Property or Pension ?

Falling property prices mean people may not get as much cash for retirement as they think and should consider making other provisions.

Research by Friends Provident found a third of consumers were depending on property or equity release for their retirement income. However, if property prices fall to the same extent seen in the last house price crash in the early 1990s, the average homeowner could see themselves out of pocket by £89,850 based on the Council of Mortgage Lenders’ average mortgage figures.

If house prices continue to fall, people could find themselves in serious financial difficulty with negative equity on their property and no personal pension. This is a dangerous situation to be in if people don’t have any savings or a pension to purchase an annuity for their ‘winter’ years.

Further research suggest 65% of UK consumers have yet to start saving for their retirement.
Research shows a potential crisis for some people in the future. People have depended on the property market in the past to fund their retirement, but with the uncertainty over the past few months and the current credit crisis they should not put all their eggs in one basket.

CARE: Assessable assets.

There has been discussion for some considerable time as to whether the definition of life assurance for the purpose of the local authority means test includes an investment bond.

Indeed, in the past, some local authorities have sought to take investment bonds into account as assessable assets despite the fact that, strictly speaking, most investment bonds (other than capital redemption policies) are policies of life assurance.

The latest version of the Charging for Residential Accomodation Guide or CRAG as it is more commonly known (issued on 04/07/2008) confirms the clarification of the treatment of investment bonds which was first issued over four years ago. The guidelines are quite clear that where an investment bond is written as a policy (or policies) of life assurance, the value should not be brought into account as an assessable asset.

The key points are as follows:

• Investment bonds issued as life assurance policies should normally be disregarded as a capital asset, although capital redemption policies will be taken into account.
• “Income” from investment bonds will be taken into account when making assessments.
• Care should be taken to ensure that the deliberate deprivation rules are not invoked.

Investment Bonds are clearly a worthy consideration when conducting CARE financial planning exercises.

Inheritance Tax has fallen under the radar for many following the Chancellor’s announcement in the 2007 Pre Budget report when he made a useful change to the IHT legislation for married couples and civil partners to ensure that they benefited from two Nil Rate Bands without the need for IHT planning on the first death.

This is a welcome change to the legislation but should not be relied on as the solution to a couple's IHT liability. Having easily introduced the legislation, it could just as easily be withdrawn or altered. Inheritance Tax (IHT) concerns more of us than ever before. Mainly this is because the sharp rise in the value of houses over the last 10 years (by far the biggest asset for most people) has been much greater than what is known as the 'Nil Rate Band'. Below this key level (currently £315,000) you pay nothing on estates you pass on when you die. Above it, you pay 40% tax.

There are a number of exemptions to IHT such as transfers between spouses or civil partners, gifts of up to £3,000 a year and gifts to charities and political parties. An individual’s IHT liability will also depend on other factors such as if he or she has made a will, and whether assets are wholly owned or jointly owned.

So get the basics right.

Make sure that assets are owned in equal parts by a couple, and that a valid will is in place which includes suitable trust arrangements to ensure full use of the Nil Rate Band on first death. Nonetheless many people will still have significant IHT liabilities, mainly because of the price of their home. Some will say ‘Do nothing, the children can pay’, while others will take measures ranging from simple life cover/savings plans to more aggressive tax planning strategies. There as many solutions as there are individuals with an IHT liability.

Generally speaking, the more straightforward the solution, the more flexible and robust it is. We have in the past seen very complex and convoluted IHT mitigation strategies that then fall foul of future changes in the law.

IHT planning is made more complex as it has a very long tail. The earlier you start to plan, the easier it is to implement, but the longer it needs to be monitored and reviewed. Flexibility in any plan is essential. IHT and trust legislation has changed significantly over the past few years and this rate of change is likely to continue.

Diesel fuel theft

The number of incidents of theft of fuel from vehicles has doubled since the beginning of the year, it was revealed today.

