DWP Publish Pensionsers’ Income Series Data

The DWP have published Pensioners’ incomes series: An analysis of trends in Pensioner Incomes: 1994/95 to 2017/18. This report examines how much income pensioners get each week, and where they get that income from. It looks at how their incomes have changed over time, and variations in income between different types of pensioners.

The average income of all pensioners in 2017/18 was £304 per week which has remained stable since 2009/10 when it was £307 per week.  In 2017/18, the average income for pensioner couples was £454 per week. This was more than twice that of single pensioners, who had an average income of £213 per week.

More than one fifth of pensioner couples’ income was from earnings.  In 2017/18, benefit income was the largest component of total gross income for both pensioner couples and single pensioners. This was 59 per cent for single pensioners, while for pensioner couples it was 35 per cent.  Income from occupational pensions was 29 per cent of total gross income for pensioner couples and 25 per cent for single pensioners.

Income from earnings made up seven per cent of total income for single pensioners. For pensioner couples, 22 per cent of total income was from earnings. Twenty-four per cent of pensioner couples contained one adult below State Pension Age. For some of these couples, the adult below State Pension age contributed to the earnings income.

Single male pensioners had higher average incomes than single female pensioners in 2017/18. Single men had an average weekly income of £233 and single women had an average income of £206.  The average weekly incomes of both single men and single women were higher in 2017/18 than 2007/08, when they were £210 and £189 respectively.  Over the 20-year period 1997/98 to 2017/18, there was an increase of five percentage points in the percentage of pensioners receiving income from private pensions – from 62 per cent to 67 per cent.

Latest property transaction statistics show an increase in the number of transactions completed in the UK compared to last year

HMRC issues monthly estimates of the number of residential and non-residential property transactions in the UK and its constituent countries with a value of more than £40,000.

Whilst the seasonally adjusted residential transactions have remained stable, seasonally adjusted non-residential transactions have risen for the second consecutive month in March 2019. The headline figures:

  • The provisional seasonally adjusted UK property transaction count for March 2019 was 101,830 residential and 11,210 non-residential transactions.
  • The provisional seasonally adjusted count of residential property transactions increased by 1.4% between February 2019 and March 2019 and is 6.8% higher than March 2018.
  • The provisional seasonally adjusted count of non-residential property transactions increased by 8.9% between February 2019 and March 2019 and is 9.7% higher than March 2018.

Weekly Market Commentary – 10 May 2019

New Tariffs Mark last Gasp bid to Force Trade Deal

Last week the collapsing state of US-China trade relations has roiled markets. Talks appeared to have broken down after US trade negotiator, Robert Lightizer, accused China of reneging on what little the two countries had already agreed on. The opening shots in a new trade war have already been fired, with President Trump confirming he’s increasing tariffs on $200bn worth of imports.

Hiking tariffs is a high-risk move. In the short term the tariffs are paid by US consumers, who will face higher prices on imports, while in previous spats China has proved adept at targeting its retaliation at vulnerable groups of Trump voters such as mid-western soya bean farmers. With next year’s election campaign already beginning, the political fallout could be severe. One crucial detail is that the tariffs are not being applied to goods in transit. While this sounds like a minor technicality it means most goods with the new tariffs applied won’t arrive for a few weeks, meaning there is still time for a deal to be worked out.

US: Ten Rounds of Talking and Still No trade Deal for Trump

As the 10th round of trade talks between the US and China failed to bring about a deal, Trump has proceeded with more than doubling tariffs on $200bn of Chinese imports to the US; raising them from 10 percent to 25 percent and threatening plans to implement more tariffs on the remaining $325bn of goods that are currently exempt. China will likely retaliate with further measures of their own, however scope for this is limited as they have already placed tariffs on 91 percent of US exports to China, representing $110bn worth of goods.

This news is undoubtedly bad for global markets, with major equity indices in the US, China, Europe and Japan all falling last week. Given the positive rhetoric coming from the talks in April, many had discounted the chance of no deal being struck before these tariffs came into place, showing once again how overly optimistic market participants can be, especially when it comes to the end of the global consensus of free trade.

Oil: Occidental Wins it All

The board of directors of Anadarko Petroleum has backed Occidental Petroleum’s $55bn bid to buy the oil company after more cash was added to the mix. The additional cash offer is covered by Warren Buffet’s $10bn investment. His investment company, Berkshire Hathaway, extracted an eight percent yield in return for its support. The challenger, Chevron, has said it will not increase its offer, as “it was not a necessity [to make a deal] at any price”.

