Is a million pounds enough to retire on?

While final salary or defined benefit pensions provide a steady income throughout later life, workers saving into defined contribution (DC) pension plans should by now be painfully aware that the risk of saving enough for their future retirement rests on them. In short, we need tobe realistic about money milestones. Will we really need to hit that £1m target? Since 2015, pension freedoms have allowed more income flexibility in retirement and there is growing evidence that this has changed our attitudes towards when we stop work — or if we will at all. Now the answer to whether £1 million is enough depends on your retirement aspirations. The FT paints some scenarios. For example:

The Pensions and Lifetime Savings Association this month put together a set of three retirement living standards — basic, moderate and comfortable — based on research by Loughborough University. It hopes these will resonate with pension savers in the same way that being told to eat “five a day” encouraged fruit and vegetable consumption. If you want a “comfortable lifestyle” that allows you to be spontaneous with your money and have two foreign holidays a year, as a single person you’ll need to generate an income of £33,000 a year. The lump sum needed for that?… £1.1m.

Call to scrap entrepreneurs’ tax relief

A tax relief for entrepreneurs should be scrapped and the money diverted into supporting start-ups and those firms looking to grow, says an accounting body. Entrepreneurs Relief enables business owners to pay a reduced 10% rate of capital gains tax on all gains on qualifying assets, rather than the standard 20% rate.

The Association of Accounting Technicians (AAT) says it has numerous shortcomings and wants it abolished. AAT, a professional body with over 140,000 members – including 4,250 licensed accountants serving more than 400,000 British SMEs – has urged the Government to scrap ER on numerous occasions over the last three years. Some supporters of the relief say it encourages investment, but the AAT points to HMRC commissioned research in 2017 indicating that 92% of claimants were not influenced to invest after receiving it.

Money and Pensions Service being Pensions Guidance Nudge Trial

The Money and Pensions Service (MaPS) are working with the Behavioural Insights Team to trial two different approaches to direct savers towards Pensions Wise when they first access their pensions savings or enquire about their options.  The trials are being conducted by three providers Aviva, Hargreaves Lansdown and Legal & General Investment Management and will cover 4,300 conversations.

The two approaches being trialled are either where the provider offers to book a Pension Wise appointment for the customer or where the customer is transferred to MaPS to make an appointment.  These will be tested against the existing signposting to Pension Wise which is prescribed in the regulations.

The trial aims to help the FCA and DWP deliver their commitment to provide individuals with a stronger nudge towards pensions guidance when they look to access their savings. The number of Pension Wise appointments increased from 61,000 in 2015/16 to 167,000 in 2018/19 and the growth in demand is expected to continue.

‘Greenwashing’ so-called ethical funds

The FCA has been urged to launch an urgent review of the UK ethical investment sector as high-profile funds such as L&G Future World and Vanguard SRI products are revealed to have notable exposure to sectors like tobacco, gambling and defence. Wealth manager SCM Direct examined a number of areas of the ethical investing space, including fund holdings and the classification of ethical funds on direct-to-consumer platforms. It argued the misclassified funds are being mis-sold to the UK public.

The ESG sector has been accused of being akin to the Wild West. Already, Fidelity has removed the “socially responsible” funds search category on its platform after the report revealed it created a shortlist of 49 funds despite only two – the FT Sustainable Water and Waste and Fidelity FIRST ESG All Country World funds – having any explicit reference to being specifically tailored towards ESG in their key information documents.

Elsewhere the report raised concerns about funds touting themselves as socially responsible while still having exposure to sin stocks. The L&G Future World ESG UK Index was named as the worst fund for exposure to tobacco, alcohol, gaming and defence sectors despite its “ethical” label. The passive fund has a 5.25% weighting in Diageo and 3.05% in British American Tobacco. It had smaller weightings in companies like gambling business William Hill and

IMF concerned about alternatives

Alternative assets are so hot right now. And the IMF is worried. Whether it be venture capital, private equity, real estate, hedge funds, art, jewellery, infrastructure, classic cars or music royalties, pension funds have never been more exposed to this cohort of financial assets. Very low rates have prompted institutional investors like insurance companies, pension funds, and asset managers to reach for yield and take on riskier and less liquid securities to generate targeted returns. For example, pension funds have increased their exposure to alternative asset classes like private equity and real estate. What are the possible consequences? Similarities in portfolios of investment funds could amplify a market sell-off, and illiquid investments by pension funds could constrain their traditional stabilising role in markets.

