House Prices

Both Nationwide and Halifax recorded falls for October in the average price of a UK house is now in the £165,000 region. This is the national average and is based upon the actually selling prices of houses. This will include property from estates when someone has died, to those buying for the first time.

Allowing for a 20% deposit as an average (after all its now difficult to get a mortgage with a smaller deposit)then this would lead to the suggestion of an average mortgage of £132,000 which would require an income of roughly £40,500.

In my view this is the problem. The national average wade is closer to £27,000 which would infer a mortgage of about £88,000 (3.25x). Here in London/South East £165,000 will not buy much. So whilst I accept there are flaws in using "average figures" [some people will have no mortgage or a small mortgage so my 20% equity is perhaps understated] the problem is that house prices are still out of sync with income. This cannot continue without further considerable house price depreciation.

I would suggest that the main reason we have not seen dramatic house price falls reported is due to the fact that most people are sitting out the recession, enjoying low interest rates and only moving if they absolutely have to do so...the anecdotal evidence - looking out of my window, I can see yet another new loft conversion.

Stuck in Traffic?

You may have seen the news item yesterday which reported that the Government were providing the "ok" for motorists to use the hard-shoulder of the M25 at certain times of the day. The idea being that with carefully managed traffic flows this can be safer than it may sound...

So if you feel a little nervous about the prospect of breaking down on the M25 with a lorry heading for your rear bumper, how about giving some thought to an alternative....helicopter.

The Von Essen group run PremiAir which will get you from A to B without the usual fuss. Mind you it will probably set you back a few shillings. Which reminds me that risk is relative and invariably we replace of one risk with another. There is also little correlation between cost and the level risk involved.

Good Business

Perhaps I am a bit odd (prepared to admit that I am), but when I visit places I tend to keep an eye out for businesses that look as though they know what they are doing. At the weekend I was in the west country, visiting several friends - one had recently moved there.

Walking around the town I came across an excellent Estate Agency business (how many times can you say that... perhaps as many as excellent IFA..) anyway, my friend needed some advice regarding the new home that she had bought - no problem.

The agent (Jeremy Jenkins) has been very accomodating and has an easy-to-use and well designed website. He is very clear about what he does - sells houses for people that want to sell their house. No it isn't rocket science, but it certainly is a good business. If only the main Banks and multinationals took some lessons from the small business operator perhaps we would have considerably less fog and better results.

Consider the next time you see an advert for a major high street Bank, perhaps one that you and I own.. what is it that they do? of course.. pet insurance! eh?

State Pension Gossip

Today's press covers the story that the Government are being advised that life would be considerably more straight forward if everyone receieved the same State pension. Today's rumours are that this is about £140 a week.

This would be considerably easier for anyone trying to work out their pension - it amounts to £7,280 a year for everyone. Most of us would need considerably more than this (which is about £600 a month) to live on and so would still obviously need to ensure that we build up other "non-State" pensions.

At the moment, the State pension is based upon your National Insurance contributions and your qualifying years of working.

Some quick thoughts:

1. This is a good idea, everyone gets is no matter what. It ends all the confusion about SERPS and S2P top ups.
2. Hopefully this would break the National Insurance tax system which is frankly a cumbersome system fudging the fact that most of us pay considerably more in tax than say 20%, 40% or 50% due to National Insurance.
3. It paves the way for a more straight-forward tax system which is certainly needlessly complex and in particular converting National Insurance into a two-prong system (if it were to remain)of compulsory non-State pension provision and a compulsory contribution (rather like insurance) to the welfare state for personal benefits that hopefully will not be required.

What it also could pave the way for..

1. Means tested pension benefits, for example everyone might recieve the State pension except those earning over £100,000.
2. Increased self-reliance and reduction in the welfare State.
3. A tax system that is obviously different.

I have to say that I would favour a flat rate State Pension for all. Whilst I'm at it and I'm living in Utopia I would radically overhaul the tax and benefit system. If we agree that we are all members of society together we should all pay for societal benefits. So, why not...

1. Have a single rate of tax at say 20% for everyone. This would mean that everyone contributes, the wealthy and the poor pay the same proportion of tax. This would actually be FAIR.

