief on your contributions to boost your savings even further. This makes a pension a tax-efficient way to save for retirement.

The money within your pension will usually be invested. This could allow your pension savings to grow over the long term. If you haven’t selected how you’d like the money to be invested, it will usually be through a default fund. You will usually have a choice of multiple funds, covering a range of investment risk profiles, allowing you to choose one that’s right for you.

Here are some key questions you should answer to help you understand how your pension savings are building up:

What contributions do you make to your pension?
What contributions is your employer making?
Are you claiming the full amount of tax relief you’re entitled to?
How is your pension invested?

How do you know if you’re saving enough for retirement?

While you may understand how much is in your pension, understanding if it’s “enough” is much more difficult. To do this, you need to consider two things:

How much money do you need to fund your retirement? This will depend on your retirement plans, such as the lifestyle you want. You will also need to consider how long your retirement will last and what other assets you may have to complement your pension.
How will the steps you’re taking now add up over your working life? This means calculating how all the contributions will add up and what you realistically expect the investment returns to be.

Understanding if you’re on track for the retirement you want is important. If there is a gap, the sooner you know, the more options you’re likely to have. Spotting a gap early in your career may mean you can increase your contributions by relatively little as it’ll add up over several decades. If you don’t recognise a gap until you want to retire, you may have to delay or change your plans.

Having confidence in your pension means you benefit from peace of mind now and fully enjoy your retirement when you’re ready. If you’d like help understanding your pension, what it means for retirement, and how it fits into your overall financial plan, 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.

As you may know, inflation (or the “cost of living”) has been rising at a faster pace than usual. If you’re retired, the effect of inflation can be more pronounced and it’s important to understand how it could affect your lifestyle now and in the future.

The Bank of England (BoE) aims to keep inflation at 2% a year. However, according to the Office for National Statistics, the rate of inflation in the 12 months to February 2022 was 6.2%. While the effect of inflation can seem small day-to-day, it adds up.

Why inflation is important if you’re a retiree

If you’ve already retired, inflation can affect your lifestyle more than if you were still working. This may be because your income is static rather than rising with inflation. You may also need to consider how you will use your assets over your retirement. Taking more now to ensure your income rises in line with inflation could mean you face a shortfall in the future.

In addition, energy and food are two of the areas that inflation has affected the most. Traditionally, pensioners have spent a larger part of their income on these two expenditures than workers. So, rising inflation could affect your expenses more than you expect.

While the State Pension will rise in the new tax year in April, it won’t rise at the same pace as inflation. For the 2022/23 tax year, the State Pension will increase by 3.1%. This is because it will rise by the rate of inflation as measured in September 2021.

According to the Centre for Economics and Business Research, the gap between the State Pension increase and the current pace of inflation will mean pensioners are £169 a year worse off in real terms.

So, if you’re retired, what can you do about inflation?

5 things retirees should do to manage the effects of inflation

1. Review your income needs

Looking at how your expenses have changed over the last few months can help you create a realistic budget. Does your current income still allow you to live the same lifestyle, or have you had to make adjustments? Looking at which outgoings have increased can help you see if you need to make any changes.

2. Check your reliable sources of income

As part of your retirement income, you may have some sources that provide a reliable income. You should review these and check if they’ll increase in line with inflation in the new tax year.

As mentioned above, the State Pension will rise but not at the same pace as inflation. You may also have a defined benefit (DB) pension, which pays a guaranteed income throughout retirement. A DB pension will often increase at the same pace as inflation, providing you with some financial security even as the cost of living rises.

If you had a defined contribution (DC) pension, you may have chosen to purchase an annuity that will pay an income for the rest of your life. When purchasing an annuity, you can choose whether the income will increase in line with inflation.

3. Assess investment performance if you’re using flexi-access drawdown

If you have a DC pension, an alternative to an annuity is flexi-access drawdown. This option allows you to take a flexible income, with the rest of your pension usually remaining invested. As a result, the remainder of your pension may increase to keep pace with inflation depending on how the investments perform.

In addition to investments held in a pension, you may also have a separate investment portfolio that could deliver growth that matches or exceeds inflation.

Investing can provide you with a chance to grow your wealth, but you should keep in mind that returns cannot be guaranteed.

4. Review your cash savings

Some cash savings are important as they can provide a valuable safety net if you face an unexpected expense. However, as inflation is likely higher than the interest rate you are earning on your cash savings, the value of your savings could be falling in real terms.

In some cases, moving the money to a different account or investing a portion of the savings can help you reduce the effects of inflation on your wealth.

5. Arrange a meeting with your financial planner

If you’d like help in understanding how inflation is affecting your income now, and the effect it could have in the future, a meeting with a financial planner can help. Please contact us to discuss your income needs and what you can do to protect against the effect of inflation.

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.

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.