Team No Comments

Welcome 2022 – Happy New Year! Some less strenuous New Year’s resolutions..

Make your money work harder:

  1. Maximise tax reliefs and allowances.  This will help you get more for your money when investing and planning.  The obvious options are pension funding and using your ISA allowances.  But we have plenty more to use if appropriate.
  2. Have you any lazy capital sitting in cash?  If you have a medium or long term investment horizon, consider investing some of it for real capital growth over time.  Cash buying power is eroded by inflation over the long term.
  3. Do you have any legacy pension and investment assets that have not been reviewed recently?  Are they invested in line with your risk profile, capacity for loss and objectives?  If not, you could be missing out on potential investment returns and/or taking too much risk.
  4. Do you have any spare monthly income?  If you have, you could invest it in either your pension or a Stocks & Shares ISA.  Other investments are also available.

Get your ‘legal’ house in order:

  1. Do you have up to date Wills in place?  If not, please take legal advice.
  2. Have you got both Power of Attorney in place?  One for Finance and Property and the other for Health and Welfare: https://www.gov.uk/power-of-attorney
  3. Are your pension nomination forms up to date on your current Workplace Pension and on any legacy pension assets?  As these are potentially some of your biggest assets, it’s important that your nominations/Expression of Wishes reflect your current situation.  They can drift out of date and legislation can and does change.

Please take independent financial advice and legal advice as appropriate.

Whilst any of the above won’t help you lose weight or get a (better?) beach body they could help you straighten out your finances for your financial good health.

All the best for 2022, have a happy, healthy and prosperous year.

Steve Speed

04/01/2022

Team No Comments

Goodbye 2021 and Happy New Year!

Goodbye 2021 and Happy New Year!

Thank you for taking the time out to read our blogs this year.  Our focus since the pandemic started is to keep everyone abreast of market news as we have been through this roller coaster ride for economies and markets.

We have used a variety of market commentary and input from economists, fund managers and stockbrokers from a wide range of businesses.  I think it’s important for you to read a variety of views to understand the consensus view.

In addition, we pop in the occasional planning article on topical issues or things that we think we need to bring to your attention.  Hopefully these are useful too?

Given the last c 22 months that we have experienced we are changing the way we think as a business here too and once again we have not mailed out Christmas cards but decided to make charitable donations and sponsor good causes throughout the year.

We have supported the following this year:

Reach Family Project (Bolton)

Queenscourt Hospice (Southport)

Macmillan Cancer Support

Armed Forces Charity

Alzheimer’s Society

The Candice Colley Foundation (aims to help leukemia and other blood cancer patients and their families)

The Bloom Appeal (Merseyside against blood cancers – provides support to patients and medical staff)

We aim to continue this into 2022.

With regards to the business, we are managing in the current environment, but I really do look forward to when we can all work in the office together again.  Personally, I think this is the best option for the mental health and wellbeing of us all and for the development of our staff.  We also benefit from the teamwork, the banter and the social aspects of work being back in the office.

We wish you all a happy, healthy, and prosperous New Year!  Hopefully 2022 will be much better for all of us.  Take care of yourselves.

Steve

Steve Speed and all the team at P and B.

31/12/2021 

Team No Comments

What lights up your Christmas tree?

Please see the below article from Invesco and our own input following the article:

It’s Christmas. You’re sitting at home, marvelling at your lit up Christmas tree.

Have you ever wondered where the electricity that adds a magical sparkle to a simple pine tree comes from?

For the best part of the 20th century, electricity was generated by burning fossil fuels such as coal or gas.

The UK was the first country that burned coal to supply energy. And in the late 1980s, coal accounted for 60% of electricity production in the country.

But this has changed.

By 2020, this number had fallen to less than 2%. And much of this change was due to an increased awareness of the environmental impact of fossil fuel consumption.

With climate change high on the political agenda, countries all around the globe have set their eyes on renewable energy to supply people’s homes with electricity.

In a few years’ time, it may power those sparkling lights on your Christmas tree. 

Our Comment

The conversations about Climate Change are not new, but over the past few years, they are more serious.

One of the key areas of ESG investing looks at the environment. What are we doing to reduce our carbon footprint?

There are five major renewable energy sources which are as follows:

  • Solar energy (from the sun)
  • Geothermal energy (from heat inside the earth)
  • Wind energy
  • Biomass (from plants)
  • Hydropower (from flowing water)

They are called renewable energy sources because they are naturally replenished. The sun shines, plants grow, wind blows, and rivers flow.

