Their other services such as financial advice fail to offer value for money with extortionate commissions taken by advisers offering often the banks own products which are generally poor performers. They offer no ongoing service to these recommended funds and are only interested in talking to you if you have further funds to invest. Accounts charging a monthly fee on your current accounts in return for this package of wonderful additional products such as holiday insurance and breakdown cover are also often a big con.

Now it seems their Buildings and contents offerings are also poor value for money. I recently spoke to a client who took a B&C policy with Nationwide BS. Advised by the BS of the 5 star rated cover and the policy was underwritten by Churchill. Can I lose he told me he thought?

When a claim arose – he found out he could lose and big time. It is now 8 weeks since he had a burst water pipe in his kitchen which flooded his downstairs. The client emptied his downstairs of contents and carpets himself but still no work has commenced to carry out repairs. No de-humidifiers have been installed, no plaster removed and when chased on the claim the insurer states they are still considering quotes. He was not offered alternative accommodation and has had to reside with a friend in the meantime. He has raised a compliant but this has done nothing to speed up the process.

So beware Banks and Building Societies are for banking your money and nothing more.

Over the last 12 months I have indicated that I felt interest rates would remain stable with possibly 1 or 2 rate rises before Spring 2012. I now honestly believe in light of the current climate, interest rates will probably remain unchanged before Spring 2012.

In recent weeks the pricing of new mortgage deals by Lenders has been coming down which is an indication of where Lenders see rates going - i.e. nowhere soon.

This means that it could be a really good time to look at re-mortgaging and getting the rates down. Remortgages are available  now with rates cheaper than variable rates of lenders so whereas previously we told many clients to stay put, it could be time to consider a switch.

Remember we dont charge fees to arrange your mortgage or remortgage unlike some mortgasge brokers who often charge a fee of £1,500 to £2,000 for the privilege. We may also be able to save you money on your mortgage related insurances in particular your life insurance and buildings and contents insurance.

Italy is now stealing the headlines with previous countries including Greece, Ireland, Portugal and Spain having made names for themselves.

But what does it all mean? Essentially Europe, the European Union and the Euro has a big problem. Historically, governments of many western nations were seen as low risk to lenders when those governments sought to borrow money.  If you or I went to get a loan or mortgage from a lender, the lender should look at the income we have coming in and what expenditure we have going out. If the income exceeds the outgoings then normally the lender will lend as long as it is shown affordable.

The policy with lending to governments is similar, but many lenders saw the likelihood of a government not paying off its debt as very slim.  Historically with Western Governments this was generally the case.  

Following the banking induced recession many banks were left with more debts to be repaid than they had in assets. On top of this many Companies and Individuals defaulted on those debts leaving the banks with significant losses. With this followed falling Company profits, increased unemployment and less tax revenues as a result, to feed the Government so it can then pay its debts. So now Governments are feeling the pinch and accordingly many “experts” fear that the unthinkable could possibly happen.

My view is Spain will survive over time, Portugal & Greece are already bust – the Eurozone is just trying to put their collapse far enough in the future that it can then cope with their demise. But first it needs to sure up its balance sheet, hence the repeated revised agreements with these very weak nations. Ireland will be propped up by the UK as this is where our banks will be hit hardest if Ireland fails, so the UK government wont allow this to happen. The UK government is probably best placed of all the nations to cope with the crisis, in my view, with Germany close behind.

What is clear is that the Eurozone cann0t cope if Italy or a similar sized nation collapses – then would be the death toll of the Euro!

In addition to the euro crisis, economic growth all around the world seems to be slowing. Even China and India have had recent corrections, although these nations still offer the best future growth long term for me. 

So what do we do? grab the money and run? My view is no… ride the storm have a portfolio review and ensure your assets are diversified. What we have witnessed in recent years is clear. A relatively balanced portfolio with exposure to cash, property, equity and bonds have faired well over the last 5 years offering returns ranging from 5% to 8% per annum. Remember you can still control the degree of risk in such a portfolio with varying degrees of exposure to higher risk assets to suit your individual needs.

The risk areas in particular are ISA portfolios where often funds held are purely equity funds. Pension funds are also a key area. We are fininding less and less final salary pensions now, with the modern scheme being money purchase. This means the money is invested in funds and whatever the value grows to by the time you retire, is what you have to play with.