"We are urging drivers to be more vigilant to both protect their own fuel stock and also report anyone who is trying to make money by selling on stolen petrol." The RAC offered motorists the following tips to help reduce fuel thefts:

1. Park in well lit and preferably off-road areas whenever possible - fuel thieves don't want to be seen
2. Ensure your fuel cap is locked and secure
3. Don't encourage fuel theft - if you are offered fuel you think could have been siphoned from another vehicle, call the police. Apart from it being illegal, the fuel could be contaminated, causing damage to your vehicle's fuel system - some companies place dyes and covert marking into fuels, so you could be tracked
4. Check fuel levels when you switch off your engine and check again before you use your car again - if the level is suspiciously lower than expected, look around the vehicle for signs of theft prior to turning the key
5. If you smell fuel when returning to your vehicle, or see a puddle of liquid, keep away from the car, and don't turn on the ignition. Call your breakdown organisation, and whatever you do, don't light a cigarette whilst you're waiting!

Diesel theft:

Meanwhile, West Yorkshire Police has reported a 265% increase in diesel theft. They advised hauliers to tighten up security of their storage tanks, vehicles and commercial compounds and urged the public to be vigilant and report anyone who offered them cheap diesel.

Officers said a wagon depot in Skelmanthorpe, Huddersfield, had lost thousands of pounds of fuel over the last 12 months, most recently being targeted by someone entering the compound and siphoning diesel. Kirklees Crime Reduction Officer Dave Whitteron said: "Although the police do everything they can to catch the culprits, we need the help of hauliers and motorists to prevent it from occurring." He recommended that owners of commercial compounds installed CCTV, security lighting and alarm systems, examined and secured fencing, and locked access gates out-of-hours.

Vehicles left in compounds should be fitted with lockable fuel caps and drivers should park hard up against a fence or wall to prevent easy access to the fuel cap for thieves, the officer said.

(GRAPH: FTSE-100 Index At Midday Today - 21/07/08)

As we continue to reach out for any good news I was quite intrigued by the following article from JP Morgan Asset Management which along with several others of late are starting to come from other angles. Still early days but maybe the start of some light.......

"The start of the great summer bounce? Weaker oil prices were the spark for a resurgence in equities this week. It provided a catalyst for a summer rally from deeply oversold levels. Indeed, our short-term timing indicators suggest there is scope for some follow through on this rally. Stocks are oversoldvs. bonds, while positioning data show that investors have savagely cut their equity weightings. Indeed, according to the Merrill Lynch Fund Managers’ survey, they are now running the highest cash weightings in the history of the series(see COTW). Moreover, sentiment is very depressed, judging by low levels of risk appetite, while global sector breadth has fallen to levels that suggest a bounceis due. Add to that an encouraging start to the Q2 US earnings season and further signs that the US economy is set to grow by an annualised 2%-2½% in Q2, with signs that restocking could partially offset the post tax rebate slump in consumption in Q3 and the markets have taken the view that the world is not about to end…yet.

However, for us the key investment question now is whether thereis a case for buying equities for more than a summer trade. We will address this question in the coming edition of the World Market Outlook, which will be released on Tuesday. We have updated analysis we undertook in March, when the market last bottomed, using a checklist of conditions required to be met to justify a higher strategicweighting to equities. Then we judged that the strategic case for risk assets was building but was not compelling.

We have updated and expanded our checklist, looking for evidencethat: (1) the credit crisis is improving; (2) that banks have done the bulk ofthe heavy lifting in recapitalising themselves; (3) that central banks are willing and able to ease further to support activity; (4) that the economic outlook for growth and inflation has become clearer, with clarity on the extent of the economic slowdown and some visibility about the peak of the inflation cycle and realism regarding 2009 earnings; and (5) that investors are paid to take equity risk. As in March, we find that the strategic case is still not compelling, although there are glimmers of encouragement on the valuation and bank recap fronts. The great summer bounce could welbe underway and indices could run further into the coming weeks, but we would not chase it from a strategic perspective."

Still on the subject of Oil

Citywire AAA-rated Nicolas Komilikis of Amiral Gestion believes it is incredibly unlikely that the oil price will go down and says $250 a barrel by next year is not beyond the realms of reason.