People are also looking at new and innovative sources of energy, also known as ‘alternative energy’ sources.

Energy supplier EDF list the following ‘alternative energy sources’ which scientists are currently researching:

  • Solar wind
  • Algal biofuels
  • Body heat
  • Bioalcohols
  • Dancefloors
  • Jellyfish
  • Confiscated alcohol

The possibilities could be endless, and it’s this research and visibility from articles such as this that may help change the attitudes and practices of how we source and use energy.

Andrew Lloyd DipPFS

29/12/2021

Team No Comments

What President Biden could do to dampen oil prices (but probably won’t)

Please find below, an article regarding the global energy market and the options for the Biden administration. Received from AJ Bell, yesterday morning – 05/11/2021.

It is a case of so far, so bad for US President Joe Biden’s plan to force the oil price lower by releasing 50 million barrels of oil from America’s Strategic Petroleum Reserve (SPR). Fifty million barrels a day may sound a lot. But in global terms it is half a day’s demand and America’s entire SPR would meet worldwide oil demand for barely a week.

The Biden plan’s failure to make a dent in oil prices seems less surprising in this context. By contrast, the OPEC+ cartel can move oil markets, as its 2020 production cut and then gradual subsequent increases in supply can testify. OPEC and Russia are still producing less than they were before the pandemic, even as the global economy and energy demand recover, and the latest OPEC+ meeting (2 December) will be the next test of the cartel’s influence.

“Fifty million barrels of oil may sound a lot but in global terms it is half a day’s demand and America’s entire Strategic Petroleum Reserve would meet worldwide oil demand for barely a week.”

COP26 made quite clear the political and public will to move away from hydrocarbon as our prime source of fuel. You can therefore hardly blame Saudi Arabia, Russia and other leading producers for looking to monetise their oil assets while they can still do so.

“Demand for energy could therefore outstrip supply, with the result that hydrocarbon prices could remain firm, or even keep rising – at least unless COVID-19 rears its head again and depresses economic activity and oil demand in the process.”

In addition, alternative, renewable sources are not yet ready to take up all of the slack from oil and gas. Demand for energy could therefore outstrip supply, with the result that hydrocarbon prices could remain firm, or even keep rising – at least unless COVID-19 rears its head again and depresses economic activity and oil demand in the process.

That leaves advisers and clients with a quandary about what to do with oil stocks – and whether they should put profit over principle should oil and gas prices stay stronger for longer – and what to think about the global economy. High energy prices are a tax on consumers and a source of margin pressure for many corporations. If oil and gas rocket, there remains the chance that the indebted global economy could wobble under the strain, virus or no virus, just as it did when oil reached $147 a barrel in 2007.

Deep water

“The combined capital investment budgets of the seven Western oil majors – BP, Chevron, ConocoPhilips, ENI, ExxonMobil, Shell and TotalEnergies – looks set to drop to its lowest mark since 2005, as a percentage of sales.”

Unlikely as it may seem, oil and gas companies are listening to the political and public call for a shift to a greener, less carbon-intensive world. The combined capital investment budgets of the seven Western oil majors – BP, Chevron, ConocoPhilips, ENI, ExxonMobil, Shell and TotalEnergies – looks set to drop to its lowest mark since 2005, as a percentage of sales. In many cases, those budgets include renewable projects, too, so spending on oil production and exploration is by implication lower still.

Global oil majors continue to shy away from new investment in oil and gas fields

Source: Company accounts for BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Shell and TotalEnergies, Marketscreener, consensus analysts’ forecasts

This can also be seen in the global rig count data provided by Baker Hughes (BHI:NYSE). On the previous occasions when oil traded above $80 a barrel, over 3,000 rigs were active. The current figure is barely half that.

Global oil rig activity is subdued relative to prior periods of $80-plus oil

Source: Baker Hughes, Refinitiv data

In the absence of a COVID-inspired setback, that again points to a possible supply/demand squeeze, especially as banks, insurers and many pension funds and managers continue to publicly declare their unwillingness to finance new oil and gas exploration projects.

Action points

“This is not to say President Biden has no options at all, as he seeks to manage the energy transition in the world’s largest economy and keep hard-pressed consumers on board as he and the Democratic Party prepare for the mid-term elections in 2022.”

This is not to say President Biden has no options at all, as he seeks to manage the energy transition in the world’s largest economy and keep hard-pressed consumers on board as he and the Democratic Party prepare for the mid-term elections in 2022.