The problem here is that many schemes & employers offer a range of funds, some good / some bad and nearly all offer no advice on how you should invest to minimise risk. Often the fund information is just a fact sheet showing past performance and tells you nothing about whats going on behind the scenes in the fund. Behind the scenes information is what we as advisers look at when deciding whether a fund is any use or not. A pretty graph showing good performance over a “carefully” selected time period is frankly meaningless.

Moffatt Financial Planning now offers a pension review service for clients with pensions funds that aren’t being regularly looked after and reviewed. The service is paid for via a monthly standing order with the cost variable depending on the size of the assets. Compared to alternative advisers, however, the cost is typically more than 50% cheaper and well worth considering.

The pension review service is in addition to the existing portfolio review service our clients receive. Your bank adviser wont want to speak to you unless you investing new money. They take 7% or 8% of your money when you first invest and then do nothing to look after your assets thereafter. We typically charge 1% to 3% for the initial work with an annual fee of 0.5% thereafter. This annual fee is typically catered for within the annual charges of the fund so you are normally no worse off. Moral of the story is pay less than half and get more!

Give us a call now, to ensure your assets are appropriately invested.

The Coalition will consult on simplifying tax system by merging income tax and National Insurance although NI will not be extended to the over 65′s.

2011 to 2012, Personal Allowances for Non and Basic Tax payers will increase by £1,000. Higher rate tax payers will not benefit from this increase.

Corporation Tax will fall from 21% to 20% for those Companies on the lower rate and 28% to 26% for those on the higher rate from 1st April 2011

No changes to Inheritance Tax, as such but you will benefit from a chargeable rate of 36% (not 40%) if you give 10% of your estate to charity.

No changes to Capital Gains Tax – Annual exemption increases to £10,600 for 2011/2012.

National Insurance to increase by 1% for both employees class 1 contributions and the additional contributions as does employers contributions.

Many clients are wondering about the new rules from pensions that apply from April this year.You will have heard in the press about the scrapping of compulory annuitisation at age 75. To be honest it never really existing anyway and the new rules are just a slightly different version of what was already there. However there are some important tweeks.

In particular:

• Pensions and lump sums will no longer have to be taken by age 75;
• New income drawdown rules will replace the existing unsecured pension (USP) and alternatively secured pension (ASP) rules, which are being abolished;
• A new type of income drawdown, known as flexible drawdown, will be available for those who meet the new minimum income requirement (MIR);
• Existing USP and ASP cases will be gradually moved fully onto the new basis under transitional rules;
• The death benefit rules, and aspects of their tax treatment, will change.

The fine related to advice on policies they sold to customers with Aviva. 1 in 7 customers complained – a huge percentage unhappy with the advice they were given.

The Regulator found that Barclay’s showed no regard for their customers financial circumstances, the  suitability of the investment for their customers and the customers investment knowledge or experience. Pretty much Barclay’s failed at every level.

Barclay’s were also found to have established that their customers were improperly sold these investments and yet did nothing to put it right. When it did take action, it did not do this in a timely manner and its staff were not properly trained.

The fundamentals of financial advice mean that as advisers we must establish your current circumstances and match the financial solutions to those circumstances with emphasis on matching the risk profile of those investments to yours as a client. We have to obtain high qualifications to show we can properly advise clients.

Bank salesmen achieve the basic qualifications to enable them to legally go out and deal with clients.

We need to put this in perspective. 1 in 7 actually complained – how many didn’t complain?

For me this gives a frightening outlook for clients where often they trust their bank! Clearly many clients will be misguided with this trust.

Both John and I are Chartered Financial Planners  – in other words the qualifications we hold far exceed those demanded by the Regulator. Specifically we have taken high level exams to train us in dealing with understanding investment risk and client needs – something the bank salesman don’t have to achieve before they can recommend to clients.

For me this gives a startling reminder to clients to always seek Independent Advice and only from a Chartered Financial Planner.

Given the demand, the Directors have decided to increase the number of shares in the fund. Accordingly existing investors will be offered 3 C shares for every existing ordinary share they held as at 31st December 2010. C Shares are convertible shares which can be converted into Ordinary shares in the future.

Existing Investors will also need to approve the share issue offer but I fully expect it to be approved. You should receive your voting forms shortly if you havent already but they need to be back with Fidelity by 9th February, to count. All monies need to be in by 11am Friday 15th February.

For those investors that do buy now you will not pay the share premium and you will also not incur an initial charge or have to pay stamp duty. This is a long term investment which in my view is not to be missed.  So do not delay!

