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Monthly Archives :

September 2022

Economic Outlook

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With Policy changes, volatility and unpredictability the new norm it appears at times, a different approach is needed towards your finances and investment strategy.

Ellis Bates continue to emphasise the foundations for dealing with the current conditions lie in a well-diversified, global approach to assets that have long term potential to weather the immediate storms and deliver returns over the longer term.

For more information please visit our latest market insights “Growing Pains?”

Rising Inflation

Bank of England tries to rein in inflation, which has reached its highest value since 1981, almost five times the central bank’s target. (1)

Falling Value of the £

The pound has fallen to a record low against the dollar as markets react to the UK’s biggest tax cuts in 50 years. (2)

Global Stock Market Declines

It’s hard to find much good news in relation to Global Markets, with investors remaining worried about high inflation and low growth. (3)

Sources
[1] https://www.bloomberg.com/news/articles/2022-09-26/understanding-the-british-pound-s-sudden-crash-quicktake
[2] www.bbc.co.uk
[3] https://russellinvestments.com/uk/blog/inflation-recession-earnings-mwir

Diversification Within Investments

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This session looks at how the strategy of diversification among investments can be used to reduce risk when investing.

Growing Pains?

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The UK’s new Chancellor Kwasi Kwarteng unveiled “The Growth Plan 2022” which marks a step change in government policy, both financially and ideologically. The view of the new government is summarised by the assertion that “Economic growth is the government’s central mission” and to achieve this “the government must cut taxes, streamline the public sector, and liberate the private sector.”

As always, we disregard the political or social biases with our comments and focus on the reality of facts, or importantly, the facts so far. As the chancellor noted when challenged on the financial prudence of their plan, the new regime had been in place 19 days when it was issued and there will be additional measures in the future. Those doubting the priorities of the government and where these measures will be implemented, however, need only to focus on the highlighted quotes from the mini-budget and then consider the likely economic implications.

Currency markets have been in focus as sterling initially reacted negatively to the news, with fears that the higher-than-expected levels of borrowing would cause sustained higher inflation and, in turn, higher interest rates from the Bank of England which would have significant implications on the cost of government financing at a time when this already stands at historical highs.

However, part of the uncertainty may be due to lack of detail on how the stimulus package would be financed which provides additional risk in market pricing – back to the relevance of the facts so far, and the likelihood of further communications within the theme of the government’s chosen central mission. A Conservative government that has just taken a very open and public step to the right will be acutely aware of the financial markets’ need for information and aversion to uncertainty, so we must assume a pro-business regime will adopt an operating framework to match.

What next? Initially, more uncertainty, particularly as the government and Bank of England (BoE) establish an equilibrium on fiscal stimulus and monetary restraint to break the cycle of higher inflation and higher interest rates. For growth to reach the government’s stated objective of 2.5% that will need to happen sooner rather than later, and more than likely after an almost inevitable initial recessionary period. The focus on the private sector should, in theory, be positive for businesses as the government has identified them as the solution to remedying the current economic problems. However, this is clearly a significant risk at a time when government finances are already stretched, and the macroeconomic environment is as uncertain at any point since the global financial crisis in 2007-08.

At our client webinars we have emphasised the likelihood of heightened volatility for a number of years and the implications for financial markets over the short, medium and long term. The short-term risks for UK-based investments have certainly increased with the announcements on Friday and what may be perceived as bold in some quarters has equally been dismissed as reckless in others. While clearly our portfolios are not immune to the prevailing negative market environment, we continue to emphasise the foundations for dealing with the current conditions lie in a well-diversified, global approach to assets that have long-term potential to weather the immediate storms and deliver returns over the longer term. Risks are clearly elevated at the moment and the government will need to provide more clarity on how the stimulus will be accounted for to soothe the nerves of investors.

Gender Confidence Gap

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There is a significant gender confidence gap when it comes to managing pension pots

The following table shows the large difference in women and men being confident in pensions, investments and savings:

Confidence in: Women Men
Ability to make decisions about their pension 28% 48%
Managing their investments 22% 41%
Managing their savings 56% 67%

Source: Opinium survey of 2,001 UK adults was conducted between 4-8 February 2022.

Meeting with a Financial Adviser

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Whether you are just starting out on your financial journey or an experienced investor, taking professional financial advice is an important step to ensure your plans are on track.

Bridging the Gender Pensions Gap

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Women left with half the pension pot, no matter the job.

We’ve all heard about the gender pay gap, but very few discuss the gender pensions gap, despite the fact so many women experience it. Women’s pensions at retirement are half the size of men’s, regardless of the sector they work in, new research has highlighted[1].

The gender pension gap is the percentage difference in income between men’s and women’s pensions and it begins at the very start of a woman’s career.

Long-Term Financial Impact

The research found that every single industry in the UK has a gender pensions gap, even those dominated by female workers. Considering women are likely to live four years[2] longer than men, this issue deepens as they need to have saved around 5% to 7% more at retirement age.

Worryingly, more than a third (38%) of women who have taken a career break were not aware of the long-term financial impact it would have on their pension.

Three Key Industries

According to the research, the gender pensions gap exists regardless of average pay across different sectors, and ranges from a gap of 59% in
the healthcare industry, to 13% in courier services.