Contrary to the views of Dr Hendrik Leber of German boutique Acatis, who thinks there is a correction looming and that the oil price could fall to $50 in the next two years, and BlackRock CIO Bob Doll, Komilikis believes the oil price will remain high due to supply-side pressures and the strong depletion of oil reserves. 'We need to fill the decrease that is coming from depletion. This is why production hasn't increased since May 2005,' he says. 'Country by country it is difficult to see where the growth in production is going to come from,' he says.

He highlights decreases in Norway and Mexico and is also wary that Russia, which he says has been one of the only growth areas among non-OPEC countries, may have reached its peak in terms of production.

The Paris-based manager also believes it is unlikely that Saudi Arabia will spend a huge amount of money to increase production which could cause the price to go down. 'Saudi Arabia is happy to earn money and is aware that they have to keep oil in the ground for the next generation,' he says.

The AAA-rated manager cannot envisage significant falls on the demand side, particularly as oil-exporting countries such as Russia and the OPEC countries, are experiencing growing domestic consumption. 'Unless China goes into a major recession, it is difficult to see how consumption could decrease at a worldwide level,' he says.

It is a topsy-turvy world

Yesterday was one of those busy days. The news came in from every front. In the world of banking, just for once, good news was the order of the day, but in the UK and Europe it was another day of worry.

Good news hit the price of oil too, as it emerged inventory levels in the US were much higher than expected, suggesting US demand for oil is falling fast. And from beyond the Great Wall, a truly promising set of data was revealed. Yet disaster also came and dealt a blow yesterday too, both in the US with news on inflation – which was just awful, and in the UK with the latest alarming job data.

In this day of pluses and minuses, the bulls won; at least they did in the US, and then in the Far East with markets seeing big daily rises. Is this the sign that bottom has been reached? Or merely one of those freakish days you get from time to time?

Market whispers...

Oil sees biggest one day fall since early 1990s

From peak to trough oil fell by over $10 a barrel yesterday, and this morning when we took our daily reading stood at $138, that’s 6.8 dollar a barrel lower than the same time yesterday. (Prices from the New York Mercantile Exchange). Admittedly, in early June oil was cheaper than this. For that matter, until five weeks ago the current price would have been an all-time record. Even so, these days we need to make the most of falls like this, and ask, is this the first stage in the fall in the price of oil to more sustainable levels?

Strange days indeed, as plans develop for government to prop up house prices

“Strange days indeed,” said John Lennon once. Yesterday saw two new ideas for government intervention to prop up the housing market. The Council of Mortgage Lenders wants to see the Bank of England provide guarantees for mortgage-backed securities and covered bonds. Meanwhile, housing Minister Caroline Flint wants to see a scheme introduced to help would be first-time buyers save up for a deposit. Both ideas are interesting, but is it not the case they miss the point?

Inflation surges again, but wages go nowhere

And that devilish dilemma got a lot more devilish. Inflation is up again. Now the CPI rate is 3.8 per cent. The highest level in 11 years. The retail price index was up to 4.6 per cent, and even core inflation with alcohol, tobacco and food taken out hit 1.6 per cent.

Remortgage challenges

If you are remortgaging today, you will face a new set of challenges. Until six months ago, anyone could arrange a mortgage, but today it is the job of a seasoned professional who specialises in mortgages. All the general criteria lenders use to decide who to lend to have tightened up, and competition has virtually disappeared, so there are fewer options available to you.

Perhaps the biggest issue is for the person coming off a fixed rate from two years ago. If they are forced onto a standard variable rate, they may see payments rocket by up to 64%. Even if they are offered the best two year fixed rate, they will face a deal 35% more expensive than the one they are currently on.

Nationwide announced recently that they are now moving to quality rather than quantity in deciding which mortgage advisers they work with. A specialist Independent Financial Adviser (IFA) will know exactly how to position your case with a lender and will invariably have clout because of their buying power. A fee-charging IFA is a better option as some lenders don't pay commission, and a financial adviser not charging a fee may be less likely to use them as they will not get paid.