I have predicted sluggish growth if slightly positive for UK, Europe and US as the credit crunch and austerity measures takes effect this year. Japan will in my view continue to offer the same as it has for the last 20 years i.e. nothing.

My favourite areas which real growth is feasible remains in the emerging markets. Whilst this will be volatile there exists a real “business model” in my view to achieve economic growth. I have stated I expect “blips” over the year, but overall if clients want decent returns then they should consider emerging markets including China, India, Brazil and Russia as the big players.

These markets are considered higher risk, but over the long term will without doubt in my view give real returns and decent growth.

This morning I received the opinions of one of the high street banks and how they see 2011 panning out. I thought I would share these views with you.

Key Points for 2011

* Global economic and corporate earnings growth was strong in 2010 but could tail-off in 2011, although we believe a double-dip recession scenario is likely to be avoided

* Global inflation is likely to be flat in 2011, although emerging markets carry a greater risk

* Commodity investments should remain supported by the flush liquidity environment and supply shortages in some cases

* Many emerging market valuations continue to look fundamentally attractive, supporting future growth

* We believe developed markets remain on-track for low-to-moderate growth in 2011

2010 brought us the beginnings of the global economic recovery, which looks set to continue making progress over the next twelve months. While we have seen positive economic indicators, conditions remain challenging and growth uncertainties persist. Emerging markets led the growth theme last year and we believe this region will remain the front-runner going forward. Our main concern here is the prospect of further monetary tightening, which could impact both growth potential in the local region and the wider world, given emerging markets have been a key driver of the global economic recovery to date.

Developed Markets

—————–

In the developed markets, the possibility of further fiscal tightening and weak consumption are the key risks on the investment horizon. Labour markets remain sluggish, particularly in the US and UK where unemployment levels are elevated. Additionally, consumption levels continue to suffer as consumers endeavour to manage personal debt positions.

The threat of double-dip recession chased investors throughout 2010, curbing demand for riskier assets, particularly in the US. Fundamental economic indicators and positive corporate earnings indicate this scenario is likely to be avoided, providing the positive trend remains on-course.

Emerging Markets

—————-

Attractive valuations in the emerging markets helped the region to dominate in 2010. Many valuations remain fundamentally attractive, and yields look set to remain low. Inflation-risk within the region is a key concern for 2011. On a global scale, the inflation outlook for the year ahead appears broadly flat.

Commodities

———–

Amongst commodities, the improving liquidity environment, aided by the implementation of the US QE2 (quantitative easing) programme, should continue to support both metal and agricultural commodities. During the financial crisis, investment projects in coal, iron and copper worth US$200bn were cancelled. As a result, supply constraints should keep pricing levels high in the near term future for these resources.

So on balance, we anticipate seeing a continuation of strong growth in the emerging markets and slow-to-moderate growth in the developed markets, with a flush of global liquidity driving demand for higher-risk investment opportunities.

Summary

As you can see the views of the Bank sit not too far from mine.

Here is how I see the various asset classes performing this year:

UK Equities – 5% to 10% growth

US Equities – 3% to 7% growth

Euro Equities – 1% to 5% growth

Japan equities – not a lot! – may achieve some growth of the back of general positive views of other markets leading to improved sentiment.

Emerging markets – 8% to 12% growth – some individual sectors will perform better than this other not so well

Dividend yields on equities I believe will start to increase this year particularly if the banks dare to lend some money!

UK property – Residential 5% to 8% growth / Commercial 8% to 10% growth (subject to banks lending more!!)

Global Property – 5% to 10% growth.

Cash 0% to 1.5% – inflation meaning the asset falls in value in real terms.

Bonds / Gilts etc – stable capital values possibly some capital growth (3% to 5%) on bonds falling off towards end of year if interest rates start to push up. Yields on such funds will continue to be in the region of 3% to 6% offering attractive returns as part of a balanced portfolio.

Please note these views are my opinion and my opinion only and there are no guarantees. They are however my gut views on where the markets will go this year.

Regards

Adam

The Government published the Finance Bill 2011 on 9^th December 2010. It gives a lot more detail of the changes that will be made to pension provision.