  • The President could encourage oil and gas exploration with tax breaks or at least grant permission to pipelines that his administration has previously blocked, such as the $8 billion Keystone XL project. This does not seem likely, given his and his party’s commitment to the Paris Agreement and COP26.
  • President Biden could look to thaw relations with Venezuela and Iran, both of whom are currently locked out of global markets by US sanctions. Granted, it is hard to get a handle on potential Venezuelan output given the chaos that prevails there, but Caracas has produced two to three million barrels a day in the past. It is thought that Iran could double output fairly quickly from two to four million barrels a day if given the chance. Hey presto – an extra four to five million barrels a day in total. But geopolitics may rule out this option, as those sanctions are in place for a reason and the President will not want to look dovish on foreign policy ahead of those mid-term polls either.

If the President wants to curry favour, as he may well, who is to say he does not offer consumers some sort of subsidy or hand-out, so they can meet their fuel and heating bills? In a world where money printing and negative interest rates are accepted as normal, and austerity is political poison, anything is possible. But it might not be wise to expect oil consumption, or prices, to fall if such a vote-buying scheme is cooked up.

Please continue to check back for a range of blog content from us and from some of the world’s leading fund management houses.

Alex Kitteringham

6th December 2021.

Team No Comments

Budget notes from Brewin Dolphin

Received last night, 27/10/2021.  Our thoughts added.

Chancellor Rishi Sunak has delivered his autumn budget, in which he announced a series of measures that aim to strike a balance between “preparing for a new economy post-Covid” and ensuring household wallets are not unduly squeezed by rising prices.

The budget came against a backdrop of unprecedented government borrowing, supply chain disruption, rising energy prices, and surging inflation that is forecast to reach 4.4%1 next year. Yet with economic growth forecasts more optimistic than six months ago, Sunak moved away from the March budget’s focus on protecting people’s jobs and livelihoods to one of investing in public services and infrastructure. 

After already freezing tax thresholds and increasing national insurance and dividend tax rates, the chancellor spared investors and pensioners from further tax hikes. At the same time, he proposed new fiscal rules that would commit the government to balance the books and reduce national debt. 

Here, we look at the main announcements and what they might mean for investors and the economy.

The economy 

The lifting of lockdown restrictions over the summer provided a much-needed boost to activity, with the latest figures from the Office for Budget Responsibility (OBR) providing a somewhat rosier picture of the economy. 

The OBR expects the economy to return to its pre-pandemic level by the turn of the year, six months earlier than previously thought, with gross domestic product (GDP) growing by 6.5% this year compared with the March forecast of around 4% growth. The OBR also revised down its estimate of long-term scarring to the economy from the pandemic to 2% from 3% previously. Meanwhile, unemployment is expected to peak at 5.25%, compared with the March forecast of 6.5%, suggesting the end of furlough will have a smaller impact than previously thought. 

At the same time, higher tax receipts mean government borrowing in 2021/22 is expected to be £183bn, some £51bn lower than the previous forecast of £234bn. However, with interest payments on borrowing revised up by £15bn, and the GDP growth forecast for 2022 lowered from 7.3% to 6%, the challenge of balancing the public finances is far from simple. Sunak proposed new fiscal rules whereby net debt as a percentage of GDP should be falling, and the government should only borrow to fund investment, with everyday spending funded by taxation. 

P and B comment:

This is a really difficult balancing act, with a lot to be taken into consideration.  For example, if interest rates increase too quickly the impact on the economy could be dramatic. Consumers are spending less, and the State is having to pay a lot more to service the interest on the covid debt in addition to other debt. Total debt in the UK c £2.2 trillion.

Investment in services and the economy 

A key area of focus was the announcement of additional investment in public services and infrastructure. This will include an extra £5.9bn to help the NHS tackle the backlog of non-emergency procedures and modernise digital technology; £5.7bn to transform transport networks outside London; £4.7bn for schools; £1.8bn for new housing; a £1.4bn fund to attract overseas investment into the UK; and increased spending on sports and youth clubs, support for families and children, and crime prevention. The government will also increase its investment into research and development to £20bn by 2024/25 as part of its goal to “drive economic growth and create the jobs of the future”.

P and B comment:

A very welcome investment into research and development for economic growth and future jobs.  Unfortunately the NHS and social care will need a lot more funding.

National living wage 

In an effort to help families who are struggling with rising prices, Sunak confirmed the national living wage would rise from £8.91 to £9.50 per hour for workers aged 23 and over from April 2022. This represents an increase of 6.6%, which is double the September inflation rate of 3.1%. 

