Chinese New Year, Goats & Changing Direction

Chinese New Year, Goats & Changing DirectionIt’s Chinese New Year today, signifying the start of the Year of the Goat.

The goat is the eighth of twelve symbols in the Chinese zodiac. It’s sometimes referred to as the sheep or ram.

The Chinese regard goats as an auspicious animal, and the Year of the Goat, therefore, is thought to herald a year of promise and prosperity.

I was born during the Year of the Goat in 1979, so have to agree with this sentiment.

I received an interesting email from Jupiter Asset Management today, describing what the Year of the Goat might mean for Chinese investments.

The email included the quote by Chinese philosopher and poet Lao Tzu used in the image for this post; “If you do not change direction, you may end up where you are heading.”

Before moving on to examine the views about Chinese investment markets in the briefing note from Jupiter, it’s worth pondering that quote for a moment from a Financial Planning perspective.

Is your current direction taking you towards where you want to be heading? Will you be satisfied if you end up where you are heading, if you don’t change direction?

New Silk Road

Jupiter explained in their briefing note for investment advisers that the Year of the Goat is likely to herald a major push by China to establish a new ‘Silk Road’. This is the adoption of a new five-year plan to boost social and economic development in China, along with a pick-up in the pace of financial reform.

According to Ross Teverson and Charles Sunnucks of the Jupiter Global Emerging Markets team, this new ‘Silk Road’ formed part of the Communist Party’s Third Plenum policy, which makes it an official national strategy.

They key aim of this plan is to break the connectivity bottleneck, improving communication and trade between China and its neighbours through better infrastructure, more cooperation between institutions and fostering cultural exchanges.

One-stop shop

China is likely to play the role of the ‘one-stop shop’, with the supply of funding (putting their large foreign exchange reserves to work), expertise and equipment for new regional projects.

This is China’s 13th five-year plan, placing an emphasis on rebalancing the Chinese economy. According to Teverson and Sunnucks, it is likely to create an economic growth target of 6.5% a year for the next five years; they believe this is high enough to support development but low enough to give policy makers the room they need to implement reforms.

Growth at 6.5% is however a meaningful deceleration from the 7.4% achieved in 2014, which itself was a 24-year low. Despite this, the Jupiter team believe China can continue to present compelling investment opportunities with the right stock selection.

As we celebrate the Chinese New Year and the Year of the Goat, it will be interesting to see how this five-year plan is implemented in practice and what impact it has on returns from the global emerging markets sector in the future.

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FTSE 100 nears record high

FTSE 100 nears record highThe FTSE 100 index of leading UK company shares is nearing its record high.

Earlier today, the index reached its 15-year peak at 6,921.32 points, within spitting distance of its all-time high of 6,950.60 points, reached in December 1999.

The index has since slipped back slightly, trading at 6,890.88 as I type this at lunchtime.

What is driving this higher index level for the FTSE 100?

Recently published price inflation figures have prompted speculation that any interest rate rise will be deferred until later in the year, possibly even until next year.

There is even the possibility of an interest rate cut, which could be beneficial for FTSE 100 companies as it would strengthen consumer spending.

Investors also hope that a resolution to the Greek debt situation will be found this week, which is improving market sentiment.

A government official in Greece has confirmed that the country will seek a six-month extension to its European loan later today. This would represent an extension to the loan, rather than a renewal of the bailout agreement.

Closer to home, new unemployment figures in the UK have shown the number of people out of work falling by 97,000 in December to 1.86 million.

This means unemployment now stands at 5.7% of the adult working population, and employment at 31 million is the highest level since records began in 1971.

Assuming no big shocks to the financial system, it is reasonable to expect a new record high for the FTSE 100 in the not too distant future.

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What’s your life expectancy?

Life Expectancy SurveyWith new pension freedom rules being introduced in April, understanding life expectancy becomes an even more important part of retirement planning.

We often hear that people tend to underestimate their life expectancy.

This could result in running out of pension assets in later life, as withdrawal rates are set too high and you outlive your retirement funds.

Just as important to consider is ‘healthy’ life expectancy; how long might you live without disability in retirement.

We are running a short survey which asks for views on life expectancy and healthy life expectancy.

The findings will be kept confidential and collated to form part of a new white paper we are writing about life expectancy in retirement.

Take part in the survey here

Everyone who completes the survey will be entered into a prize draw to win one of five £10 Amazon gift cards. We will also send you a copy of the white paper when it is published.

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Avoiding tax evasion

Avoiding tax evasionAs long ago as August 2011 I wrote a post about tax avoidance and tax evasion.

This subject became a hot topic again last week with the BBC Panorama programme on the subject of HSBC Bank’s involvement with offshore account holders.

Back in 2001, I wrote

“Avoidance is perfectly legal. It is up to each of us to arrange our affairs so that we pay the least amount of tax.

“Evasion on the other hand is illegal. Full stop. Don’t do it!!”

Articles in the press this week have made reference to a “contentious” form of tax avoidance called a Deed of Variation.