Ensure you look at any mortgage package in its entirety. The rate is just one part of it and other add-on fees could prove expensive. They are often added onto the loan, and whilst that is less painful, it all adds up. Watch out for being tied into your mortgage beyond the normal term at a higher rate. It is a common ploy that catches many people out. Also, if you find a good deal, act quickly, as rates are disappearing almost as they appear.

Ask your IFA to negotiate with your existing bank. A good fish that's getting away is more attractive to a fisherman than the cost of finding another.

Investors decisions

The phones have been hot with clients wanting to speak to their advisers about their investment options in light of the depressing news coming out of the marketplace almost on a daily basis. It really has been a torrid last few months.

I believe the main options are either to sit tight and ride it out or run to cash based funds to protect the capital and at least guarantee some form of return. Or you can of course do a bit of each and hold some funds and switch others into cash. It really all depends on where you position yourself. If you believe markets will eventually correct themselves and you are willing to sit tight until they do then riding it out is a suitable option as long as the funds incorporate a decent level of diversity. The old adage of turning paper loss into physical loss.

If, on the other hand, you are fearful of where markets are heading and do not want to experience any further falls then you should perhaps switch into cash which can be accomodated without incurring buying and/or selling costs depending on which investment vehicle the funds are currently invested in.

There are risks attached to both strategies. If you ride it out and markets keep falling then it might prove extremely difficult to recover positions. On the other hand if you run to cash and markets respond favourably you might miss out on any resulting sharp inclines. It is all about which is the lesser evil at the moment I am afraid.

Then there are guarantee funds many of which are being publiced within the wider press. I sit on the fence here. Insuring your investments as you would insure your car or house is a great idea however as with any form of investment insurance comes at a price. You must therefore weigh up the price of the guarantee against the potential benefit. One commentator recently likened the chance of calling on the guarantee as akin to rolling seven straight sixes - not very likely.

On a final note I should also mention that some funds might not let you switch out at the present time such as Property funds but your adviser will keep you right on this one.

We are happy to discuss matters with clients and administer changes where necessary.

Changing times: income drawdown

Times change and people now want more flexibility and control over when and how they take retirement benefits. This is a complex area so do enlist the help of a financial planner who is qualified in pensions and investments as your guide. Provided you do not require a cast-iron guarantee for your income in retirement, and are comfortable to continue to invest your funds, then you can use what is known as Income Drawdown, or the Alternatively Secured Pension in official language. Think of this as adding a tap at the bottom of your pension pot. After taking a tax free lump sum, the tap can then be opened and closed (within government limits) depending on the level of income required. Before age 75, this can be up to 120% of the annuity available.

As people stop work they could be looking forward to a further 20-30 years of life. It is possible they will continue to work in some capacity. They may go part time or take up a new career. If they can open and close the tap on the pension fund, they can then draw down income to supplement any reduction in earnings from other sources. And they can do this on their terms rather than having to buy an annuity on an insurance company’s terms.Consequently clients are loath to make a decision on how they wish to draw an annuity at their date of retirement, for the rest of their life and cast in stone with no ability to review the decision. Income Drawdown offers far more flexibility about how much and when income can be drawn down from the fund.

The decision over whether to accept an annuity would be an easy one – if we knew the date we were going to do. However most of us cannot claim to have this insight and the bald fact about an annuity is that we die early, the insurance company gets to keep the fund.There can of course be some guaranteed period or joint life basis built into the annuity. But this means you have to take less income.But under income drawdown, the fund remains invested. If you die before you are 75 the entire fund can be repaid to your family or dependents less tax at 35%.

Another great advantage us that your fund would remain invested, so can still grow in size and offer the chance of an increase in maximum income in later years. Of course there is risk – the value of your fund can go down as well as up. But if are comfortable with that, Income Drawdown can be a very appealing alternative to buying an annuity in the right circumstances. But don’t forget to ask an expert for help.

Market comment

I have long been a fan of Edward Bonham Carter Chief Executive of Jupiter Asset Management. He has spoken wisely through difficult times in the past. Here therefore are his most recent comments on the current market volatility for all investors to consider.

