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.