2. Scrap tax relief and tax free investments (yes my work load would suffer!) but wouldn't it be easier! Scrap capital gains tax, dividend tax and a plethora of other taxes - any income or acutal capital gain (after income)would simply fall under the standard 20% tax rate from point 1.

3. No Government could spend more than it raises in taxes and should "bank" 20% for societal emergency each year. In other words only spend 80% of tax revenue.

4. Business, charities, Trusts and employers pay a flat rate of tax after all legitimate costs - why not 20%. Creating greater transparency and having no benefit to hide or move away from the UK. The rate should be in-line with personal tax.

5. No VAT, no Inheritance Tax etc - not needed if EVERYONE is paying 20% on ALL income/gain in a tax year paid at source. I.e. if you receive an inheritance you pay 20% of what you receive, end of discussion.

5. No tax free anything except a standard personal allowance of say £5,000 which is a per-person allowance that can be transferred to a spouse or partner only in entirety. Therefore a non-working spouse that transfers his/her allowance to their husband/wife but earns interest of £1000 will pay 20% tax on the interest. The "couple" have recognition that one of them is not working which will undoubtedly have cost implications.

The media seem to suggest that the Government focus is on benefit cheats, whereas there are billions lost to people that use all sorts of offshore tax loopholes that result in hardly any tax being paid. This is wrong. Sorry it it just is.

We need a society that does not cap entrepreneurialism (ie no higher tax for higher earners) so that there is no motivation to hide income or find a way of avoiding tax. We also all need to take greater responsibility for our society, so everyone should pay and the Government should live within its means. This must surely lead to providing services and infrastrcuture that we want and need. Anything else, pay for it yourself with the 80% you have left.

The tax system as it is means that advisers and Accountants help people legitimately reduce tax. Increasingly it is only the affluent who are using financial planning services and understandably want to get back tax where they can - who wouldn't? But this leads to all sorts of rubbish tax saving schemes that are often restrictive and and some plain dangerous, rather than creating a financial services industry focussed on helping people plan for their future and use money creatively that will also hopefully benefit society by creating new businesses and jobs.

I'm sure my proposals are full of holes and flawed thinking, but anyone that deals with tax knows it is ridiculously complicated. We all need to pay, we need to ensure that people that need help get it and those that don't want to help themselves (very different to those that can't) do not have reason to do so.

...well I can dream can't I?

Weekly Gold Prices

Gold Bullion

1 week -2.6%
1 month +5.0%
3 months + 12.5%

FTSE Gold Mines

1 week -6.4%
1 month -1.2%
3 months + 13.5%

Funds: Premier Fund Name Changes

Every so often funds management groups change the name of some of their funds. I'm never really clear why, the cynic in me tends to think that it becomes harder to monitor actual performance once the name changes or perhaps the fund remit or objectives alter.

Anyway, from 31st October Premier will be renaming several of their funds.

Premier Alpha Growth becomes Premier UK Alpha Growth
Premier Alpha Income becomes Premier UK Alpha Income
Premier Fellowship becomes Premier Ethical
Premier High Income Bond becomes Premier Strategic High Income Bond
Premier Managed Assets becomes Premier Global Strategic Assets
Premier Optimum Income becomes Premier European Optimum Income
Premier UK Thematic becomes Premier UK Strategic Growth

We have already renamed holdings and this will be reflected in any valuations with immediate effect.

Boy Wonder

You might remember the internet boy wonder Tom Hadfield. Some 15 years ago way back in 1995 at the tender age of 13 Tom founded Soccernet, a football results database. He sold the business for a wopping £25million. After that he launched Schoolsnet, which was valued at nearly £29million by the time he was 18.

Now at the ripe old age of 27 he is the CEO of Breathable Foods. Earlier this year his company launched "Le Whif" a lipstick-sized tube containing particles of food - inhaling the food. The device was invented by his Harvard professor David Edwards who pioneered aerosol medication - inhalable insulin.... so watch this space!

Our Advert for David Lloyd Gym

I'm not big on advertising - but have been persuaded that perhaps a few of the people working out at the local David Lloyd gym
about 500 yards away from the office) might be the right sort of people to become our clients. I thought you may like to see the advert as well.... you have to imagine that you have headphones on,
listening to your own music, trying hard not to have a heart attack.

