Bowmore Bulletin: Your latest update from the Bowmore team

Mark Incledon, Bowmore CEO, at the Clifton & Bristol Golf Club

Every month, we share some of the highlights of what’s been happening in and around the Bowmore Group. This month, we celebrate various appearances in the press, a new qualification, charity fundraising and a wedding.

In the press

The Sunday Times

It’s always gratifying when we’re asked for a comment on a major news story, and we were delighted to see Bowmore Asset Management recently featured in The Sunday Times. The story highlighted the unexpected winners leading the share price recovery in British business over the last year.

“The value of luxury watches performed remarkably well during the global financial crisis – quickly recovering from only minor dips in value. Similarly, luxury watches have continued to appreciate in value throughout the last year despite the global economic downturn.” – Charles Incledon, Client Director.

Read more: From deliveries to hospitals: the top 20 stocks that beat Covid

Luxury watch story gets business and industry news coverage

The luxury watch story was also covered by Retail Jeweller and City A.M., which ran with extended comments from CEO, Mark Incledon.

“The rise in demand for luxury watches reflect the growth in number of high net worth individuals across the globe. As more see their wealth increase, they are looking for new assets and investments.” – Mark Incledon, CEO.

Bowmore research quoted in iNews and Bloomberg

Bloomberg and iNews both ran coverage from Bowmore, publishing stories about why FTSE 100 firms should seek deals with their £183 billion cash pile.

“FTSE 100 companies have added £30 billion to their cash piles in the past year, up 17% to £183 billion compared to £153 billion the previous year, shows research from Bowmore Asset Management.”

Read more: FTSE 100 companies add £30bn to cash pile during pandemic – now totals £183bn

Rising stars

Based in our London office, financial adviser, Adam Canavan recently passed his CF8 exam, the Chartered Insurance Institute qualification that allows advisers to provide advice on care products.

We caught up with Adam to find out how it went.

Can you tell us a bit about your role at Bowmore?

I am a financial adviser at Bowmore, having joined in June 2021.

My role is to understand the aspirations of our clients and then use the tools at our disposal to help them achieve their objectives. I ensure that clients are kept on the right track and that they do not miss the opportunities available to them.

How long have you been working towards this qualification, and did you have to pass other exams to reach this one?

CF8 (long-term care insurance) is my first step on the road to moving from Diploma Qualified to Chartered Financial Planner status.

I studied for the CF8 exam for about two months.

How are you at exams, generally?

I’m generally pretty good when it comes to exams and don’t mind them once I get started.

What was the hardest part of preparing for the exam?

I always feel that the hardest part of studying is making sure you get off on the right foot, with a good study plan in place.

And the easiest?

The easiest part of the preparation is completing the end of chapter tests to see how you are doing.

Can you tell me a bit about how you prepared/whether you have a revision technique or whether you’re simply a natural when learning new stuff?

I like to read the study text once, then read it again making notes. After this, I do small chapter- specific tests to check my knowledge and see how much is sinking in.

As the exam draws closer, I start to refine my notes down so that by the end they are brief highlights of what is covered in each chapter and any key calculations.

The day before the exam, I sit a mock exam under timed conditions so that I am fully ready.

How was the exam? Did you have to go somewhere to sit it or was it done online?

The exam was pretty good, as you are given plenty of time to fully read the questions and think about your answers. I went to the local testing centre in London where the exam is taken on a computer alongside the other candidates.

What will it mean for you professionally?

By working for this exam, I now have a far greater understanding of long-term care and how we can plan for it.

As the population of the UK gets older, this will be an ever more important area. Anything we can do as planners to ensure that clients have the best outcomes possible is very rewarding.

Are you now working towards another qualification, or are you taking a break before diving into your next challenge?

I have my next module booked to continue my journey towards Chartered Financial Planner status. I think it is good to keep the momentum going.

We’ll keep you updated on Adam’s progress.

Adam Canavan specialises in advising successful business owners and professionals by providing a single point of contact to help them achieve their financial objectives. We’ll keep you updated on his progress towards becoming a Chartered Financial Planner.

Weddings

Duncan Harvey, our senior paraplanner at the Bowmore Financial Planning office in Bristol, recently married Charlotte Bhandari.

Duncan first met Charlotte in the Tobacco Factory, a popular café bar in Bristol city centre in 2011. After 10 happy years together, they tied the knot in an intimate ceremony at Bristol registry office attended by their parents.

Afterwards, the newlyweds and their parents went to the Clifton Observatory for drinks on the rooftop. After enjoying the spectacular panoramic landscape of Bristol, the party of six headed to the Bristol Lido for dinner.

Early the following morning, Duncan and Charlotte drove up to Scotland for their honeymoon. They hope to enjoy a longer honeymoon in Namibia once it’s feasible.

With the complications of travel restrictions and changing rules, Duncan and Charlotte were pleased to have kept their wedding day simple, yet special.

Next year they plan to have a party to celebrate, by which time friends and family from abroad will be able to come over to the UK.

Duncan said: “The whole day was perfect. I had gone through the ceremony so many times in my mind, and it lived up to expectations. I just managed to get my words out through the tears, and our parents got on well, which was a relief.”