Sunak also ended the public sector pay freeze introduced last November, cancelled the planned rise in fuel duty, and reduced the universal credit earnings taper rate from 63p to 55p in the pound.

P and B comment:

All of the above points are welcome but lower earners will need every penny as they combat inflation generally and in particular energy prices this winter.

Business rates 

The chancellor froze the business rates multiplier for a further year, which he said would be equivalent to a tax cut worth £4.6bn over the next five years, with bills 3% lower than without the freeze. He also announced plans to temporarily halve business rates for the retail, hospitality and leisure sectors, overhaul alcohol duties and reduce taxes on draught beer and cider.

P and B comment:

The business rates system in the UK is now out of date and doesn’t take into account the move to online shopping.  This system needs a complete overhaul but the problem is it’s worth c £25 billion a year to the Treasury.

Personal allowances

The chancellor previously announced in March that the personal tax allowance and higher-rate tax threshold would be frozen for five years from April 2021. The personal allowance, which is the amount you can earn each year before you start paying income tax, therefore remains at £12,570, while the higher-rate tax threshold remains at £50,270. By freezing these thresholds, more people could drift into higher and additional-rate income tax bands, and potentially see their personal allowance tapered once adjusted net income exceeds £100,000. 

The national insurance (NI) threshold was also frozen at £9,568. However, as announced in September, the rate of NI for employees and the self-employed will increase by 1.25 percentage points from April 2022 to help fund health and social care costs. Working pensioners will pay 1.25% on their earned income for the first time from April 2023.

P and B comment:

Effectively no real change from previous announcements.  As we get squeezed for more tax in all areas, it makes tax planning more important.

Dividend tax

As announced in September, the rate of dividend tax will also rise by 1.25 percentage points from April 2022 to 8.75% for basic-rate taxpayers, 33.7% for higher-rate taxpayers, and 39.35% for additional-rate taxpayers. The annual dividend allowance – the amount of dividend income you do not have to pay tax on – will remain at £2,000. The changes are expected to raise around £600m for the Treasury. 

Looking for ways to mitigate dividend tax, including investing through ISAs and pensions and taking a ‘total return’ approach to investments, could therefore become even more important when the tax hike comes into effect.

P and B comment:

As above.  Tax planning is more important.  Use the right products and allowances, plan ahead.

ISA allowance

Fortunately, for savers and investors, there were no changes to ISA allowances. The main ISA limit for 2022/23 will remain at £20,000, meaning a couple could invest up to £40,000 a year into ISAs to benefit from tax-free income and growth. The limit for Junior ISAs remains at £9,000. 

P and B comment:

ISAs still remain a very useful planning product alongside other assets.

Capital gains tax

There was some speculation that the chancellor would scrap existing rates of capital gains tax (CGT) and align them more closely with income tax rates. This was recommended by the Office of Tax Simplification in November 2020 and, if implemented, would have resulted in higher-rate taxpayers paying CGT at 40% on profits or gains exceeding the annual CGT exemption. 

Fortunately for investors, this did not come to fruition. CGT rates remain at 10% and 20%, or 18% and 28% on properties that are not a main home. The annual CGT exemption remains at £12,300 after being frozen in the March budget until 2026. 

P and B comment:

This is good news.  Any ‘simplification’ would have been penal.

Pensions tax relief

It was rumoured that the chancellor would look at overhauling pensions tax relief by, for example, moving to a flat rate of 25%. In the end, Sunak chose to leave current rates untouched, meaning higher-rate and additional-rate taxpayers can continue to benefit from tax relief of up to 40% and 45%, respectively. The pension annual allowance also remains at up to 100% of taxable earnings or £40,000, whichever is lower (this may be tapered for those with high incomes). 

As more people drift into higher tax bands due to the personal allowance and higher-rate tax threshold being frozen, these tax reliefs could make pensions an even more valuable financial planning tool.

P and B comment:

Pension tax relief rumours of change have been around for years.  Thankfully, no change here.  We need to maximise our pension funding whilst we have this tax relief available to us.

Pension lifetime allowance

The chancellor announced in March that the pension lifetime allowance, which is the total amount you can save into your pension before incurring tax charges, would be frozen until 2026. The allowance will therefore remain at £1,073,100 in the 2022/23 tax year. Any money withdrawn as a lump sum above this level will incur a 55% tax charge, while money withdrawn as income will incur a 25% charge, with the remainder then subject to income tax at the individual’s marginal rate. 