The healthcare (59%), construction (51%), real estate/property development (48%), pharmaceutical (46%), aerospace, defence and government services (46%), and senior care (45%) sectors were found to have the largest gender pensions gaps. Of these six sectors, three are key industries for female employment – healthcare, pharmaceuticals and senior care[3].

Lower Pensions Contributions

There are many reasons for the gender pensions gap, ranging from women holding fewer senior positions and being paid less, resulting in lower pensions contributions, to the fact they are more likely to take career breaks due to caring responsibilities.

Of those that have taken a career break, 38% did not know the financial impact it had on their pension contributions[4].

Gender Confidence Gap

Another potential driver is a significant gender confidence gap when it comes to managing pension pots. More than a quarter (28%) of women said they had confidence in their ability to make decisions about their pension, compared to almost half (48%) of men[5].

This lack of confidence extends further to other financial decisions, with women less likely than men to feel confident managing their investments (22% of women versus 41% of men), and their savings (56% of women versus 67% of men).

While many factors behind the gender pension gap are out of most people’s control, there are some actions you can take to help reduce it:

  • Contribute as much as you can to your pension – and start early. Compound interest remains hugely underrated and poorly understood by both some men and women.
  • Check the charges on your historic pension pots. If appropriate, see if consolidating your pots will bring them down.
  • Check how much your State Pension will be and when you’ll get it. If it’s not going to support your ideal lifestyle, plan how you’ll cover any shortfall.
  • Put a bit more into your pension whenever you get a pay rise.
  • Talk through your pension planning with your partner. Make sure you know about each other’s saving plans, contribution limits and that you are both on the same page.
  • Keep a regular eye on your pension to make sure you’re in full control of it and saving for your ideal future.

Need advice to close the gender pay gap in your pension?

Women often have disrupted work patterns, career gaps and work part-time – this can impact their ability to save consistently for retirement without savings gaps. If you are concerned about your retirement plans and would like to review your pension options, please contact us . We look forward to hearing from you.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

Source data: [1] The analysis is based on LGIM’s proprietary data on c.4.5 million defined contribution members as at 1 April 2022 but does not take into account any other pension provision the customers may have elsewhere.
[2] ONS: Life expectancy at birth in the UK: 82.9 years for women vs 79 years for men; Office for National Statistics, 2018 – 2020. Average four years.
[3] According to the ratio of female members across the Legal & General book of business.
[4] Legal & General Insight Lab survey of 2,135 workplace members was conducted between 4-26 July 2022.
[5] Opinium survey of 2,001 UK adults was conducted between 4-8 February 2022.

Worries About Retirement

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Worries about retirement, research has found:

52% of 1,212 UK adults surveyed are concerned they have not saved enough money to sustain their current lifestyle in retirement

34% of full time works say the state of their retirement finances is a cause of “significant stress”

9% said they doubt they will be able to fully retire

37% say they have a clear retirement savings strategy

24% had reduced their contributions since the start of the Covid pandemic

On average, respondents said they saved £298 into their pension each month

How much money do I need in retirement?

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We look at how to work out the amount of income you could need in retirement and why it is important to have a plan in place to ensure you have the retirement you want.

Steps to Retirement

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Step One: think ahead to the type of retirement you want

The first step is always to have an idea of what you want to do when you eventually stop work. It is helpful to have a good idea of the lifestyle you want, how much it will cost and how you are going to pay for it. You may want to travel, spend more time with family and friends, pursue hobbies and interests or move house. However you see your retirement, itis important to think ahead, plan ahead and cost up how much this may cost so you put a savings/investing plan in place.

Step Two: plan to cover your costs

You will need to make sure that you have enough saved up to cover your basic costs including living expenses and any debts or financial obligations you may have. You will need to look at your current savings levels, investments, pensions etc and map them all out to see what you already have/expect to have and then to put additional savings/pension contributions plans in place. Once this is done you will have a better idea of how much you will need to retire. At Ellis Bates we use sophisticated cashflow to map out your income and expenditure and map these against your retirement goals to bring your retirement journey to life. Hop over to  https://www.ellisbates.com/retirement-calculator/to add in some overview numbers to get an idea of how much you will need to retire.

Step Three: be enthusiastic

Retirement planning is complex but the more enthusiastic you are about retiring, the more likely you are to develop a robust retirement plan and retire at the age you want to and with the lifestyle you want.

Step Four: factor in inflation

The cost of living will go up as we are seeing currently, so you’ll need to make sure that your savings and investments including your pensions not only keep can keep pace with inflation but keep ahead if possible so that your buying power is not eroded.

Step Five: seek impartial advice

External advice compensates for any emotional biases you may have about making big financial decisions. A DIY approach to managing large pension funds at retirement is fraught with risk. People can easily buy the wrong products, incur unnecessary tax bills or simply exhaust their retirement funds too quickly, whereas an adviser will provide an impartial, cool-headed approach to your finances and offer solutions you will not have considered. Obtaining expert professional financial advice will ensure you are on track to meeting your goals. The sooner you start planning, the more likely you are to achieve a comfortable retirement, at an age you choose. We can help you calculate how much you need to retire, simply book a free consultation.