“Growing fears that the global economy is heading toward recession have resulted in heightened levels of stock market volatility in recent weeks. While stock markets have been enduring increased volatility since the emergence of the sub prime crisis in the summer of 2007, markets had staged something of a recovery between March and May this year as investors believed that the losses caused by the crisis were being fully quantified by financial institutions.

However, since mid May, investors have become increasingly nervous and in the past week a number of stock markets, including the Dow Jones and the FTSE 100, have formally entered bear market territory (defined as a drop of 20% from the most recent peak). At the time of writing, the FTSE 100 index is back to February 2005 levels, while the Dow Jones is down to around August 2006 levels at 11,230.

Key to these heightened concerns has been worsening economic and corporate data, including continued write-downs by banks in relation to subprime loans and a deteriorating outlook for house prices. The UK has borne the brunt of some particularly negative corporate data over the past week, with Taylor Wimpey failing to raise additional funds from investors and, together with rival builders Persimmon and Barrett Developments, announcing significant job cuts. In addition, the British Chambers of Commerce warned on Tuesday that the UK is facing a serious risk of recession in the next three months.

Inflationary pressures are also a major global issue, with investors grappling with uncertainty over the extent to which central banks can keep interest rates low in the face of rising food and oil prices. Emerging markets have been particularly badly affected. Inflation has reached 30% in Vietnam, 11.6% in India, 11% in Indonesia and the Philippines, 9% in Thailand and 7.7% in China. It is worth noting that the longer oil prices remain high, the greater the likelihood that manufacturing will become more localised. Shipping costs, for example, have almost trebled. In 2000, when oil was $20 a barrel, it cost $3,000 to ship goods from China to the West. At current oil prices, that has risen to more than $8,000. If the oil price hits $200 a barrel, shipping will cost $15,000. At that level, it could dent Asian manufacturing economies that have profited from globalisation.

We are still of the view that consumers are suffering a squeeze on their real disposable incomes. This is unlikely to be alleviated in the short term. The implications for markets as a result are that the number and severity of profit warnings will increase and stock market volatility will remain high until there is greater certainty on the outlook for growth, inflation and interest rates.

While one should expect corporate earnings in general to deteriorate, the balance sheets of many companies remain, on the whole, in sound condition. High quality businesses with strong management teams and pricing power will retain the ability to grow and gain market share from their rivals despite the poor economic environment. It is these businesses that our fund managers are focused on identifying. Such difficult periods can prove nerve-wracking for investors. However, it is worth noting that in an inflationary environment, equities remain a better place to seek capital protection than bonds. So, I believe investors should hold their nerve and view these sharp downturns in share prices as a long term buying opportunity - with the proviso that selecting the right investments remains key to achieving strong returns over the long term."

Nothing new or particularly startling I fear but it is straight from the horses mouth.

The average cost of retirement

It has been revealed that the average cost of retirement in the UK is £413,000, according to the first Cost of Retirement report by Life Trust Insurance. Calculating an average life expectancy, an estimated rate of inflation and the typical weekly spend of a 65 year old; the report warns that this figure could easily double if you are the one in seven people who are predicted to live to 100.

The Chief Executive Officer of Life Trust said: "People are living longer, healthier lives. This is great news but only if people have the finances in place to really enjoy their post-career years. The combination of rising life expectancy and the impact of inflation over time can have huge financial implications, and this report allows us, for the first time, to see the scale of these trends."

IFA's preferred for retirement advice

IFAs remain the preferred source of information about retirement planning and finances, above bank managers, solicitors and brokers, according to new research from LV=

The LV= State of Retirement report shows that people facing retirement in the UK are more confused than ever about the complexity of current tax legislation and rules. It also reveals that almost half (49pc) of people facing retirement have chosen to consult an IFA, compared to just 4pc who have consulted a solicitor or a broker, and 16pc who have consulted their bank manager. According to the research, seven out of ten (70pc) over 50s surveyed admitted they are uncertain about what legislation is correct, equating to an anxious majority of almost 7m people facing retirement.