While the lifetime allowance might seem generous, pension contributions, tax relief and investment growth over several decades could mean those with seemingly modest pension portfolios could be at risk of exceeding the threshold. It is therefore crucial that savers seek expert advice on the best course of action for their individual circumstances. 

P and B comment:

As more people breach the Lifetime Allowance, I think it’s perceived as a target by some, an achievement. Having more pension than the Lifetime Allowance is not necessarily an issue, it means you have good pension assets and should be able to sustain a reasonable level of retirement income over the long-term.

Other tax planning vehicles are also available if you have good levels of pension provision in place.

Inheritance tax

The inheritance tax (IHT) thresholds remain the same and will be frozen until April 2026. Everyone is entitled to pass on assets of up to £325,000 on their death, free from IHT. This may be boosted by the residence nil-rate band, for passing on a property to a direct descendant – which remains at £175,000 per person. 

This means a married couple with children will be able to pass on a maximum of £1m in total without having to pay IHT – two lots of £325,000 (£650,000) and two lots of £175,000 (£350,000).

Although IHT thresholds have been frozen, there is still uncertainty around how the tax could be treated in the future following several reports from the Office of Tax Simplification and an All-Party Parliamentary Group. Seeking advice on IHT as early as possible, when there are more potential options to mitigate the tax, could therefore prove especially important in the years ahead.

P and B comment:

If you have an inheritance tax problem, start your planning now. This type of planning is a journey and can take many years to do. 

Budget – general comment from P and B:

An interesting Budget from Rishi Sunak as he tries to balance increasing tax receipts to pay for the NHS, social care, investment in the economy and servicing the massive debt we have in the UK, whilst getting the economy back to full growth following Covid and the impact of Brexit.

It’s a very delicate balance. We need the consumer to continue spending as c 60% of the UK economy is based on consumption, and too many tax rises and increases in the cost of living could reduce consumption as we become more cautious.

The last c 19 months has been difficult but this transition phase as we try to exit the pandemic and return to normal is very tricky too. Central Banks need to maintain the status quo and not raise interest rates too quickly and governments globally need to remain supportive.

Hopefully our government and the Bank of England will make the right decisions – we will see.

Steve Speed

28/10/2021

1 Source: CPI inflation. Office for Budget Responsibility: ‘Economic and fiscal outlook – October 2021’

Team No Comments

What do the UN Global Compact Principles mean for investors?

Please see the below article that we received from fund managers Quilter Investors yesterday afternoon:

With climate-related risks and environmental challenges seemingly at the forefront of investors’ minds, it’s important that all those involved in the investment industry adopt a broad approach when assessing the major risks facing corporate sustainability today. This should include human rights abuses and forced labour and corruption, as risks to corporate sustainability affect not only shareholders and bondholders but also other stakeholder groups including customers, suppliers and employees.

The UN Global Compact is one of the many tools that can help investors assess threats to sustainable business across the companies in which they invest.

The UN Global Compact – what is it?

Launched in 2000, the UN Global Compact is the world’s largest corporate sustainability initiative aimed at promoting corporate sustainability and encouraging innovative solutions and partnerships through 10 guiding principles.

The UN Global Compact supports companies in responsibly aligning their strategies and operations, in addition to helping them to advance broader societal change, through initiatives such as the UN Sustainable Development Goals.

It also sits alongside the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, which is another voluntary initiative to support sustainable business.

The UN Global Compact’s principle-based framework is broadly split into four key areas – human rights, labour, environment and anti-corruption – to help guide businesses in their activities in these areas. The framework is derived from numerous international declarations for companies and countries, such as the Universal Declaration of Human Rights and the Rio Declaration on Environment and Development.

The 10 Principles

Human Rights

  • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights.
  • Principle 2: Businesses should make sure that they are not complicit in human rights abuses.

Labour Standards

  • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining.
  • Principle 4: Businesses should uphold the elimination of all forms of forced and compulsory labour.
  • Principle 5: Businesses should support the effective abolition of child labour.
  • Principle 6: Businesses should uphold the elimination of discrimination in respect of employment and occupation.

Environment

  • Principle 7: Businesses should support a precautionary approach to environmental challenges.
  • Principle 8: Businesses should undertake initiatives to promote greater environmental responsibility.
  • Principle 9: Businesses should encourage the development and diffusion of environmentally-friendly technologies.

