Hose prices continue to rise

Around 27pc of those aged over 50 said they planned to use money tied up in their home to provide themselves with a retirement income, such as through downsizing or releasing equity, according to life insurer LV=. The average homeowner in this age group believes around £27,000 has been wiped off the value of their property during the downturn.

But despite this only 2pc of people said house price falls had put them off using their home to fund their retirement. The research also found that previous house price booms have left many people reliant on the wealth tied up in their property, with 12pc admitting they had saved less into a pension because of the rising value of their home.

A further 13pc claimed they could not afford to buy their own property and invest in a traditional pension because house prices were so high. A third of homeowners think it will take between three to five years for house prices to return to their former values.

Around 17pc of people hope to recoup some of their lost equity by carrying out home improvements, while 21pc will save extra and 29pc will wait for house prices to recover.
Vanessa Owen, head of equity release at LV=, said: "In the decade leading up to the credit crunch, more and more homeowners saw their property as a potential cash cow to aid retirement. "But in a matter of months millions of pre-retirees have seen both their property and pension fund values battered. Despite this, their confidence in the long-term value of bricks and mortar remains."

It is perhaps encouraging therefore to hear the latest news from the Nationwide. The cost of a home increased by 0.5pc during the month, pushing average property prices up to £162,764 - a level last seen in August 2008.

Martin Gahbauer, Nationwide's chief economist, said: "The monthly rate of house price inflation was unchanged in November at a seasonally adjusted 0.5pc, leaving the average price of a typical property 2.7pc higher than a year earlier."

But there are signs that house prices are rising at a more moderate pace than in the spring and summer, with the 0.5pc rise recorded for both October and November, the smallest since prices stopped falling in April.

The three month on three month growth rate, which is generally considered to be a smoother indicator of the underlying trend, also moderated during November to 2.8pc, down from 3.5pc in October and 3.8pc in September.

Today's figures come the day after the Bank of England reported that the number of loans approved for house purchase had increased for the 11th consecutive month in October, rising to 57,345, their highest level since March 2008. The housing market has recovered quicker than expected during 2009 as a shortage of properties on the market has pushed up prices.
However, many economists are predicting a return to price falls during 2010 as more homes are put up for sale.

Nationwide said the housing market remained "crucially dependent" on labour market conditions. It added that while unemployment had increased noticeably, the rise had not been as rapid or as pronounced as previously feared. Mr Gahbauer said: "Despite continued uncertainties about the future, the better than expected performance of the labour market has probably contributed to the surprise rebound in house prices this year.

"Together with the fact that mortgage rates have fallen sharply as a result of base rate cuts, this has meant that far fewer borrowers have fallen into arrears than would normally be the case in such a deep recession. As such, the downward pressure on house prices from distressed sales has so far been significantly lower than expected."

Savers Rates

Despite no change in bank base rate since March 2009, savings rates across the board have risen steadily as providers moved to fund more of their lending activities through their savings book and the FSA declared that providers must hold increased savings reserves.

The sharpest increases have been on fixed rate bonds, where providers can lock savers money in, but those looking for easy access accounts or ISAs have also seen rates increase. However, it seems that the demand for savers deposits has started to wane as a number of top deals have been withdrawn in recent weeks.

The average rate on a one year fixed rate bond peaked at 3.23 per cent at the start of October, but has fallen to 3.17 per cent today. Similarly, those looking to lock in for longer have seen rates fall from 4.77 per cent at the start of October compared to 4.66 per cent today, but the rates being offered are still significantly higher than those on offer back in March.

Once again the Coventry Building Society has launched its Poppy Bond in partnership with the Royal British Legion. The bond pays a market leading rate of 4.30 per cent and donates 0.20 per cent of all funds invested to the Poppy Appeal. Between £500 and £250,000 can be invested in the bond, with a monthly interest option available for savers looking for a regular income. Access to funds are not available during the two year term.

Savers looking to fix the rate on their money for two years are being offered a rate of 4.00 per cent from Abbey, Alliance & Leicester and Bradford & Bingley. Savers can invest between £10,000 and £2 million into the 2 Year Fixed Rate Bond, which is operated in branch or online. Once opened, further additions are not permitted and access to funds is available on closure only subject to a loss of 120 days’ interest.

National Savings and Investments (NS&I) has just launched a range of Guaranteed Growth and Income Bonds paying rates of between 3.85 per cent and 4.60 per cent, depending on the term of the bond selected. The Guaranteed Growth Bond Issue 48 is topping the best buy tables for one year bonds paying 3.95 per cent. Savers can invest between £500 and £1 million into the bond, which is operated online, by post or telephone. Access is available during the term of the deal, but will be subject to 90 days’ loss of interest.

The latest issue of the Hinckley & Rugby Building Society Tracker Savings Bond is paying 2.00 per cent and guarantees to pay 1.50 per cent above Bank of England Base Rate until 31st August 2010. After this date the bond guarantees to pay at least equal to Bank of England Base Rate until 31st August 2013. Savers can invest between £2,500 and £300,000 into the bond, which is operated in branch or by post. Savers must give 7 days’ notice to make a withdrawal or forgo 7 days’ interest for earlier access.

Source: Moneyfacts.

Britain’s women are leaving themselves dangerously exposed to financial risk in later life a new report says.

The research also shows that almost half (42%) of women aged 30-59 are living in fear of what their retirement might hold.

HSBC Insurance's The Future of Retirement report makes grim reading for the nation's female population who appear far less prepared for their retirement.

It highlights that women may be leaving themselves open to financial hardship in later life should their circumstances change, and notes that fewer women than men have addressed their long-term financial security.

Twice as may women (17%) as men (8%) say they have no retirement planning, while almost twice as many men (32%) as women (18%0 feel prepared for the long term.


Christine Foyster, head of premium wealth proposition at HSBC, said: "Often women do not consider long-term financial planning early enough, leaving them at risk of being under-prepared in later life.

"There is also a tendency to have unrealistic expectations about how much to save and therefore to put saving off," she added.





Source: Cover Magazine

On the countries leading and most respected fund managers, Fidelity's Anthony Bolton has said the bull market could run for a 'considerable' time.

According to the Telegraph, Bolton (pictured), who is in Seoul mentoring Fidelity's emerging Asia portfolio managers, said: 'The bargain phase is over but, despite the fact the market is well off lows, we expect the bull market to go one. It's a multi-year bull market,' the Telegraph reported.

Bolton, tipped technology and consumer sectors to lead the next leg on the bull run.

He also remains bullish on banks and insurers, alongside property based on the their cheap valuations, although he expressed some concern over how regulation could impact these sectors.

'I still think it is right to own financials. I generally found after financial crisis that you can own financials [for] two to three years,' Bolton said, according to a Reuters report.

He also told the Korean media he expected China to continue driving world economic growth, although the Chinese stockmarket could suffer a setback in the short term.

'For China's market there's a possibility of a correction, but the long term outlook is still bright,' Bolton said. 'The relative growth being seen in some emerging markets is going to look particularly attractive against the low growth in the West.'

He believes emerging economies will benefit from rises domestic consumer spending. He said: 'I particularly like emerging markets that can be driven very much by domestic demand, by the internal dynamics of their economy.'

Source: Citywire.

Child Trust Funds

With tighter public spending expected from the Government this Autumn, the child trust fund could be one of the "less unattractive" options for cuts, says Institute of Fiscal Studies deputy director Carl Emmerson.

In an IFS observation last week Emmerson assessed the pros and cons of abolishing the initiative. He says the need in the medium-term to reduce public borrowing makes it natural to try to identify areas of public spending that could be cut with the least pain and that the CTF is a possible candidate.

CTFs were launched in 2005 but were backdated for children born on or after September 1, 2002, to help boost long-term savings for children. All children receive £250 at birth or £500 for those in lower-income families with a second payment from the Government of £250 made shortly after the child’s seventh birthday.

Emmerson says abolishing the CTF would make “a small but not insignificant contribution” to the £26bn spending cut estimated to be required by 2013-14 under the Government's spending plans.