Good sports

Helen Best made a snap decision to run 10k and raise money for Cancer Research

Another of our paraplanners in the Bristol office, Helen Best, completed a 10k run to raise money for Cancer Research on a whim. We chased Helen down to find out more.

When did you start running? 

I’ve been running on and off since university.

How often do you run? 

Once or twice a week, usually with the dog – two birds with one stone!

What’s your favourite time of day to run? 

Early evening after work.

How much money did you raise? 

£394 so far, but people can still donate through my fundraising page here. All donations go to Cancer Research.

How did you train for the 10k challenge? 

I noticed the event setting up the day before as it was taking place close to my house. I decided to do it on a whim. Since I keep fit through a combination of softball, rugby, circuits, yoga, and a bunch of other sports, I knew I could do the 10k distance.

Do you prefer to run alone, or with a group? 

Either. I enjoy running with the dog but also enjoy running/training with my rugby team and group circuits class.

How long did it take you to complete the 10k run? 

55 minutes.

How was the weather on race day? 

Hot and sunny.

Is there another challenge on the horizon? 

Yes, I’m participating in the Bristol Sprint Triathlon on 3 October.

What would be your one piece of advice for a first-time runner or someone considering taking up running? 

The first run back into fitness or after a break is always the hardest and then it does get easier and more enjoyable – promise!

For new runners, take it easy and build up your distance/speed slowly to prevent any injuries and it’s always worth incorporating one day a week of lower-body strength training, along with your running, to build up your strength and mobility.

Don’t forget to stretch with a warm up and cool down!

Bristol & Clifton Golf Club sponsorship

Finally, we are proud to sponsor the 8th and 13th holes at Bristol & Clifton Golf Club for another year.

Here’s Mark Incledon, our CEO, at the 8th hole.

Wise investments: Can you profit from Britain’s economic recovery?

Great Britain flag flying over London’s financial district

If you have invested in the UK equity market over the past 10 years, you’ll have seen your wealth struggle to generate good returns due to a catalogue of cyclical, structural and political issues.

There has been angst over Brexit and the potential impact of a Corbyn-led government. In addition, there have been concerns about the government’s response to the pandemic, particularly in the early stages.

Because the FTSE 100 is full of companies in areas such as oil, mining, and retail, the circumstances presented by the pandemic has hamstrung our domestic economy more than other developed markets. For example, the US market has more tech and healthcare companies which means it was  able to do better during the various lockdowns and periods of social distancing.

But what can we expect to see from the UK markets in the next few years?

When growth and inflation rise, so does the value of commodities

As we emerge from the pandemic and the resulting lockdowns, the economic picture is changing. Government stimulus, low interest rates, and several billion pounds in savings, which piled up while we couldn’t go out in the world, means we can expect growth and inflation to continue to rise.

This will reverse market conditions that we have become used to in recent years and put the cyclical companies that dominate the UK market in a better position.

Financial experts believe the UK currently presents many opportunities, most of which we haven’t seen over the past five years. Positive highlights include:

  • UK companies are positioned well to benefit from economic recovery
  • Strong consumer rebound
  • Unemployment hasn’t risen to the high levels expected
  • Savings rate is 50% higher than expected.

By global standards, the UK market is a little strange in having such heavy weightings to banks, mining, and oil companies, but it’s these company stocks that financiers predict are likely to do well in the coming months and years.

Accumulated savings add more potential for growth

When exiting a recession, more people are usually in debt. This means that often households are focused on repaying that debt or rebuilding their savings pot.

However, thanks to the enforced and extended lockdowns, savings are already high in the UK, and debt levels are lower. This means we are more likely to see higher spending and faster growth than would be typical in previous economic recoveries.

Relative to the rest of the world, UK equities are well-positioned

The UK stock market on a relative basis is still 30% cheaper than other developed stock markets. The make up of the UK market means it is well positioned to benefit from the economic recovery. Because the UK market has some catching up to do, this presents a great opportunity for investors.

Further to this, the pandemic forced many UK listed companies to change their dividend policies. This has resulted in them being stronger than they might otherwise have been.

And management teams in businesses like housebuilding and mining have learnt from the financial crisis too. In the past, they might have attempted to expand too quickly when the cycle appeared to be in their favour, but they tend now to be better managed and less cyclical.

Banks are also in a unique position since, in previous recessions, banks would have been left in a poor state with more debts unpaid and far fewer savings.

But the UK risks being left behind in the world of technology

Some financiers fear the UK market is struggling against an image of being full of businesses failing to keep up with the changing world of technology.

Some FTSE 100 stocks suffer from this problem. However, mid- and small-cap markets contain plenty of companies that are growing. Often, these businesses have a low profile since they tend not to be household names or consumer-facing.

We saw a spate of mergers and acquisitions of these small- and mid-cap companies earlier this year, which shows that the wider world is starting to see value in this part of the market.

Because international investors often group small- and mid-cap stocks with large-cap stock, this presents further opportunities as the world continues to emerge from the pandemic.