Anti-corruption

  • Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Protection of human rights

Principles one and two relate to the importance of businesses to both support the protection of human rights and ensure that they are not complicit in human rights abuses.

A company that may be deemed to be in violation of the human rights principles could have revenue exposure to jurisdictions or authoritarian governments where human rights abuses are prevalent.

These companies are frequently flagged across emerging markets. For instance, an Indian port infrastructure company was flagged for being in violation of the principles given its financial ties to the Myanmar military.

However, a violation of the principles can be more explicit than this. For example, an Asian engineering and construction company was recently deemed to be non-compliant following a collapsed dam in Laos resulting in fatalities and the displacement of local communities.

Human rights is one of the main areas where investors can see which companies violate the UN Global Compact. It poses a higher risk across sectors such as aerospace and defence where businesses may be involved in the manufacture of controversial weapons.

The UN Global Compact is one of the many tools that can help investors assess threats to sustainable business across the companies in which they invest.

Labour best practice

Principles three, four, five and six are concerned with how sustainable businesses should uphold the effective recognition of the right to collective bargaining, eradicate all forms of forced (including child) labour and eliminate occupational discrimination.

Companies tend to fall foul of these principles less commonly. Following an investigation by Norway’s Council on Ethics, the forced labour risk has been particularly high in the Middle East over recent years. Migrant workers coming from India, Pakistan and Nepal face little hope of paying off the debt they owe to ‘recruitment agencies’ who have charged workers a fee for access to jobs in countries such as Qatar and the UAE.

As a result, there has recently been significant reputational damage to companies allegedly practicing forced labour in the Middle East.

Environmental responsibility

Principles seven, eight and nine provide guidance on how businesses should consider the negative impact of environmental damage, as well as the cost to a company’s reputation should a negative environmental event occur.

The principles also encourage investment in research and development around the long-term benefits of environmentally-friendly technologies.

Companies that are commonly deemed to be in violation of the environmental principles operate across the materials and utilities sectors.

For instance, an Indonesian aluminium business was found to be non-compliant given its interests in a mine that uses riverine tailings disposal (using rivers for mine waste disposal), a practice banned in many countries due to its severe environmental impacts.

Only four mines in the world engage in riverine tailings disposal, and in the case of this business, the mine in question has impacted one of the world’s most bio-diverse regions, Lorentz National Park, a UNESCO World Heritage Site.

Anti-corruption guidance

Principle 10 targets corruption in all forms, including extortion and bribery. The financial services sector is a particularly high-risk area of the market for exposure to corruption, specifically in relation to failings in anti-money laundering procedures.

Money laundering scandals have thrown the spotlight on the major Nordic banks in recent years, particularly those with exposure to the Baltic region, which has been beset by allegations of financial crime.

Our Comments

We have written about these UN Global Compact Principles in the past.

This is one of the key ESG processes that investment managers use to form their ESG screening process in relation to sustainable investments.

These principles are the foundation for investment firms who wish to bring ESG on board within their investments.

The main 2 methods of screening that investment managers use to assess whether or not the companies they choose to invest in are considered compatible with the 10 principles are positive and negative screening. Some firms go above and beyond this and look deeper, some use a combination of both.

Positive Screening is Investment in sectors, companies or projects selected for positive ESG performance in comparison to industry peers. This involves selecting firms that show examples of environmentally friendly and socially responsible business practices. This also includes avoiding companies that do not meet certain ESG performance thresholds.

Negative Screening is the exclusion from a fund or certain sectors or companies involved in activities deemed unacceptable or controversial (e.g. tobacco, arms, gambling etc). This involves avoiding companies that create negative impacts considered incompatible with the UN Global Compact Principles.

Just using these screening methods isn’t enough to ‘change the world’ so to say. It’s important that fund managers engage with the firms they are investing in, to challenge their practices to move them further along the ESG journey and ensure they are adhering to the UN principles.

ESG investing is still a new world, however, since we first started talking about it over a year ago, the ESG landscape has already moved forward, and fast.

We have more of our clients now engaging and starting the discussions around ESG and sustainable investing.

Interestingly, we listened to a compliance update earlier this week from our compliance partners, Paradigm. In this update there was a comment made that the view from MSCI is that they believe that clients will have to opt out of ESG investing in the future, rather than opt in, as they do now.

This supports the view we have had for a while now, that ESG investing will become the new normal.