He says: “When the time for tough choices about public spending arrives abolishing the child trust fund could be one of the less unattractive options.”

Child trust fund supporters argue the saving initiative complements existing spending on schools and cash transfers to families with children and that it could help improve their ‘life chances’ through a stronger saving culture. But Emmerson says though abolishing CTFs would make newborns worse off in 18 years time, spending cuts in other areas could be even more detrimental.

He says cuts to benefits or tax credits would reduce the disposable cash parents have to spend on their offspring during childhood and public services cuts could reduce the quality and quantity of the services on offer. He says: “Both could reduce the quality of life and the future life chances of children by more than the abolition of the child trust fund.”

Watch this space as more public spending cuts loom large……

Source: Moneymarketing

Banks receive 50 times more complaints than advisers

Banks are facing more than 50 times as many complaints as financial advisers, according to figures released for the first time by the Financial Services Authority (FSA).

The aggregate complaint figures show how many complaints regulated firms have received and how they have dealt with them.

In the second half of 2008, banks received 988.702 complaints, more than 53 times as many complaints received by advisers, which received a total of 18,633.

The figures show the extent of consumer dissatisfaction with bank advice and support figures released earlier this year showing advisers are the most trusted of the financial services profession.

The figures show an upward trend in bank complaints, which increased 8% between the first and second half of 2008 compared to adviser sector, where complaints fell 5%.

Advisers also trumped bankers in the percentage of complaints that they handled, closing 20% of complaints they received, compared to just 11% of the complaints banks received.

Dan Waters, director of retail policy and conduct risk at the FSA, said the publication of the figures for the first time would help consumers better inform themselves of how the industry operated.

‘This is stage one of our drive to say more about how the industry handles complaints and builds on our recent proposals, currently out for consultation, about the publication of firm-specific data,’ he said.

We expect firms to treat customers fairly by dealing with complaints promptly and efficiently. We are focusing even more attention, particularly through intensive supervision, on ensuring that firms are dealing with complaints properly.'

House Prices Continue To Rise.

House price bounce extends into August.

• House prices rose by 1.6% in August
• Year-on-year decline slows from -6.2% to -2.7%
• Low interest rates helping to underpin prices for the moment

Average UK House price now £160,224

Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said:

“The price of a typical house rose for the fourth consecutive month in August, increasing by 1.6% on a seasonally adjusted basis. The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – rose from 2.7% in July to 3.3% in August, the highest level since February 2007. At £160,224, the average price of a typical UK property is still slightly lower than 12 months ago. However, the annual rate of change rose further in August, from -6.2% to -2.7%. Over the first eight months of 2009, the seasonally adjusted index of house prices has risen by 3.2%, though relative to the October 2007 peak it is down by 14.4%.

For further information and to see this month's full report click here.

Working In & Through Retirement

More than two thirds of UK retirees are estimated to be either working, considering a return to work, or upping their hours as a result of the downturn.

A survey, conducted by financial technology group 1st - The Exchange, who questioned 2,000 people in retirement age, found that 70% of them were either working or considering working in retirement, directly because of the double whammy of the ongoing recession and a lack of pension savings.

The results are a timely reminder of the dire straits that many retirees and pension savers are presently in.

Paul Yates, at 1st – The Exchange, said: 'With news this week that a further one million workers are facing inadequate retirement provision due to the closure of many final salary pension schemes by 2012, the situation is only likely to get worse.'

A separate study from annuity group MGM Advantage has found that the impact of the economic downturn on pension pots has forced more than a third of people of 55 – almost 2m - to put off their retirement plans and continue working.
In its research, 1st - The Exchange, found that more than half of retirees, at 53%, are already working full or part time in order to supplement their pension, of which 10% are looking to extend their hours.

Another 17% are considering returning to work because their existing pension is not enough to see them through retirement.

In addition, 28% of men expect to work for 10 years after retirement until at least the age of 75 and 13% of these expect to work for longer, almost half, at 49%, of women anticipate that they will have to work 10 years after retirement up to the age of 70.

Source: thisismoney

Fund Managers Optimism

Fund managers' optimism about the global economy is at its highest level in nearly six years, according to the Merrill Lynch Survey of Fund Managers for August. Now I know you would expect them to be optimistic but this time I think they might actually believe it.

Seventy-five per cent of respondents said they believed the world economy would become stronger over the next 12 months, up from the 63 per cent recorded in July and the highest figure since November 2003. Further, 70 per cent of respondents expected global corporate profits to increase in the coming year, up from 51 per cent last month.

The survey showed managers were also putting their cash back into equities. Equity allocations have risen sharply, with 34 per cent of respondents now overweight in the asset class compared with 7 per cent in July.

Michael Hartnett, chief global equities strategist at Banc of America Securities-Merrill Lynch Research, said: "Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March. But with four out of five investors predicting below-trend growth for the year ahead, a nagging lack of conviction about the durability of the recovery remains. "We have yet to see investors fully embrace cyclical regions such as Japan or Europe, or Western bank stocks."

Within Europe, 66 per cent of respondents expected the European economy to improve in the next 12 months compared with 34 per cent in July. Investors in Europe took overweight positions in basic resources and radically reduced their overweight in pharmaceuticals. The survey also found that European managers had increased their cash positions, while their overall sector conviction esd near record lows.

Separately, global equity fund managers are waiting for fundamentals to catch up with the recent market rises before making any substantial policy changes, according to the latest annual review of global equity funds from Standard & Poor's Fund Services. The firm said the market upheaval led to a general move toward developed markets, defensive sectors and larger companies.

Flash Floods Insurance Risk

Householders face higher building insurance premiums after a sharp increase in property damage blamed on climate change. A rise in insurance claims has been caused by flash floods and storms in areas of Britain previously immune to severe weather events.

The AA, which produces an insurance premium index monitoring costs, reports a 15% rise in claims in the first six months of 2009 over the same period in 2008 "in the number and cost of payments for buildings damaged by flash floods and storms in areas with little or no previous record of such claims."

It cited one village, Carbrooke in Norfolk, where homes were damaged by giant hailstones during an ice storm in late spring. The storm also caused the roof of a supermarket to partially collapse, and when the hailstones melted, a local school was flooded. "It happened in an area with no previous record of severe weather events," said the AA.

Insurers are now demanding higher premiums to meet the cost of such freak weather, linked to climate change. The AA found that, in the 12 months to June 2009, the average quote for buildings insurance had risen by 10% — though customers who shopped around were able to limit the increase to 5%.

Insurers are beginning to reflect concerns about climate change in their premiums. The industry is expecting rising cost and frequency of claims for flooding, subsidence and storm damage.
Meanwhile, tighter building regulations mean repairs must meet modern standards for such things as electrical wiring and insulation. As a result, the cost of meeting a claim — particularly for older properties — has been rising steadily.

At the same time households are benefiting from a fall in the cost of home contents insurance to a 15-year low. The AA said that despite reports of a recession-related rise in the number of burglaries, there is little evidence of this from the industry.

One reason is that insurers are making more specific calculations of premiums based on local crime rates. So although the average cost of home contents cover is falling, the figure masks a growing disparity between high and low crime areas.

Fraudulent claims are also contributing to a steep rise in car insurance costs, which are growing at their fastest rate for nearly a decade, said the AA. Drivers are typically being charged £526.42 for fully comprehensive cover, up 10% over the past year — the fastest increase since 2000.
The industry continues to suffer underwriting losses, which are predicted to be in excess of £240m this year," said Douglas. "Although the number of accidents on Britain's roads is thankfully falling, the cost of claims continues to rise — particularly personal injury claims and legal expenses. During the current downturn, fraudulent claims are also putting pressure on premiums, leading to an increase in the number of people who drive without insurance, currently estimated to be 1.6m.

The burden of claims involving uninsured drivers unfortunately falls to honest drivers, to the tune of £30 per policy.

Worst hit are drivers under the age of 21. The average premium for third party, fire and theft cover, typically bought by young drivers, rose 4.6% in the second quarter of 2009 over the first to £968.22.

