Research in Finance

08/01/2019

Nearly a quarter of consumers are concerned the Government will look to reduce the ISA allowance, findings from AJ Bell have shown.

According to a survey of 700 DIY investors, 24% are worried that lowering the ISA allowance would affect them, while 15.5% expressed concern about the removal of pension death benefits.

Asked whether they are worried about tax changes affecting their savings, a further 15% said they were concerned about the loss of higher rate tax relief on pensions, while 14.7% said a reduction in the pension annual allowance was a potential worry for them.

The survey also revealed a desire for the government to offer greater support to investors, with over half (53.4%) saying greater incentives from the government would encourage them to save more. Nearly a third (29.6%) called for simple investment solutions to meet certain needs, while 28.8% said fewer changes to the rules would encourage them to put more money into savings.

Tom Selby, senior analyst at AJ Bell, said: “It’s probably no surprise to see most savers want the government to give them more incentives to save, although whether this is realistic at a time when Brexit uncertainty continues to grip Westminster is another matter.

“The fact almost a third of savers are worried the government will cut pension tax relief and 24% fear a reduction in the ISA allowance perhaps suggests expectations of a hand-out are in short supply.”

Those surveyed admitted that choosing investments was one of the most difficult parts of managing their investments (60.7%), while 17.1% cited tax implications as the most complicated part of investing. A further 10.8% said understanding pension rules posed the greatest complication.

Selby said that given the high “demand for simplicity” both in the products and the rules that govern them, regulators and ministers should take note.

“The world of investments remains a black box of complexity for most people, perhaps unsurprising given the bewildering selection of funds available. For those struggling to decide what to do, low-cost, read-made solutions could well provide a suitable solution, although careful monitoring remains essential,” he added.

04/12/2018

Less than half of under-40s are saving into pensions, despite the majority regularly putting money aside for savings accounts and ISAs.
A nationwide study by The Nottingham Building Society found just 46% of 18 to 40 years old have started a pension.

The under-40s are more likely to have savings accounts or cash ISAs which they can access easily rather than pensions which are restricted. Around 78% of those surveyed have savings accounts, while 51% have cash ISAs.

The study found just one in ten is not saving or investing each month outside of pensions and on average, are putting away around £370 a month.

Nearly a quarter (22%) of respondents cited a desire to pay off debt in the short term as the main reason for not saving into a pension, while one in five say they prefer to spend their money.

However, the research also showed that saving into a pension grew more important as respondents approached 40, with 52% of 35 to 40 years old having a pension, compared to just 21% of 18 to 24 year olds.

Tina Hayton Banks, Nottingham’s director of member services, said: “It’s refreshing to hear so many under-40s have developed a savings habit and are disciplined about putting away money each month but disappointing that they’re clearly not as committed to pensions.

“With an ageing population that sees people living longer, many will experience a retirement shortfall if they don’t pro-actively prepare whilst they are young and this generation will need to do more due to rising house prices and changes in state pensions.”

24/11/2018

While the vast majority of millennials recognise the importance of saving money for the future, more than half (55%) have no financial plan in place, new research by Moneybox has revealed.

More than three quarters (77%) admitted they have no clear idea of where they’ll be financially in 10 years’ time.
The research, which surveyed more than two thousand 18-35 year olds, highlighted a lack of financial education, with 72% unsure of which financial products best suit their needs and 38% not aware of what an ISA is. Almost half (49%) don’t know the advantages of investing in shares versus cash.

As a result, nine out of 10 said they wished they had received financial education in school, with over three quarters (76%) admitting they don’t have the information they need to plan for their financial future.

Moneybox announced the findings of its research to mark the launch of its “Moneybox Academy” – an education series designed to help people plan for the future. The Money Academy covers investing topics such as compounding, volatility, active versus passive funds and pound-cost averaging with the aim of giving young people the confidence to make financial decisions.

As part of the initiative, Moneybox is also holding a series of education workshops, with the first recently attended by a selection of Moneybox customers.

Ben Stanway, co-founder, Moneybox, said: “At a time when it is arguably more important than ever for young people to save and invest for the future, the need for better financial education and literacy is even greater.
Stanway added: “For too long, support for those who want to save and invest has been geared to the wealthy. As a society we need to better equip the next generation with the tools and information they need to be able to plan their financial future more effectively.”

24/11/2018

With Brexit a little over four months away, advisers are increasingly leaning towards a cautious investment strategy, new research from Canada Life has shown.
Around one in three advisers (30%) say they are more likely to recommend investing in defensive stocks as a direct result of the vote to leave the EU, up from just one in 10 a year ago.

The same amount of advisers (30%) said Brexit has had no impact on their investment approach.
Despite caution prevailing for many advisers, however, their appetite for international investments has risen over the past year, with 19% looking at more opportunities to invest overseas compared to 7% in 2017. Just 3% said they would not look to invest in a EU jurisdiction because of Brexit.