Support British growth but maintain a diverse investment portfolio

If you are keen to invest your money and support British companies, there are opportunities to grow your wealth. However, it’s important to be selective about the areas of the UK market you invest in, as well as the underlying companies.

There are many elements that will make a difference to your investment portfolio performance.

Typically, your money has more potential to give better returns over the long term with a diverse approach. Rather than investing only in British shares, we recommend portfolios that include companies that give your money exposure to different geographic regions, sectors, and themes.

Get in touch

Our team of experienced investment managers will help you look after your wealth through an investment portfolio that is designed to meet your individual needs and tolerance for risk.

Email enquiries@bowmoream.com or call 0203 617 9206.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Bowmore Asset Management Ltd is authorised and regulated by the FCA

How much do you really need for a comfortable retirement?

mature couple sitting outside their caravan reading books and drinking wine

This summer, the Centre for Better Ageing reported that 90% of people saving for retirement through a defined contribution (DC) pension are at risk of not achieving a decent retirement income. But how much do you really need for a comfortable retirement?

Around 5 million people are approaching retirement without adequate pension savings. The study, carried out by the Pensions Policy Institute, sponsored by the Centre for Better Ageing, warns that a growing number of people are at risk of being unable to afford a decent standard of living after retirement.

Over 90% of defined contribution savers risk inadequate pension income

Low State Pension, increasing unemployment, and workplace pension schemes being reliant on employee contributions all add up to leaving many without enough savings in retirement.

While this is an immediate concern for those in their 50s and 60s, younger generations also risk poverty in retirement if action is not taken.

90% of people at every age with DC pensions are at risk of having less income than they need or expect when they retire.

Many people overestimate how much retirement income they will need

Many people fall into the trap of overestimating how much they will need when they retire. This is because they expect to need the equivalent of the salary they have been used to earning.

However, to maintain your lifestyle when you have retired, realistically you’re likely to need somewhere between half and two-thirds of your last salary, after tax.

Hopefully, you will have paid off your mortgage, your children will probably have left home and be living independently, and you won’t have the costs of commuting to work to cover either.

Think about how you intend to spend your retirement years

Recently, Which? asked retired people about their spending habits. The research revealed that if you are a couple, you will need a retirement income of around £26,000 a year, or £2,170 a month. This sum covers the basic areas of spending as well as a few of life’s luxuries, such as meals out, European holidays, and hobbies.

Should you be seeking a more luxurious retirement, perhaps a new car every five years and holidays to more exotic destinations, you should expect to need £41,000 a year.

While the amount of income you need in retirement will be specific to you and your goals, this research provides a useful starting point when considering how much might be “enough”.

Your spending habits will alter as you age

As you think about the money you need in retirement, it’s also useful to remember that you’re likely to spend less as you age. Initially, you might go out and about to meet friends, travel several times a year, or enjoy regular meals out.

But as you age your spending will change. In later life, you’re likely to spend less on food and drink or recreational activities, but more on utility bills, health, and insurance.

What does all this mean for your pension savings?

It’s helpful to think about your pension income in blocks.

Start with the State Pension, then consider your personal or workplace pensions, and then add any additional income you might get from other investments you hold or rental property you have.

State Pension

The full level of the State Pension for the 2021/2022 tax year is £179.60 a week, or £9,339 a year. However, you may not qualify for the whole amount. Visit the government website to find out what you can expect.

The amount of extra income you might need to generate from your pensions and investments will also depend on the type of pension you use.

Final salary pension

Defined benefit (DB) or final salary pensions pay a regular monthly income, which is based on your earnings while you were working. Your annual statement will tell you how much you can expect to receive in retirement.

Defined contribution (DC) pension

A DC, or money purchase, pension is a savings pot you (and sometimes your employer) will have contributed to during your working life.

When you retire, you’ll need to decide how to draw an income from it. Although it’s possible to take the whole pension amount in one go, it could lead to a substantial tax bill, and you would be responsible for ensuring the money lasts for the duration of your retirement.

The most common way to generate an income from this type of pension pot is through income drawdown, or using the value of the pot to purchase an annuity. Some people opt for a combination of both.

So, having saved throughout your working life, how much do you need in your pension pot to have enough to retire?

The numbers below show you what you might need in your defined contribution pension for a comfortable retirement and a luxury retirement, depending on whether you opt for an annuity or use income drawdown.

Source: Which?

There’s a lot to think about when you’re planning for your retirement and it’s important to understand the implications of all your decisions.

We can talk you through all your options and help you take the right actions now, and when you stop work, to ensure you’re using your accumulated wealth to the best advantage.

You also need to think about how to draw your income tax-efficiently, which we can also help with.

Get in touch

Our team of experienced planners will help you make a clear plan for generating your retirement income and ensure that you have an achievable plan to make up for any shortfall.

Email enquiries@bowmorefp.com or call us on 01275 462 469.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your annuity income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA

Investment risk – Why doing nothing could be the biggest risk of all

Rock climber clinging to rock face, facing forwards

We all have different attitudes to risk. Some of us step through life with great care. We watch what we eat, we take regular exercise and look after our health and wellbeing.

