Succession without the backstabbing – how to be positive with your estate planning
Betrayal, backstabbing and bitter sibling rivalry in HBO’s Succession made for gripping TV. But in real life most people would prefer their estate planning to be a little less complicated. Here’s how to get it right – without all the drama.
“I love you. But you are not serious people.”
So says the fearsome Logan Roy to his children in the final season of Succession.
In a series that’s chock-full of quotable dialogue, it’s a typically cutting putdown from Brian Cox’s media baron. Not for the first time, he lets his offspring know how he really feels about their ability to carry on his legacy.
Succession had everything. A cutthroat patriarch unwilling to let go of his hard-earned empire; entitled (and incredibly rich) siblings – each believing they are most deserving; and an entourage of hangers-on hustling for a slice of the action. The winners take everything, the losers go home with their tail between their legs.
Few families are as dysfunctional as the Roys. But it’s true that everything can get more complicated once money is involved.
It doesn’t have to be this way though. Here are some of the things to think about when taking care of your own legacy.
But first… what is estate planning?
Estate planning is a lot more than just dividing up your wealth (or indeed, nominating a ‘successor’).
Deciding who benefits from your estate and sharing out your assets is a vital component, but there are other equally important issues to address. For example, naming guardians for your children or giving a trusted person Power of Attorney should you not be able to make decisions for yourself later in life.
There’s likely to be a multitude of motivations – providing for loved ones, securing the future of a business, and avoiding putting undue burden on other family members after you’ve gone.
Where should you start? Have a conversation with those who matter
As reported in the Financial Times, the number of wills being contested in court is on the rise. Recent high-profile cases have included Priscilla Presley (Elvis’s widow) who challenged an amendment to her daughter Lisa Marie’s will, removing her as one of the estate’s co-trustees. Meanwhile, a US court will hear a challenge from three of Aretha Franklin’s four children challenging the validity of two hand-written wills.
In Succession, Logan Roy is constantly keeping his children guessing on who he wants to take over – often playing off one against the other. But having open conversations with family and loved ones – letting them know your wishes and talking them through any changes – is of course a much more positive approach. It also makes the possibility of bitter contests less likely in the future.
What next? Taking care of the essentials
Here are some of the essentials to consider when estate planning:
- Make a list of your assets – shares, properties, or other items of value.
- Prepare a will – Not having one means leaving a court to decide who inherits your assets and possessions.
- Assign an executor for your estate – someone who’ll manage your will when you’re gone.
- Nominate a guardian for your children and dependents.
- Make arrangements for Power of Attorney.
- Make sure your will is securely stored and your executors know where it is.
- Make sure your will is up to date – and let people know if you have made changes.
Managing inheritance tax through gifting
One area of estate planning that needs careful attention is limiting your inheritance tax (IHT) liabilities. Estate planning isn’t about dodging tax or finding loopholes, it’s ensuring you optimise your estate in line with the rules – and don’t lose out unnecessarily. You’ll need a full list of assets and liabilities to assess your inheritance tax position.
A common way to reduce IHT is through gifting. Giving away cash or assets (such as property, stocks and shares, or other personal goods) will limit how much you go over the all-important £325,000 IHT threshold.
You’re entitled to give a total of £3,000 in IHT-exempt gifts each year. You can also make larger one-off gifts, depending on your relation to the recipient – for example wedding gifts to children or grandchildren.
Should you gift now or gift later?
There are advantages to both. Gifting earlier on means you’re less likely to fall foul of the ‘seven-year rule’. No IHT is due on gifts (no matter the amount) if you live for seven years afterwards. If you die within that time, there’s a sliding scale of how much will be due. Another advantage could be that you get to see the fruits of your donation, especially if you’re giving money to charitable causes.
However, gifting later also has advantages. Money wisely invested might result in a larger final amount. And, if you’re gifting the money to a charity or cause, holding off on that gift gives you more time to gather research and make sure your intervention is the right one.
When it’s time, take professional advice
It’s important that we’re all thinking about these issues (and talking about them with families) as early as possible. We already find that, in most cases, our clients are comfortable discussing their affairs with their children and others in the estate planning process.
However, estate and tax planning are complex areas, so there does come a point when professionals need to be involved. We can help advise the best course of action on inheritance tax and advising on how best to use your money efficiently. We’ll also help you through issues such as the technicalities of appointing executors or advising on issues such as ‘probate’ (in Scotland this is officially known as a ‘grant of confirmation’) which provides the authority to deal with someone’s estate after they die.
It can be a natural question at this point from children or other family members to ask why a third party is getting involved. So we encourage them to get to know us too. After all they have a right to know who’s dealing with their future inheritance.
Succeeding at Succession
We are hosting an exclusive event in Belfast on 21st September with our colleagues at FPM. Join us and hear from FPM’s Managing Partner Feargal McCormack, Private Client Partner Paddy Harty and Head of AAB Wealth, Andrew Dines on how you can plan for your future with confidence.