Richard Priestley, executive director, Canada Life said advisers were likely to take a cautious approach until the full impacts of the break from the EU were better understood.

Priestley commented: “While the exact consequences of Brexit continue to remain unclear, it’s likely that in the event of a hard Brexit we would see some devaluation in sterling. That would benefit those businesses with overseas revenues, something advisers may need to keep in mind in terms of clients’ financial strategies. As total UK exports last year were worth around £616 billion, you can get an awful lot of exposure to overseas revenues by investing in UK companies that export.”

Priestley added: “It’s not surprising that international markets are looking increasingly attractive, as advisers fear an adverse impact primarily focused on the UK.”

21/11/2018

The majority of retirees are taking a wait and see approach to their pension, despite concerns about widespread market volatility, according to new research by Aegon. However, retirees should not be complacent, the pension provider warned.

Aegon said 43% of the 650 retirees surveyed expressed concern about the impact of current market conditions on their retirement income sustainability, yet 67% were not taking any action, opting to leave their money where it is. Just one in ten (11%) is reassessing their current investment strategies in order to diversify.

The research also showed over half (52%) of those surveyed have not decreased their rate of drawdown withdrawal and despite significant outflows from equities in recent times, 58% have not reduced their exposure to equities in the last 12 months.

With data from the Financial Conduct Authority* showing that those taking regular sums from drawdown policies have increased their rate of withdrawal from 4.7% in 2016-17 to 5.8% in 2017-18, there are concerns that retiree’s drawdown withdrawal may not be sustainable against current market conditions.

Nick Dixon, investment director at Aegon, said retirees must be careful not to become too complacent, with some at risk of running out of money later in life.

He commented: “Current market instability comes after over a decade of strong gains and this coupled with the introduction of pension freedoms may put some retirees at risk of running out of money in later life at a time when their pension pot is at risk of falling in value.

“It is positive to see that overall retirees aren’t fazed by current market conditions, but this shouldn’t turn into complacency. Retired investors would be wise to reassess their pensions to consider the amount of money they are taking out of their pension pot and ensure their investments are diversified enough.”

*FCA Retirement Income Market Review, September 2018

13/11/2018

New research shows effect of saving into cash instead of equities

Cash ISA savers have missed out on £127 billion over the past two decades because of a reluctance to invest their money in the stock market, according to research from Scottish Friendly.

The research shows savers have received £75 billion in interest since ISAs were first introduced in 1999. However, they could have netted themselves £202 billion in returns if they had opted to invest in the stock market instead.

Since the financial crisis ten years ago, the rates on cash ISAs have plummeted, while in contrast the stock market has performed well.

But despite the lower returns, the research showed that cash ISAs continue to remain popular, with 40% of people saving into a cash ISA, with more than half doing so on a monthly basis. By comparison, less than a fifth (18%) pay into a stocks and shares ISA and only one in 10 (11%) do so on a monthly basis.

Calum Bennie, savings specialist at Scottish Friendly, said of the findings: “The message to savers is clear: keep an adequate amount of money in an easy access cash account in case of emergencies, of course, but if you’re saving for the future then investing can offer potential for greater returns.

“The issue is many people are either afraid to make that first step into investing or have no idea how to invest. As an industry, it is our job to make their lives easier. If we don’t, then we are failing to provide people with the right knowledge and tools to secure their financial futures.”

The research revealed a lack of knowledge around the stock market, with nearly a quarter (23%) of respondents saying they do not invest because they do not fully understand how to. More than a fifth (22%) expressed concern about losing money, while 15% said they prefer the security they felt a cash ISA brings.

Bennie added: “Clearly there is a lot more our industry can do to wake more people up to the benefits of investing.”

10/11/2018

Younger generations will struggle to live as comfortably in retirement as their predecessors, new research from Rathbones has shown.

The investment manager said a combination of rising life expectancy, decreasing home ownership, lower investment returns and inadequate private savings will make it much harder for younger people to be able to retire when their parents did.

The report suggested that if the current savings shortfall were to be written off without any changes to savings behaviour or stronger returns, the average retirement age would rise from 63 to 70. However, savings rates have fallen to an all-time low and expectations of how much money would need to be saved to enjoy a comfortable retirement are often wide off the mark.

In addition, UK students who graduated in 2017/18 left with an average of £51,700 worth of debt, with research showing that those with student debt accumulate 65% less retirement wealth at age 30. Coupled with defined benefit pension schemes giving way to defined contribution schemes and a collapse in annuity rates, Rathbones warned that the government appears to be “sleepwalking” into a policy dilemma where borrowing, reducing welfare or raising taxes are the only options.
Ed Smith, head of asset allocation research at Rathbones, said of the findings: “While it goes too far to pronounce younger generations ‘too poor to retire’, to say ‘too poor to retire at the same age as their parents’ seems fair.