On the opposite side of life, some of us live for the day. We eat whatever takes our fancy, we jump at the chance to ride the latest rollercoaster and get a kick from skiing down black runs.

The same mindsets also apply to investing.

Some of us will go out of our way to avoid risk. Why would we choose to put our hard-earned money into risky investments? Other people think nothing of buying bitcoin or chasing the next big thing in a bid to make a fortune, despite knowing they risk losing it all.

So, what is the best way to approach investment risk and how should you structure your portfolio to meet your own appetite for risk?

3 things to consider when measuring investment risk

  1. Volatility

This is a measure of how much the value of an investment moves up and down over time.

Investments whose values rise and fall frequently over time are considered to carry more risk. These figures can be useful, as they measure share price rises and falls, but it’s falling prices that people often worry about the most.

  1. Drawdowns

These measure peak-to-trough falls. This looks for the maximum drawdown, which indicates how much an investor could lose over a given period.

Companies regularly lose value and then bounce back, but if a company collapses, you lose any money you invested in the company for good.

  1. Liquidity

This measure of risk is often overlooked but focuses on how easily an investment can be sold or sold without accepting a discount to its market value.

Liquidity can disappear in times of crisis. For example, when measured by volatility or drawdown, property funds appear lower risk, but in 2016 and 2019, many of them closed in response to investor outflows and holders were left unable to sell them at all.

Different investments carry different risks

While using different risk measures can give different results, different assets also carry varying risk.

Cash

Cash is low risk. Your bank isn’t likely to collapse and, if it does, your savings are largely protected by the Financial Services Compensation Scheme. This government-backed insurance protects savings up to £85,000 for an individual account per financial institution, or £170,000 for joint accounts.

The single largest drawback of holding everything in cash is inflation, which, over time, can devalue what your money can buy.

Stocks and shares

Investing in company stocks and shares, or equities, is higher risk. Companies can collapse and their share price will always fluctuate depending on the success of the business, the economic environment and even investor behaviour.

Bonds

In terms of risk, bonds sit between equities and cash. People who own bonds in a company come ahead of shareholders. Bondholders receive interest payments and have their capital returned when the bond ends. However, if the company that issued the bond fails, bondholders still risk losing their money.

Risk levels also vary within asset classes. Generally, investing in emerging markets carries more risk than investing in developed markets. Also, corporate bonds tend to be riskier than government bonds.

Higher returns come with higher volatility

We don’t only consider how risky an activity is; we also consider the potential rewards. Skiing down a black run is a risk, but the thrill of doing it and reaching the bottom intact is a reward worthy of that risk. In fact, without the risk, we wouldn’t get the endorphin rush.

Likewise, when investing, it’s important to consider the potential rewards. How much money do you stand to make when you invest?

The chart below illustrates the returns from cash, bonds and equities over the last five years.

Equities have delivered the highest returns, while bonds and cash have returned lower results. The chart also clearly shows that higher returns come with higher volatility.

Remember, past performance is not an indication of future performance.

Source: Morningstar, IA Sectors, 31/08/2016 – 31/08/2021

The chart clearly illustrates the higher rewards you can gain from investing in equities, but can you get the rewards and reduce the risk?

Reduce the risks without minimising your potential returns

If you are risk-averse, the best solution is to invest your money in lower-risk assets. But a portfolio full of cash and bonds will also lower your potential returns.

Therefore, you may be better off seeking risk-adjusted returns, where you aim to maximise returns you can achieve for your personal appetite for risk.

Diversify your holdings

One company can go bust, but it’s extremely unlikely that twenty companies will do so. Buy shares in a range of companies you expect to survive and some of these companies will thrive. Diversification can be achieved by investing in companies that span different regions, sectors and themes for example healthcare or technology.

If you invest in funds, this diversification is already built in.

Invest in different asset classes

Traditionally, it was standard practice to build portfolios using a combination of cash, bonds, and equities. But these days it’s possible to add alternative asset classes such as property or commodities.

Reducing the risk of volatility within a portfolio of investments can also help generate healthy returns, as excessive levels of volatility can impact your longer terms returns.

Naturally, higher risk doesn’t automatically translate into higher returns. All investments rise and fall in value and there’s always a risk that you won’t get back the amount you invested. Therefore, it’s important to ensure your investment portfolio is an accurate reflection of your own circumstances and your overall tolerance for risk.

Invest with a long-term view

Over the short term, equities have a higher risk of losing money. However, invest with a long-term view, and you’ll probably end up ahead. The longer the term you’re invested, the more likely this will be true. Over the last 100 years, the average equity market return is approximately 10% per annum.

Investment portfolios with high equity exposure have rarely lost money over a long-term period. Since we’re now working longer and living longer, we can also invest for longer.

Some risks are worth it

Many of us attempt to reduce risk as we progress through life, but we also recognise the benefits of taking a few risks. Changing jobs, getting married, or starting your own business can present a variety of risks, but the potential rewards drive us to move forward and make changes, despite the risk.