Lifetime Allowance (LTA)

As a reminder, this will reduce from £1.8M to £1.5M from 6^th April 2012. Note the change is from 2012, not 2011. The Government has confirmed those with savings above £1.5 million or who believe the value of their pension pot will rise to above this level through investment growth without any further contributions or pension savings, will be able to apply for a new personalised lifetime allowance of £1.8 million, providing they cease accruing benefits in all registered pension schemes before 6 April 2012. Notifications in writing for this must be received on the prescribed form (yet to be issued) by HMRC by 5 April 2012.

Annual Allowance

The annual allowance for tax years 2011/12 onwards will be reduced to £50,000. There are also a number of other changes to the annual allowance rules which will have effect on or after 6 April 2011:

• the annual allowance charge will be linked to the individual’s marginal tax rate;
• any unused annual allowance can be carried forward for three years;

• the valuation factor used to calculate the value of defined benefits pension savings will increase from a factor of 10 to a factor of 16;
• the opening value of rights under defined benefit schemes will be subject to a revaluation rate;
• the annual allowance rules will normally apply in the year of taking benefits and also for those people with enhanced protection although there will be exemptions in the year of death or where the individual retires because of severe ill health;
• inflation-linked increases in expected pensions for deferred members of schemes will not count towards the annual allowance charge; and
• transitional rules apply from 14 October 2010 where individuals have pension savings relating to a pension input period that started before 14 October 2010 and which will end in the 2011/12 tax year and is therefore subject to the new annual allowance limit. Full details are in our December 2010 newsletter/

Changes to income drawdown and the “age 75” rule

As was previously announced, from 6 April 2011 the requirement to secure a pension income by age 75 is being removed. This will be achieved through a number of changes:

• the ASP rules are being repealed for new and existing pensioners, so removing the effective requirement for pension savers to buy an annuity by the age of 75;

• the maximum income that an individual may withdraw from most drawdown pension funds will be capped at 100 per cent of the equivalent annuity (as defined above) but will apply for as long as an individual retains the fund;

• the minimum annual withdrawal amount from age 75 is abolished.

• this means that, for all ages the drawdown limits will be zero and 100% of GAD;

• the maximum capped amount that may be withdrawn will be determined at least every three years until the end of the year in which the member reaches the age of 75, after which reviews will be carried out annually;

• individuals with drawdown pensions who have a lifetime pension income (see below) of at least £20,000 a year will be able to access the whole of their drawdown funds as pension income without a limit on annual withdrawal (subject to their provider offering flexible drawdown pensions) – but of course any such drawdown income will be subject to tax at the individual’s marginal rate;

• any new pension savings for an individual once a scheme has accepted an application to access the whole of their drawdown pension fund will be liable to the annual allowance charge on all pension input amounts;

• an individual making a withdrawal from a flexible drawdown pension fund during a period when they are resident outside the UK for a period of less than five full tax years will be liable for UK income tax on that withdrawal for the tax year in which they become UK resident again;

• most of the rules preventing registered pension schemes from paying lump sum benefits after the member has reached the age of 75 are being removed;

• the tax rate for all lump sum death benefits is to be set at 55 per cent, apart from death benefits for those who die before age 75 without having taken a pension, which will remain tax free;

• unused drawdown pension funds of a member who dies with no living dependants may be donated tax free to a charity.

The changes above will also apply to members of non-UK pension schemes who have received either tax relief on contributions or funds transferred from registered pension schemes.

What is “lifetime pension income”?

It is to be defined as the following income:

(a) payments of a scheme pension or dependants Scheme pension provided by a registered pension  scheme;

(b) payments of a lifetime annuity or dependants annuity made by a registered pension scheme;

(c) payments under an overseas pension scheme which, if the scheme were a relevant non-UK scheme would fall within paragraph (a) or (b);

(d) payments of a social security pension.

But relevant income does not include.

(a) drawdown pension or dependants. drawdown pension, or

(b) any payments under an overseas pension scheme which, if the scheme were a relevant non-UK scheme, would be drawdown pension or dependants drawdown pension.

In this context social security pension means.

(a) any pension, benefit or allowance to which section 577 of Income Tax (Earnings and Pensions) Act 2003  (ITEPA) applies, and

(b) any pension, benefit or allowance which.
(i) is payable under the law of a country or territory outside the United Kingdom, and
(ii) is substantially similar in character to a pension, benefit or allowance to which section 577 of
ITEPA applies.

What about IHT?

