News & Views

Women worrying about day-to-day living costs

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The gender pay gap is making the headlines again this week, with larger firms across the UK facing a deadline to publish their figures.    

The presence of a gender pay gap in the UK is well known.  Women typically earn less than men during their careers, with lower earnings the result of many different reasons.  The reasons for lower pay include individual career choices as well as other innate, and external environmental factors. 

Lower average pay for women also seems to have resulted in some severe impacts for their financial wellbeingNew research from Close Brothers, conducted with renowned corporate wellbeing expert Professor Sir Cary Cooper, found that women are twice as likely to worry about meeting their day-to-day living expenses as men.  They found that 16% of female employees worry about this, compared to 7% of men. 

Within Close Brothers’ newly developed Financial Wellbeing Index, UK employees scored an average of 53.6 out of 100.  This index considers several areas of financial health.  However, female employees scored themselves far lower than male employees, at just 48.1 compared with 58.3 for men, on average. 

The research found that women perform worse than men across all seven areas of financial wellbeing.  Worrying about money on a day-to-day basis represents underperformance for women in the short-term.  They also trail behind men when it comes to their long-term financial planning.  Nearly half of the responses from women reported that they felt unprepared for retirement.  This was compared with a quarter of answers for men.  Additionally, a third of women say that they are not confident that they will be able to achieve their long-term savings goals, nearly twice that of their male co-workers.  

This finding is confirmed when we consider how much men and women have accumulated, on average, in pension savings.  Earlier research from Close Brothers found that the average amount saved for retirement by women was less than half that saved by men, at £53,000 compared to £120,000. 

A big factor in all of this is a lack of confidence when making financial decisions.  This is partly due to a lack of understanding about financial products, including which are best suited to meet specific financial goals.  Close Brothers found that only a third of women say they are confident in choosing the most suitable financial products for their long-term savings goals, compared with 50% among men.   

Jeanette Makings, Head of Financial Education at Close Brothers said: 

“With more women in lower paid roles, women are being paid less and therefore saving less, to the detriment of their financial wellbeing. But it is not the only underlying cause. 

“The pressures and financial circumstances of female employees are often different to those of their male counterparts, so the level and focus of financial education on offer needs to reflect that.  But the good news is that these issues are solvable.”  

We agree that these issues are solvable which is why Wells Gibson is passionate about defining your desired lifestyle and goals and ensuring you have a Wealth Plan which gives you certainty and secures all that you value. 

To learn more about a Wells Gibson Wealth Plan please don’t hesitate to get in touch. 

A ‘set-and-forget’ investment approach? Absolutely not!

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Wells Gibson’s systematic, evidence-based approach to investing often results in very little activity in our clients’ portfolios.  However, it would be wrong to think that this is the result of a ‘set-and-forget’strategy and the Wells Gibson Investment Committee would refute such a suggestion.  Considerable effort goes on behind the scenes to allow this state of calm consistency to exist.  The fortitude and discipline to deliver ‘not much needs to be done to your portfolio except for rebalancing’advice, comes from a rigorous process of ongoing challenge to the status quo.

The broad terms of reference of the Wells Gibson Investment Committee are set out below:

Manage risks over time

  • The Wells Gibson Investment Committee is responsible for the oversight of the risk in portfolios and the wider investment process.Meetings are regular and minutes are taken, which include all action points to be followed up on. Third-party inputs and guest members – such as Albion Strategic Consulting – provide independent insight and challenge.

 Challenge the process

  • The investment process at Wells Gibson is driven by the latest empirical evidence and theory available. It is always open to challenge.  If new evidence suggests that doing things differently would be in our clients’ best interests, then we will revise our approach.  The investment process is evolutionary, but change is most likely to be slow and incremental.

Review the portfolio structure

  • The underlying characteristics of Wells Gibson’s client portfolios are reviewed, including performance and risk level attributes. Risks (asset class exposures) and their allocations within a portfolio are evaluated. Any issues are raised and resolved. Existing asset classes are reviewed alongside asset classes and risk factors that currently sit outside the portfolios.  Areas of interest are placed on a longer-term ‘watch’ list.