The same can also apply to investing. The short-term volatility from investing in assets can help generate greater rewards over the long term. This gives you access to long-term capital growth as well as the potential to benefit from the power of compound growth.

With careful planning, you can reduce your exposure to risk by spreading your investments across a variety of assets and sectors.

However, if you attempt to keep your money safe by holding everything in cash you expose savings to the greater risk of inflation. Just compare the cost of a loaf of bread 20 years ago (£0.52) with the price today (£1.06).

City A.M. recently discussed the issues surrounding inflation on cash savings, explaining how investing in funds gives people a better opportunity to beat inflation.

Our investment process means you have access to all our best investments, regardless of your attitude to risk.

All our clients have access to our best investment ideas, but the proportion your portfolio will hold in each idea will be determined by the level of risk to are willing and able to accept.

Get in touch

To find out more about how we can look after and grow your wealth, email us at enquiries@bowmoream.com or call 0203 617 9206.

The value of your investments can go down as well as up, so you could get back less than you invested.

Past performance is not a guide to future performance.

Bowmore Asset Management Ltd is authorised and regulated by the FCA

5 important things to consider if you want to make a career change over age 50

middle-aged man working on a laptop from home

The pandemic has reshaped employment and left many – particularly older workers – rethinking what’s important.

You may well be reconsidering your current employment situation, wondering whether you can find a new role that’s more suited to you.

But, once you’re aged 50 or over, it can suddenly feel like a very different task. There are a range of concerns and pressures that change the way you might approach it at this age, from financial concerns to issues such as workplace ageism.

That’s why it’s important to think about these five key points if you want to make a career change over age 50.

1. Check you have an emergency budget

The first thing you need to consider is whether you have an emergency budget that can support you if you’re in a position where you can’t work.

Experts often recommend keeping three to six months’ worth of living expenses in an easy-access savings account just in case things don’t go as you planned.

Changing roles can be highly uncertain, especially if you leave your current role without knowing where you’re headed.

An emergency fund ensures that you and your family will have money to keep living your current lifestyle, even if you’re in a position where you’re unable to work.

2. Make sure a new role fits into your lifestyle

Once you’re confident that you can afford to make the switch to a new role in the short term, you can start looking at roles.

As well as thinking about practical concerns, such as salary and the specific requirements of a job role, you may want to consider whether the role will fit in with your desired lifestyle.

This will mean something different to everyone as your desired lifestyle will be personal to you. For example, you may want a role with fixed, consistent hours so that you’re able to see your family or keep socialising in a certain way.

Alternatively, you may be looking to change your schedule in some way. A new role could give you the extra freedom you need to focus on passion projects outside of work, or any similar endeavours that your current role doesn’t allow you the opportunity to explore.

Whatever your priorities, make sure a new role allows you to live the lifestyle you want.

3. Watch out for ageism

Ageism is an unfortunate but realistic possibility of making a career change at 50.

Under the Equality Act 2010, employers are legally prohibited from discriminating against workers based on age. However, just because it’s illegal, it doesn’t mean that it isn’t happening in one form or another.

Insurer SunLife’s 2019 Ageist Britain Report found that 40% of Brits say they’ve been subjected to ageism in their lives. And one in three Brits say they’ve experienced age discrimination in the workplace.

It’s important to be aware of ageist attitudes if you’re entering a new work environment aged 50 or over. Younger employees might disregard your opinions as archaic, while your superiors may overlook you for promotions.

This may not sound like the worst thing, but it could severely hamper your career or even ruin the enjoyment of finding a new role that you were excited about.

Consider raising these issues with potential employers and ask them about the policies they have in place to prevent ageist discrimination.

At the very least, this should give you an impression of how they view the importance of ageism in their workplace.

4. Consider developing new skills

Once you reach 50, you’re highly likely to be an expert in your field. But, just because you have more than 30 years of experience, it doesn’t mean there isn’t room for you to learn even more.

Find ways to upskill and improve your employability. You could consider a full qualification from an academic institution to show your dedication to your profession.

Alternatively, there are plenty of online courses you could take to develop new skills that might be useful to you in your role.

Potential employers will almost certainly find it an attractive quality that you’re willing to continue learning. It could also open the number of roles available to you with your expanded range of skills.

5. Work with a financial adviser

It’s often a good idea to consider working with a financial adviser or planner when considering life-changing decisions, such as switching roles.

While there are various elements to finding a new job, it’s ultimately a financial decision. An expert financial planner can give you personalised advice on whether a change is an affordable and prudent decision in your circumstances.

If your heart is set on moving into a different position, an adviser may also be able to help you find financial strategies that make sure you and your family are secure in case of an emergency.

Work with us

If you’re considering finding a better, more suitable role for you later in life, get in touch with us at Bowmore Financial Planning.

Our team of experienced planners can show you the financial impact that changing roles might have on you and your family and help you decide whether it’s the right choice for you.

Email enquiries@bowmorefp.com or call 01275 462 469 to speak to us.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA

Are you at risk of breaching the pension Lifetime Allowance?

woman looking at paperwork and using a calculator

When you’re in the middle of your working life, the idea of reaching the pension Lifetime Allowance (LTA) can seem unthinkable, especially when you have a defined contribution (DC) pension.