The inheritance tax (IHT) changes proposed are as follows:

• with effect from 6 April 2011, IHT will not typically apply to drawdown pension funds remaining under a registered pension scheme, including when the individual dies after reaching the age of 75;

• with effect from 6 April 2011, IHT anti-avoidance charges that apply to registered pension schemes and Qualifying Non UK Pension (QNUP) Schemes where the scheme member omits to take their retirement entitlements (e.g. a failure to buy an annuity) will be removed;

• IHT charges that may arise where pension scheme trustees have no discretion with regards to the paying out of lump sums after the death of scheme members (i.e. where amounts must be paid to their estate) will remain subject to IHT; and

• IHT will continue to apply to all other lump sums (i.e. those in a non-Registered Pension Scheme or non-QNUP).

So regarding IHT:

whereas previously pension funds  in drawdown would have been liable to a 35% tax charge and no IHT if the policyholder was pre age 75 and a tax charge of 55% with IHT at 40% as well where the policyholder was age over 75, then now there will be a flat rate of 55%  for all and no IHT liability. What this means is those that die in drawdown pre age 75 will be worse off and those that die post age 75 will be better off.

Hope this summary helps. Remember it is crucially important to nominate a beneficiary for your pension plan in case of death to ensure the funds are held in discretionary trust  and are not payable to the estate and become potentially liable to IHT in any case. Have you all done this???? If you are in doubt give us a call and lets check it out.

Despite many experts recommending we move client ‘s monies out of bonds into cash, with higher interest rates predicted we disagreed and sat tight. Not only did this prove beneficial as bonds recovered strongly in late 2009 and 2010, but we also protected clients from the poor returns offered by deposit accounts.

I recently received a summary of the year from an economic perspective which I feel is quite succinct and explains the year well. So here it is:

Q1

* Economic updates generally showed an improving trend, with US GDP displaying 5.6% annualised growth – the strongest performance in the last six years thanks to improving business inventories

* Eurozone news was dominated by events in Greece as its government struggled to cope with the growing fiscal deficit

* The equity market rally was led by cyclical sectors, in particular general industrials and cyclical services, while defensive sectors lagged

Q2

* Markets were driven by global macro-economic concerns, including the possibility of sovereign debt default in Europe, fears over Chinese monetary tightening and the prospect of global deflation, all of which increased risk aversion

* The equity market rally began to falter as investors became more cautious and switched into safe-haven investments

* Demand for global bonds increased

* Inflation levels in most countries began to moderate

* Commodity prices weakened with the exception of gold which benefited from safe-haven demand

* The Japanese yen was the strongest major currency of the period

Q3

* GDP numbers disappointed in Japan and the US, while strong performance in Germany helped eurozone figures to beat expectations

* The Bank of Japan attempted to stimulate growth by lowering interest rates and introducing an asset buy-back programme

* Upbeat corporate earnings and returning risk appetite prompted strong performance in the equity markets

* Generally positive European bank stress test results bolstered demand for financials

* Demand for government bonds remained despite the recovery of equity markets

* The US dollar declined on talk of further quantitative easing action

Q4 – to date

* Ireland accepted emergency funding from the European Central Bank in order to avoid default on debt repayments

* German manufacturing data showed an increase, with demand for auto stocks returning

* The US Federal Reserve launched a second round of quantitative easing with a US$600bn treasury purchase pledge

* Crude oil prices rose to a two-year high as risk appetite returned

So that’s a brief overview of the year to date, let’s hope the final few weeks prove to be smooth sailing.

2011 – what will it bring?

My prediction:

• Continued low interest rates
• continued slow recovery
• volatility will remain as the austerity measures from government budgets across the world begin to impact.

Not too dissimilar to 2010 really. I do think, however, we will see some key differences. China & India’s strong growth will continue but in a less steep curve. Currency issues and high inflation, I believe, will impact this year to slow things down. Long term, however, both countries together with emerging markets look set to outclass the developed countries like US, UK and the Euro sector.

I think we will see an improvement in the property market in 2011 – again this will be slow, as banks will announce yet more huge profits but with it a slight increase in willingness to lend. Spring will bring more buyers, as the hunger to move returns, but again this will be hampered by increased unemployment in the government sectors (offset only marginally by re-employment in the private sector).

We will see a continued switch from Employer quality pension schemes, such a final salary schemes, to the onus being on the individual. This will help companies save a lot of money and improve profits in the medium term as well.

Clients therefore beware!! Plan your own retirement because no one else will.

In the meantime have a great Christmas and New Year and may we all prosper in the years ahead.