“Unfortunately younger generations will need to either work more, save more or buy less stuff. But it’s a myth that ‘millennials’ fritter their money away on avocados and turmeric lattes. The reality is they face both lower economic growth and investment returns overall and will need to save far more than their parents did in order to achieve a similar retirement pot.”

Smith said that with cash, bonds and equities the bedrock of pension portfolios, lower returns would mean pension pots would grow more slowly over a worker’s lifetime and would therefore mean saving more.

“Allocating more to assets that should generate higher returns would help over the long run, but with higher potential returns comes a higher risk of loss. These lower prospective returns are significant, but the much bigger problem is the quantum of people who simply have very low savings to generate any return in the first place,” Smith added.

01/11/2018

Widening of gender pension gap is prompt to increase savings

As of 6 November, men and women will receive their pension from the same age, bringing to an end over 70 years of women receiving their state pension earlier than men.
While it is a step forward in breaking down gender discrimination, Aegon has warned that this move will make the gender pension gap worse.
The life assurer points out that, on average, women have far less in their private and workplace pensions than men, but receiving the state pension at an earlier age offered some compensation for that discrepancy.


Aegon’s research shows that by the time women reach age 50 they have only half the pension savings (£56,000) of men who will have saved on average £112,000. To try and close this gap, women need to contribute an extra £21 a month at age 30, rising to an extra £360 by age 50. Not surprisingly, half of women (49%) say they’re not confident about a comfortable retirement, compared to 33% of men, according to Aegon.
Following on from a protest by members of the Women Against the State Pensions Inequality group during Chancellor Hammond’s Budget on Monday, Steven Cameron, pensions director, Aegon, said: “Our figures show just how far women are behind men when it comes to saving for retirement. On 6 November this gender pensions gap will become even wider as the women’s state pension age rises to age 65, bringing it up to the male age. While some may see this as a step forward towards equal treatment, it actually means women are a further step back compared to men with pensions.”
Cameron added: “While limited progress is being made to close the gender pay gap, other factors impacting women’s ability to save adequately for retirement including career breaks to raise a family or to care for elderly parents, aren’t going anywhere.
“The equalisation of state pension age, and future planned increases are a further prompt to women to think about how much they’ll need to save privately for a comfortable retirement.”

20/10/2018

Should you be encouraging parents to start pensions for their children?
For parents and grandparents trying to determine whether they should invest in a pension pot for their child, data has shown that they could see their savings grow into a significant pot over 18 years.
The retirement specialist Retirement Advantage (now Canada Life) found that if £100 a month was saved on behalf of a child from birth until the age of 18 it could grow to be as worth as much as £284,316 at age 67.
By contrast, if an individual started saving at the age of 30, they would need to make a monthly contribution of £214 for 37 years to achieve the same pension pot. If this were to rise to age 40, as much as £372 would need to be put aside every month for 27 years.
Andrew Tully, pensions technical director at Retirement Advantage described a pension as one of the “best gifts” to be given to children or grandchildren.
He said: “It may seem daft to think about a pension when you’ve just started a family, but it could be the best financial start in life. Not only do you hopefully create a savings habit early on, but the pension contributions are helped by the effects of compounding interest. Over time, you receive interest on the interest and this can be one of the most powerful forces in finance.”
While Tully said successive governments have a habit of changing the pension goalposts, it should not deter families from taking full advantage of both tax relief and compound interest when it comes to saving for children.
Parents and relatives can save up to £2,880 a year into a pension on behalf of a child, with the government topping that up to £3,600 through tax relief. The child can continue to pay into the pension when they take ownership at 18 years old, or can leave it to grow.

09/10/2018

Should you be encouraging parents to start pensions for their children?

For parents and grandparents trying to determine whether they should invest in a pension pot for their child, data has shown that they could see their savings grow into a significant pot over 18 years.
The retirement specialist Retirement Advantage (now Canada Life) found that if £100 a month was saved on behalf of a child from birth until the age of 18 it could grow to be as worth as much as £284,316 at age 67.
By contrast, if an individual started saving at the age of 30, they would need to make a monthly contribution of £214 for 37 years to achieve the same pension pot. If this were to rise to age 40, as much as £372 would need to be put aside every month for 27 years.
Andrew Tully, pensions technical director at Retirement Advantage described a pension as one of the “best gifts” to be given to children or grandchildren.
He said: “It may seem daft to think about a pension when you’ve just started a family, but it could be the best financial start in life. Not only do you hopefully create a savings habit early on, but the pension contributions are helped by the effects of compounding interest. Over time, you receive interest on the interest and this can be one of the most powerful forces in finance.”
While Tully said successive governments have a habit of changing the pension goalposts, it should not deter families from taking full advantage of both tax relief and compound interest when it comes to saving for children.
Parents and relatives can save up to £2,880 a year into a pension on behalf of a child, with the government topping that up to £3,600 through tax relief. The child can continue to pay into the pension when they take ownership at 18 years old, or can leave it to grow.