Andrew Lloyd DipPFS

24th September 2021

Team No Comments

Over 50s leaving work early could hit retirement plans…and cost the UK economy £88 billion

Please see the below article published by AJ Bell:

The early exit of people aged between 50 and state pension age from the workforce has a significant impact on both individual retirement plans and the wider economy. In fact, it could be costing the UK as a whole as much as £88 billion, according to the latest ONS figures.

While in some cases stopping work early will be a voluntary decision – for example as a result of early retirement – in other situations it will be less voluntary, such as ill-health.

Worryingly, although perhaps not surprisingly, people who work in low-paying or physically intensive sectors are six times more likely to stop working before state pension age because of ill-health than those working in other professions.

What’s more, women are more likely to stop working early than men, potentially further perpetuating the gap in pensions between the sexes.

Stopping working in your 50s – when in theory your earning power and ability to save should be at its highest – could also have a significant impact people’s retirement outcomes.

In many cases it will mean making your retirement income stretch for much longer, meaning you have to live for less in your later years.

It also potentially impacts on people’s health and wellbeing. For all those reasons, supporting people in their 50s to stay in work for longer should be an absolute priority for policymakers.

Our Comment

It’s never too soon to prepare for retirement, for most of us a well-earned stage in your life.

When planning for retirement it’s not just about having enough money – although this is important. You need to be ready for retirement emotionally.

Retirement may take many forms for different people. There is no right or wrong approach. It’s useful to be prepared and flexible in our approach.

Retirement is a stage that transforms an individual’s life. Retirement can be viewed as a time when people cease employment and engage in activities other than a job or career related work.

Politically, for our policymakers, we need cross party consensus and buy in to a long-term strategy for pensions and retirement planning.  You can’t plan for these long-term issues with a short-term political focus from any party.

Policies need to take account of all of the issues and buy in doesn’t just need to be from different parties but also from different areas of government, the Treasury, the DWP etc.

We also need stability, particularly in long term planning issues such as pensions.  People need to know that the legislation in place is long term to have the confidence we need in pensions.

Andrew Lloyd DipPFS

31/08/2021

Team No Comments

Value of the Vaccine’s

The below charts show some interesting data on the Covid-19 vaccine rollout programme.

Here in the UK, the NHS has had one of the most successful vaccine rollouts in history.

As of this week, nearly 90% of the population aged 16 or over have had their first vaccine, with 75% also having their second vaccine.

As you can see from the first chart, we are only second in the world behind Spain in terms of our rollout.

Fund managers, Brooks Macdonald, commented on 20/08/2021, ‘In low-income populations, you see a very low level of vaccine penetration, only 1.1%. Vaccine inequality is likely to persist.’

Comment from People and Business IFA

You can see that the vaccine roll out is key to how an economy might perform as it tries to re-open.  The age range fully vaccinated is important, as this impacts on the number of hospitalisations and deaths.

The chart above is showing a steep increase in hospitalisations in the US.  In turn it looks like the death rate in the US is starting to rise too.  Why is this?  It looks like it’s a political issue, with a huge divide between states, the Republicans have vaccine hesitancy.

With the lower take up rates of vaccines by both the elderly and the vulnerable in Republican states this is pushing up the hospitalisation rates now.

In Emerging Markets, the low rates of vaccination are creating supply chain issues.  You will have seen this covered in the media with the shortage of microchips slowing down automotive production globally.

The good news is that economies are recovering, inflation does appear to be transitory and both Central Banks and governments remain supportive for now.  We face headwinds, known and unknown, but if you would have asked me in March/April 2020 where we would be now this would have been the best outcome for markets and economies.

Steve Speed

27/08/2021

Team No Comments

New ‘Smoothed’ funds from Prudential with an ESG focus – PruFund Planet

Prudential have recently launched 5 new funds with an ESG (Environmental, Social and (corporate) Governance) focus, the PruFund Planet range of funds.  This is good news and indicates the general direction of travel for fund managers. We see existing funds moving in this direction as well as a constant stream of new funds being launched with an ESG label on them.

PruFund Planet’s fund range is different in that it has the unique ‘smoothing’ element and is managed by M & G’s Treasury & Investment Office, the same team that manage the existing PruFund range of funds that launched originally in 2004.  They have a good long term track record.

Prudential are gradually integrating an ESG focus into the old PruFund range of funds through engagement with the existing underlying businesses and funds they are invested in.  There are c 5,000 different investments in PruFund Growth.