View our event details and reserve your spot
If you or your family have any questions about estate planning, please get in touch for a consultation.
As the world heats up, how can we help investors make a more positive impact?
This summer’s heatwave provides more evidence that action is needed to control climate change. Despite recent backlash against the ‘woke capitalism’ investors do have a part to play. This doesn’t mean they have to be worse off as a result.
If you’ve spent the summer chained to the pool trying to avoid the searing heat, or even just seen the headlines of wildfires in southern Europe, the impact of climate change seems pretty clear – inescapable even.
The heatwave puts into focus efforts to get a grip on global warming: curbing carbon emissions across industry, greater adoption of greener transport solutions and, in the investment world, moving more money into sustainable and responsible investment strategies.
Even so, despite the rising temperatures (and warnings that this sort of weather will eventually become the norm) there’s been pushback in some quarters at the move towards ‘mission-driven’ investing, especially the theme of ESG (environmental, social and governance). In the US, as reported in the Financial Times, 49 anti-ESG bills have been introduced this year alone[1].
For the critics, this kind of investing is too ‘woke’ – and focusing on sustainability only compromises financial returns.
What the critics get wrong
It has to be said, this negative slant hasn’t been the response from our clients.
We’ve had very positive conversations with clients who want to know more about the changes they can make to their investments, how they can make a positive impact – and the services we provide that will help them do that.
We think the main reason for that positive interaction is that, yes, we’re serious about sustainability, and yes, our approach is firm wide (more on that in a moment) but, above all, we believe in taking small steps in the right direction – without putting financial returns at risk.
In short, we never lose sight of our primary objective: helping our clients grow their money.
So how can sustainability help?
Sustainability is a very broad topic, and the term ESG has become something of an over-used buzzword. While we don’t ignore social and governance as factors that can impact the profitability of an investment, we’re primarily concerned with where we can make a difference in making the portfolios we offer (and our behaviour as a company) greener.
The table below from our sister company FPM, sets out the benefits that focusing on ESG factors can bring for managing your investments.
| Cost savings | Looking through the sustainability lens can be a useful way for companies to identify potential areas where they can reduce resources and enhance efficiencies. McKinsey has estimated that this can improve operational profits by up to 60%.
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| Competitive advantage | There’s fresh drive for firms to consider their long-term impacts from Millennial and Gen Z customers and investors. Companies that neglect sustainability are losing their younger employees, who are opting instead to work for more sustainability-conscious organisations. |
| Reporting and regulatory compliance | Failing to comply with tougher and more widespread reporting requirements can leave companies with significant fines. In the UK, the Taskforce on Climate-related Financial Disclosures require UK-registered companies to report on their financial exposure to climate risk. |
| Access to finance and insurance | Sustainability-focused financing is on the rise. Companies that consider reputational risk factors and mitigate concerns may be able to access funds more readily than those who fail to embrace ESG. |
Find out how ESG can safeguard your future.
Our approach to sustainability
We last discussed our approach to sustainable investing in March 2022. We’ve also written to clients setting out how we’re embracing the drive to create a more sustainable world, making changes that lead to a real difference.
There are two key aspects to this:
We’re pragmatic
The sustainability choices we make won’t come at a cost to returns. Our default portfolios are evidence, not ideologically driven. So, our portfolios will leave out the worst-offending polluters, for example, but may still include the more carbon-conscious oil and gas companies.
Sustainability is firm wide – not just an optional extra
Some firms treat sustainability as an ‘addition’.
Clients can choose an ESG-focused fund in much the same way they might select a fund that’s focused on a particular sector or country. Even if that fund is classed as ‘dark green’ (those investment products classed as having the highest sustainability standards), other customers might as easily be carrying on as normal.
Instead, we’ve made our pragmatic but sustainability-focused approach the default option. Just as a rising tide lifts all boats, we believe having sustainability a common thread through our investments allows us to make more impact.
Making your money count
There are many ways you can help make little contributions to a more sustainable world. It could be thinking more carefully about your travel options (such as more caution over taking long-haul flights or switching to electric car), conserving electricity or water use, or increasing the amount you recycle.
The biggest impact you can have is through your capital.
Pooling your money into shared investments like pension funds, which have millions of pounds under management, means you are adding your voice to influence change at a company level. This can have a greater longer-impact than driving a Tesla for a few years.
Our approach to sustainability is still baby steps in the right direction, but it’s one that we’re proud to be taking our clients on with us.
Speak to us to find out more about your sustainability investment options.
[1] Source: Ropes & Gray, as reported in the Financial Times
Why ‘lane envy’ can be dangerous for your finances
Chopping and changing lane doesn’t help you get to your destination quicker. And it isn’t any better a strategy for your finances either. Higher interest rates can make some short-term measures more appealing – but they can actually be damaging for your long-term goals.