For the 2021/22 tax year, the standard LTA is £1,073,100. As a result, it can feel a distant threshold as you make contributions into your retirement pot.

But as you work and save over the years, a combination of your contributions, tax relief, and investment returns could slowly see you creep towards the LTA threshold.

This is particularly true if you have a high salary, as the percentage of your wealth that you save into your pension pot could, over time, drive you toward the threshold quicker than you might think.

That’s why it can be useful to be aware of the LTA sooner rather than later. That way, you can employ strategies that ensure you can deal with any issues that arise.

The LTA is the maximum amount you can save tax-efficiently

Simply put, the LTA is the maximum amount of money you can hold across all your pension schemes without triggering an additional tax charge.

You won’t be taxed on your retirement savings while they accumulate. But, if your pensions are over the LTA when you come to draw from your pots, HMRC will issue a tax bill to recoup the tax relief they gave you.

Taking money from a pension over the LTA as income could see you charged 25% tax, on top of your marginal rate of Income Tax. Meanwhile, if you take a lump sum, you may face a 55% tax bill.

Even with investment returns and tax relief, these tax charges could severely reduce the amount you have to live off in retirement. That’s why it’s an important metric to keep an eye on.

Rishi Sunak froze the LTA in the spring Budget

The LTA has changed a fair amount over the years. It reached its highest level of £1,800,000 in the 2011/12 tax year, but dropped down to just £1,000,000 in 2016/2017.

Since then, it has steadily risen each tax year, usually in line with the Consumer Price Index (CPI).

However, in the 2021/22 tax year, the threshold was frozen to 2026 in Rishi Sunak’s spring Budget. This is part of the chancellor’s plans to help balance the public purse after hefty public spending on Covid recovery measures.

According to This Is Money, estimates show that this could save the government £250 million a year in tax over the next three years.

This freeze may seem inconsequential, but it may mean you’re pushed over the limit when you reach retirement, especially if you’re planning to retire soon.

What to do to avoid breaching the LTA

There are a number of different strategies you could employ if you’re concerned that you’re going to breach the LTA.

Reduce your pension contributions

The first option you could consider for staying under the LTA is to reduce your pension contributions.

By cutting down how much you’re putting in, you may be able to slow the growth of your pot. However, this will also reduce tax relief and the amount of investment returns you receive.

Make sure you can afford to do this before you make any changes as it may affect your retirement lifestyle.

Put your retirement money elsewhere

If you can’t or don’t want to reduce your pension contributions, your next step may be to find alternative homes for your retirement funds.

For example, you may want to consider investing via a Stocks and Shares ISA, giving you tax-efficient returns free from Income Tax and Capital Gains Tax (CGT). Investing this way can provide you with a return while avoiding tax charges.

You could also think about fixed-rate savings accounts to ensure you receive a return on your money while also keeping it safe and away from the investment markets.

Think about retiring sooner

If you’re getting towards retirement and you think your pots will exceed the LTA, you could consider retiring sooner than you had planned.

By retiring sooner, you can start drawing from your pot. This means you can directly reduce the value by taking money out.

You’ll also typically stop making contributions at retirement, so you’ll no longer have to worry about tax relief. This means the only growth you need to be concerned about is any generated investment return.

It’s particularly important to check that you’ll be able to afford this strategy. You will probably need enough money to support yourself for a few more years of retirement than you may have accounted for.

Take your pension as income, rather than a lump sum

One option you could consider if you’re going to exceed the LTA is to take your pension as income and simply accept the associated tax charges.

If you stop contributing to your pension entirely, you’ll lose the benefits of employer contributions (if you’re in a workplace scheme), tax relief, and investment growth.

In total, these benefits will still likely provide you with more money in your pot than if you hadn’t put it in. Even if you do ultimately pay the 25% tax bill, you may have benefited from higher- or additional-rate tax relief on your contributions during your working life.

As a result, it could make more financial sense to exceed the LTA and pay the charges when you come to draw an income.

Bear in mind you may still have to pay Income Tax on your withdrawals, depending on how much retirement income you have in total.

Apply for LTA protection

You may be able to slightly increase your LTA threshold using either individual or fixed LTA protection if you meet certain criteria.

LTA protection came in after the government reduced the LTA to £1 million in the 2016/17 tax year.

Individual protection increases your personal LTA to either £1.25 million or the value of your pension savings as of 5 April 2016, whichever is lower. You can continue paying into your pot, but you will have to pay tax charges on any money you withdraw that exceeds your protected LTA.

Alternatively, fixed protection allows you to fix your LTA at £1.25 million. Bear in mind that fixed protection means you can no longer continue building your pension savings. If you do, you’ll lose your fixed protection and you’ll have to pay tax on any money you withdraw over the standard LTA of £1,073,100.

Take financial advice

If you’re approaching the LTA and you need help deciding what you should do about it, the best place to start is with professional financial advice.

A financial planner can give you personalised advice that takes your circumstances and goals into account, giving you the confidence that you’ll have enough money in retirement.