Tax system too hard says the Office of Tax Simplification

There is no shortage of commentary on the increasing complexity of our tax system. While some of that complexity is undoubtedly inevitable, there are some matters which would benefit from a fresh look with a blank piece of paper. These are mostly where multiple changes have been implemented to existing legislation or certain rules are used to serve more than one purpose. Add to this certain key life events, such as starting a new job or retiring and taxpayers can find themselves very confused or even unknowingly disadvantaged. With changes mounting, will it get any easier?

This is a trend not lost on the Office of Tax Simplification (OTS) which on 11 October 2019 issued a report considering whether the tax system adds unnecessary complexity when taxpayers are tackling certain key life events. For example, new parents have an array of new responsibilities to get their heads around when a baby arrives (mostly not tax-related).

They may decide, quite reasonably, to not add ‘Complete Child benefit application’ to their to-do list – perhaps even more so if their earnings are above the threshold so they would ultimately have to repay it all anyway. However, are they aware that by not applying for this (even if they later choose not to receive payment), this means that they can lose out on national insurance credits towards the state pension? The OTS report does set out recommendations to improve the position and even if taken, the Government needs to keep this principle in mind when implementing new changes.

Weekly Market Commentary – 20th December 2019

Have we seen an end to the “Boris Bounce”?

This week, the certainty that the market has been so excited about following the Conservative victory was quickly vanquished, replaced with our old friends’ ambiguity and doubt. The announcement by Johnson that he would amend his Brexit bill, to expressly rule out extending the transition period after we leave the EU, put an end to the so-called “Boris Bounce” with both stock markets and the pound falling back to where they were before the election. As we get into the free trade negotiations next year, expect a few more bounces and bounce-backs as talks progress.

Elsewhere Donald Trump made history, becoming just the fourth US president to be impeached. There will now be a trial held in the Republican controlled Senate that is expected to acquit the president and leave him in office. Given the exercise is doomed to fail, there are more than a few on both sides wondering why bother. In the end the facts of the case were so stark as to leave little choice but to proceed. With the outcome seemingly pre-determined, markets have paid little attention.

UK: FCA probe Bank of England Early Audio Leak
Reports emerged this week that an unnamed supplier had allowed some traders to get ahead of the market by listening to Bank of England (BoE) Governor Mark Carney’s comments seconds before it was publicly available. This allowed enough time for high speed traders to gain an unfair edge. The audio feed of the press conferences was installed to act as a back-up in case the main video feed failed.

The FCA are investigating the issue further. But they will have to do so without their leader Andrew Bailey. Bailey will be the next governor for the BoE despite his time with the watchdog peppered by several high-profile controversies.

Meanwhile the BoE continued its wait and see approach leaving rates unchanged. While a post-election economic bounce is expected given the greater clarity around Brexit, the Central Bank will continue to monitor how the UK’s relationship with the EU develops and whether global growth stabilises next year before making a change to rates.

Global: Will weak retail figures hurt the UK and US?
This week, both US and UK retail sales underwhelmed economists’ expectations. In the US, retail sales for the month of November rose at a sluggish pace as sales increased by 0.2 per cent for the month of November. Over in the UK the figures were even more dire. The volume of retail sales fell sharply by 0.6 per cent.

Consumer spending has been the key driver of growth for both economies and the weak numbers indicates it’s likely that economic growth will cool this quarter. However, both figures don’t account for Black Friday sales which fell out of the four-week reference period.

There is still hope that GDP will continue to grow this quarter for both nations. Residential investment activity, manufacturing and industrial production rebounds may be enough to maintain US GDP growth even if final retail sales figures falter. With Brexit still hanging over the UK, it remains to be seen if progress on the issue, possible now following the election, will translate into economic growth for Q4.