View the video here.

Please follow the blog

I've been working to put useful information on the blog, it would really help if you would follow the blog so that you get updates that I hope will be of benefit. Please link and follow. Many thanks.

Dominic

The End of Clerical Medical

You might remember that Clerical Medical became part of Scottish Widows and after the usual PR saying that this is good for both companies and that both will learn from one another, the reality that we were all expecting (takeover) is shortly due to occur. From 22 November the Clerical Medical brand will cease.

There's Still Life In Health

BUPA have been bought for a few pounds... £102 million of them to be precise. The buyer? well in times like these only a few options are likely - those within the industry will be aware that Resolution have made a habit of buying up insurance companies.

Resolution also bought AXA's UK life insurance arm this year, and is buying Bupa via Friends Provident Life and Pensions Limited, which it bought in 2009. The deal is funded by surplus cash from Friends Provident's life operating business.

Bupa will be run along their current lines for around a year or so before Friends Provident swallow up their branding into their own, existing group income protection business.

Michael Biggs, chairman of Resolution, said the deal was consistent with Resolution's strategy. 'Both the terms of the transaction and the synergies to be gained from it will create value for shareholders. It will also enhance Friends' proposition as a focused and disciplined writer of new business in key product areas.'

Trevor Matthews, the chief executive of Friends Provident, said: 'This acquisition will strengthen our group risk business product range and improve the profitability of our individual protection business. The BHA management team led by Steve Payne will bring additional highly valued expertise to the Friends team.'

All good for keeping the printing presses running, but not great for your postman.

Spending Review

George Osborne delivered the coalition Government's spending review today, the first since taking office. There will be more reviews - notably the Economic and Fiscal Spending Review (which is to take place on 29 November 2010), this review confirmed the main changes to taxation (Capital Gains Tax, VAT etc) that had already been delivered in the June Emergency Budget, before going on to identify the three main principles in delivering the savings required - Reform, Fairness and Growth. However, there were no 'real' surprises to report and the main points as they relate to the world of financial services are summarised below.


Banks

UK banks will face a permanent financial services levy to replace the previous 'bonus tax' and must sign up to a code of practice by the end of the month. Currently, only four out of the 15 major banks operating in the UK had signed up to the code.


NEST

The National Employment Savings Trust (Nest) has been given the go ahead in delivering auto-enrolment and will be ready to launch in low volumes in 2011.


Public Sector Pensions

The public service pension review carried out by Lord Hutton has been welcomed by the chancellor who noted that the highest earners in the public sector should contribute substantially more to the previously unfunded schemes, but that civil servants on lower wages should be protected. The changes to funding are expected to be progressive and final recommendations will be made in the early part of next year.

On a similar note, the current final salary pension arrangements enjoyed by MPs will be replaced.


State Pension

The state pension age (SPA) will rise to 66 by 2020 for both men and women over a phased period between December 2018 and April 2020.

This means that the rate of rises for women will be accelerated. The women's SPA will reach 65 by November 2018. This will be done by imposing increases at a rate of three months in every four as opposed to the current one in every two.

Following the faster increase to 66, the government is also considering future increases to the SPA in order to address the rise in longevity. The extra revenue raised will be used to increase the state pension.


Equitable Life

Compensation for the victims of the collapse of Equitable Life is expected to be in the region of £1.5 billion and policyholders will begin to receive payments next year.

Compensation will be based on the difference between what policyholders actually received and what they would have received elsewhere.

It was also announced that the government will make regular payments over the lifetime of with-profits annuitants replacing the income stream that they had lost.


Tax Evasion

£900 million has been promised to address tax evasion. HMRC estimates that an additional £7 billion per year in tax revenues could be clawed back by 2014/15 using the added resource.
The investment will include;
• A five-fold increase in criminal prosecutions to act as a deterrent to others
• A new dedicated team of investigators to crack down on offshore evasion
• More resources for the prevention of tobacco and alcohol fraud
• An increase in registration checks, and a cyber team to address repayment fraud
• Dedicated tax experts to extend HMRC's coverage of large businesses, focused on providing resources to tackle high risk areas
• Improving the scope of in house debt collection and placing up to £1 billion per year of tax debt to private sector debt collection agencies.


