Europe: Look underneath the bonnet

The past fortnight has proven a difficult one for even the most resolute investor. Eurozone issues have created significant falls in indices around the world. Trying to find clear and concise opinion is very difficult as everyone tries to come to terms with what is going on and more importantly where we are heading.

The following is a statement issued by Standard Life Investments and I have decided to share it with you given that I believe it sums up the comments we have been following from numerous investment houses.

Commentators are vying to create the most frightening metaphor for the future of Europe: standing on a precipice, walking through a mine field, facing Armageddon. European share prices are down about 15% from their recent peaks, while bond yields in Spain and Italy are near levels which previously have triggered a response from the ECB.


Of course, markets are volatile when they are trying to price in the outcomes of new elections in Greece, parliamentary polls in France and the Irish referendum, against a backdrop of European summits. Political bargaining, opinion polls and votes will be the currency to analyse – often on a daily basis.

It is impossible to forecast the outcome of so many inter-linked events. For some time, Europe has faced a three pronged choice: muddle through, crisis or collapse. Collapse refers to the break up of EMU as we know it. Crisis refers to some form of Greek exit from EMU, possibly disorderly and possibly relatively contained by massive central bank support. The most likely scenario remains the first one – buying time and muddling through, which has been the case since the Euro-zone crisis erupted two years ago.

The pressure on governments to buy more time is considerable – not only because the risks of a major collapse are abundantly clear but also because, underneath the doom and gloom, two positive trends are appearing – small flames which need to be fanned into life.

The first is that the conditions are falling into place for growth in Germany, the engine room of EMU. It is beginning to experience wage pressures and a stronger property market as the recovery widens from exports and manufacturing. The second positive trend is the improvement in competitiveness in the rest of Europe. Some of this improvement is being forced on economies by government austerity packages, say in Ireland or Greece, while some is being voluntarily adopted, say by workers agreeing to wage restraint and productivity improvements at companies across Europe. The adjustment process will last many more years, but a start has been made.

European policymakers face vital decisions at their summits in May and June. Compromise on all sides can buy time for the necessary economic adjustment needed across Europe to develop even further. Failing to do so would lead to even more disorderly markets than those seen in recent days.



We also sought comment from The Chief Investment Officer at Equip who look after many of our clients funds. When asked if we should be adopting greater defensive measures Shane commented: -

"A good question, particularly with all the column inches the Eurozone is attaching. Our "diversfied basket" is giving us a defensive position whilst retaining a long-term outlook for the Portfolios. What we dont want to happen is an attempt to time the market fluctuations and end up getting torn in half. The underlying managers are also well placed and although we will experience some volatility I would hope we come out of it rather well"

Let's hope next week gives us some respite and we are all rewarded for sitting tight through these troubled times.

Ask Oliver

 

We are pleased to announce the launch of our new marketing brand "Ask Oliver".

Look out for the Ask Oliver characters appearing in local newspapers soon.

Whatever your financial planning or insurance needs simply Ask Oliver.

Car Insurance For Teenagers

We appreciate that the cost of insurance is one of the biggest issues for young motorists. The average cost of insurance for a new driver is £3,000, often more than the value of their car, but now What Car? magazine has drawn up a top ten list of money-saving tips:


1. Increase your excess.

Boosting the amount you pay in the event of an accident can have a direct effect on your premium. A £400 increase on your excess can bring down the premium by almost the same amount. Average saving, £277.

2.Stick with a lower trim. Going for the top-of-the-range trim level might well bump you up an insurance group. Average saving, £432.

3. Research the level of cover.

Third party or third party, fire and theft cover is usually cheaper than comprehensive insurance, but the average saving is so small that we would always recommend choosing the best cover you can afford. Average saving, £53 (third party only).

4. Add a parent.

Convincing a parent to join you on a policy can bring the cost down significantly. Our sample driver reduced his premium by more than £1100 just by adding his 52-year-old accountant mother to his policy. Average saving, £1005.

5. Extra training.

Insurers appear to be undecided on the merits of the most popular driver training, Pass Plus. Some don’t offer any discount for taking the six-hour course, while the average premium reduction for those who do is substantial. Check with your insurer before you commit. Average saving, £456 (if offered).

6. Get a no-claims discount.

Many insurance companies will now let you build up a no-claims discount on someone else’s vehicle, so try convincing a parent to let you use their car. Average saving, £253.