Picture this, it’s summer holiday time and you’re sitting in traffic. Cars either side on the busy motorway are inching past. Frustrated, you switch lanes, only to find that it’s now the other lines of traffic moving ahead.
It’s an illusion though, as studies, like this one from Stanford University, show that switching in and out can be unnecessarily risky.
We’re seeing evidence of this ‘lane envy’ just now with regards to the UK’s current economic climate.
Interest rates are at their highest in nearly 15 years, meaning some conventional savings accounts look – at least temporarily – more attractive than investing in stocks or bonds. Clients have come to us tempted by the short-term potential of moving some of their money into cash, thinking they’re getting a better deal.
We always advise strongly against this. Ultimately, it can be harmful for your finances.
The current state of play
Let’s take a brief look at what’s happening now.
In June, the Bank of England put interest rates up to 5%. It’s the highest level for the cost of borrowing in nearly 15 years – and a far cry from the rock-bottom levels seen over the last decade.
The rise is very bad news for mortgages but it’s a boost for cash savings. Current deals on offer are up to 4.15% for easy access or 5.7% for fixed rates.[1]
At the same time, equity markets have been up and down. Since the start of the year, the FTSE All Share Index rose at one point to more than 7% from the start of the year but has dropped back down to roughly where it started (go further back, however, and the market returns looks much healthier).
Why we should avoid thinking short term
During these times of what we call market volatility, it’s a natural reaction that investors consider heading for so-called ‘safe havens’. With interest rates pushing up the potential returns from cash savings, could these deliver what they’re looking for?
Firstly, we need to consider the negative impact of changing lanes.
Taking your money out of the market and into cash can be disastrous for the long-term earning power of your portfolio. If we take a hypothetical portfolio of 100% equities with a return of 7% (a fairly conservative estimate over the long term) and compare it with one that’s split between cash and equities over 20 years the mixed portfolio earns considerably less. The example in the chart below, assuming cash return of 1% interest of 3% interest shows that the split portfolio brings the investor between £66,000 and £95,000 less.
For illustrative purposes only. Assumes a hypothetical 7% return for shares after costs
Secondly, growth is like London buses. It goes away, then it all comes at once.
The main problem for investors is that once out of the market, it’s extremely difficult to get back in. Few – if any – investors can time the market to the degree they can avoid the worst days and still be there for the best. As an example, the chart below shows how much the return would be from various points over the last decade.
So, when growth does return to the market, it will be too late to buy back into any potential bounce. You’ll have missed a golden opportunity.
Chart shows FTSE All Share returns from start of calendar year to end of May 2023.
Open road ahead
Let’s return to that situation we discussed at the beginning of this article. Stuck in heavy traffic en route to your summer holiday. Imagine if after 20 minutes of queuing you’re offered the chance to get on a bike.
In theory, you’ll be free to weave in and out of the traffic. In the short term you’ll be well ahead of those around you. But of course, you know that once you hit open road and the traffic clears, you’ll be left with the wrong tool for the job.
That’s the difference between a short-term fix and long-term thinking. It’s putting the temptations of a temporary good deal to one side, knowing that it could be detrimental to the end goal.
Despite a fair amount of doom and gloom in the news headlines, markets are on a slow and steady march upwards. We’ve discussed here before the benefits of having a plan and sticking to it. So this summer, when panic sets in and you feel like you’re in the wrong lane – remember the fear you’re not moving as fast as you should be could just be an illusion.
If you are unsure about the state of your investments or of the financial markets and would like more information, please contact us or get in touch or your usual AAB Wealth contact.
[1] Money Saving Expert as of 22 June 2023
6 things you need to know about pension planning
Think you’ve seen everything you need to know about the changes to tax and pensions for the financial year? Behind the headlines are some important things you need to consider for your pension planning. And some you may have missed.
The UK government wants Britain to start growing again. As we discussed in a previous post, the key focus from this year’s Spring Budget was how to stem the flow of skilled workers heading for early retirement and coax the recently retired back into the world of work.
Changing the rules on tax thresholds and pension payments are just part of this plan, but some of them are quite complex, and there are ramifications that aren’t immediately obvious. We’ve also focused on a few of the main points below.
1. Lifetime allowance on the way out. Annual allowances going up
Starting with the most high-profile change to pension rules, with two of the key thresholds governing how much you can pay into your pension. The lifetime allowance (LTA) and annual allowance (AA) dictate how much you can accrue before you lose your tax relief, and the government believes setting them too low is a disincentive to staying in work. You can now benefit from more tax relief on the money you pay into your pension. The LTA, previously set at just above £1 million, is now zero, and will be abolished from next April. Meanwhile, the AA has risen from £40,000 to £60,000.