With rising insurance costs contact us today for an independent quote backed up with a full locally based service.

Pensions: Worrying signs

Some 16% of workers paying into a pension have reduced or completely halted contributions to their scheme in the last five years, Prudential research reveals.

The study said the decision to stop contributions could lead to an increase in future pensioner poverty.

The research showed the number of people planning to rely mainly on the state pension to fund their retirement is set to rise over the next 10 years to 27% - compared with 22% of those retiring this year.

Prudential director of defined contribution solutions Martyn Bogira said: "It's worrying that many people who have been working for years and saving for retirement seem to have given up hope and stopped paying into their pension. This is the last thing they should be doing. "It's also really worrying that many people either planning to retire imminently or within the next decade still believe the state will support them when we know that, for many people, this just won't be the case."

The research also found 42% who said they planned to retire this year will have the majority of their pension savings in a final salary scheme, while the figure falls to 35% for those due to retire over the next 10 years.

In addition, Prudential said a worker who puts off paying into a pension until they are 35 could end up with a pension pot at age 65 worth nearly £40,000 less than if they had started paying in when they were 30.

It added delaying 10 years could double the amount needed to save, which means these people may have to save more later in their working lives, if affordable, or get much less to live on when they retire

Investors return to equity funds

Retail investors are starting to pile back into equity funds at the end of a record quarter for sales, according to the latest IMA monthly figures.

The retail sales total for June of £2.5bn is almost equally split between bonds and equity funds with £990m going into equity funds and £897m into bond funds.

However, Corporate Bonds is still the most popular UK domiciled net retail sector with an inflow of £533.3m. It is the eight consecutive month that corporate bonds have topped the chart. Investors continue to pull out of money market funds with the sector recording the highest net outflow in June of £13.4m.

IMA chief executive Richard Saunders, comments: "Investors have been coming back to the market in recent months and June saw a continuation of this trend. "Retail investors have begun over the last two months to put money into equity funds, particularly international equities, as well as bond funds. As a result net retail sales in the second quarter were the highest on record and net ISA sales the highest for six years."

However, on a monthly basis ISAs' popularity fell with a net inflow of £246.9m, down from the previous month's total of £310.7m. The most popular ISA sector was Cautious Managed, which accounted for 22% of gross ISA sales.

Funds under management also dropped slightly in June to £389.3bn from May’s total of £391.6bn. Demand for overseas funds rose over the month with net retail sales reaching £44.2m compared to outflows of £183.2m during the same month last year.

Are the UK Banks Safe Again ?

With the UK domestic banks shares up between two and five-fold from their spring lows, how safe is it investing in the sector again?

That is a question we have been regularly asked as investors start to stock pick as risk appetitite returns.

Here is a helpful article prepared by Richard Buxton, Head of Equities at Schroders: -

http://talkingpoint.brighttalk.com/files/banks%20quickview.pdf

Product of The Week

With interest rates so incredibly low and markets starting to show the first signs of settling down a cautious confidence has started returning to investor’s thoughts.

Over the past months we have received numerous requests from investors seeking an investment offering high returns with low risk and a short investment term. So far it has proven very difficult to find such a product but through perseverance I am pleased to say we believe we have tracked down a very credible solution worthy of consideration.

What is the AVIVA Defined Returns Fund?

It offers growth dependent on the performance of the FTSE 100TM Index* and is a way of gaining potential growth without investing directly in the stockmarket.

The Aviva Investors Defined Returns Fund 1 has a maximum 3 year term with the potential to mature early on its first or second anniversaries, subject to certain conditions.

The return is dependent on the FTSE 100TM Index being equal to or higher than it was on 7 August 2009 at either one of the anniversaries, or at maturity.

• If at the first anniversary the FTSE 100TM Index is higher than it was on 7 August 2009, the Fund aims to return your initial investment plus 8% and the Fund will mature early.
  


• If the Fund hasn’t matured at the second anniversary and the FTSE 100TM Index is higher than it was on 7 August 2009, the Fund aims to return your initial investment plus 16% and the Fund will mature early.
  


• If the Fund doesn’t mature early, at the end of the 3 year term, the Fund aims to return your original investment plus 24% if the FTSE 100TM Index is higher than it was on 7 August 2009. If the FTSE 100TM Index falls by up to 50% of its level at 7 August 2009, the Fund aims to return your initial investment only. If the FTSE 100TM Index falls by more than 50% of its level at 7 August 2009, you will lose more than 50% of your initial investment.
  
  

I believe this investment offers the potential for a greater return than cash whilst providing significant downside protection from further market volatility.

Timing of this style of investment is key. It is important to invest at a time when market prices are low, as they are at present. By doing so you limit the potential for any further downside and at the same time enhance the opportunity for upside returns.

This product may be suitable for you if you wish to:

1. Use your ISA allowance for the new tax year
2. Improve the potential for return on your existing cash ISA’s
3. Build some protection into your existing stocks and shares ISA
4. Improve the potential for return on your cash deposits.

5. Suitable for Trustee and Sipp monies.

I would ask you to give this investment your consideration and let me know if you would like any further information or to arrange a meeting to discuss this opportunity in more detail. I can be best reached on 01356 625285 or ifa@ferguson-oliver.co.uk

More Green Shoots.......

Upbeat manufacturing data has helped push UK equities higher again as commentators increasingly suggest the economy may be growing by the autumn and even the long-term bears are running out of reasons to be miserable.

Coming in at 45.4 in May, the seasonally adjusted CIPS/Markit Purchasing Managers’ Index remained below the no-change mark of 50.0 for the thirteenth successive month. But it also posted it third consecutively monthly rise - from an upwardly revised figure of 43.1 in April - and is now at its highest level for 12 months.

'At this rate we would hit the no-change 50.0 PMI benchmark by autumn – significantly earlier than economists initially predicted,' said Roy Ayliffe, director at the Chartered Institute of Purchasing & Supply. Production and new orders continued to decline in May, but at the slowest rates for twelve and fourteen months respectively and the orders-to-inventory ratio rose to a thirty-two month high - which is why Ayliffe and others are suggesting their could be economic growth within three months.

The news comes on the back of an upbeat report from the Engineering Employers Federation.
James Knightly, economist at ING, a long time bear on the UK economy, says even he might have to review his forecasts. 'Despite our worries concerning the impact of the bursting of the house price bubble and the implosion of the banks on a household sector that is the most indebted in the world, it appears that the slashing of interest rates and support from quantitative easing is generating a tangible improvement in the economy,' he says. He still sees a number of reasons to be cautious and thinks the leap in PMI may in part be down to re-stocking that could soon run out of steam. Nonetheless, he thinks today's data is another strong argument to start being less pessimistic about the UK.

Howard Archer, UK economist at IHG Global Insight agrees today's data is clearly good news and boosts hopes that the economy could start growing before the end of the year. Earlier, better than expected Chinese PMI data helped lift the mood on global markets. All eyes are now on the US ISM figures.

If - as expected - they come in with a positive number, an increasing number of market watchers might be arguing the recession is over in the US and that will boost hopes we'll be back in growth mode by the end of the summer.

Source: Citywire

Held To Ransom: Borrowers Beware

It’s a clear case of buyer beware as four out of ten people 42 per cent will come off a fixed rate mortgage this year and risk falling prey to inflated Standard Variable Rates SVR being offered by the majority of mortgage lenders. The exclusive research and analysis carried out by leading comparison site, Moneyextra.com shows that the current average SVR is a staggering 4.19 per cent above base rate, compared to only 1.9 per cent in Q2 2008, representing a colossal 120 per cent rise in income.

However the majority of people surveyed are oblivious to the meaning of SVR and its impact on their finances, with a whopping 85 per cent ignorant to the actual definition of the term. Amusingly, one cited the meaning of SVR as ‘Saving for Retirement’.

Once explained, over a third of people 32 per cent whose fixed mortgages are ending soon, are unaware that the current average SVR is more than 8 times higher than the base rate 0.5 per cent. The research indicates that customers possess a misguided sense of loyalty towards their lender and trust them to adjust SVR’s inline with the base rate; however in reality banks have intentionally held their SVR’s proportionally high.