Review the current ‘best-in-class’ investment funds

  • The current funds are ‘best-in-class’ choices seeking to deliver the returns due to investors for taking specific market risks.Each fund has a role to play in a portfolio and its ability to deliver against this objective is regularly reviewed. Any fund-related issues are raised and resolved.

Screen for new funds and undertake appropriate due diligence

  • Although the current funds were recommended as ‘best-in-class’, new funds are regularly being launched. Tough screening criteria are in place against which new funds are judged.  New, potential ‘best-in-class’ funds face detailed due diligence and approval. They are included only when they make the grade.  Given the quality of the funds already in portfolios, the threshold for replacement is high, but not impossible for newer funds.

Reaffirm or revise the investment process

  • The Wells Gibson Investment Committee is accountable for reaffirming or revising the structure of client portfolios. Risk (asset) allocations and fund changes are approved by the Investment Committee.Any actions arising from portfolio revisions will be undertaken, after discussion with and agreement by clients.

The next time you open your latest valuation report, remember that despite the lack of activity on the surface, the Wells Gibson Investment Committee continues to paddle furiously behind the scenes to allow this be the case.

In the immortal words of the investment legend and author Charles Ellis, “In investing, activity is almost always in surplus.”  However, perhaps we should amend this slightly to, “In investing, activity is – except for the Investment Committee – almost always in surplus.’

Understanding the Healthy Life Expectancy Gap

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One of the biggest stories of the past century has been a steady and impressive rise in life expectancy.

Life expectancy has been on the rise globally for many years, and despite recent suggestions of a slowdown or pause in life expectancy improvements, we can enjoy many more years of life (on average) today than ever before.

But there is an important distinction to make between life expectancy and healthy life expectancy. The latter describes the number of years we can expect to live, on average, in good health.  Therefore, in essence the years in which we are actually physically or mentally able to enjoy our wealth.

As Financial Planners, we’re naturally interested in how long our clients might live; this is, after all, a critical factor in understanding whether you are likely to run out of money during your lifetime.

Equally as impressive is the likely length of time our clients might spend in poor health in later life before they die.

The latest official figures paint an interesting picture, especially as they look at life expectancy and healthy life expectancy in different parts of the country. Whilst we do not have the precise data to look at the gap between the least and most deprived areas in Scotland the study (conducted by the Office for National Statistics (ONS)) infers a similar pattern to the findings for the rest of the UK.

According to the ONS, in England, the gap in life expectancy at birth between the least and most deprived areas of the country was 9.4 years for males and 7.4 years for females. These are the figures for 2015 to 2017. For healthy life expectancy, it was 19.1 years and 18.8 years respectively.

For Wales, this gap in life expectancy at birth was 9.0 years for males and 7.5 years for females. For healthy life expectancy, the difference was 18.1 years and 19.4 years respectively.

The ONS also reported that, from 2012 to 2014, there have been statistically significant increases in the inequality in life expectancy in England for both males and females at birth, and at age 65.

They found that the inequality in female life expectancy at birth had the most significant growth, rising by 0.5 years.

In England, the growth in the female inequality came from a statistically significant reduction in life expectancy at birth of almost 100 days among females living in the most deprived areas between 2012 to 2014 and 2015 to 2017, together with an increase of 84 days in the least deprived areas.

In Wales, the most deprived females were living up to 11 years more in a more reduced state of health than their least deprived counterparts.

In England, men resident in the least deprived areas could expect 13.3 years of good health from 65 years of age, but only 5.8 years if resident in the most deprived areas.

What does all of this mean for our work as Financial Planners? It’s often said that averages hide a vast range of outcomes. We accept that none of our clients are ‘average’ and each will have a very different likelihood of exceeding typical life expectancy and healthy life expectancy figures.

In deciding on a reasonable assumption for both expectancies within our Financial Plans, we need to consider a ‘worst case’ scenario that allows our clients to live longer than ordinarily expected; but also to spend more time in poor health, with the financial implications of this factored into plans.