2. Income tax – beware the 60% income trap
Income tax is a hugely important part of pension planning, as what you pay into your pension helps reduce your tax liabilities.
For the current tax year, more people will move up a tax bracket. In England, for 2023/24, the threshold for the additional rate tax band (45% on earnings and 39.35% on dividends) has been lowered to £125,140 (in Scotland, the top rate is slightly higher at 47% on earnings above £125,140).
But be warned – you could actually end up paying more than that upper limit. Between £100,000 and £125,140, you could fall into in the ‘60% income trap’. Between those levels, the £12,570 personal allowance gradually diminishes, reducing by £1 for every £2 of income (beyond £125,140 there is no personal allowance at all). This means that some taxpayers are effectively taxed at a 60% rate of tax.
3. Other allowances are rising too
If you’re on a higher income, the level of tax relief you get from paying into your pension can be affected by ‘tapering’. The higher your level of adjusted income – your salary and earnings outside of tax-efficient accounts such as ISAs – the more your level of pensions annual allowance will gradually reduce.
But there’s good news for some in this area. The government has increased the level where tapering starts, it now only applies to adjusted income over £260,000. In addition, the minimum allowance for tax relief has gone up from £4,000 to £10,000.
Alongside this, the Money Purchase Annual Allowance, which applies to those who have already accessed their pension flexibily, has also increased from £4,000 to £10,000.
4. Pension protections are still available
Before this year, the government had cut the LTA on three previous occasions (2012, 2014, and 2016). Each time it was possible to register for fixed protection if your pension was at risk of exceeding the revised limit.
Even with the LTA on its way out, individuals can still apply for fixed protection to the 2016 level (subject to meeting eligibility criteria).
If you had previously opted out from a pension scheme and have Fixed Protection, it’s worth considering re-joining schemes and use these pension contributions to manage your income tax liabilities. Speak to us about what this means for you.
5. There’s still a limit on withdrawing your pension as a lump sum
The LTA may be abandoned, but there’s still a limit on what you can withdraw as a tax-free lump sum. This is capped at £268,275 (25% of the most recent lifetime allowance). There are some circumstances when you can withdraw above this level tax-free.
6. Can you still carry your pension allowances forward?
There are instances when you can carry forward unused benefits from previous years to ensure you’re as tax efficient as possible. For example, business owners could make use of personal annual allowances they’ve not used in the previous three years – providing that they’ve been part of a registered pension scheme during that time.
However, if you’re planning to make use of unused allowances, it is important to consider the impact of tapering for each year.
If you want to find out more about how AAB Wealth can help you, get in touch today.
What do chatbots mean for your financial advice?
ChatGPT has gone from strength to strength since launching last year, opening up a huge debate on the role artificial intelligence (AI) plays in society. But would you take financial advice from a chatbot – or trust it with your life savings?
AI is causing quite a stir.
Whether it’s fears over students using it to cheat, or the debate over the merits of AI-generated art (the jury is still out whether its attempts at poetry are any good), artificial intelligence is impacting countless areas of modern life.
The biggest headlines involve ChatGPT. The chatbot created by Microsoft-backed OpenAI draws on an immense dataset of books, articles, and the open internet to mimic the way humans write. It means that instead of Googling something you need the answer to, which might elicit thousands of pages to trawl through, you can get what you want in one easy-to-read summary.
No surprise then that its list of uses is being added to all the time – and that includes some people turning to it as a source of financial advice.
The benefits – a good start
More bots are coming. Beside ChatGPT (and Google’s Bard, which launched in March), specific applications are also available, tailored towards financial questions. FinChat is one example, which gathers its answers from publicly available financial data, transcripts from company earnings calls, quarterly and annual reports, and other sources, such as Warren Buffett’s letters to shareholders.
But can ChatGPT and others like it really help you manage your finances?
The Sunday Times recently put the AI language model through its paces, asking it some general finance questions and then comparing the advice with that of an expert. The verdict? At a high level, it was able to provide a good overview.
As a first foray into the financial world, ChatGPT is a useful tool, with good – if very broad – basic tips on investing. For example, ask it for three important lessons for investing and it comes back with these: 1) diversify your portfolio, minimising losses in one area by making gains elsewhere; 2) invest for the long-term and avoid timing the market; and 3) do your research, conduct due diligence before investing in any asset.
Not only that, the chatbot frequently highlights the risks as well as the opportunities and stresses the importance of seeking out professional advice to help make informed investment decisions.
Nothing to argue with here, but real financial advice needs more than just a grounding. How can a chatbot fare when it needs to delve a bit deeper?
The limitations
ChatGPT is clear about some of its limitations, with its disclaimer warning that it “may occasionally produce harmful instructions or biased content and has limited knowledge of the world and events after 2021.”