On average, people think their lenders SVR is 1.77 per cent which is in stark contrast to reality. Only 5 per cent of people surveyed had any idea that the average SVR is currently between 4 and 4.5 per cent. Compared to this time last year, the average SVR was 6.9 per cent or 1.9 per cent above the base rate.

Six out of ten 64 per cent mortgage holders are concerned what will happen to them and their finances once their fixed deal comes to an end. A third 33.5 per cent has suffered a recent drop in income or is unemployed and are consequently worried about being saddled with their lenders high SVR. One in ten believe their poor credit rating will put them at risk of securing a new mortgage deal, another 17 per cent cite high personal debt on credit cards and loans as creating an additional pressure, and ten per cent are struggling with negative equity.

Typically, SVR’s from prime lenders are never normally higher than 1 or 2 percentage points above bank base rate, however some SVR’s are currently as high as 5.99 per cent. In the last twelve months, lenders have increased the differentiation between the base rate and their SVR’s by an average 120 per cent. Such a high-margin is unheard of and it’s scandalous that lenders are allowed to continue fleecing their customers.

It’s not unreasonable for mortgage holders to expect that if the base rate drops, so too will their lender’s rates decrease – however current SVR’s are entirely out of proportion and we implore the banks to bring down their extortionate lending rates to a level that is fair and just to the consumer.

Top tips to unsuspecting homeowners:

Make sure you are aware what your mortgage rate is and when it ends so that you can move onto another discounted rate as soon as possible.

Clean up your credit record – currently there are only 27 mortgage deals available to buyers who have less than 10% deposit; however you’ll need a good credit history to take advantage of one of them.

If you are struggling to get credit why not consider getting a guarantor or sharing with siblings or friends. Pooling your money will enable you to get a better mortgage deal.
Always shop around – if you have a reasonably sized deposit, lenders are typically more flexible and can offer great incentives.

There are still some good deals to be had, Alliance and Leicester, for example, are offering a fixed rate mortgage at 3.49 per cent for a 25 per cent deposit.

Some good news (maybe)

For those of us looking for some good news out of all the gloom and doom around in the news these days I would refer you to the graph which shows what has been going on in the FTSE-100 and the FTSE-250 indices over the past month.

Maybe, just maybe all the recent speculation that the markets have bottomed out might have some justification. Then again it might be too early to make any formal predicition but what is the harm in getting some good news now and again.

We will continue to monitor the situation and keep you informed as the picture becomes that bit clearer.

Bolton calls the start of the bull market

Source: Citywire 30/04/09

In his latest prognosis on the market Anthony Bolton believes the equity bull market has begun.

Speaking in an interview on Bloomberg television, Bolton said: 'Things are in place for the bear market to have ended. When there’s a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I’d like to bet against that.' See interview here

Bolton highlighted financials, technology, consumer cyclicals and value plays such as retailers, automakers and construction-related shares as some his most favoured areas of the market.
His views come after HSBC Private Bank turned positive on equities on a 12 month view.
With concerns over the lack of liquidity and bubbles developing the corporate bond market and gilts sliding on the UK's spiralling debt position, is it time to make a fundamental shift back towards equities?

In the news

The Clerical Medical brand is to be dropped in favour of Scottish Widows. One of the lesser known facts arising from the Lloyds TSB/HBOS merger was that need for the coming together of the countries leading investment houses Scottish Widows (part of Lloyds TSB) and Clerical Medical (part of HBOS).

A single product range will be created with Scottish Widows pension plans sitting alongside the investments and offshore products of Clerical Medical. There will be no change for existing policyholders but new business will fall under the Widows brand from July. More on this story can be found here: http://www.citywire.co.uk/adviser/-/news/other/content.aspx?ID=339144&Page=1

With Swine Flu ever present in the news here is a video presented by Sky news setting out in their opinion the economic consequences of a swine fever pandemic. Scary stuff and not to be sneezed at: http://www.citywire.co.uk/personal/-/video/market-and-shares/content.aspx?ID=338809

The mortgage market is heating up with some vary strange going on's. Taxpayers will be horrified to discover that Halifax Bank, now in government control, is offering mortgages to first-time buyers in the Irish Republic at half the rate at which they are available in the UK.

Halifax, part of the Lloyds Banking Group, is charging 2.74% for a two-year fixed-rate deal to first-time buyers in Dublin. A two year fixed rate first time buyer loan for an English borrower would cost 4.19% at a 60% loan to value up to 6.4% for an 85% LTV.

Meanwhile over at the Nationwide they have moved to improve its profit margins by introducing a new ‘standard mortgage rate’ at a higher rate than its existing ‘base mortgage rate’ – otherwise known as the Standard Variable Rate by other lenders.

Customers taking out a mortgage after April 30th with Nationwide will no longer revert to its base mortgage rate when their deal expires, but will instead go on to the society’s new 3.99% standard mortgage rate. This compares with its current base mortgage rate of 2.5% - an increase of 1.49% for all new borrowers.

The society says it will maintain its base mortgage rate, currently 2.5% for existing customers, but any new customers whose mortgages come to an end will revert to its new rate – which it can vary at will. It does not track Bank Base Rate. This is a retrograde step as Nationwide has always promised that customers on its base mortgage rate would pay no more than 2% above BBR.

On the savings front with money coming off fixed term deposits needing to be reinvested, an increasing number of savers are looking at easy access accounts as a short-term home for their money while they decide whether the high yields available now on some good quality shares are a better long term bet. They are likely to want to wait a while to see if the old adage ‘sell in May and go away’ holds true this year.

Savers have to be very picky as the highest rates paid on instant access accounts all have bonuses which are generally not paid unless you leave your money in the account for at least a year – which won’t suit everybody. Ing Direct, for example, is paying 2.75% for money on instant access. But 2.2% of it is a bonus only payable after one year - although it does have the advantage that the bonus is fixed.

Probably the best no-frills instant access account is Nationwide’s ESaver Plus which is paying 2% gross for sums of £1 or more with no penalties for withdrawal. Sainsbury’s Internet Saver is paying the same 2% but minimum investment is £5,000.

Budget Brief

In the gloomiest Budget on record there was little or nothing to cheer cash strapped families while higher earners face swingeing increases in income tax for those earning £150,000 or more.

Labour has reneged on it manifesto pledge not to increase the top rate of tax and in a speech reminiscent of Labour Chancellor Dennis Healey’s threat to squeeze the rich ‘until the pips squeak’ Alistair Darling increased the top rate of income tax from the proposed 45% to 50% and brought it forward to 2010-11.

From April 2010, an additional rate of income tax of 50% will apply to income over £150,000, and the income tax personal allowance will be restricted and clawed back down to zero for those with incomes over £100,000. These changes replace the 45% income tax rate and the two-stage taper of the personal allowance announced in the 2008 Pre-Budget Report. Tax on dividends will also be increased to 42.5% rather than the 37.5% announced in the pre-Budget speech in November 2008 for those with incomes above £150,000.

And there is more pain for high earners. As widely predicted, tax relief on pension contributions will be restricted for those with incomes of £150,000 and over, and tapered down until it is the basic rate of 20% for those with incomes of £180,000 a year. The Chancellor justified this by pointing out that a quarter of all tax relief for pension contributions goes to just 1.5% of the top earners.

To prevent high earners from making massive pension contributions to take advantage of the existing 40% tax relief on contributions, the Government is also introducing legislation to prevent individuals cashing in on this window of opportunity. Those who have never earned in excess of £150,000 are unaffected, as are those who continue with their regular pattern of contributions. This could be hard to enforce however as many self employed and high earners make irregular pension contributions.

The Institute for Fiscal Studies has already warned that income tax at 45% which hits the richest 1% of top earners will raise little extra revenue because the rich will simply take avoiding action by turning capital gains taxed at only 18% into income, or leave the country – or worse, work less. At a top rate of tax of 50% the incentive to leave the country or avoid income tax will be even greater. But the Chancellor reckons to raise an extra £1 billion by closing any tax loopholes which the rich might choose to use.

