News

Smoothed Funds

Prudential announced reductions in their Expected Growth Rates (EGR) across their range of ‘smoothed funds’ last week, 27/08/2019.

On their ‘flagship’ PruFund Growth fund they reduced the EGR from 6.20% gross to 5.90% gross on tax efficient products such as pensions, Investment ISAs and Offshore Bonds.  The gross EGR is reduced by product, fund management and advice charges.  These vary by product and volume etc.

This Monday, 02/09/2019, Prudential rationalised their reduction in the EGR and explained the current back drop for this reduction in EGR.  To precis, Prudential state that over the last quarter, 25^th May to 27^th August, Fixed Interest returns, particularly government bonds, saw a substantial drop in their annual yield of between 0.50% and 0.80%.  This is significant, for two reasons:

1. A reduction in the 10- and 15-year Gilt yields will affect the so-called risk-free rate of investment returns, and
2. Equity Based Investments across the PruFund fund ranges were reduced between March and June 2019

These two factors combined with the current backdrop and outlook effectively reduces the total expected returns across all asset classes.

As Prudential’s fund management team, The Treasury & Investment Office, focus on long term investment returns (at least 15 years), they have taken a long-term view on this.  Their view now is that a 5.90% gross return is reasonable over the long term based on the underlying basket of investment assets.

The ‘smoothed funds’ are very well diversified on a multi asset basis.  Prudential last changed their EGR on PruFund Growth in August 2016.  They tend to prefer not to change the EGR too regularly.

General investment update

Today I was at an investment seminar for the majority of the typical working day.  It was a good day with a wide variety of topics discussed including the following:

• Orbis on investing for Drawdown
• Janus Henderson on Sustainable investing
• Columbia Threadneedle on Emerging Markets
• Tatton IM on portfolio management post QE and upcoming structural considerations
• Aberdeen Standard Capital the language of advice and regulatory change
• BNY Mellon on the differing needs of income investors and the different styles and sources of income
• Investec Wealth on an exploration of behavioural biases within investments
• Blackfinch Investments on vulnerable clients. A key area for the FCA

Whilst the investment topics discussed varied widely some standard input was in evidence.  The following is normal for investors for the long term:

• You need to remain invested in real growth assets, predominantly equities
• Over the long-term equities outperform other assets. Be a long-term investor
• Trying to time the markets is difficult and doesn’t work, remain invested

The current political backdrop locally and globally is disturbing but we all need to maintain the status quo and remain invested.

Steve Speed 03/09/2019

New figures show cold calls, exotic investments and early access to Pension Savings to be among the most persuasive tactics used by fraudsters.

Often victims do not know they have been targeted until it is too late.  As these are not petty thieves, but sophisticated fraudsters using clever tactics to appear legitimate.

It is no surprise that at a time when savers have more flexibility than ever before over their pensions, scammers are targeting people’s retirement pots.  new research suggests that 42% of pension savers, which would equate to over 5 million people across the UK, could be at risk of falling for at least one of six common tactics used by pension scammers, these are:

• Pension cold calls
• Free pension reviews
• Claims of guaranteed high returns
• Exotic investments
• Time-limited offers
• Early access of cash before age 55

The research also found that those who consider themselves smart or financially savvy are just as likely to be persuaded by these tactics as anyone else.  The scammers have one aim – to rip people off.

Pension savers were tempted by offers of high returns in investments such as overseas property, renewable energy bonds, forestry, storage units or biofuels. However, exotic or unusual investments are high-risk and unlikely to be suitable for pension savings.

Helping savers to access their pensions early also proved to be a persuasive scam tactic. One in six 45-54-year-old pension savers said they would be interested in an offer from a company that claimed it could help them get early access to their pension. However, accessing your pension before 55 is likely to result in a large tax bill and you could wipe out the full value of your Pension Savings.

Last year, 180 people reported to Action Fraud that they had been the victim of a pension scam, loosing on average £82,000 each. The true number of victims is likely to be higher as scams often go unreported and those affected may not realise, they have been scammed for several years.