The new deal terms will increase the cash component from $19bn to about $30bn, putting further strain on Occidental’s debt level. To avoid the risk of a downgrade to junk status, Occidental had already agreed to sell Anadarko’s assets in Africa to French energy giant Total as it wants to focus on its US business. One of Anadarko’s most prized assets is its position in the Permian Basin, the heartland of the US shale oil boom, where it has drilling rights on about 250,000 acres.

Tech: Facebook likes London

Facebook announced last week they plan to use London as the centre of development for their new payments feature on WhatsApp. While the UK is a key region in terms of number of users, Facebook announced the main reason the company chose the city is down to diversity, citing London as a cultural hub providing access to the app’s 1.5bn global users. London has become one of the world’s leading financial technology hubs with many fintech start-ups launching over the last few years and this move by Facebook further supports the city’s position.

Facebook bought WhatsApp for $19bn in 2014 but they are yet to monetise the platform and this payments system provides a potential new revenue stream. Chief Executive, Mark Zuckerberg, announced that following an initial trial in India, WhatsApp mobile payments would launch in several countries this year. The move comes as tech companies, such as Facebook and Tencent, look to muscle in on a Fintech scene dominated by investments from the big banks.

Brexit boost to UK economy?

The struggling UK economy is getting a boost from Brexit stockpiling. UK GDP grew 0.3% in the three months to the end of February, the Office for National Statistics said last week. Economists polled by Reuters were expecting an expansion of 0.2%. Economists said the faster pace of growth was partly due to manufacturing businesses stockpiling materials and parts that would be harder to acquire if Britain crashes out of the European Union. The Office for National Statistics said that it had seen evidence that manufacturers were engaged in stockpiling as the original Brexit deadline approached. Economists expect there was even more stockpiling last month ahead of the original Brexit date of March 29. Howard Archer, chief economic adviser to the EY ITEM Club, pointed to a survey that showed manufacturing activity spiked to its highest level in 13 months in March.

It got a substantial lift from producers and their clients stockpiling inputs and finished products at a record rate to guarantee their supplies in case of a disruptive Brexit. Contrarily KPMG raises the interesting point that whatever view businesses take of the UK’s decision to leave the European Union, they would have been forced to confront supply chain transformation sooner rather than later. And that may turn out to be a very positive thing.

Delay in probate fee change

Under new rules announced back in November by the Government, probate fees will rise from the current flat £215 charge to up to £6,000 for the largest estates. The changes were expected to come into effect on 1 April but ongoing Brexit chaos has seen the date pushed back by at least three weeks, with Parliamentary scheduling taken up by debating Britain’s exit from the European Union.

The increase to probate fees must be approved by Parliament before changes can be implemented. If the legislation is approved, the new fees will come into force 21 days later. It is still possible that the increases could be voted down and fail to become law, although lawmakers suggest this is extremely unlikely. The new system – a hike of up to 2,700% – will see the probate fees rise according to the value of the estate. More than 280,000 families a year will be stung by the extra costs, with 56,000 forking out between £2,500 and £6,000.

Recession warning

The United States and China risk plunging the global economy into a recession if the nations cannot agree a trade deal with three months, according to a senior analyst at Moody’s. Mr Zandi described current business sentiment across the globe as “extraordinarily fragile” as he described a global recession as “highly likely” should the trade war continue to escalate. Speaking this week, he said that businesses are really on edge due, in no small part, to this trade war. He believes that if it’s not settled in the next couple (to) three months, that a global recession is highly likely.

The warning from Mr Zandi comes after the World Trade Organisation (WTO) said world trade shrank by 0.3% in the fourth quarter of 2018 and is likely to grow by 2.6% this year. This is slower than 3.0% growth in 2018 and below a previous forecast of 3.7%. In its annual forecast, the WTO said trade had been weighed down by new tariffs and retaliatory measures, weaker economic growth, volatility in financial markets and tighter monetary conditions in developed countries.

Working Longer and Older – National Statistics Labour Market Figures

The National Statistics Labour Market figures, for the December 2018 to February 2019 period, showed the employment rate for those aged 16-64 was 76.1%, up 0.7% year-on-year and the joint-highest figure on record. A closer look at the figures shows that the total number employed rose by 457,000 between December 2017-February 2018 and December 2018-February 2019. Of this increase, 320,000 (70%) were aged 50 and over. In the subset of those aged 65 and over, the employment numbers increased by 82,000 (6.8%) to 1,282,000.