Holders of offshore accounts are being offered a ‘new disclosure opportunity’ which will run until March 2010. This will give holders of these accounts the opportunity to disclose, of their own accord, if they have unpaid tax or duties and to settle debts. The tax man will also be issuing more notices requiring financial institutions to provide information about offshore account holders.

And in an attempt to round up more tax revenue Her Majesty’s Revenue & Customers will be publishing names of serious tax defaulters – both corporate and individuals who have incurred a penalty because they have deliberately understated over £25,000 of tax.

On a brighter note, there is marginal help for savers and some pensioners. The limit on ISA savings at £7,200 for the 2008-09 tax year will be raised to £10,200 – for the over 50s – in the current 2009-10 tax year and for the rest of the saving population in 2010-11. The first higher contributions won’t be available until October 6th for the over 50s. As now, half this allowance can be invested in cash or the whole amount in an equity based ISA.

There is also some relief for pensioners with small savings. The disregard for qualifying for Pension Credit, Housing Benefit and Council Tax Benefit will be raised from its current level of £6,000 to £10,000. The Treasury estimates that this will increase the income of around 540,000 Pension Credit claimants who have savings above the current disregard level of £6000 by around £4 per week.

In addition, Pension Credit recipients who may have overpaid tax on their savings income in the past six years will be contacted as part of a taxback campaign. This will encourage people to claim back overpaid tax on savings income and, where possible, register to avoid overpaying tax in future. Those who claim are expected to receive around £200 on average. This is in response to the fact that millions of elderly taxpayers are paying too much tax but have not been notified of this in recent years by the tax man.

The Chancellor confirmed that if inflation remains in negative territory by September as expected, State pensions will increase by a minimum of 2.5% - but this is simply confirming the existing situation. There will however be an additional payment of £100 to households with someone aged 80 or over and £50 to households with someone aged 60 or over, to be paid alongside the existing Winter Fuel Payment in 2009-10.

Families with children will see Child Tax Credit go up by an extra £20 a year above indexation from April 2010 and there is an extra £100 a year which will be added to the existing £250 Child Tax Credit vouchers – for disabled children - and an extra £200 a year for severely disabled children. The CTF increase will be implemented in April 2010.

For those facing redundancy the maximum income on which redundancy payments are based will be raised from £350 a week to £380 a week. This is still well below average full time earnings of around £24,000 a year.

The concession on Stamp Duty exempting properties purchased for £175,000 or less is to be extended until December 31st of this year which will benefit many first time buyers. The Treasury estimates that around 60% of purchases are currently exempt from paying Stamp Duty as a result of the tax holiday.

The most controversial aspects of the Budget are the tax changes raising the top rate to 50%. Higher taxes for the rich also threaten to raise a major political problem for David Cameron, who has pledged to retain the higher rate, in defiance of many Conservative members.

Cameron last month confirmed that a Tory Government will not repeal higher income tax rates, saying that the richest in society ‘must bear a fair share of the burden’ of paying off Labour's debts.

But the IFS calculates that the current 40% is the optimum rate to maximise Treasury revenues from income tax on the rich. The Treasury disputes the IFS calculations, arguing that rich people are less responsive to higher tax rates than the institute's economists believe.

Has the market turned ?

In recent days we have witnessed a number of bullish statements from fund managers. Here is one that arrived this morning from Ian McVeigh, Manager of the Jupiter UK Growth Fund: -

"The valuations I see now offer a great opportunity for long-term investors. I think when a rally comes, it is likely to be a sharp one." Ian McVeigh

Optimistic or wrong again, only time will tell but with numerous similar comments appearing of late maybe, just maybe we are starting to see markets turn.....

FTSE 100 Winners

Change as at 12 noon Fri. 17/04/09

Lloyds TSB Group PLC
10.03%
BT Group PLC
9.44%
Aviva PLC
6.37%
Barclays PLC
6.01%
British Airways PLC
5.72%
Man Group PLC USD0.03428571
4.97%
INVENSYS ORD 10P
4.90%
ICAP PLC Ord 10p
4.82%
Royal Bank of Scotland Group (
4.20%
Lonmin PLC
3.9

Market Thoughts

We are often asked what sector should I invest in to catch a rising market as, when or if markets start to pull out of recession. Simple enough question but a tough one to answer.

If we based our answer on tradition then the poorest performing sectors during the recession would most likely be the strongest out of recession. Accordingly we would be driven towards UK Smaller Companies, Global Emerging Markets, UK All Companies & UK Equity Income.

On the other hand many commentators favour North America given that America was first into recession and could reasonably be expected to be first out. With dividends being maintained at reasonable levels UK Equity Income is often a favoured section as any company that can manage to maintain a strong dividend policy through the troubled times should be in a stronger position as the economy pulls out of recession.

Then we have the advocates of corporate bonds believing they will offer attractive returns more akin to the cautious investor looking for a higher return on their deposit based investments.

You can start to see the dilemma we as advisers face when challenged with the opening question. However it is our job to try and make some sense of everything that is going on and perhaps for the first time in months we have been given the briefest of indicators where to turn.

The month of March was a welcome respite from the continual downward spiral of falling prices. Many sectors produced positive results during a time when the news was still full of gloom and doom.

If we analyse the figures we can see that the six top performing sectors during this positive month were Asia Pacific Ex Japan, Global Emerging Markets, Asia Pacific Inc Japan, Technology & Telecoms, Europe Excl’d UK and the Specialist sector which includes commodities and financials. Source: Citywire April 2009

Perhaps surprisingly at the bottom of the table with negative returns are GBP Corporate Bonds, GBP High Yield, GBP Strategic Bond, UK Equity & Bond, UK Equity & Growth and UK Equity Income. I believe these figures are the most relative and should set certain alarm bells ringing. Many investors have been encouraged towards Corporate Bonds on the strength of their conceived low risk nature. However low risk is not no risk and with defaults a realistic threat I believe investors should be cautious when committing significant portions of their portfolios towards Corporate Bonds for the short term at least.

If the month of March is anything to go on for those investors willing to accept risk in the search for greater reward Global Emerging Markets, Asia Pacific or indeed Specialist funds would appear to offer the greatest opportunity albeit it must be appreciated that investment in these sectors are normally deemed as higher risk. That said whether we are in “normal” territory is questionable and risk must be quantified against market positions. With fund prices near to all time lows it could be argued that risk has been reduced due to the cheaper buying price.

With many investors seeking to recoup positions in investment and pension funds I am certain this question will arise again and again. We will continue to monitor the situation and keep you informed as events progress. If you would like to speak with an adviser to discuss all the options open to you please do not hesitate to get in touch.



M.S. Ferguson
Managing Director

Into Retirement

Effectively, retirement for most people involves using the pension fund accumulated over many years into an income (usually plus a tax free lump sum). The problem is that many people think that they have to use the same company that they have invested with all along, to provide their pension income. And the companies do not appear too keen to tell them that they do not have to, largely because it is good business for them, to hang on to the money, rather than letting it go to another provider.

But in fact almost everyone has the right to exercise that the financial services industry calls and ‘open market option’. In plain English, this means take your money and buy a better pension elsewhere.

In almost all cases, specialist annuity providers can offer a better income than the company with which you built up your retirement fund. The exception to this is where you have a guaranteed annuity rate. But beware; this normally only applies at a set age and on a level, single life basis. So if you want to retire earlier – or later – and to provide an income for your spouse as well &/or to have an increasing income, then the guarantee is lost.

There is another consideration that you need to look at. If you are a smoker, or have a severe medical condition – or these days, even if you just live in certain parts of the country, you cold also secure a better income, by picking the right type of annuity. For example the best income for a 65-year-old non smoker wanting to use £100,000 to buy a level income for himself would have been £6,406 a year (late March 2009). A smoker in the same position could have boosted his income by £20 a week to £7,452 a year. So shopping around is well worthwhile.