Work with us

If you have a particularly large pension pot and you’re concerned that you might exceed the LTA before you retire, please get in touch.

At Bowmore Financial Planning, we have years of experience in helping clients find strategies that mitigate their tax position. We can find the methods that make sure the money you have goes towards living the retirement you want.

Email enquiries@bowmorefp.com or call 01275 462 469 to speak to us.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA

What is pension consolidation and is it the right choice for you?

older couple looking at paperwork

When you’re approaching retirement, pension consolidation is an important consideration.

Pension consolidation is the process of deciding whether to move all your pension pots into one scheme or to keep them separate with different providers or administrators.

According to a survey by pension and life insurance provider Scottish Widows, nearly three-quarters (72%) of respondents want small pensions to auto-consolidate. You’re especially likely to have multiple small pots if you’ve had lots of jobs, with each employer providing you with a different scheme.

Worryingly, this same research also found that more than 3.6 million Brits have no idea how many pensions they have. This puts them at risk of paying more than necessary in fees.

As of September 2021, consolidation doesn’t currently happen automatically. That means you need to decide for yourself whether it’s the right thing for you to do.

So, should you consider consolidating your pensions? Here are the various pros of each strategy.

Pros of pension consolidation

There are various benefits to consolidating your pensions.

Easier to administer

The first benefit of consolidation is that a single pot is far easier to administer, compared to handling paperwork and logins for numerous schemes.

This becomes even more important when you come to draw income from your pension pot, as it will be a simpler process if you’re dealing with just one provider.

Potentially lower cost

To manage and invest your pension, pension providers usually charge you a percentage-based fee on your pot. As a result, the more schemes you have, the more providers you need to pay fees to.

You may be able to reduce your overall costs by putting all your funds under one scheme.

Aligned investment strategies

Different pension providers will manage your money in different ways. This may mean that your pension investment strategies won’t necessarily complement one another.

This could mean that you’re exposed to more risk than you’re comfortable with.

By putting all your money under one scheme, you can be more confident that your money is aligned with your goals and tolerance for risk.

Pros of keeping separate pots

On the other side of the coin, there are still advantages to keeping separate pension pots.

Defined benefit schemes

If you have a defined benefit (DB) or “final salary” pension scheme, then it might not be worth moving it into a defined contribution (DC) scheme.

DB schemes tend to present less risk. This is because they provide a set, consistent amount in retirement. But, moving a DB pension into a DC scheme would mean investing it, which would open it up to greater risk of losing value.

If you have a DB pension, in the vast majority of cases, the advice will be to leave well alone, as a secure income will form the foundation stone of your overall retirement planning. However, there are always exceptions which need specialist financial advice.

Greater diversification

While a benefit of consolidating is to align your investment strategies, keeping them separate can offer you greater diversification.

A dip in the value of the investments under one scheme could see your entire pot lose value.

But, if you have multiple pots, they’ll likely contain a variety of investments in different industries, sectors, and geographical locations.

This could help to insulate you from market movements, ensuring some of your pots continue to grow in value, even if others suffer due to difficult economic circumstances.

Advantages of certain schemes

Some pension schemes come with specific advantages that you may lose if you transfer your holdings out.

For example, you may receive a guaranteed annuity rate from your pension provider. This rate may be higher than what you’d be able to find if you looked to buy an annuity on your own.

It may be worth keeping some of your retirement funds in a certain scheme just so you can keep access to benefits like this.

Tracking down your pots

If you’re one of the 3.6 million people who has lost track of their pensions, there are plenty of options for finding your retirement funds.

Your first option is to do this manually. Check back through your records and see if you can find details of the different schemes your employers enrolled you in throughout your working life.

If you can’t find any paperwork for your pots or you simply can’t remember which schemes you were in, your next option is to use the “find pension contact details” service on the government website.

This service is free and can tell you which scheme your employer uses or used. However, it cannot tell you whether you had a pension with your employer or how much you have in your pot.

Alternatively, you could work with a financial adviser or planner who will be able to use your details to find your old pots and schemes.

Finding the right strategy for you

All in all, choosing whether to consolidate your pots comes down to you and your financial goals.

You’ll need to weigh up which strategy you think will provide the best returns for you, depending on how you want to be able to draw income in retirement.

If you’d like help figuring out which one would work best for you, you could consider working with a financial adviser.

At Bowmore Financial Planning, we have years of experience in helping clients make the right choices for their money. We can take a look at your entire financial situation and provide you with advice that suits your specific circumstances.

Get in touch

If you’d like to find out how we could help you decide whether to consolidate your pensions, please get in touch.

Email enquiries@bowmorefp.com or call 01275 462 469 to find out more.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA

42% of people don’t know their pension value – Do you know what yours is worth?

mature lady managing account finances

Pensions are one of the most popular ways to save for retirement in the UK.

The potential investment returns and government tax relief make them an effective way to put money aside for later life while you’re working. Your savings will, ideally, provide you with adequate income when you retire.

But do you know the value of your pension?

42% of us don’t know what our pensions are worth

According to research from Aviva, almost half of us (42%) don’t know the value of our accumulated pension pots.