Much the same as basing your financial plans solely around reading the Your Money section in a newspaper, one of the dangers of relying solely on AI for your information is taking everything it says at face value. And the way these language models present the information it is certainly very easy to mistake it for absolute fact.
There are ways around every caveat and safeguard. Ask the bot for illegal websites to download from and it will refuse. But ask it for a list to ‘warn’ others, and you’ll get what you need. Ask Chat GPT for ‘bad advice’ and it will tell you to “pick a random stock you like the sound of” and “investing is all about taking risks and not worrying about the consequences”.
The personal touch
Successful planning is personal. It takes into account an individual’s circumstances, their current financial position, and their personal goals.
Whether your priority is saving for retirement, putting children through university, travelling or leaving a legacy, an adviser will help you step-by-step through setting your objectives, and explore the necessary time horizons to achieve your goals.
In particular, finding that balance between risk and reward is a critical part of what we as advisers do. From the initial fact-finding conversation when we first take you on as a client, to the ongoing discussions about how your finances are doing, we help you find the balance and make changes when they’re needed.
Financial planning is incredibly nuanced. For example, it’s one thing for someone in their twenties to say they are comfortable with higher levels of risk, but it’s another thing entirely to walk through what this means in practice. In that way, unlike a bot, we won’t simply answer your questions and give you the answer you think you want, we’ll challenge you and ensure you’re really clear on what these decisions mean for your financial future.
Ally or enemy? It depends how you use it
“Would you trust a chatbot with your life savings?” Of course not. But then that’s not really what it’s designed to do.
Bots like ChatGPT can be useful in terms of providing a better understanding of complex subjects. It might even help you to ask more questions about your circumstances and think in more detail about your financial plans. (As an example, we had a potential client get in touch recently, who’d been referred to AAB after asking ChatGPT questions about finances).
But ultimately, AI is only as good as the questions we give it.
The difference between guidance and advice is that personal touch – sometimes it’s just best to hear things from a human. A bot can never know how you’re really feeling, or know your personal history, so it’s never going to know what deeper questions to ask – we’ll explore those with you.
With the benefit of experience, and of course, asking questions, a financial adviser can give more tailored personal advice, which will differ depending on your age, individual circumstances, and personal goals.
AAB Wealth Technical Manager awarded two Top Performer awards
The Insurance Institute of Aberdeen held their inaugural Achiever’s Event last month, celebrating the success of those who have passed exams or completed new qualifications over the last three years.
It was great to see such a large turnout from the team in support of Jack Swan, Technical Manager and Kirsty Young, Financial Planning Associate, who were both nominated for Top Performer awards.
Jack Swan was recognised with 2 Top Performer awards for the Diploma in Financial Planning for 2020 & Advanced Diploma in Financial Planning for 2022, an incredible achievement.
Jack joined AAB Wealth’s graduate programme in 2018 and began his Chartered Insurance Institute (CII) training in 2019, achieving the highest regional mark in two exams. In 2020, he achieved his goal of attaining his diploma in Regulated Financial Planning and received the Achievers Award by the Insurance Institute of Aberdeen at their annual dinner.
The journey didn’t stop there, with Jack continuing to undertake further exams in pursuit of his Advanced Diploma in Financial Planning, and ultimately, Chartered status, now having secured both.
Jack heads up the Financial Planning Associate Team, who provide support to the Financial Planners across all locations. Jack plays a key role in the Operations Team, working with his colleagues to oversee day-to-day operations. Of late, he has been heavily involved in the integration of Kilkee Financial Services into AAB Wealth, working alongside the Financial Planners and the wider Operations Teams to undertake analysis, formulate and implement recommendations.
Andrew Dines, Head of AAB Wealth added, “We are so thrilled that Jack’s hard work has been recognised with not only one but two awards. Jack is an invaluable member of our team, and we look forward to seeing him progress further in his current role, whilst continuing to support and grow the wider team. We will continue to support Jack’s commitment to lifelong learning and await what is next to be added to his list of achievements whilst enhancing his knowledge and ability to perform his role in the team.
Jack commented, “I’m delighted to have received these two awards at the Achiever’s Event last week and would like to congratulate all nominees and award winners, together with everyone who achieved a qualification or completed an exam during 2020-2022. It was great to see so many professionals receiving recognition for their hard work. A huge thanks to the AAB Wealth team for the support and guidance they continue to provide.”
What a great night celebrating the success of our team members. Congratulations to everyone whose achievements were recognised.
What does Jeremy Hunt’s ‘back to work’ budget mean for you?
Summary: “No one should be pushed out of the workforce for tax reasons,” says the Chancellor. With an ageing population and growing skills gap, Jeremy Hunt has taken aim at the lifetime pension allowance.
The last time Jeremy Hunt delivered a budget speech, it was billed as an “emergency”, as he tried to fix the problems from his predecessor that had sent markets tumbling.