Despite their doubts, the majority of those facing retirement (56pc) haven't taken professional financial advice at all about their overall financial situation, level of savings, and income in retirement, which equates to 5.5m people in around 3.5m households. Rodney Cook, LV= life & pensions managing director, said: "Our research shows that there is a massive opportunity for financial advisers in the UK. Around 3.5m pre-retired households are yet to take any professional financial advice, which is worrying as so many people facing retirement admit that they don't understand financial planning rules and legislation.

"And this is set to be a real growth area for the financial advice industry, as people are living longer than ever before, so will need effective retirement solutions to maximise their income. This research highlights how important the role of the independent financial adviser is in helping the over 50s in the UK to make the most of their money, as too few people are taking proper advice on how to manage financially in retirement. With an ‘anxious majority' of seven million pre-retirement people admitting they are confused by the legislation surrounding pensions and retirement planning, it is clearly vital that people take advantage of professional advice to maximise their retirement wealth, to help ensure their comfort in old age."

What more can we say.......

Come on the City.....

As I am certain many of our clients are fully aware through Ken Ferguson we have a close affinity with our local football team Brechin City FC. Ken is currently Chairman of the club and dedicates a great deal of his "spare" time to the smooth running of the club.

On Tuesday night the club held's it's annual AGM and by all accounts it was a successful meeting with the club moving back in to the black. For a more detailed report of the meeting click here:
http://www.brechinadvertiser.co.uk/

From Ken's point of view he was delighted to be re-appointed as Director & Chairman and is looking forward to driving the club forward.

Ferguson Oliver are also proud to continue with the sponsorship of the Executive Lounge and we would take this opportunity to wish Manager, Michael O'Neil and the entire squad best wishes for the forthcoming season. Come on the City.........

Power of Attorney - Why bother

In recent times we have, on numerous occassions, advised in situations when a Power of Attorney would have been most welcome to expidite clients wishes timeously and in some instances save considerable time, stress and un-neccesary trouble.

A Lasting Power of Attorney (LPA), which replaced Powers of Attorney in October 2007, becomes important in the event of you becoming mentally incapacitated perhaps through Alzheimer's disease or an accident. You need someone to help you make the decision and organise the special care that you may need and to attend to your finances as you will not be in a good state to sort this out yourself.

A Lasting Power of Attorney is a legal document that ensures someone you trust will handle your property affairs and/or personal welfare in the event of you becoming unable to sort out your own affairs through mentally incapacity or disability. If it is never used, so much the better. However, once registered it can be used straight away. This means that your attorneys can, for example, look after your affairs whilst you go on holiday or it can be stored away and only put into effect in the event of a loss of your faculties.

There are two types of Lasting Power of Attorney. You can choose one or the other or you can have both if you prefer:

• LPA for property and affairs: This allows your attorney to operate bank accounts, make investments, sign tax returns, and purchase property for your main place of residence. This power can be used before you lack mental capacity unless you restrict this power.

• LPA for personal welfare: This covers matters such as where you live and who should provide your care and medical treatment. This power does not extend to refusing life sustaining treatment unless your LPA expressly says so and can only be used after you lack the capacity to make the decision for yourself.

The time to do this is now. It really is too late to do it if the worst happens.

We all know we should make a will, but we all have need of a Lasting Power of Attorney as well. People can become unable to manage their own affairs at any stage of life. An accident or the onset of mental illness may make the everyday routines of paying bills, managing a budget and making financial decisions difficult and stressful and in some cases impossible; like selling your home or cashing in investments that need both signatures.

The LPA has been created to ensure that whilst you are of sound mind you can appoint someone you trust to look after your affairs if it becomes necessary and it also means you won't have to pay unnecessary expenses in the future. If you don’t have one, close friends and family (including your spouse/partner) do not automatically have the right to take over.

Instead, the Office of the Public Guardian will appoint a Receiver to act on your behalf. This process takes time whilst bills cannot be paid, affairs cannot be looked after and the cost of this process is expensive when compared to the cost of making your Lasting Power of Attorney. With an LPA in place there would be no Office of the Public Guardian charges or solicitor's fees payable and no annual fees charged by the court. This could mean a possible saving of many thousands of pounds over the years.