With annuity rates currently so low, although there is no guarantee that they will not fall further, many people are considering delaying buying one by taking their tax free cash and then leaving their pension fund to grow, possibly (but not necessarily) drawing an income directly from the fund. The hope is that fund values and interest rates rise, producing a better return as you get older when annuity rates tend to rise anyway. But beware, you are still running an investment risk and this is not suitable for everyone.

Once again, this reinforces the importance of each one of us taking personal responsibility for our retirement planning.

It's a confidence thing !

UK consumer confidence spiked higher in March although it remains subdued, a new survey has suggested.

'This month consumer confidence jumped quite significantly to levels not seen since May last year,' said Rachael Joy of the consumer confidence team at survey compiler GfK/NOP. 'It still remains historically very low, but suggests that lower interest rates and a better picture for household bills are restoring some confidence among UK consumers.'

'Certainly, when looking to the future, consumers are feeling better about the likely performance of the economy over the next 12 months.'

The overall index score this month has risen five points to -30, eleven points lower than this time last year. The rise this month has been driven by an increase in confidence over the economic situation over the next twelve months. The annual moving average continues its downward trend and has dropped one point to -32. The score on personal confidence ticked up to -13 from -14 in February.

The forecast for personal finances over the next year has risen two points to a score of -6. This is ten points lower than March 2008

The effect of 0% RPI on Pensions

Deflation or falling prices have a mixed effect on pensioners and some could lose out. The latest Retail Prices Index figure is 0% and in the coming months some prices are expected to fall further taking the index into negative territory.

So what does this mean for pensioners? There is no need to worry about State pensions because although they are linked to changes in the September RPI, there is a minimum increase every year of 2.5% and State pensions cannot go down.

Next month, April, the basic state pension rises from £90.70 a week to £95.25 a week for a single person, a 5% increase. But because pensioners spend a higher proportion of their disposable income on food and services like household repairs, where prices have been rising, pensioner inflation runs much higher than average inflation. While the January RPI figure was almost 0%, estimates put pensioner inflation in the same month at above 5%.

But the news is not so good for those who have taken out inflation linked annuities. These pensioners could find their income falling if inflation turns negative. ‘Annuities from Prudential and Standard Life could fall, while those from Norwich Union and L&G will not decrease but then will not rise until RPI has reached its previous level.

For those in receipt of a company pension from former employers, most schemes will not reduce the income to pensioners in the event of deflation. But the income will not rise, meaning that they face a rising cost of living without a rise in their income.

Pensioners suffer higher inflation than the general population yet in many cases their income will remain static because it is linked to the headline RPI figure. The current deflationary environment could well be short lived despite low inflation those who are about to retire need to give serious thought to how to hedge against inflation seeing as they could be drawing their pension for upwards of 40 years.

Retiring investors need to inflation-proof some of their pension income – where possible splitting their pension three ways between a level annuity, a 3% escalating annuity and an RPI linked annuity. Drawdown is an alternative for those with larger pots. Whatever they do it is imperative they do not ignore the inflation risk.

State pensions are to be linked to earnings by 2015 – although whether or not the government will honour this pledge remains to be seen. There have occasionally been times when inflation has outpaced average earnings in the past and there could be again in the future. The government might avoid an own goal here by linking the state pension to the higher of average earnings or inflation.

Meanwhile, those coming up to retirement and purchasing an annuity should make certain they are getting the best deal by shopping around and checking with an independent adviser who specializes in annuities. Everyone has the right to the Open Market Option which means they can buy an annuity from a provider other than the company with which they had their original pension savings scheme. Many providers rely on savers’ apathy and offer poor rates for annuities on maturing pension contracts. The difference between the best annuity and the worst can be as much as 30%.

In addition, those with health or lifestyle problems can get a higher income. New research from life insurer LV= shows that over 150,000 people who could qualify for an enhanced annuity, purchase a standard annuity instead and lose out on thousands of pounds of income. A 62-year-old man with an enhanced annuity could receive an extra £7,300 in retirement income over his lifetime.

Enhanced annuities can give people with certain medical or lifestyle conditions – for example people with high blood pressure or those who smoke or are overweight – a higher level of income in retirement. This is because enhanced annuity rates are calculated individually, based on the applicant’s personal circumstances and those with an unhealthy lifestyle or chronic medical conditions have a shorter life expectancy.

Despite the UK enhanced annuity market growing by one third in 2008, this is still a long way short of the four out of ten annuitants that LV= estimates could qualify for some form of enhancement, and a higher annual income in retirement.

Thousands of annuitants are still missing out on a higher income in retirement. Just 27,482 annuitants purchased an enhanced annuity in 2008, whereas research shows that a further 150,000 people could have qualified for one. People simply can’t afford to miss out on the chance of increasing their income in retirement.

A 62-year-old male could receive, on average, an extra £369 in income each year from an enhanced annuity, an increase of 22.7% compared with the average income from a standard annuity. This could equate to an additional £7,380 over the rest of his lifetime.

It is imperative investors seek independent advice when considering or deciding upon retirement options.

Premium Bond Prizes Slashed

The total value of prizes available to premium bond holders is set to nearly halve as National Savings & Investments changes its prize structure in response to the Bank of England’s rate reductions.

While this month’s prize pot totals some £58.9 million, in April just £32.2 million is expected to be dished out.

In addition, the chances of winning a million pound prize on the premium bonds has halved. The government backed body will now offer £25 prizes, but will only give away one - rather than two - monthly £1 million jackpots as it seeks to increase the number of winners.

Overall, it is cutting the annual payout rate from 1.8% to 1%. The prize money is a percentage of the funds committed to Premium Bonds and NS&I links the percentage payout to Bank of England Base Rate.

The new level of Premium Bond payouts will be held for at least three months.

While very popular – at the end of November 2008, about 23 million people had some £39 billion stashed in Premium Bonds – they are not without their critics who suggest people view Premium Bonds as a gamble and not an investment.

NS&I says that despite its changes, the current odds of each £1 Premium Bond number winning any prize will remain unchanged at 36,000 to 1. ‘We always aim to reward as many of our customers as possible from the prize fund available, together with having the right mix of prizes,’ Peter Cornish, director of customer offer at NS&I said.

Mortgage funds start to re-appear !

As house prices continue to fall, every month sees an improvement in affordability for first time buyers. But few can afford the big deposits which lenders are now demanding.

Latest figures from the Council of Mortgage Lenders reveal that the average FTB is putting down a deposit of 24% - way out of reach for all but those who can borrow the deposit from their family.

But although there is not a lot of choice, 90% home loans are still available for first time buyers, and with mortgage rates at an all time low, they are affordable too – even if FTBs have to pay more than existing owner occupiers.

One of the best buy's comes from Clydesdale Bank which is offering loans up to 90% of the property’s value at a very competitive 4.59%. The rate is variable and is the same as Clydesdale Bank’s Standard Variable Rate. The arrangement fee is £999 and there is no higher lending charge to pay. There are no early repayment penalties so you can make unlimited overpayments.

Maximise your ISA allowance

Every year, each person has an ISA allowance available to them. An ISA is one of the most tax-efficient methods of saving, but if your full allowance is not used within the tax year, the valuable benefits are lost for good. The reason I am writing is that time is running out to make the most of this year's ISA allowance and to make plans for 2009/10 ISA allowances.

I appreciate that the continual bad economic news has knocked investors confidence considerably. There are however several key factors that should be considered at this time: -

• Interest rates are at all time lows resulting in cash deposit investments failing to maintain pace with inflation.


• Equity based markets are cheaper than have been for a number of years offering significant financial opportunity for the investor willing to accept a degree of risk.


• Corporate Bond funds are offering an attractive alternative for risk adverse investors
  

What else do you need to know?

We are currently recommending clients invest in the FundsNetwork 2008-09 Maxi ISA. I am certain you are quite familiar with the investment principles governing ISA’s however as an aide-memoir the enclosed brochure offers detailed information.