Please don’t hesitate to contact Wells Gibson if you have any questions.

Lifetime allowance tax could trap more than a million pension savers

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Initially introduced in 2006, the pension lifetime allowance has been gradually reduced from its peak of £1.8m.  For most people, the lifetime allowance in the current 2018/19 tax year is. £1,030,000.  From 6th April 2019, this will increase to £1,055,000, in line with price inflation as measured by the Consumer Prices Index.

It’s an important tax charge to understand, as those with pension benefits exceeding the lifetime allowance have to pay a charge on their excess benefits value.  The lifetime allowance is assessed each time you take a benefit from a pension scheme. At this point, the value of the pension benefit is compared against your remaining lifetime allowance, to work out if the lifetime allowance charge is due.

The value of pensions is calculated differently depending on the nature of the pension scheme.  For a personal pension, it’s relatively simple to compare the value of the pension pot against the lifetime allowance, as both are capital amounts.  For a defined benefit pension, the value is calculated by multiplying the annual pension by 20 to get a capital amount to compare with the lifetime allowance.

Other pension benefits assessed against the lifetime allowance including certain tax-free lump sum benefits paid to your survivors if you die before your 75thbirthday.  There’s also a lifetime allowance check made against any unused pension benefits once you reach your 75th birthday.

A new analysis of the lifetime allowance has concluded that a significant number of retirees could face a lifetime allowance charge in the future.  The analysis, carried out by insurer Royal London, estimates that around 290,000 people already have pension benefits more than the lifetime allowance.  They are forecasting that more than a million people risk breaching the lifetime. allowance by the time they retire.  This follows three cuts to the lifetime allowance since 2010.

When the value of your pension benefits exceeds the lifetime allowance, you can end up paying a 55% charge on the excess above the allowance!

Among the findings from this analysis by Royal London was around 290,000 non-retired people who have already thought to have accumulated pension rights over the lifetime allowance.  Despite holding substantial pension benefits, less than half of these people are thought to have applied for lifetime allowance protection, which can preserve a previously higher lifetime allowance and reduce the tax charge paid.

Royal London also found that almost half of people who already have pension benefits over the lifetime allowance continue to add to their pension wealth, potentially exacerbating the future tax charge.

Among those non-retired people who do not yet have pension wealth exceeding the lifetime allowance, there are an estimated 1.25 million who can expect to breach the allowance by the time they retire.  Those most likely to breach the lifetime allowance include relatively senior public sector workers with long-service, who have defined benefit pensions that will exceed the lifetime allowance. This is especially likely as those in the public sector now have to work until age 65, rather than 60.

Another group likely to get caught in the lifetime allowance trap are relatively well-paid workers in defined contribution pension schemes where they receive a generous contribution from their employer.  Typical salary ranges of those likely to fall into this category are £60,000 to £90,000 a year.  Those earning more are less likely to get caught in a lifetime allowance trap because they face limits on how much they can contribute to a pension each year.

The rising number of people likely to exceed the lifetime allowance in the future is the result of the allowance rising in line with CPI price inflation but wages and pension funds typically rising much faster.  As a result, the lifetime allowance is likely to ‘bite’ progressively more severe over time, affecting hundreds of thousands of people who don’t necessarily think of themselves as wealthy.

Commenting on the research, Steve Webb, Director of Policy at Royal London said:

“This research shows, for the first time, how the drastic cuts in the Lifetime Allowance mean that large numbers of workers will now be caught by a limit that was originally only designed for the super-rich.

“It is shocking that over a quarter of a million people have already breached the LTA and that many of these are still adding to their pensions.  They are likely to get a nasty shock – and a big tax bill – when they do finally draw their pensions.

“And more than a million further workers who are not currently over the LTA could find themselves in breach unless they take action.  This is truly a Lifetime Allowance timebomb.

“Many workers, especially those in Defined Benefit pension schemes, will have little idea that this is an issue and could be heading for a nasty jolt.  The “Government needs to think hard about how to make sure people are aware of these limits in time to make alternative arrangements, and individuals need to take expert advice if they are to avoid potentially huge tax bills.”