Drill further into the data and, as the graph above shows, the increase in workers aged 50 and over is being driven by a growth in the number of women working for longer. At the start of the millennium, the employment rate for women aged 50-64 was 52.6% and for those aged 65+, 3.6%. The latest figures are 68.1% and 7.9% respectively. In just over 14 years, the proportion of women aged 65 and over in work has doubled.

The graph shows a clear upward drift for both sexes from the start of the millennium, with women outpacing men. The ratcheting up of State Pension Age (now at least 65¼ for both sexes) is undoubtedly one reason, as is the fading coverage of defined benefit pension schemes. The skew towards higher employment rates at older ages may even be part of the explanation of why productivity growth has been so slow, despite such a low unemployment rate (3.9%) and rising wages (3.5% including bonuses).

Weekly Market Commentary – 03 May 2019

Federal Reserve Chairman Continues to Defy Market Expectations
This week, while we await the results from local council elections, there was a chance to indulge in the sport of interest rate speculation; an old favourite from “the before times” when simple things like the strength of the global economy were all we had to worry about. New Federal Reserve Chairman Jerome Powel is proving to be a difficult opponent, with a knack of contradicting himself every few weeks and shaking off the pack who might have been coming close to guessing his next move. On Wednesday he wrongfooted a market that had become over confident in an upcoming rate cut and sent equities into a bit of a panic.

Elsewhere, the Bank of England also got in on the act, upgrading its 2019 growth forecasts and setting off a rate hike speculation frenzy of its own. Unlike in the US however, the shadow of Brexit dampens down the chance of a surprise. The uncertainty of if, when or how the UK might depart the EU makes any near-term rate hike unlikely; however, the bank looks to be signalling that its itching to tighten as soon as Brexit is out of the way.

IPO: Beyond Meat Sizzles on Debut
Shares of Beyond Meat, the fast-growing vegan burger maker, proved immensely popular on its Nasdaq debut with the stock closing up 163%. The stock initially priced at $25 before closing at $66. Beyond Meat revenue grew $55m last year but continues to remain loss making ($30m per year). This IPO will help its plans to aggressively expand sales outside of America. Market cap of the company currently stands at roughly $4bn.

Consumer food trends continue to evolve as plant-based diets grow popular. In turn the “fake meat” market is starting to become increasingly crowded. Rival Impossible Foods, whose vegan food mimic the composition of meat, has partnered with Burger King to trial a vegan Whopper burger before rolling it out across America. Sales of plant-based meats in the US grew by 42 per cent over three years. In the UK, the meat-free market is set to grow from £560m (2016) to £658m in 2021.

Global: Headwinds Continue to Buffet Semiconductor Stocks
It’s been a terrible, albeit, unsurprising few days for chipmakers who reported weak quarterly earnings. Slowing global orders from data centres and a lack of innovative new phone products to tempt consumers squeezed company margins in Q4 2018.

And last quarter’s resurgence for semiconductor stocks, driven by optimism, proved short lived once results were announced. Samsung Electronics posted a 60 per cent drop in profits last quarter while operating profits of its smaller rival SK Hynix fell 69 per cent and Intel’s expected revenue for this year is set to miss its target ($1bn below $71bn analysts’ expectation).

As a result, countries such as Taiwan and South Korea which rely on exporting semiconductor products continue to struggle. This week Taiwan’s year on year GDP for last quarter was 1.7 per cent in contrast to the same period last year were growth was 3.2 per cent and its main chipmaker (TSMC) net revenue figures were down 16 per cent when compared to the same quarter last year.

US: FED Exercises caution and holds interest
Earlier in the week the S&P 500 continued its strong rally driven by tech earnings even though one of the largest tech firms, Google, posted lacklustre earnings which at one-point wiped $77bn off the company’s market cap. However, market activity diminished as investor focus turned to another key driver of US and global markets, the quarterly Fed interest rate decision. On the eve of rate announcement, three out of five components of the factory PMI gauge (employment, new orders and manufacturing) all cooled as trade uncertainty continues to drive manufacturing headwinds.

This data alongside muted global growth had led investors to believe a rate cut was likely, instead the Fed decided to exercise caution and maintain rates, even under intense pressure from President Donald Trump to lower rates in a bid to prop up growth and stock prices. The meeting minutes which may provide a clearer idea on what was discussed in regard to inflation and other economic data will be published in June.

ISA Fundamentals

Why you need to know
With a wide choice of investments that can underly an Individual Savings Account (ISA), and its tax efficiency, an ISA is often the first port of call for an investor, particularly for higher rate and additional rate taxpayers and those restricted as to the amount of tax-relievable pension contributions they can make or benefits they can accrue because of existing pension provision.
What you need to know

The ISA is basically a tax-free scheme for saving. For investors, the returns from ISA savings are free of UK income tax and capital gains tax. For this reason, income and capital gains do not have to be entered on a tax return and funds can be removed without a tax penalty.

