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AUTUMN 2017

Welcome All change in Autumn 2017

With the warmth and thoughts of summer fading, we move into the autumn of 2017 and the return to some of the realities of the UK’s political positioning and that of our global partners. With much posturing occurring over how we will depart the European Union, many stock markets and economic factors remain positive, if not buoyant, and we anticipate that this

will continue over the next few years. Although this is not a guarantee of future performance, we remain confident of positive returns in the current environment. As we approach ‘half-time’ for this current tax year, planning for investments such as ISAs (£20,000 in this tax year if not already used) might be a good example of ways to invest for the future.

The regulation of financial services also made for some headlines just before the summer break, particularly looking at the service and costs of asset managers and I am sure we will see more of this in the coming months. We also need to be mindful of changes in the way that we record and maintain records of our clients and enquirers going forward and we will be writing to you in late 2017 in this regard. Another financial point that made headlines following the General Election was the increase in the State Pension age to 68 (from 67) for those between the ages of approximately 39 and 47. Another good example of why making your own provision for retirement is prudent, as the benefits from the state continue to be pushed back.

At the point of writing, it has been 122 months since we saw the Bank of England raise their base rates. This is just about the same time since the economic crash of 2007. This means that for some, it’s been a decade since they saw their mortgage or borrowing costs rise. We do anticipate that the base rate may rise slowly in the next 6 months (not guaranteed), and for those with borrowings we are recommending that they leave a little in reserve to compensate.

The team at Chapters Financial were busy over the summer looking after clients and new enquirers. We continue to receive regular referrals from existing clients and these are always welcome.

Finally, the old pound coin in your pocket will not get you very far these days. You might think that I am talking about the increase in inflation (or the new term ‘shrinkflation’, when you find a product you buy is smaller than it used to be!) we have all experienced during 2017; however, I am referring to the phasing out of the old round pound coin by mid-October 2017, being replaced by the new (and less forgeable) double dodecagon metal coin. I think I prefer the new coin, so won’t be sorry to see this change…although the new plastic bank notes are still something to get used to! With more bank branches closing this year and as the world moves to a ‘digital-by-default’ age (more on this later), perhaps this is the last round of these types of change before cash becomes largely redundant.

Nothing stops when it comes to money! Keith Churchouse

DownsizingWe always aim to make the articles in this newsletter topical and this is on many occasions influenced by the enquiries that we receive at Chapters Financial. Our website attracts on average three to five enquiries a week and we are delighted that our content attracts so much attention. As we approach our thirteenth birthday, the level of client enquiries remains sustained and we are always grateful for this compliment.

One of the topics that has developed over the summer is the financial effects and possible benefits of downsizing from the family home, both for the individual or individuals concerned, but also for the family in the form of gifting.

We are all living longer, which is good on many levels, but it brings with it responsibilities and, sadly in many cases, liabilities. I am of course referring to any future need for long term care.

Inheritance tax is an important issue and my colleague, Vicky Fulcher, has looked at the current position and potential future position of the main residence and any tax that might be applicable: http://www.chaptersfinancial.com/private-clients/inheritance-tax-planning

If you do sell, and we appreciate that this can be a very emotive decision, how much do you release? Don’t forget costs, both for the sale, such as estate agent costs (+ VAT), and stamp duty (along with new carpets and curtains), for the purchase. Is this effective ‘equity release’ sufficient and how could it be invested to provide income, as an example.

Do you move locally to stay with your friends, or move closer to the family that moved away some decades ago? And of course, there’s the family home, with its 3-4-5-6 bedrooms that will need to be emptied of its contents, whether these are distributed or sold. Possibly heart-wrenching, but very often necessary all the same. All questions that will need to be considered and in our experience something that takes a little time to get your head round before you take the plunge and the ‘For Sale’ board appears in your hedge.

And what about gifting money away at this junction in your life, because it is a life junction, make no mistake. However, in our experience, it is a worthwhile progression, although do not leave it until you are too old to make good, considered decisions. As to what ‘too old’ is – this is for you to decide, possibly with your family.

One of the other important topics is provision of future long term care and its ever-increasing cost. We appreciate that inflation is an important factor in any financial planning; however the scale of rate increases in recent times is, it appears, somewhat in excess of the headline rate in the Surrey area. This needs to be taken into account.

Interest rate rise?A rise in the base interest rate may be on the cards – however, the timing of this is not clear. Although inflation remains above the 2% target (at 2.6% in July), the Bank of England may be unwilling to raise rates whilst the Brexit negotiations continue.

As noted above, we do anticipate that there is a chance of a base rate rise over the next six months or so. This could see costs for borrowers increasing and we would recommend that this is built into household budgets now to avoid any shock when the rise finally happens. On a more positive note, a rise in the base rate could mean better deposit savings rates for those with cash savings, which would come as a relief to many who have experienced historically low interest on their deposit funds over recent years.

Helping the Next GenerationAnother important family focused financial planning theme that emerged over the summer was from parents looking to help their children with savings for the future. We have looked at some of the opportunities that are available below, noting that sometimes it is a combination of these plans that may offer the solution needed.

Junior ISA (JISA)•

It is possible to open a JISA account for individuals below the age of 18 and the maximum contribution in the current tax year is £4,128. Anyone can pay money into a JISA, so it can be a useful way for relatives to make gifts.

There are two types of JISA – a cash JISA and a stocks & shares JISA. Both types of account are protected from tax, so interest (within a cash JISA), dividend income and capital gains (within a stocks & shares JISA) are tax-free.