Essentially a Deed of Variation changes a will posthumously. Instead of benefits being paid in accordance with the will, the beneficiary waives his right and the benefits are instead paid to someone else (commonly the deed is made by a parent and children or grandchildren become the beneficiaries).

This set me thinking as to what steps that we might take to avoid or reduce tax are actually contentious?

Is making an outright lifetime gift and surviving for seven years in order to reduce Inheritance Tax contentious?

What about expenditure out of income or transferring ownership of a parents house to children and then paying them a commercial rent so that the parent can continue to live there, whilst saving Inheritance Tax?

Are ISA contributions and ISA investment funds which pay little or no income or capital gains tax, tax avoidance? What about pension contributions?

Or (as I said on Twitter the other day) the fact at we all use our personal income tax allowance?

How about transferring assets between husband and wife to reduce or avoid CGT when those assets are sold?

Where do we draw the line?

The way I look at it is that if the HMRC rules allow it then an action is a legitimate tax avoidance step and frankly if we don’t as a society think people should benefit from such steps then it is up to our elected representatives to make changes.

Evasion is illegal and there is no justification for it. But it seems that a lot of commentators want to imply that a perfectly acceptable tax avoidance measure is somehow unacceptable.

They are I am afraid quite wrong.

Perhaps it is a case of I avoid, she conceals, he evades!!

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Informed Choice Podcast 011 – Abraham Okusanya, Retirement Misconceptions & Listener Question

Informed Choice Podcast 11This week in episode 11 of the Informed Choice Podcast, Martin interviews Abraham Okusanya, author of the new white paper Pound Cost Ravaging.

Listen now to episode 11 of the Informed Choice Podcast

Martin kicks off the episode with his excitement about the return of The Walking Dead, his favourite television series, to the screen this week.

Continuing the post-apocalyptic theme, he mentions The End of the World Running Club by Adrian Walker, and The Go-To Expert by Heather Townsend.

Martin also has praise for a couple of other podcasts; Bulletproof Radio hosted by Dave Asprey and The Ask Gary Vee Show.

Following a mention last week on the podcast about a new white paper called Pound Cost Ravaging, the featured interview this week is between Martin and the author of the paper, Abraham Okusanya.

Abraham is hosting a Retirement Income Conference in London on 3rd March, which would be a great event for Financial Planners and Wealth Managers to attend.

Martin goes on to answer a question from a listener, Angela, about care fees planning for her elderly parents.

He wraps up with a look at a recent article in Forbes magazine about 5 Harmful Retirement Misconceptions To Avoid.

In a bit of an experiment, Martin filmed the recording of this podcast episode, so it can be watched on YouTube as well as listened to via iTunes.

If you have any feedback for Martin, you can use the comments section below or leave a voicemail for the show at www.icfp.co.uk/podcast.

Listen now to episode 11 of the Informed Choice Podcast

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Should I take my final salary pension as cash from April?

Should I take my final salary pension as cash from April?Defined benefit pension schemes (sometimes called ‘final salary’ pensions) are considered to be the gold standard of pension arrangements.

Unlike defined contribution (or ‘money purchase’) schemes, investment risk is to a large extent borne by the employer rather than the scheme member.

The trend over time, for all kinds of reasons, has been for employers to replace defined benefit schemes with defined contribution arrangements which for them represent less risk and usually lower cost.

April 2015 pension changes

From April the new freedom and choice in pension rules come into force.

When a member of a deferred defined benefits scheme (a scheme they have left in the past) sees the value of their accrued pension benefits expressed as a capital sum (the cash equivalent transfer value – or CETV) for many it will represent a serious amount of money.

In some cases the CETV will be easily in excess of the value of their home.

If over 55 years old there may well be some temptation to consider a transfer from the deferred defined benefit scheme into a private arrangement such as a Self Invested Personal Pension (SIPP).

The value of the pension plan might then be taken as cash; the first 25% as tax free cash and the balance of any capital taken as taxable income.

Only transfer for good reasons

Our starting point for advising clients about what to do with their deferred defined benefits the view that they should not transfer. However there may be some circumstances where such a transfer makes real sense.

If there is a genuine Financial Planning need for a significant tax free cash payment, it may well be that the private arrangement offers a larger amount.

It may also be that the circumstances of the member – perhaps having no spouse or partner to benefit from any survivor’s pension benefits on their death – might make arranging a private pension income a better option.

Or perhaps the health position of the pension scheme member entitles them to an impaired life annuity which (after taking tax free cash) could be higher than the scheme pension offers.

Or perhaps a combination of these factors makes a transfer well worth while considering.

Financial Plan first

Before you transfer out of a defined pension scheme make sure you have in place a detailed Financial Plan; including a lifetime cash flow forecast.

Having this means you can understand the impact of the shift of risk away from defined benefits to a money purchase environment.

Make the decision based on a thorough analysis of your financial requirements, as well as the numbers being crunched.

A poor decision made now may leave you poorer later in life.

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How to avoid the pension fraudsters

How to avoid the pension fraudstersIf you’ve got a pension pot, I’ve got some bad news for you; there’s a good chance you will be targeted by pension fraudsters in the not too distant future.