BASIC FEATURES

The aim of the FundsNetwork Maxi ISA is: -

• To give you the opportunity to increase the value of your capital and/or provide a tax-efficient income.


• To provide access to over 1,100 funds from 65 leading fund managers to maximize investment performance.


• To give you the flexibility to spread your investment among different investment funds with different aims.

FundNetwork Limited is regulated by the FSA is the UK’s largest investment platform with over £15 billion assets under administration (14/08/08).

Spreading investments decreases the risk of a fall in value across your whole portfolio - it is the investor's way of living out that old adage 'don't put all your eggs in one basket'. FundsNetwork give you freedom to change your investments as circumstances change – be it a change in your needs, or a change in the effectiveness of a fund manager. FundsNetwork also give you the ability to change managers, assets and sectors easily, a facility included in the price of their products.

We would be pleased to forward an extremely helpful brochure prepared by FundsNetwork which not only describes the funds we have selected for recommendation but also presents significant information relative to investing in ISA’s.

If you would like to view our ISA pack please forward an e-mail to ifa@ferguson-oliver.co.uk

ISAs are intended as a long-term investment which means you should be prepared to keep it for five years or more. You should read the brochure before you decide to invest to ensure you are aware of the risks associated with the investment. The funds selected may fluctuate in value, and any return is not guaranteed as the value of your investment may fall as well as rise.

As we near the tax year end I would also take this opportunity to emphasise the importance of maintaining pension contributions in the current economic climate. With depressed values many investors might be put off from making pension contributions however I would suggest now is an attractive time to be making contributions. With fund prices offer tremendous value and tax relief of 20% (basic rate) or 40% (higher rate) secured against all pension contributions made I would argue what other form of investment is offering such certain returns currently.

If you would like to discuss this opportunity further, please contact me on 01356 625285 or by e-mail to ifa@ferguson-oliver.co.uk

Spring Clean Your Financial Arrangements

Retirement – it’s in front of you – oh yes it is!

Less than half of the total workforce is saving enough into a pension fund. A further 13% are doing some saving in a pension, but not enough for a decent retirement income. It seems the remaining 9.6 million working adults (34%) are just hoping for the best – with their head in the clouds

Apparently almost half of us have ‘no idea’ how much of a state pension the Government will provide and a further third have only a vague idea. Despite this, almost a quarter of working adults expect most of their retirement income to come from the state pension. Women are more likely than men to become widowed, becoming even more reliant on the state pension.

There is, for many of us, a substantial gap between the retirement income that we would like and that which we are on course to achieve. The message ‘you have to save for your retirement’ is simply not getting through. We are staring at a whole generation of pensioner poverty.

It’s simple, we can save more or we can retire later. Most people don’t relish the thought of working longer than their parents or grandparents did, and hardly anyone admits to being happy to accept a much lower standard of living in retirement. But if you want to plan for your future financial well-being the first step must come from you.

IFA’s can’t wave a magic wand but we can show you just what Retirement looks like for you to decide what action you need to take. Pension saving is a long-term commitment, so you need as much time as possible to build up the required funds.

Now is also an ideal time to review your mortgage arrangements. With base rate falling to 0.5% new mortgage facilities are gradually working their way into the market place with a number of attractive rates and terms starting to appear. With rates so low now might just be the time to take a long term outlook and fix rates for stability over the next few years. Borrowers with decent levels of equity are particularly attractive to lenders and should review existing arrangements to catch current rates.

Make this spring the time you spring clean your financial arrangements. Contact a qualified IFA for free, no-obligation review meeting.

A Breath of Fresh Air

We all let out a huge, collective sigh of relief as we sat in the packed-out auditorium listening to the king of the FTSE addressing this year's National Association of Pension Funds investment conference in Edinburgh yesterday.

Why? Because Anthony Bolton (above), the man who so often gets it right, is optimistic – he was all green shoots.

Detailing his thoughts to the 800 or so pension schemers, the Fidelity fund guru said he believes this washing machine-style turbulence in stockmarkets the world over is coming to an end and that we are at or near the bottom of the market – hallelujah, where’s the champagne?

He said, during his key note speech: "I am optimistic. I think we are at or near the lows in stockmarkets. I think there are some very tentative early signs that things are improving."
Bolton added that supremely negative consumer sentiment generally signals a turning point and that at the moment it was the worst he had seen it since the 1970's.

He said: “In the past, you can see that when consumers are very negative it has nearly always coincided with turning points or bottoms in the market. The consumer is very negative today and I think this will again coincide with a low. I have not seen negativeness like this since the 1970’s.”

And who would have thought he would be touting banks as a good place to get back into the market?

He said: "Financials have very much led this downturn. I think they will be very much at the heart of the upturn as well. Although banks over the years have been generally a place that I have been underweight, because I think they are very difficult to analyse and that it is very difficult for an outsider to know the true position of a bank, I actually think if you buy a basket of banks today you will do well over the next few years.” A refreshing thought given the state the banks are in at the moment.

A further interesting point that came out from the Q&A session. When quizzed at the conference as to who was to blame for the financial crisis, Bolton reaffirmed his view that the FSA should take the brunt.

He said: "There are a lot of people to blame for this crisis. It is a crisis that has had many ingredients, but I have to say that when it comes to the UK banks the person who had the best information and whose job it was to regulate them was the regulator, therefore I think the most blame has to go with the regulator."

Source: Defaqto IABN

Shares crashed again yesterday and are falling as I write this today, this time the FTSE 100 fell to its lowest level since March 2003. But actually, even that comparison understates the extent of the fall. The FTSE 100 reached its all-time high of 6930 on the 30 December 1999; last night it closed to within a hundred or so points of half that level.It was news from HSBC and AIG that did it this time. The US insurer, which is now largely owned by the US government, revealed further losses of $61.7bn in the last three months of last year. It was the biggest loss in US corporate history, the sums of money involved are simply staggering, and yet it all came in just one quarter. No wonder the markets were all of a tizz.

By contrast, HSBC was something of a hero. It did after all turn in a profit of $9.3bn. Okay, that was 62 per cent down on last year, but even so, it was still an enormous profit. The thing that got the markets running scared over HSBC was that the bank revealed plans for a £12.5bn rights issue. Now, when banks reveal plans to raise that kind of money, they must be desperate, or so goes the reasoning. HSBC has of course been one of the globe’s star banks during this crisis. Not for this bank, a need to dip toes in Troubled Asset Relief Programs; not for this bank, any need to help itself to government bailouts, and give up equity in return.No, despite being the first bank to warn of subprime related difficulties, HSBC has come through all of this with its reputation intact. But, then again, if this crisis has taught us anything, it is that things are unpredictable.

The HSBC rights issue price is at a 40 per cent discount on the HSBC share price at the time it was announced. The snag is, at one point yesterday, shares in HSBC were down 20 per cent. If it suffers from many more falls like that, then the rights issue may look expensive, and that really would be catastrophic. HBOS suffered from that very problem, before it had to rush into the safety of the UK government’s arms.HSBC also has its shareholders who are not impressed. Banks need confidence. And if you take a pessimistic view on anything, it will look bad. So, if shareholders start looking at the worst all the time, confidence will just run away. If you value all HSBC assets at fire sale prices, then the bank is in trouble. If the bank was forced to sell off its assets in a hurry, then it would probably head into oblivion, or somewhere close by. But the point is, HSBC does not need to do these things.

In fact, as was argued, HSBC is, if you take a different view, in an incredibly strong position. With the cash from the rights issue, its balance sheet will be strong. Many of its rivals are government owned, or at least virtually government owned, and this means they pose less competition.Right now, a bank like HSBC, with its tentacles spread around the world, especially in China, has the opportunity to carve itself a massive share of the global market.It you look at things from a pessimistic point of view, HSBC is potentially in big trouble. If you look at things from an optimistic point of view, it is sitting on extraordinary opportunity.

It’s like that with the markets. Back in 2003, the collapse in markets represented a new buying opportunity. If you had bought in March 2003, and somehow, via remarkable prescience, sold in the spring of 2007, you would have made a very nice profit. The cheaper stocks fall, the greater the opportunity.