With a maximum subscription of £20,000 per individual for tax year 2019/20, married couples/civil partners can currently jointly save £40,000 each tax year. If they saved this amount each year for ten years they would have a fund of almost £530,000 with fund growth at 5% compound per annum.

There are four types of ISAs available:
1. Cash ISAs (including Help to Buy)
2. Stocks and shares ISAs
3. Innovative finance ISAs
4. Lifetime ISA

The Help to Buy ISA, available from 1 December 2015, is a cash ISA for first-time house buyers (a maximum purchase price of £250,000 (£450,000 in London). The HTB ISA has a maximum subscription limit of £2,400 p.a. The Government pays a bonus of 25% of the amount subscribed each year (to a maximum bonus of £3,000) where the proceeds are used to purchase a first property for up to £250,000 (£450,000 in London). A HTB ISA can be transferred to a Lifetime ISA (see below).

The Lifetime ISA (LISA), available from 6 April 2017 has a maximum subscription limit of £4,000 in 2019/20. It is available for investors aged up to 39 and no further subscriptions can be paid once the investor reaches age 50. The Government adds a bonus of 25% of the amount subscribed each year, although this bonus and any associated growth is clawed back, with an additional penalty of 5%, if money is withdrawn before age 60, except for the purposes of buying a first house with a purchase price of up to £450,000. LISA subscriptions can be invested in cash or stocks and shares in any proportion. If an investor also holds a Help to Buy ISA, only one 25% Government bonus is payable – the investor can elect which account receives it.

The Innovative Finance ISA was introduced from 6 April 2016 and is designed to allow investors to lend all or some of their annual subscription allowance through peer to peer (P2P) lending schemes (also known as crowdlending).

A cash ISA, stocks and shares ISA, LISA and Innovative Finance ISA can all be with the same or different providers. A cash ISA can be switched, in whole or in part, to a stocks and shares ISA and vice versa.

Permitted investments for ISAs are prescribed in the ISA regulations.

For a stocks and shares ISA, the permitted investments include quoted stocks and shares, AIM shares, collectives, such as unit trusts and OEICs, and corporate bonds.

Permitted investments for a cash ISA include cash deposits and certain cash-based collectives.

Tax fundamentals
• No UK tax on dividends in a stocks and shares ISA (although tax credits – that were applicable for years up to and including 2015/16 – could not be reclaimed). Tax credits were abolished with effect from 6 April 2016.
• Interest is received free of UK tax in all ISAs.
• There is no capital gains tax on profits.
• ISA income and gains do not have to be reported on a tax return and are ignored for the High Income Child Benefit tax charge and Personal Allowance / Tapered Annual Allowance income threshold calculations.
• ISA transfers can be made between the cash and stocks and shares components and vice versa, with no restrictions or tax implications.
• AIM shares held in an ISA are subject to the normal inheritance tax (IHT) rules and can therefore qualify for 100% IHT business relief after two years of ownership.

Death of an ISA investor
On death income and capital gains which arise from the date of death cease to be tax exempt.

Benefits can be paid out by the ISA manager in the form of:
• Cash;
• the transfer of investment assets underlying the ISA to the deceased investor’s estate.

The value of an ISA at death will always form part of a deceased investor’s estate as an ISA cannot be gifted or assigned into trust so as to change legal ownership.  A surviving spouse/civil partner will be entitled to make an additional permitted subscription (see section on “eligibility” above).

Be careful of innovative finance ISAs

Savers considering an innovative finance Isa should carefully consider where their money is invested before buying one, the City regulator has warned. The Financial Conduct Authority (FCA) said it has seen evidence that the products are being promoted alongside cash Isas. Innovative finance Isas allow people to save with peer-to-peer lenders in a tax-efficient Isa. Peer-to-peer lenders match up people who have money they want to invest with borrowers. While the potential returns may be higher than with a cash Isa, innovative finance Isas are generally seen as riskier.

In a statement on its website, the FCA said investments held in innovative finance Isas are “high risk”. It said: “These types of investments may not be protected by the Financial Service Compensation Scheme so customers may lose the money invested or find it hard to get back.” Innovative finance Isas work differently to cash Isas but experts still believe they are still a sensible option as a small part of a wider portfolio for some investors – as long as they understand the risks and are comfortable with them.