Here’s the good news – it’s not all that difficult to avoid the pension fraudsters. Read on to find out how.

I’m prompted to write this post based on new research from pension provider MetLife.

They have found that 9% of individuals surveyed have been targeted by pension fraudsters since they retired.

These approaches from pension fraudsters covered a variety of scams; everything from trying to convince retirees to share their bank details to attempting to flog them dodgy investments.

Here in the South East, the percentage of those targeted by pension fraudsters was slightly higher than the national average, at 10%.

So how can you avoid the pension fraudsters?

Always seek advice from an Independent Financial Adviser who is authorised and regulated by the Financial Conduct Authority.

Don’t just take his or her word about this authorisation; check the Financial Services Register, ask to see a copy of their Statement of Professional Standing and visit their offices if possible. Protect yourself.

It’s preferable to work with a well qualified Financial Planner; look for the Chartered Financial Planner or Certified Financial Planner (CFP) qualifications.

Whilst these qualifications are no guarantee of excellent advice, they do at least prove the adviser has demonstrated their commitment to higher standards than the minimum required.

Always take steps to fully understand any recommendations being made. If you don’t understand what is being recommended, ask more questions.

If your adviser is unable or unwilling to answer those questions to your satisfaction, walk away.

Avoid exotic investments

Never get involved in anything exotic or esoteric. The best investments are simple. As soon as your adviser starts talking about alternative asset classes, investment ‘opportunities’ or products which offer high returns with low risk, walk away.

The most important thing to remember is to apply common-sense to your financial decisions.

Never rush your decisions. If someone is placing you under a time pressure to make a decision, walk away.

More fraudsters coming soon

I believe that, from April when new pension freedom rules are introduced, we are going to witness a big surge in pension fraudsters, attempting to convince people to withdraw money from the relative security of their pension pots and either steal the cash or direct it into dodgy investments.

If in any doubt at all, please seek a second opinion from a Financial Planner.

You can avoid the pension fraudsters, or at least make their lives very difficult so they move on to a softer target.

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Boom time for boomer pension pots

Boom time for boomer pension potsSome recent research (BlackRock Investor Pulse research) found a high level of Baby Boomers (aged 55 to 74) intended to withdraw their pension funds and invest elsewhere.

9% of those surveyed wanted to invest elsewhere to generate income.

8% will put their money into cash savings and some 28% were undecided what to do with their pension pot.

Before taking any action at all Baby Boomers should first buy a copy of How to Take Your Pension Pot – A Practical Guide to Your Retirement Options.

Armed with the 40 questions contained in the book and a couple of useful road maps and at a mere £1.99 on Kindle and £5.99 as a paperback, this tiny investment will save them from making some costly and potentially irretrievable financial errors.

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Informed Choice Podcast 010: Risks to wealth creation

Informed Choice Podcast 010: Risks to wealth creationIn the latest episode of the Informed Choice Podcast, Martin talks about risks to wealth creation.

Listen to episode ten of the Informed Choice Podcast

Martin shares news from the Unbiased Media Awards 2015 where he was a finalist this week for Social Media Adviser of the Year.

itunes-buttonHe recommends reading Good Omens by Neil Gaiman and Terry Pratchett, and is about to start reading The Go-To Expert by Heather Townsend.

His podcast recommendations this week are Spartan Up! and London Real.

The main topics for this episode include new research by BlackRock about Baby Boomers planning to withdraw cash from their pension pots this April to invest elsewhere for income.

He also looks at a finding in The Wealth Report 2014 from Knight Frank which examines five big risks to wealth creation.

Finally, Martin talks about a new paper called Pound Cost Ravaging and tries to explain volatility drag, sequencing risk and safe withdrawal rates in retirement.

If you have any feedback for Martin, you can use the comments section below or leave a voicemail for the show at www.icfp.co.uk/podcast.

Listen to episode ten of the Informed Choice Podcast

 

Photo credit

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I was robbed in London last night

I was robbed in London last nightThe mean, dark, cold streets of London in Winter are no place for an Independent Financial Planner from Cranleigh to be walking late on a weekday night.

Danger lurks around every corner.

Despite the obvious risks, I was in London yesterday evening and I was robbed.

Fortunately I was only robbed in the figurative sense; failing to win Social Media Adviser of the Year at the Unbiased Media Awards 2015.

The prize instead went to my good friend Alistair Cunningham of Wingate Financial Planning (pictured here behind my hand), who deserved the win for his fantastic efforts raising the profile of professional financial advice in the national press.

The prestigious Unbiased Media Awards have been running for 11 years and are designed to recognise the important contribution of professional advisers and journalists in promoting the value of professional financial advice.

Around 150 influential media IFAs and personal finance journalists gathered in London yesterday evening at a drinks reception to congratulate the winners and commended entrants.

It was great to catch up with the journalists I speak with regularly on the phone, providing an opportunity to put faces to names.

Congratulations to all of the winners and commended entrants, and thank you to the hosts and sponsors.

I will be back next year (hopefully) for another shot at winning a prestigious gong.

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