Other highlights in brief
• Public Sector employment is set to fall by 490k in the next 4 years
• Welfare - an additional £7bn. of savings identified on top of the £11bn already targeted
• No change on the child benefit abolition for high rate earners - but an emphasis that the £2.5 billion raised allows them to maintain benefit until the child leaves full-time education
• Have identified £6bn. scope for reduction in the administrative costs of government departments (against initial target of £3bn cuts)
• Schools budget will increase by 2015 from £35bn. to £39bn.
• Scotland: the overall block budget allocation will rise but beneath the rate of inflation; 6.8% cumulative real terms reduction by the end of the period, and 38% reduction in capital funds available to the Scottish Government


Thanks to 360 for this helpful summary.

Looking Ahead

Over the weekend I was reminded to look ahead, not to focus on the very short term, the things that can distract, detract and grab our attention, but to focus on the bigger picture.

I was given one of those driving experiences as a gift from my daughters a while back and on Sunday afternoon I finally got to drive an Aston Martin DB9 around a racetrack. The instructor in the passenger seat was advising me to look beyond the next car (I was held up by some plodders) to the furthest point on the track, to see through what is immediatley ahead. I'm not sure if this is what Lewis Hamilton or Jenson Button do, but I took his advice.

The metaphor might also be applied with the coming announcements over the next few days about the Government's spending review. The media will undoubtedly focus on the immediate, short-term - yet in practice the best laid plans are those that do indeed look ahead with a clear vision.

We all know that we have to tighten the belt of UK plc and of course how this is done is a political decision, let us hope that those in charge have a clear vision for the future of Britain beyond repayment of debt. I hope that we won't be needing the assistance of 007 to get us out of the jam!

Gold Report

Gold Bullion

1 week +3.3%
1 month +8.4%
3 months + 13.2%
6 months + 18.9%

FTSE Gold Mines

1 week +2.6%
1 month +7.1%
3 months +16.8%
6 months +21.1%

Important News About Your Pension

The Government appear to have come out stating their short-term intentions with pensions. In many senses the proposals almost revert back to pre-A-Day rules.

In short, (and I admit to not having yet seen a proper document on this, so please treat with caution) contributions towards pensions are capped at a value worth £50,000. As a direct result most of the population will not see any problem as most do not pay £50,000 into pensions.

Tax relief remains in place at your highest rate of tax. In essence basic rate (20%)is given automatically so £10,000 invested (gross) is a cheque for £8,000 (net) from the investor. Employers would pay the full gross £10,000 and treat this as an expense. Higher rate taxpayer reclaim the difference - another 20% or perhaps 30%) of the gross contribution. The way this is paid back to the taxpayer is to increase the level of income on which they pay 20% tax... thereby reducing the amount of income they pay 40% or 50% tax. Let me know if you would like a worked example.

However, the Government also seem to be reducing the lifetime allowance from £1.8m to £1.5m. This is frankly a very stupid thing to do and looks like playing to the media to me. It will hit people with large unprotected pension funds. The excess (above the allowance) is taxed at up to 85%. True, most people don't have £1.8m in a pension pot, but some do. I also fail to see the logic in attacking a pension at both ends - where is the incentive to save?

Anyhow, I imagine that this rather daft measure will be altered wihtin a few years and perhaps won't make much difference in the short term if the Government think investment returns are going sideways or negative... perhaps they know something after all..

Where this bites is for people in Defined Benefit schemes, the gold-plated pensions of yesteryear such as the NHS. I look after a lot of Consultant doctors that are now caught by this. As the amount paid to the NHS (for example) MUST be linked to salary and might be varied (by the employer) the payments to a defined benefit pension scheme are not calculated based upon how much is paid in, but in terms of what the extra year of membership is worth. If this were to increase by more than £3,125 for the year a tax charge would be levied against the member of the pension. This requires careful calculation. Consultants that suddenly find an increase in their pensionable pay (due to Awards etc) may find themselves caught out. So need the NHS to supply a Special Annual Allowance Statement. I won't go into detail here.