PruFund Planet is being launched with £500 million in seed capital, £100 million per fund.  For standard funds (not multi asset smoothed) this might be a reasonable amount of money for a new fund to get started.  I’m not sure that this is enough for a ‘smoothed’ fund when compared to the scale of PruFund Growth.

The problem (or the good news!) is that PruFund Growth is exceptional in terms of scale, leverage and buying power in markets.  The investment fund can write big cheques for large infrastructure projects, private equity and private credit.  This differentiates the fund, and allows it to invest in assets that will provide a good return, in turn helping to hold up the Expected Growth Rate (EGR).

Pricing of PruFund Planet funds at 0.65% fund management charge is the same as the existing ‘smoothed’ funds.  This is competitive for this multi asset fund.  The Expected Growth Rates of PruFund Planet funds are in line with their existing (original) smoothed fund peers initially.  I can see divergence of these in the future.

Summary

We are still conducting our due diligence and undertaking additional research on these funds.  Ideally, I would like the comparable fund to perform similarly to PruFund Growth.  This would offer the best risk/reward potential.

For now, I think it would be very risky to wholly invest in one of the PruFund Planet funds.  Once we complete our research and due diligence, it might be appropriate to invest a small proportion of your invested assets into PruFund Planet funds.

It’s a nice option to have for the future, particularly for those of us with an ESG focus.

Steve Speed

17/08/2021

Team No Comments

Could the state pension age hike be reversed?

Please see below article received from AJ Bell yesterday afternoon, which hints that chances of a u-turn on when you can take your entitlement look slim. At the end of the commentary, you will also find our view on the matter.

Today men and women in the UK have the same state pension age of 66. This has not always been the case, however.

Prior to 2010, women received their state pension from age 60, while men had to wait until age 65. The 1995 Pensions Act first put forward proposals to increase the women’s state pension age to 65 – bringing it into line with men – between 2010 and 2020.

The 2011 Pensions Act accelerated this timetable, meaning state pension ages were equalised at age 65 in 2018 before increasing to age 66 by 2020.

From here, plans are in place to increase the state pension age to 67 by 2028 and 68 by 2046 (although the Government has previously indicated this could be brought forward to 2039).

Campaigners have long argued the changes introduced under the 1995 and 2011 Pensions Acts were unfair to women born in the 1950s, with some forced to wait six years longer than expected to receive their state pension.

One of the central charges was that the Department for Work and Pensions (DWP) failed to adequately notify affected women so they could adjust their retirement plans.

This case was considered recently by the Parliamentary and Health Service Ombudsman (PHSO), which investigated complaints that since 1995 the DWP had failed to provide ‘accurate, adequate and timely information about changes to the state pension age for women’.

The Ombudsman concluded that the DWP did not adequately respond to research in 2004 which recommended information should be ’appropriately targeted‘ at those affected by the reforms. As a result, it found maladministration had occurred.

While the Ombudsman’s finding may feel like vindication to the so-called ‘WASPI’ (Women Against State Pension Increases) campaigners, it has no power to compel the Government to provide compensation or redress.

In 2019 the High Court heard arguments that the state pension age increase discriminated on the ground of age and/or sex and sought a judicial review of the Government’s ‘alleged failure to inform them of the changes’.

The Court dismissed the claim on all three counts, and an appeal to the Court of Appeal in 2020 was also thrown out.

The Government has previously said putting men’s and women’s state pension ages back to 60 could cost £215 billion. Given the impact coronavirus has had on the UK’s finances, it seems extremely unlikely the Government will cough up this amount of money – or anything at all for that matter – if it is not compelled to.

P and B Comment

From my point of view, I don’t think there is any chance of State Pension age being lowered. It makes great economic sense for the State to keep putting State Pension age back, age 68 or even age 70 at some point.  A later State Pension age saves money for the State by not paying it out as early and probably keeping the majority of people in work, therefore generating higher income tax receipts.

In context, when real State Pensions commenced in a similar format to todays a few years after the end of World War II, the average man would have retired at age 65 and would have died about 2 years later.  Now, we could be looking at an average of 15 years of inflation linked income with potentially another 10, 15 or 20 years for those with good longevity.

The cost to the State is enormous and as we live longer, it will increase.  The ageing demographic – you can also add to the healthcare cost too.

One of the key messages I believe is to educate people about the State Pension and other pensions such as Workplace Pension provision.  If the young working population join pensions early, and fund them at a good level, they won’t be as reliant on the State Pension.  This could really make a difference to your lifestyle in retirement.

Steve Speed DipPFS

13/08/2021