But springtime brings optimism and this time his outlook was a bit more positive. Recession avoided; inflation falling (from above 10% to below 3% by the end of the year); and, in his words, the UK economy is “proving the doubters wrong”.
Amid the news on energy bills (support extended), fuel duty (frozen), alcohol duty (going up), there was huge focus on getting people back to work.
Not only has Mr Hunt brought in new measures aimed at helping people return to work (such as increasing free childcare) he’s also trying to coax people into staying on and avoid early retirement.
No more lifetime pensions allowance
As he looked to encourage more over 50s to avoid early retirement, one incentive open to the Chancellor was increasing the amount they can withdraw without a tax penalty – the lifetime allowance.
With a threshold of just over £1 million, higher earners were preferring to retire early rather than pay tax on putting extra in. The allowance was referred to as the ‘doctors’ tax’ because of the number of high-earning senior NHS doctors and consultants who have been impacted.
There was some expectation Mr Hunt would increase the allowance. In fact, he’s scrapped it completely, meaning you can pay in what you like over your career without being taxed on it. The level you can pay in each year also increases from £40,000 to £60,000.
Alongside this there are changes to the tax-free lump sum. Previously set at 25% of your total pension, this is now limited to £268,275 (that’s 25% of the previous lifetime allowance limit of £1,073,100). We believe this move makes sense. People are much less likely to buy annuities nowadays.
Can the Chancellor bring retirees back?
It’s not just getting people to stay on, Jeremy Hunt also wants to convince those people who have already left, to come back to work.
This has meant tackling the issues standing in people’s way. Money is set aside for healthcare and setting up apprenticeship-style programmes known as ‘returnships’ teaching ex-retirees new skills for alternative roles.
The Treasury believes its measures could mean an extra 15,000 people in the workforce by 2028.
But will it work?
For some, certainly. In the oil and gas industry, where a lot of our clients have spent much of their careers, there’s already a long tradition of carrying out some form of consultancy work after an official retirement. Many are already doing this to some extent. However, this tends to happen less if they have been out of the workforce for more than a year or so.
For others, coming back after time out is less likely. Once you’ve had your leaving drinks and goodbye cake, if you’ve already got enough money set aside, then would you really go back? For many, retirement is a huge transition, and one that can take a while to get used to. Once that new transition has become established, the idea of returning to work can feel like a ‘backwards’ step.
The future – the downside
Looking at the bigger picture, if we wanted to take a dystopian view of the future for a second, Britain’s population is becoming top heavy – not enough young people and too many in their retirement. If the skills gap isn’t addressed, then it becomes even more urgent to stop people in their 50s and 60s from retiring.
The birth rate here is steadily declining (it’s a long time since the average family was 2.4 children, it’s now around 1.7). Meanwhile the country’s proportion of older people is increasing, with nearly 20% of the population over 65 years old.
This presents two big challenges. Firstly, an ageing population in general can put greater pressure on health and social care (according to a previous OECD report, over 65s accounted for 40-50% of healthcare spending[1]), although this depends on other factors such as income brackets. Greater numbers of retirees also put a strain on public and private pensions. Even moving away from the declining number of final salary schemes to defined contribution pensions, fewer people paying in inevitably has an impact on the pot that’s available to draw down from when you finally retire.
But… in a more positive light
Let’s look at a country like Japan, where nearly 30% of the population is over 65.
Paying people to have children hasn’t worked so far in boosting the birth rate, but at the same time, the country has also tried to shift its mindset to the other end of the scale, creating an ‘age-free society’ where older people are encouraged to stay healthy, play an active role in society, and aren’t written off as merely senior citizens.
Could this be the future for ageing societies?
What does this mean for you?
Returning to the Chancellor’s plans – what will they mean for your retirement?
Removing the lifetime allowance could be a very positive step, particularly if you’re in the ‘accumulation’ stage of your career. With the potential for punitive charges if you’ve saved above the taxable level now gone, planning for your pension has suddenly become a lot less complex.
As for the proposals to bring people back to work? We think there will be a sliding scale of those who are attracted by this. Some will jump at the chance, others – having already planned to get to this stage – will be less keen to switch direction now.
Whether it’s close at hand or a long distance away, if you’d like more advice on what the proposals could mean for your retirement, please get in touch.
[1] Dang T., Antolin P., Oxley H., Fiscal implications of ageing: projections of age-related spending, OECD Economics Department Working Paper, OECD, 2001. In Ageing societies:The benefits, and the costs, of living longer
4 key lessons about investment markets
The number of ‘DIY investors’ is increasing. But for all the apps promising to make it easier, going it alone in the stock market without professional advice can be a real challenge.