What I'm reminded of is the pre-A-Day (06-04-2006) rules that restricted payments to pensions based upon age and the earnings cap (which we still have, though largely forgotten and irrelevant to most, now at £123,600). So the new £50,000 limit is almost bang on 40% of the earnings cap. You might remember this table


under 35 17.5%
36 - 45 20%
46 - 50 25%
51 - 55 30%
56 - 60 35%
61 or more 40%

So if it feels a little like rolling back the clock.... that's because... well, it is.

Love it or hate it, social media’s here to stay

If you run your own business or work for one, this is a timely reminder that the world is changing. I have been working hard at improving our social media position and our client service. Increasingly we are moving towards full online client servicing. We have also paid significant attention to improving our own service to clients.

That said, there is always benefit in one to one / face to face within my type of work. I prefer an in-person meeting but have been impressed by the advantages of Skype meetings with clients. Ok these aren't as good and I still don't know the correct social greeting in such a scenario (other than verbal) does one wave? Anyhow, this is an 8 minute video from Gary Vaynerchuk provided by Success Magazine (something I subscribe to). I know it seems very un-British to do so, but its a great magazine for those running a business.

Love it or hate it, social media’s here to stay

Funds: Aegon Ethical Equity Fund

For those of you using our Good Life or Purity portfolios you may be interested in a webcast by the Fund Manager Audrey Ryan. Its a bit dry (understatement) but for those that have never heard a Fund Manager, this is a useful insight to their role and approach.

Audrey Ryan has a commendable track record you can click here for general overview of the fund and how it works.

Click here for the audio link for her report on September 2010.

Discounting Students

Today the funding of Universities is centre stage. Of relevance to me as my eldest daughter is expecting to head off to University next year (yes I know, surely I'm not old enough - regrettably I am!). Anyway, long story short a fairly bitter fight has been raging between Universities who argue that they are seriously underfunded and the students (and their parents) who by and large have increasingly become educational consumers/customers who have a growing desire for value for money.

I'm probably a traditionalist, but to my mind education is a good thing and its function is probably almost as important as the subject studied. So I'm in favour of studying and arguably it is a good part of personal development to leave home and become independent.

The short message is that students will have to pay more for their courses, Universities have been granted permission to charge more, but only the first £6,000 will be completely underwritten (paid for) by the Government. I estimate that we will quickly see tuition fees rise pushing the £6,000 price tag over the next 3 years. The proposals also go on to alter Student loans, which will now have a market rate of interest applied when the student begins repayment, but until they can afford to do so the debt will also increase in line with inflation. The loan will only be repaid if the student finds work that generates an income of over £21,000 (a first year teacher, doctor..).

The final detail is due to be released later next week, but most Universities and students can expect costs to rise - considerably. The NUS (National Union of Students) are pretty fed up as you might imagine and argue that many students will end up making decisions for their course based upon cost rather than content. I understand the sentiment, but frankly this applies to all walks of life doesn't it?

The lesson for UKplc... regrettably we cannot have everything we want, there are limited resources. However, this is not new and frankly is a little patronising. The better questions to ask are surely, what sort of society and people do we wish to be? and how is this best achieved? Making everything about individual choice merely limits us to a nation of individuals and not a collective force for improved society.

Money Never Sleeps

The new Oliver Stone film "Money Never Sleeps" is now on general release and I'm hoping to get along to see it. This is a follow up to the original film "Wall Street" which seemed to capture all that was the 1980's - Liars Poker etc. This film is set in 2008 and the backdrop is the credit crunch, offering insight into how we got here. If you get to see it let me know your thoughts. Here's the trailer that appears on You Tube.

Your Market Round Up

We have prepared a market report document which shows performance for all of the major stockmarkets. Data junkies will love it, but most of will merely find it revealing. What this tends to reveal is that there are no obvious pattern in stockmarkets, although this is precisely what all investment managers look for.

We intend to update this each month as a free resource in the news section of our website. I hope that it is obvious that this does not imply any investment advice.

One of the most important aspects of successful investing is to have a well diversified portfolio, across markets and asset classes. This will reduce the impact of volatility.