Sweden: Central Bank Closes Chapter on Negative Interest Rates
This week, Sweden’s Central Bank (“Riksbank”) raised interest rates by a quarter percentage point from -0.25 per cent to zero. By hiking rates, Riksbank became the first central bank to raise rates from sub-zero to neutral this year. Denmark, Eurozone, Japan, Switzerland and Hungary’s interest rates still remain in negative territory.

Sub-zero rates tend to be beneficial for borrowers and detrimental to savers. Since Riksbank became the first Central Bank to implement negative interest rates a decade ago, house prices have soared, business and household debt has increased while “Zombie” firms which rely on cheap loans to survive have drained productivity. With Sweden hiking rates will other countries follow suit? Not Japan in the near term.

Despite some positivity around trade, The Bank of Japan cited negative risks to Japan’s economy, leaving interest rates steady this week.

Misuse of Powers of Attorney are on the Rise

Court action against power of attorney misuse reaches highest-ever levels.  It has been reported that the Office for Public Guardian (OPG) for England and Wales has made over 700 applications to the Court of Protection to censure or remove attorneys in 2018/19. This is a huge increase, the number of legal actions taken against people with power of attorney has more than doubled over the past two years.


Making improper gifts and not acting in the vulnerable person’s best interests were two of the main reasons for having attorneys censured or removed.  Unfortunately, this is only a small proportion of the true figure as most abuse does not come to light until after the death of the donor.


These statistics are concerning but in line with previous comments made by retired Senior Judge at the Court of Protection Denzil Lush. He told BBC listeners that he would never grant anyone a lasting power of attorney overs his financial affairs because of the serious risk of abuse.


Comments made by the firm who applied for the data stated that misconduct among attorneys is very difficult to detect so these numbers are likely to be just the ‘tip of the iceberg’. There are some fundamental questions about how the current system operates and whether there are sufficient safeguards at the point at which people register.  In April 2019, the OPG launched a new safeguarding strategy to protect donors, to include working more closely with adult social services and the NHS.

The rise of the 40-year mortgage

When you think of a mortgage term you most likely think 25 years. But it would appear increasing numbers of lenders are allowing borrowers to extend their mortgage to a maximum of 40 years. Advantages of extending the mortgage term to four decades are that the repayments are lower over a monthly basis. However, on the flip side of the coin, it also means borrowers are extending the period over which they are paying interest and therefore could end up paying more over time. While a longer-term mortgage will reduce your monthly repayments, the additional interest that accumulates over an extended period could be considerable.

For example, a £250,000 mortgage with a rate of 2.5% over 25 years would result in a monthly repayment of £1,121 with total interest of £86,463 over the term. The same mortgage taken over 40 years would reduce the monthly repayments to £824 but would increase the interest to a total of £145,733 over the term. By extending the term to 40 years, borrowers would be increasing their interest payments by nearly £60,000. Particularly important to bear in mind is the fact that an extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change.

Fall in UK millionaires

New research sheds light on global wealth composition – with an uncertain outlook for the UK.  Global wealth grew by 2.6% to $360 trillion over the past year, thanks to strong figures recorded by the US and China. Despite trade tensions, the two nations grew $1.9 and 3.8 trillion respectively, according to the Credit Suisse Research Institute, as Europe trailed behind with a growth of $1.1 trillion. As of mid-2019, the report estimates that there are 46.8 millionaires worldwide, a rise of 1.1 million from last year. The UK, on the other hand, has a posted a ‘modest’ loss of 27,000 millionaires as wealth per adult grew by 2.2 % overall over the last year. After a ‘difficult year’ following the result of the 2016 EU referendum, both the UK’s exchange rate and stock market fell sharply, but wealth per adult between 2017 and 2018 rose by 21% in GBP terms and 13% in US dollar terms. Average wealth in GBP is now 41% above its 2007 level, but the UK’s outlook now ‘uncertain’, the report noted, with future prospects depending on the outcome of Brexit.