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01/10/2018

Ethical investing no longer trade-off between returns and principles

While the take up of ethical funds remains low, the latest statistics have shown leading ethical indices outperformed their non-ethical peers over the past decade.
Despite the retail ethical industry launching 34 years ago, data from the Investment Association show funds with ‘ethical’ mandates now total £16.7 billion of total assets under management, representing just 1.3% of total industry assets.

However, in the 10 years to 20 September 2018, the FTSE4Good UK index beat the FTSE All Share Index, returning 107.23% versus 105.5%. Equally in the US, the FTSE4Good US Index returned 204.24% compared to 162.92% for the S&P 500 over the past 10 years.

Adrian Lowcock, head of personal investing, Willis Owen
, said: “Fortunately, ethical investing is no longer a trade-off between returns and principles. In fact, the performance of ethical benchmarks over the last ten years has been better than non-ethical counterparts. Much of this has been driven by the performance of oil and mining sectors which have lagged the market over the past ten years as well as the to***co sectors. Many ethical funds have no exposure to these areas and have therefore protected investors from the falls.”

Lowcock says that ethical funds have also benefitted from the outperformance of smaller and mid-sized companies, with ethical funds often shying from large companies.
He added: “Whilst the uptake of specific ethical funds remains low, the overall sector has evolved significantly over the past 30 years. Investors no longer have to avoid certain types of companies or accept a lower rate of return because of their morals.

“The evidence is growing that companies which behave responsibly and incorporate environmental, social and governance principles into their businesses are better custodians of those companies and in turn provide better long term returns.”

This weekend sees the start of the Good Money Week (29th September to 6th October) which looks to promote sustainable responsible and ethical investing. The campaign is in its’ 11th year.

01/10/2018

Life expectancy has stalled for the first time on record, the latest government statistics have shown, with potential implications for financial planning and government changes to the State Pension Age.
Data from the Office for National Statistics shows that females born between 2015 and 2017 have an average life expectancy of 82.9 years old, while male life expectancy is 79.2 years old, unchanged from the 2014-16 figures.
Steven Cameron, pensions director at Aegon, said while the figures raise “real questions” around whether year on year improvements in life expectancy, previously taken as a ‘given’, are grinding to a halt, “it would be risky to draw conclusions based on differences over a 12 month period, but the real question is whether we can expect a longer term trend towards flatlining or even declining average life expectancies.”
Tom Selby, senior analyst at investment platform AJ Bell, said: “The decline in life expectancy improvements in recent years will undoubtedly cause concern across the political divide and identifying the cause of this shift should now become a priority for all parties. However, we have seen decades of improving life expectancy and despite this falter in the figures, savers need to prepare for a 100-year life and the financial implications that brings.”
Selby said the government’s primary focus will be upon the provision of healthcare and the state pension.
He continued: “With more people expected to draw their state pension for longer, the question of how to ensure continued sustainability remains at the forefront of policymakers’ minds. The triple-lock, which links the state pension to the highest of average earnings, inflation or 2.5%, looks like an incredibly generous guarantee in this context and seems certain to be scaled back at some point in the near future.”
Jon Greer, head of retirement policy at Quilter, says an ageing population has placed additional pressure on public finances and those looking after ageing family members.
“With the social care system inadequately equipped for an ageing population and insufficient pension provision beginning to crystallise, policymakers and businesses will be monitoring life expectancy trends closely,” Greer said.
He added: “We still need a sustainable social care policy and the pressure on the state pension and company pensions won’t be going anywhere. With a Budget approaching, pressure remains on policymakers to provide practical policy solutions to tackle the issues an ageing society brings.
“Those trying to figure how much they need to save for retirement are faced with what appears to be an impossible equation. There are numerous variables and there will be no perfect answer for everyone, so for many people working from where they would like to end up, and working backwards from there, will probably deliver the most helpful picture of how much they need to save.”
Cameron added: “In today’s world, preparing for retirement is uniquely challenging because it involves planning an income for an unknown period of time. The pension freedoms have made it absolutely critical that individuals with help from advisers have the right information and tools to plan for retirement, especially when it comes to estimating how long their pension pot will need to last. These ONS figures are, of course, averages and an individual’s life expectancy will be affected by many factors including health, genetics and lifestyle. So using averages to plan your retirement finances, without allowing for the potential to outlive the average, could be very risky.”
In respect of the State Pension Age, he suggested the new figures have “big implications for Government finances”, and with government having already announced increases to the state pension age based on an expectation of increasing life expectancy, “today’s figures may be used to challenge the timing or indeed need for planned increases to 66, 67 and 68”.