The child can take control of the account at the age of 16, but no money can be withdrawn until they are 18, so it can be a good way of saving for university fees, the cost of buying a first car and the like.

Once the child reaches age 18, the JISA account converts to a normal adult ISA arrangement and is accessible.

Pensions – from birth onwards•

Pensions only need two things: money and time. If you are investing at a very young age, it doesn’t have to be a lot of money to make a real difference for the long term future. The current minimum age you can access a pension is 55 (rising to 57 by 2028)…so these really are long term savings.

Children are unlikely to pay income tax, but do gain tax relief at 20% on the contribution made.

Review your old Child Trust Funds•Child Trust Funds (CTFs) were available for children born from September 2002 to January 2011, but have now been replaced by the JISA option. CTFs were introduced by the Government in 2002 to encourage saving for children. Although the Government helped with a contribution to the plan at the outset (usually between £50 - £250, depending on when the child became entitled to an account), some of the schemes were quite high charging, so it is worth reviewing. From April 2015, you can transfer from a CTF to a JISA if it makes sense and there are no penalties.

Financial Conduct Authority reviewsAdvising on pension transfers

In June 2017, the Financial Conduct Authority (FCA) published a consultation paper focusing on how advice should be provided to consumers on transfers of safeguarded pension benefits (mainly transfers from defined benefit/final salary pension schemes to defined contribution/money purchase schemes).

The introduction of the pension freedoms in April 2015 provided individuals with more options for accessing their pension benefits. In addition, transfer values for defined benefit schemes are at a historically high level, largely because gilt yields and annuity rates have fallen significantly in recent years, meaning that you now need more money to buy a particular level of guaranteed income. These combined factors have resulted in a surge of enquiries from individuals wishing to consider the transfer of their final salary pension benefits into a personal pension.

The decision to transfer from a safeguarded pension to one with no guarantees is a significant one and is unlikely to be in the best interests of most individuals. However, each case is unique and there are some situations in which a transfer can be a suitable option. This can be established through a full, detailed review and transfer analysis process.

Asset management market study

The asset management sector in the UK manages the savings of millions of individuals. Research carried out by the FCA has identified that price competition is weak in some areas of the industry, that investors are not always clear on the objectives of investment funds and that performance of funds is not always reported alongside an appropriate benchmark. In June this year, the FCA published a package of remedies to help provide more protection for investors and to increase competitive pressure on asset managers, including support for the disclosure of a single, all-inclusive fee to investors.

Moves to simplify charging structures, increase consumer protection and improve competition are certainly to be welcomed and we look forward to the implementation of the FCA’s plans over the coming months and years.

Digital by default?Barclays Bank announced in August a plan to close approximately 54 branches by the end of this year, in a cost-cutting strategy as more customers choose to use online banking. Barclays is not alone – the number of branches operated by the main British banking groups has halved over the last 20 years (source: Independent.co.uk).

The trend is certainly towards a ‘digital by default’ situation – and not just for banking. The Government’s Making Tax Digital programme aims to end the need for paper tax returns for both individuals and businesses and many other Government services, such as taxing your car and checking your State Pension entitlement, are now offered online.

Often, this will involve you opening a Government Gateway account and you may want to have a look at this as technology and its requirements advance.

Workplace pensions: increases to statutory minimum contributions

Under legislation introduced in 2012, all employers are required to offer a workplace pension scheme and to automatically enrol all eligible workers into this scheme. Auto enrolment has applied to the largest employers since October 2012 and will apply to all employers by 2018.

The new legislation also made provision for the minimum required pension contributions from both employer and employee to increase over time. The first increase will take place in April 2018 and the second in April 2019. The minimum contributions going forward will be as follows and are based on qualifying earnings (those earnings between £5,876 and £45,000 gross in the current tax year):

Guildford in Bloom - sponsorship

We are delighted to be sponsoring Guildford in Bloom again this year, as we have done for a number of years. Guildford in Bloom brings together community groups, businesses, schools and residents to promote creative ways to make the town and surroundings look their best. Congratulations to all those who took part and especially to the winners of the Guildford in Bloom Competition, announced at the fabulous awards ceremony on 14 September.

Employer Employee Tax relief (gross pa) (net pa)Current 1% 0.8% 0.2%From April 2018 2% 2.4% 0.6%From April 2019 3% 4% 1%

New neighbours!

We are very pleased to welcome the Hummingbird Bakery to the ground floor of Hadleigh House. The spectacular cakes and treats available have created quite a stir in Guildford and the queues on the opening day in August had to be seen to be believed. We wish the Hummingbird Bakery every success into the future.

Hadleigh House, 232 High Street,

Guildford, GU1 3JF.

Tel: 01483 578800Fax: 01483 578864

email: info@chaptersfinancial.com

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Summary & ReviewWith all that has happened thus far in 2017, the months have flown by. As we head towards the autumn months, and as noted in previous Newsletters, historically our busiest period, the team at Chapters Financial are set to help you and work with you in providing independent financial advice. Reviewing your finances and existing arrangements regularly is recommended.

Please do pass our details on to contacts you may have that may benefit from our service. We are always pleased to receive referrals.

Please contact the Chapters team: Keith, Vicky, Esther, Julia, Suzanne, on 01483 578800 or by email at info@chaptersfinancial.com to discuss your requirements and to book a meeting or financial planning review.

Chapters Financial Limited is authorised and regulated by the Financial Conduct AuthorityRegistration number: 402899

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