In fact, people in the UK are almost as likely to know the value of their wardrobe (34%) as they are to know the value of their pension (38%).

Just over 2 in 5 people (42%) admitted they don’t know the value of their accumulated pension pots, and 60% don’t know how much their pension funds would generate in retirement income when they retire.

These numbers don’t improve with age. 67% of people aged 45 to 54 don’t know what income their pension might give them when they retire. And 69% of the women couldn’t say what their retirement income might be.

40% of us don’t know how much we should save for retirement

Aviva’s study also revealed that 40% of people don’t know how much they should save into a pension to afford the lifestyle they desire in retirement. This figure increases to almost half (49%) of 35- to 44-year-olds.

Ideally, everyone saving into a pension should have some awareness of the value of their pension and what income their pot is likely to generate when they stop working.

If you are among the 42% of people who don’t know what your pension savings are worth, now is a good time to find out.

Make sure you’re on track to meet your retirement goals

To stay on track to meet your retirement goals, you need to review your pension savings regularly.

Knowing where you’re at will help you estimate the income you can expect when you decide to retire. Plus, if you discover a shortfall in your savings, the earlier you know about it, the more time you’ll have to fix things.

Start by gathering the details for all your pensions, savings and investments you hold. Once you have a complete list, get up-to-date statements from each provider so you can understand exactly what money you have saved and how much money each holding might generate for your retirement.

A brief breakdown of retirement savings to consider

The State Pension

Start by getting your State Pension forecast from the government website. This will tell you how much you might expect to get, when you can start claiming it, and if it’s possible to increase it.

The full level of the State Pension is £179.60 a week (2021/22 tax year), providing an annual income of £9,339.20.

Check for gaps in your National Insurance contributions (NICs), which, again, you can do on the government website. This will tell you if it’s possible to pay voluntary contributions and make up any gaps you have. This can help boost the amount of State Pension you receive.

Defined benefit or final salary pensions

Retirement income from these pensions is calculated based on your salary and the number of years you’ve been a member of the scheme.

Generally, they’re only public sector or older workplace pension schemes. If you’re a member of one of these schemes, the pension provider will usually send you an annual benefit statement. If you don’t have a recent statement, you can ask for one.

Your statement will show how much pension you might get. Be aware: it may quote an income amount based on you taking your 25% tax-free cash lump sum.

Defined contribution (DC) or money purchase pensions

These are the most common type of pension scheme. While you are working and contributing to this type of pension, you build up a pot of money that you can use for income when you retire.

The value of your pot is based on:

  • Your contributions
  • Your employer’s contributions (if applicable)
  • Investment returns and tax relief.

DC schemes include workplace and personal pensions. Your annual statement will give you an estimate of your future pension fund value, as well as the estimated regular income you’re on track to generate for your retirement.

Other sources of retirement income

Of course, you might have other savings and investments that will provide an income for you in retirement. For example, ISAs, general investment accounts, or property you rent out. You should also be able to get statements for your investments.

Are all your funds invested to provide the potential returns you need?

Once you understand exactly what pensions and investments you have and know how much money they might generate when you retire, you should think about whether they are invested in the right way.

This may all feel like a lot to figure out. There may be too much admin for you to manage when you’re still working full time, and it may be tempting to put it off. But the longer you delay, the less time you have to address any shortfall you may uncover.

We can help you gather all the information you need. With your express permission, we can contact your pension and investment providers on your behalf and chase down the statements you need to get a clear picture of everything you hold.

Once you know what you have and how they are held, we can discuss whether you need to consolidate your pensions and investments to make them easier to keep track of. But, more importantly, we can assess whether the funds you are invested in are suited to your tolerance for risk and appropriate to deliver your desired retirement income.

Get in touch

If you want to consolidate all your pensions and investments and get a clear view of everything you have and what your savings are worth, we can help.

Our team of experienced planners will help you track down everything you have and show you what income your savings will generate when you retire.

Email enquiries@bowmorefp.com or call us on 01275 462 469.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA

China fears, inflation, rising energy prices — time to plan for market turmoil

Charles Incledon, Client Director quoted in The Times 26th September 2021 

“High dividend stocks play an important role in the portfolios of older investors in particular. With inflation climbing they are only going to become more important. Cash and gilts are both doing very little for income investors at present.

Although riskier than treasury bonds or high-interest savings accounts, high-yielding equities could be a good solution to combat inflation, providing that their earnings provide an adequate level of cover.”

Read more: https://bit.ly/2ZBcEy3

Savings rates: Best deals shared as inflation is to ‘whittle’ away over £3k from savers

Charles Incledon, Client Director quoted in Daily Express 17th September 2021 

“The interest rates on ISAs are so low that leaving money in one today will just mean watching inflation whittle it away.

“The rise in inflation should make savers reconsider where they are putting their money. People with money sitting in cash ISAs should be assessing their options with returns getting worse and worse.

“Investing in funds gives people a better opportunity to beat inflation. Typically, returns from equities outperform cash over the medium and long-term.”

Read more: https://bit.ly/3CvXbNQ