But then again, if we really do plunge into global depression, markets could fall a lot further still.But, honestly, there are good reasons to think depression can be avoided. For one thing, it seems that many of the world’s most influential people have learned the lesson of the 1930s. In all the talk of doom and gloom, very little reference is made of the fact that the world’s ability to produce has reached unprecedented heights, too.

Alternatives to cash investments

Firstly please accept our apologies for not posting items to this blog since the turn of the year. We have been fully occupied reviewing clients investments and following market events. We are certainly in for a challenging yet exciting 2009 and as a starter for ten here are our current views on investment alternatives for cash deposit based funds. With interest rates at all time lows and market positions offering tremendous potential now could be the maximum point of financial opportunity for many.

With interest rates at all time lows and further reductions in base rate almost certain it explains why we have been inundated with requests for alternative forms of investments. The requests are simple; higher returns without increasing risk (significantly), the solutions are more difficult to find. However difficult is not impossible hence the purpose of this letter.

As I say we have received numerous requests from clients with different sets of priorities and ambitions. Therefore in order that we can cater for the various requests I list below several options that are currently proving popular with investors.

Firstly a quick reality check on just how low interest rates have fallen. A quick survey tells us that cash ISA’s from several leading banks have fallen as low as 1% (before the recent 0.5% cut) and when you consider inflation is still above 3% funds in these accounts is actually depreciating in value. Here are few examples: -

Alliance & Leicester Easy ISA = 3%
HSBC Cash e-ISA = 2.8%
Abbey Direct ISA = 2.3%
Clydesdale Bank Cash ISA = 1.5% - 2.75%
Royal Bank of Scotland Cash ISA = 1.15% - 2.20%
Lloyds TSB Cash ISA = 1%

Enough bad news let us move on to the solutions……….

Corporate Bond Funds:

Corporate Bond investment is proving extremely popular as investors strive to secure higher yield investments to replace lost income from falling interest rates. In terms of risk weighting Corporate Bond sits one step up from cash but with anticipated returns ranging from 5% to 8% the potential additional benefit is outweighing the additional risk for many clients. It is widely predicted that Corporate Bond funds will prove to be one of the best performing sectors in the current year.

Corporate bonds are issued by companies to raise capital. They are an alternative to issuing new shares on the stock market (equity finance) and are a form of debt finance. A bond is basically an IOU - a promise to pay back your original investment (the 'principal') at a maturity date, plus interest payments (the 'yield' or 'coupon') at regular intervals between now and then. The bond is a tradable instrument in its own right, which means that you can buy and sell it during its life, and its value will tend to rise and fall as interest rates change.

For private investors, the safest way into corporate bonds is to invest in a corporate bond fund which spreads the money from lots of investors across lots of corporate bonds, thus diversifying the risk. As with all funds, you need to choose the one that matches your investment objectives and risk profile. Some bond funds aim for 'high yield' (i.e. high income) but to get it they may have to invest in riskier companies. Other bond funds will aim for more modest income, and will only buy bonds of the most dependable blue-chip companies.

We believe Corporate Bonds offer an ideal alternative to cash based investments, particularly Cash ISA monies, and we have identified several core funds to recommend to clients that we believe will offer quality yielding products backed by capital growth potential.

In a number of cases we have been able to secure Corporate Funds with no initial charge and no exit charge making the complete package highly competitive and attractive.

Capital Protected Plans: -

With market positions offering exceptional value many investors are keen to take advantage of this point of financial opportunity but perhaps are fearful of the associated risk with so much doom and gloom still in the daily news.

Capital Protected products might be the solution for this style of investor as long as you are willing to tie up the funds for a number of years, normally 5 or 6. Capital Protection offers you the peace of mind to know that your investment is protected.

There are currently a multitude of Capital Protected plans open to investors reflecting the fact that investment houses believe now is a good time to be investing, but with protection wrapped around the investment. The key is finding the plan that is best suited to you and that will depend on your specific investment ambitions.

Typically a plan will offer at least 100p per share, regardless of the markets, plus 150% of any positive Final Performance of the Index it attaches to.

We believe Capital Protected plans will appeal to those investors whose objective is to achieve capital growth linked to any positive performance of the index over the investment term in the understanding that the investment will be 100% protected up to a fixed maturity date.

Accordingly investors will benefit from Capital Protection and from the potential growth of the markets to receive a return superior to an ordinary deposit account. We believe Capital Protected plans are attractive alternatives for investors looking to re-coup positions or re-energise flagging investments, particularly equity based ISA’s.

If Capital Protected Plans are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.


Distribution Funds:

Moving up the risk scale ladder a little further (but still on the bottom rungs) Distribution Funds have proven themselves time and time again in and out of recession.

Distribution funds are structured so that capital growth and income can be separated from each other. In most cases, a significant part of the portfolio is invested in fixed interest stocks (corporate bonds, gilts etc.) to provide the underlying income. The other main investment is usually in income-bearing equities to provide further income and give capital growth potential.

Saying that, there are some major differences between funds, which need to be recognised. Such as inclusion of property, UK or global based, bias towards equities or fixed interest, etc.

Distribution funds are typically used by investors seeking income. However, as income can be reinvested, they can also be suitable for investors looking for growth on a total return basis. There are number of income withdrawal options available to investors, these are:

A percentage of the initial investment paid monthly, quarterly, half-annually or annually. Under this option all distributions are reinvested to purchase additional units and then regular withdrawals are made by cashing in units. By using this method the 5% rule can be utilised to maximise the tax deferral facility and in most cases ensure tax free income payments.

A specific cash amount on a regular basis. This works very much along the same lines as the above option. It should be recognised that in adverse market conditions, both this option and the above option are likely to erode capital from the fund.

The full distribution where investors take all distributed income, generally on a six-monthly basis. The withdrawals will vary depending on the size of distributions but should provide a rising income over the long-term, as the fund benefits from capital growth. In addition, these withdrawals are taken from the distributions and so units are not cashed in.

Deferred income (no withdrawals) where income is automatically reinvested and used to purchase additional units in the fund chosen. Generally an investor can choose to take an income at any time in the future.

As I say Distribution Funds, whether deferred or income producing, have proven themselves time after time with the fixed interest element of fund offer some protection through these troubled times and the equity element offering real growth potential particularly given the current market positions.

If Distribution funds are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.

Investment Bonds:

Finally we have traditional investment bonds offering no protection but unlimited upside potential. Through the ability to spread investments over a wide range of funds covering assets classes and sectors investors can take advantage of the lowly market positions yet maintain a degree of caution through diversity.

With unlimited funds covering all asset classes, sectors and geographic areas available through investments bonds with no initial charge and no exit charge exciting opportunities arise for the more risk orientated investor and we would be pleased to consult, review, research and recommend individual solutions for the bolder investor.

If Investment Bonds are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.

Pensions:

Don’t forget about pension contributions. Now is probably one of the most attractive times to make additional pension contributions. What other form of investment guarantees a 20% (or 40%) immediate return on capital with or without risk depending on your fund selection. The tax relief associated to pension contributions is more attractive than ever and should not be dismissed lightly.

When you add the tax relief to the potential growth through cheap markets and the enhanced flexibility options now available within pension contracts we foresee pension arising from the ashes as a highly tax efficient and productive form of investing.

If Pension Contributions are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.

Summary:

If no one solution meets your requirements or a number appeal to you then we can “pick & mix” to arrive at the most efficient solution for you. It is however a fact that interest rates are at all time low’s and alternative investment solutions whether for income, growth or a bit of both must be at the very least be considered. We believe we have come up with a number of practical and attractive solutions and we would welcome the opportunity to advise you in this regard.

If our comments are of some interest to you and you would like to explore matters further please contact us at ifa@ferguson-oliver.co.uk and we will contact you to progress matters further. As always our advice is free of charge and you are under no obligation or pressure to pursue matters further if you do not wish to do so.

Thank you for taking the time and effort to read this letter.