Working together on this we can defeat the fraudsters.  If you have any suspicion of being potentially targeted by scurrilous criminals, it’s safer to speak to your adviser and contact Steve Speed for peace of mind.  If Steve is not currently your adviser then feel free to get in touch with us for clarity.

If anything appears too good to be true it generally is. It is worth seeking Independent Financial Advice before you commit, and it becomes too late to pull out of a dodgy deal or too late for regulators or Enforcement Officers to claw back lost money.

Jason Norton – Operations Manager

29/08/2019

Retirement Planning – will you have enough income in retirement?

This is a big subject and an important one for those of you that want to have an enjoyable retirement when you have the time to enjoy your retirement you need to have the right resources too.

The shape of retirement is changing, when I started advising the focus was generally on building funds to buy a guaranteed income – an annuity, normally after drawing tax free cash.  If you were lucky you had well-funded company pension provision.  Inevitably you retired on a set date, age 65 for example.

Nowadays retirement is far more flexible.  Sometimes people chose to draw pension benefits early without retiring.  Many people carry on working either full time or part time well after their (normal?) retirement date.  Unfortunately, for many, this is a financial necessity.  For others, they work on for their own reasons.

Why would you work on after your ‘perceived’ normal retirement age?  Some of the benefits could be as follows:

• To maintain good mental health
• To maintain good physical health and strength
• Higher levels of income
• To build additional assets for retirement
• A gradual phasing into retirement
• Better for your long-term relationship (no break up from your spouse or partner)
• To avoid babysitting or carer duties

Reading this back I might be a little biased.  I have plenty of clients that look forward to retirement and enjoy a full and active retirement.  Some people don’t know how they had time for work!

Ideally when you do retire you will have good levels of assets and pension income to sustain you in the lifestyle that you want.  To get to this position takes years of careful planning.  You need to be focused on building your assets and preparing to be tax efficient in retirement.

How do you do this?  Seek independent financial advice early.  The longer you have to plan generally the more tax efficient and better off you can be in retirement.  Don’t wait until it’s too late – be in a position when you decide when you want to retire!

Steve Speed

30/05/2019

Ongoing Market Volatility

Markets have returned to normal volatility over the last 14 months.  We are experiencing a lot more volatility than 2017 as this was a surprisingly strange year, good investment returns across most assets and regions and very low levels of volatility.  The global political backdrop is interesting for markets.

Volatility is not an issue for the long-term investor, you need to be in real growth assets for good long-term returns.  Short term volatility, for the majority, should not concern you unless you are drawing an income or about to draw an income.

Market research has been conducted about investors trying to time the markets, this is exceptionally difficult, and I don’t know anybody that can do this consistently.  Goldman Sachs have recently (2019) published some of this research.  Over the 20 year period from 1999 to 2018 if you stay invested (MSCI World Net TR Index) you would average 7.2% per annum investment return.

If you had been trying to time the markets and missed the 10 best days (these normally occur after a market drop) in the same index your average investment return would have fallen to 1.7% per annum.

What else can you do but remain invested in markets that are typically volatile?  You should be well diversified by assets and geography.  Preferably with ongoing active and tactical management of your investments.  For example, a Multi Asset Manager or a Discretionary Fund Manager can give you both active and tactical management.

Examples of the above active and tactical management fund managers are Prudential, Tatton, SEI, Royal London and Brewin Dolphin.

At People and Business IFA we compare and contrast fund managers and investment propositions, as we want our clients to have the best investment option to suit their needs, risk profiles and objectives at a reasonable cost for the specific investment proposition.

Just a quick word on cash, this is not a viable long term investment.  Inflation will erode the buying power of your capital over the medium to long term.  Cash could be used for diversification or short-term capital, known expenditure and emergency fund requirements.

As you become more experienced as investors you will be less concerned about market volatility and leave your investments to grow.  They should be reviewed annually for you and their suitability, your attitude to risk and capacity for loss confirmed.  At People and Business IFA we provide regular face to face annual reviews and updates as part of our ongoing service

If you are concerned about market volatility and your existing investments or investing, please phone to discuss.

Steve Speed 25/04/2019