There are schemes in place designed to protect your lifetime allowance however before you register for a protected lifetime allowance, it’s essential to seek advice, ideally from a CERTIFIED FINANCIAL PLANNERTM Professional or Chartered Financial Planner.

Please don’t hesitate to contact Wells Gibson if you have any questions.

Progress on the regulation of crypto assets

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How do you feel about cryptocurrency, including Bitcoin or Ether?  After being the subject of much press and hype, the world of cryptocurrency speculation has been a lot quieter of late, largely the result of plummeting prices.

Despite less adverts targeting investors and excitable news coverage, financial regulators continue to consider how they might approach cryptocurrency regulation in the future.  This is important because consumer protection is at stake; with cryptocurrency offering a decentralised, anonymous and entirely unregulated environment, there’s a significant risk of people losing their shirts when speculating in this market.

As part of their work to understand cryptocurrency, the Financial Conduct Authority (FCA) has published some new research considering UK consumer attitudes towards crypto assets.  This research includes qualitative interviews with UK consumers and a national survey.  Their qualitative research has indicated some potential consumer harm, as many people just don’t understand what they are buying.  For example, the FCA reported that several of those interviewed talked about wanting to buy a ‘whole’ coin, which suggested they didn’t realise they could purchase part of a crypto asset.

Despite this apparent lack of consumer understanding, crypto asset owners interviewed for the survey were often looking for ways to ‘get rich quick’.  They spoke about their friends, acquaintances and social media influencers as their key motivations for wanting to buy crypto assets.  Within both the survey and qualitative research, the FCA found that some crypto asset owners had bought the digital currency without carrying out any form of research first.

But despite widespread ignorance around the details and risks, the FCA concluded in their research that the overall scale of harm might not be as high as previously believed. They found that 73% of UK consumer don’t know what a cryptocurrency is or can’t define it.  The most aware of cryptocurrencies are men between the ages of 20 and 44.

The FCA is estimating that only 3% of consumers have ever bought a cryptocurrency, and around half spent less than £200 on their purchase.  Most of those who bought a cryptocurrency funded the purchase out of their disposable income, which suggests there is little risk to their wealth from making

this very speculative investment.

The most favoured cryptocurrency seems to be, unsurprisingly, Bitcoin.  More than 50% of the crypto asset owner survey sub-sample said they had spent their money on Bitcoin.  One in three had purchased Ether, another cryptocurrency.

Christopher Woolard, the FCA’s Executive Director of Strategy and Competition, said:

“This research gives us evidence we haven’t had before about how consumers interact with crypto assets.  This will help us ensure we are acting on evidence as we seek to protect consumers and market integrity.

“The results suggest that although cryptoassets may not be well understood by many consumers, the vast majority don’t buy or use them currently.  Whilst the research suggests some harm to individual cryptoasset users, it does not suggest a large impact on wider society.

“Nevertheless, cryptoassets are complex, volatile products – consumers investing in them should be prepared to lose all of their money.”

That’s wise words from the FCA; cryptocurrency speculation is a very high-risk activity, and the risk of total capital loss is genuine. It’s not the first time the regulator has warned on the dangers of cryptocurrencies; in the past, they have pointed out how highly volatile and risky these are.

With no regulation for many forms of cryptocurrency, in the UK or internationally, it’s unlikely you would be entitled to make complaints to the Financial Ombudsman Service or protected by the Financial Services Compensation Scheme if things go wrong.

It will be interesting to see how the FCA’s work on this area develops.  They are currently working with the Government and Bank of England, as part of a UK Cryptoassets Taskforce, to understand and address the harms from crypto assets and encourage innovation in the interests of consumers.  This work could result in some crypto assets falling within the scope of UK financial services regulation or even result in a ban on the same of certain cryptoasset derivatives to retail investors.

From our perspective at Wells Gibson, before speculating with cryptoassets, you need to consider how much risk you are willing and able to take.  Furthermore, do you need to take this sort of risk to achieve and maintain the lifestyle that’s important to you.