7. Leave out the mods.

Some insurers might not charge you for adding alloy wheels, but that full bodykit could end up costing you more in higher insurance premiums than its price suggests. Average saving, £305.

8. Stick to a curfew.

Restrict your driving hours to between 6am and 11pm. This may not be for everyone, but it could save you cash. Average saving, £492.

9. Stick with a smaller engine.

A step up from a basic 1.25-litre unit to a still-modest 1.4 can bump up insurance premiums by more than £250. Average saving, £265.

10. Shop around.

“We want more insurance companies to recognise the benefits of additional young driver training and reward those who take it with a lower premium,” What Car? editor John McIlroy said. “A full 74% of young motorists say they would take extra tuition if it saved them money. It would without doubt make the roads much safer for all road users because, above all, it’s experience that makes us better drivers.”

Ireland Bounces Back

Ireland, which had to be bailed out by eurozone partners following the collapse of its property and banking sectors, has seen its stock market soar by 14.8 per cent since the start of 2012. Investors in Irish stocks are celebrating gains that have catapulted them into Germany's league of success this year.

This builds on a gain of 10.8 per cent in 2011, when it was one of only two stock markets in developed Europe to show a positive return, along with the Netherlands. But Ireland currently ranks third in the Russell Developed Europe Index for stock returns, while the Netherlands has plunged to third from the bottom in the league of 18 countries. Denmark has the best-performing stock market this year with returns of 20.7 per cent, followed by Germany with gains of 15.7 per cent, according to the index compiled by Russell Investments.

Greece has managed to stage a turnaround, coming in sixth with returns of 12.4 per cent, after ranking as easily the worst performer in developed Europe with a market plunge of 55.2 per cent in 2011. The UK is in tenth place with a return of 8.6 per cent, as of the market close yesterday. This year's laggards are debt-ridden Portugal and Spain - the former already bailed out and the latter the subject of fearful speculation it will be the next domino to fall in the eurozone crisis. Portugal's stock market has fallen 4.1 per cent so far this year, while Spain's is 12.1 per cent in the red.

'This is quite different to what we saw in 2011, when Spain actually outperformed Germany despite the news headlines favouring Northern Europe. 'Spanish equities haven’t fared well over the first part of this year, far worse than the other countries in the Russell Developed Europe Index,' said Ronnie Sabel of money manager Russell Investments. 'Many European countries have clawed back most of the losses of 2011 so far this year – and even Greek equities have showed a positive year-to-date return of just over 12 per cent. But the huge differences we see amongst the developed European markets shows how volatile and unpredictable they can be.'

What happens when people stop moving?

A large number of people in the UK simply cannot afford to move house according to a survey that is published today (Monday 16 April). This has an affect on the property market just as much as first time buyers not being able to get on the housing ladder because it causes things to stall somewhere along the line.

The research commissioned by Countrywide, one of the UK's biggest property services group is significant. It shows that almost 12% of UK adults are unable to move home due to financial constraints and for nearly half of 18 to 34 year olds list deposit affordability is the biggest barrier to buying a property. And despite the growth in the last 18 months of the private rented sector, only a third of private rental tenants are happy where they are, indicating that they are reluctant renters and would probably by a home if they could.

With the UK government having just introduced initiatives like NewBuy in an attempt to stimulate the housing market, the fact that people can't afford to move is a bit of a blow. It is a fairly deep piece of research with over 6,000 UK adults, including private rental tenants, home owners with mortgages, shared equity stakes, owner occupiers and those living rent free taking part in the survey.

Asked about their reasons for not moving home, 62% claimed they were happy where they live, 21% were unable to afford a deposit, 16% could afford mortgage repayments, 16% list moving costs and fees (e.g. stamp duty) as a barrier to moving and 12% cited job insecurity as a concern.

Market uncertainty also played less of a part, with only 5% of survey respondents listing the anticipation of house prices falling as a factor preventing them from buying a property at this time. Some 45% of those aged 18 to 34 cited deposit affordability as a barrier to buying a property, indicating that that deposit affordability is a primary issue but not the solitary factor preventing house sales.

The youngest respondents also stated that they felt less confident when it came to their employment prospects, with 18% listing job insecurity as an obstacle. Also, nearly a third, some 31%, of 18 to 24 olds highlight mortgage repayments as a reason for not buying.Encouragingly, homeownership aspirations remain high throughout the UK and across all ages, with only a third of private rental tenants referencing happiness with their current property as a reason for not moving.