UK Millionaires

There are now over 280,000 millionaires living in the UK who are collectively worth over £1.28 trillion. That's just over 1% of UK households. The research company CoreData identified individuals with more than £1m of liquid net assets. How do they invest? well according to the CoreData research results, about 34% is held in equities, 16% in Managed Funds and 34% in investment property (not their homes) with the balance of 16% in cash and low risk money market funds.

What does this mean? well possibly not very much. Certainly the data would suggest that these people do not asset allocate (diversify risk) very well at all and are likely to be subject to significant liquidity problems and would benefit further from some good advice in this area. Of course it may be that they are so astute that these are all short-term market "plays". Indeed without knowing how the data was obtained and therefore its integrity I do wonder how many millionaires willingly give up information about their wealth and its sources.

The "average" level of wealth is about £4.5m, although this is due to the "ultra wealthy" who have more than £30m of net investable assets. Most millionaires (55%) are in the £1m-£2m bracket.

Source: CoreData Blog "I'm Alright Jack"

Bank Complaints now over 1.25 million

The FSA have revealed that complaints about Banks and Building Societies increased by 5% in the first half of 2010, to a staggering 1,252,467. This is probably no surprise to anyone. IFAs have to issue clients with fairly weighty "reasons why letters" explaining the advice carefully, including illustrations and disclosure of fee/commission etc. This is as it should be (in my view) yet pop along to any high street bank and overhear a telephone call where a member of staff is happily providing advice to open and close accounts, move money to Cash ISAs and so on. There is very little evidence that any "fact finding" is ever done or they spend even a moment reflecting on what might be viewed as best advice.

A great wonder then that the inevitable result of the Retail Distribution Review seems to be to lump the majority of IFAs into the same bracket as the Banks and their single or multi-tied "advice". I am still failing to appreciate that this is little more than an attempt to move IFAs into the massive institutions where they can be "better regulated"....anyone heard of Leehman, Halifax, Northern Rock, Norwich & Peterborough..... need I continue?

High ISA Limit - a success

Since the ISA allowance was increased to £10,200 a year ago (for those over 50 - and everyone else since April 6th 2010) there has been an increase in the amount invested, according to the press. I would have thought that this is surely only logical - if more can be invested, then one would assume that those able to invest, would do so.

The IMA data says that new money into ISAs has averaged at over £400m a month over the last 12 months, with October 2009 being the highest amount of investments made into ISAs since they were launched by the previous Government in 1999.

Weekly Gold Report

I'm not sure if this is of interest but let's give it a go and see if it is. Our clients hold gold within their portfolios - it has been a very successful move.

Gold Bullion:

1 week +0.6%

1 month +4.4%

3 months +4.7%

6 months +16.9%

FTSE Gold Mines

1 week 0.0%

1 month +5.0%

3 months +8.1%

6 months +24.6%

Will You Lose Your Child Benefit?

As a part of the cost cutting exercise the Government has decided to restrict payments for child benefit to those paying 20% tax or less. This will take effect from 6th April 2013. Often child benefit is paid to the mother, who often is not working. The current plan is that the benefit will not be paid even if one of the couple earns enough to pay higher rate tax.

With my tax planning hat on and thinking of families - this means that pension contributions (which reduce the amount of tax that is paid) become more important, as does charitable giving. The numbers need to be finalised as in practice the basic personal allowance will increase and the Coalition Government have stated that it is their aim to gradually increase the personal allowance to £10,000. So it is important for anyone with income that is just tipping over into the 40% tax bracket (with children) that we review this with you. Strictly speaking a couple could earn £40,000 each (£80,000 in all) and still retain the benefit, but a family with one income that is say £45,000 would lose the child benefit. So if it is possible, some clever income and tax planning may be very wise indeed. So if that's you - get in touch.

Child Benefit is a tax-free income. An eldest child entitlement is £20.30 a week (£1055.60 pa) all subsequent children have a weekly allowance of £13.40 a week (£696.80 pa). As stated, this is a tax-free income, so for a higher rate taxpayer to replace this income the higher earner will need to earn £2,920.66 to effectively "stand still".