A survey of retail investors by EQ last year found that a growing number of shareholders felt they were making uninformed decisions – a dangerous position to be in when it comes to your money. Furthermore, nearly half of jittery investors felt the need to sell off some of their shares due to the cost-of-living crisis.[1]
Here are four lessons we believe it’s important to remember when it comes to investing:
1. Sometimes stock markets are totally detached from reality
The UK is set to enter recession this year; inflation is at its highest in around 40 years; and the country is being hit by waves of public sector strikes.
With all this bad news, it’s perhaps surprising to see UK markets on the up. The FTSE 100, consisting of the top UK-listed companies, is at its highest since 2018.
That’s a tricky thing to get your head around. Surely investors should be stampeding away from the UK market, not piling in?
But markets are forward looking. They don’t necessarily reflect what’s happening right now, but what investors think is going to happen in the future.
In theory, this means everything – recessions, inflation, interest rate hikes –are all ‘priced in.’ The only time markets should see a dramatic drop is when something happens that investors didn’t expect.
Understanding this means having to think several moves ahead and many have lost money gambling on what markets will do next. The best long-term strategy is to pursue a long-term financial plan that will naturally factor in the stock market’s approach.
2. For every right prediction, there’s a wrong one
At this time of year, a lot of the bigger investment houses like to come out with their forecasts for the year ahead. We get bold claims on what will or won’t happen, or stocks that will soar or fail.
We just need to look at the pundits who failed to predict a Trump win in 2016 to know it’s easy to guess wrong.
As this article from CNN discusses, analysts trying to guess how 2022 would pan out were well off. Goldman Sachs predicted the S&P 500 (a commonly followed index of large US companies) would end the year at 5,100 points. Morgan Stanley was more conservative at 4,400. The reality? The index suffered its worst fall since 2008, and ended up down at 3,829.
What’s the lesson here? There’s a lot of noise out there. We say it’s best to ignore it and instead have a long-term plan that adapts to what’s ahead, rather than following bold predictions that fail to come off.
3. Diversify, diversify, diversify
Markets have recovered since the start of the year (the S&P 500 has climbed back up since December). But it’s interesting to see what the story is behind those headline figures.
Earlier this year, Nate Geraci, president of US-financial planner ETF Store tweeted that just five well-known stocks – Apple, Amazon, Tesla, Microsoft and Facebook’s owner Meta – were responsible for half of the S&P 500’s losses over the previous year 12 months.
At the same time, around three quarters of stocks in that index were up 20% from their 52-week lows. For us, this supports our belief in a key investment strategy – diversification.
You’re spoiled for choice as an investor – across the world there are in theory more than 58,000 listed companies to choose from. But often it’s only a small handful we end up talking about.
It’s very easy for investors, particularly inexperienced ones, to follow the herd. That can be a potentially big error.
4. Things are not always as bad as they seem
Fear is a big driver in investing. It might be a company’s poor results, or some negative headlines, but when investors get nervous, it can sometimes lead them to extreme measures and forgetting important factors such as company fundamentals.
Unfortunately, bad news sells. There are far fewer column inches devoted to the FTSE’s current positive state than there would be if there’d been a market crash.
But as we said in a recent post, the headlines aren’t always as bad as they first seem. Fluctuations in the market are likely to only be short term. A negative story about a company might not have a lasting impact on its performance. While it’s sometimes tempting to drastically change strategy, that’s not necessarily the best course of action for the long term.
The golden rule
With these lessons in mind, we can all benefit from taking advice rather than going it alone. Our team can help you remain objective as well as support you in visualising your financial future.
AAB Wealth expands further in Central Scotland with key appointment
AAB Wealth is expanding its operations further across the Central Belt of Scotland with the appointment of a Senior Financial Planner based in Glasgow.
As part of the AAB Group, AAB Wealth offers tailored financial planning and covers all aspects of personal finance, retirement and tax planning, with a focus on ensuring that our clients have confidence in their financial future and achieve the best from life.
Alan Turner has more than 12 years experience in financial planning and has previously held positions at Bank of Scotland, Grant Thornton Wealth Advisory and abrdn Financial Planning. Alan is the tenth Financial Planner to join the fast growing AAB Wealth team.
Ian Campbell, Head of Financial Planning at AAB Wealth said: “We are delighted to welcome Alan to the team. AAB Wealth are well-established in Aberdeen and Edinburgh and this expansion will allow us to develop our client base further across the Central Belt of Scotland, but as the business grows, the service we provide to clients will always remain our top objective.”
Angus McCuaig, Managing Partner of AAB in Glasgow added: “Alan is a people person and as the saying goes, people make Glasgow. At AAB Group, everyone works cohesively towards the same goal, to provide a first-class service to our clients, and I’m thrilled to be strengthening our team even further.”
Alan Turner, Senior Financial Planner at AAB Wealth said: “I’m pleased to be part of the team and I’m looking forward to introducing AAB Wealth to our clients, some need advice on their pensions and life savings, others who have sold or are in the process of selling their business. I enjoy listening to clients, finding out what their top objectives are and helping them to protect and enjoy the wealth they have worked hard to achieve. I ultimately treat them as I would my own family.”
AAB Wealth now have experienced Financial Planners based in offices in Aberdeen, Edinburgh, Glasgow, Leeds and Belfast.
Featured image left to right: Angus McCuaig Alan Turner, Ian Campbell
Update your financial checklist for 2023
Summary: Here are some simple things you can do to help maximise your wealth.
Welcome to the new year! How are you approaching 2023 so far? It’s of course traditional around this time of year to try and become healthier. But it’s not just dry January that’s at the top of the to do list.
With so much focus on the cost of living, many of us are taking a closer look at our finances too, particularly our monthly outgoings – what direct debits can be cancelled, what dormant accounts can be closed etc.
This is great for the short term, but what about long term? What sort of shape are your finances in for the year ahead and beyond? Maybe you have investments you’ve not checked on in a while that could benefit from consolidation? Or perhaps your financial plans just need a bit of a refresh?
In our last post, we looked at the positive impact on your wellbeing that comes from knowing your finances are sorted. Continuing this theme – and with this being a traditional time of year for taking stock and looking ahead – we’re focusing on some of the simple things you can do to help maximise your wealth.
Consolidate your accounts
The first thing you can do is make sure you know where all your investments and savings are. Across the UK there are almost three million pensions pots classified as ‘lost,’ worth a combined £26.6 billion.[1]
Lost doesn’t mean lost forever. Retracing previous pension providers is straightforward, especially with the help of organisations like the Pensions Tracing Service.
But ‘out of sight out of mind’ as they say. The time these accounts stay lost can really impact your final pension pot, that’s why it can be a good idea to consolidate your accounts. The benefits include significantly reducing the charges you pay, cutting back on paperwork, and making it much easier to measure how your investments are performing.
Check in on your investments
Next, let’s look at how those investments are doing. As we’ve been reminded by the market jitters experienced last year, investing is uncertain – but markets don’t stay down forever. Putting money aside for your future means thinking long term and not micromanaging your portfolio by constantly chopping and changing.
But it is a good idea to check in every so often and see how those investments have measured up. For example, do you have the right balance of stocks, bonds and other securities to match the levels of risk and what you want to achieve financially? Does your investment portfolio match up with its stated aims? Have the goals you set at the beginning of your investment journey changed, meaning a modification of your financial plan is required?
At AAB Wealth we have an evidence-based approach to building you the right financial plan. In a year of volatility and change, we can help you look at your investments, explain how they’ve fared in the face of fluctuating markets, and help make sure you maintain the right path.
Revitalise your ISA and give your finances an early spring clean
One of the simplest, most tax-efficient ways to invest or save is with an ISA. But while more than 12 million adults subscribed to ISAs for 2020/21[2], the overall number has fallen over the last decade. Also, many people won’t be getting full value out of these as they are not putting in their full ISA allowance (£20,000 for the current tax year).
The deadline to use this allowance isn’t until 5 April, but now is actually the best time to pay in a top up, or increase you direct debit, to avoid a mad rush at the end of the financial year.
Ahead of the new tax year, it’s a good idea to use this time to make sure you and your beneficiaries will get maximum value from your savings – minimising capital gains tax and managing the potential inheritance tax owed on your estate. For example:
- Tax-free gifts to children or grandchildren (you can give an annual gift of £3,000)
- Using your capital gains tax allowance (for example, transferring assets to spouses or partners)
- Topping up your pension (you get an annual allowance of tax relief on pension contributions – 100% of your earnings or £40,000, whichever is lower)
- Max out your ISA allowance (the level of tax-free savings is currently set at £20,000)
Get the most out of your state pension
Finally, it’s important not to forget about your state pension.
To qualify for a full state pension, you will typically need 35 full years of National Insurance (NI) contributions – and there’s been much publicity recently about making voluntary contributions to make sure your NI levels are up-to-date.
But a change in rules after 5 April alters the extent you can do this. Up until then it’s possible to fill any gaps in your NI record between 2006 and 2016. After this date, you’ll only be able to go back a maximum of six years.
Even if you’ve worked for 35 years or more, with many rule changes over the years, it’s important not to assume you’ll be entitled to the full pension. It’s possible you have been ‘contracted out’ at some point, suspending your accrual of NI credits.
So, if you’ve not done so already since 2016, we recommend you request a State Pension forecast.
To get help doing this, or for any more advice on maximising your wealth this year please contact us or book an initial consultation for free.
[1] Pensions Policy Institute. Lost Pensions 2022: What’s the scale and impact?
[2] UK Government Commentary for Annual savings statistics: June 2022