Of those renting, over half, 56%, of tenants cited deposit affordability as a barrier to getting on to the property ladder. This survey suggests that it is not just first time buyers being unable to get a mortgage and failing to save enough of a deposit that are the issues. Based on current levels of activity, the average home owner will move house once every 25 years as opposed to once in every 12 years.

Anyone can see that these levels are unsustainable and with the growth outlook for the UK economy not good, although a double dip recession is likely to be avoided, it all leaves the property market stalled and even the government incentives are not enough at present to raise the game.

Market Round-Up: 24th June, 2011

UK - Despite the initial retreat, UK equities ended higher on Friday. Mining stocks were among the risers, recovering from a broad sector sell-off in the previous session, with Antofagasta, Randgold, Xstrata, Kazakhmys, Fresnillo and Rio Tinto among the big gainers. On the downside, the Bank of England’s warning over the continuing sovereign and banking risks dampened the mood and sent bank stocks firmly in the red.

US - Wall Street was in reverse gear on Friday as investors took a rest from woes over Greece and worried about Italy instead, after credit ratings agency Moody’s placed Italian banks and government-related institutions on review for a possible negative downgrade. Meanwhile, some better-than-expected economic news-flow failed to lift the mood. In company movements, memory chipmaker Micron was unwanted amid weak demand for PCs.

Europe - European bourses retreated on Friday, as concerns over the debt crisis were re-ignited. European Union leaders conditionally pledge funds to Greece provided the Greek parliament pass a package of austerity measures next week. Meanwhile, in stocks news, software consultancy Cap Gemini was a notable performer after peer Accenture, lifted its full-year revenue and earnings guidance.

Asia/Emerging Markets - Asian markets remained subdued on Friday amid concerns over Greek debts. Notable fallers included Sony Corp. and Toyota, due to exposure to the weakening European market, while Samsung Electronics of South Korea, also fell amid a legal challenge from Apple over patent infringement. On the upside, airline stocks soared after oil prices plunged following an increase in production.

Source: HSBC

Interest Rates Latest

The Bank of England will not hike interest rates until 2013 as the economic recovery remains "pretty weak," former Treasury adviser Roger Bootle has said, a day after Governor Mervyn King dismissed an early rise due to the "sheer volume of debt in the economy."

Bootle, who is now an economic adviser at Deloitte & Touche, added in a report by the auditor it is "not out of the question" the Bank will need to issue more quantitative easing, according to Bloomberg.

He said in the report: "The underlying momentum of the economic recovery looks pretty weak. My central forecast is still that rates remain on hold throughout this year and next."

"It is not out of the question that the MPC will eventually need to give more support to the economy. But additional asset purchases, if they do come, are perhaps unlikely until 2012."
GDP will increase 1.5% this year and next, according to the report. Inflation will average 4.4% this year before falling to 1.8% in 2012.

Bootle's comments come a day after Bank governor King said high debt levels pose "massive" economic challenges that would be exacerbated by higher interest rates.

"The economic consequences of high-level indebtedness now would become more severe if rates were to rise," King said yesterday at a committee of the European Parliament in Brussels.

"It is the main reason why interest rates are so low." He said the problem of leverage, "the sheer volume of debt in the economy, is still very large and this poses massive macro-economic challenges."

King added: "I think these macro-economic challenges will last many years."

Bank of England policy makers are split four ways over monetary policy.

The central bank probably will leave the key interest rate at a record low of 0.5% at the next rate meeting on 5 May, according to the median of 43 forecasts in a Bloomberg News survey of economists.

Source: Mortgage Solutions.

Investment Outlook for 2011

The following statements are a selection of fund manager's investment outlooks across investment sectors and offer an insight into where we should consider investing in 2011.

Emerging markets:
Devan Kaloo: Head of emerging markets, Aberdeen Asset Management

Robust economic growth in the developing world and continued monetary easing in advanced economies are expected to continue supporting emerging equities. To prevent the flood of foreign capital inflows from exacerbating inflation and pushing up exchange rates further, more governments are likely to implement capital controls. But it is unclear if these will be effective. We remain cautious in our outlook.

Global:
James Thomson: Fund manager, Rathbone Global Opportunities.

Market activity is likely to remain volatile and it will become harder to outperform consistently. Companies that are not closely tied to the performance of developed economies, but have products and services in high demand, should outperform in 2011.

Japan:
Ian Heslop: Fund manager, Old Mutual Japanese Select

The Japanese equity market remains cheap and the political pressure on the Bank of Japan to loosen monetary policy bodes well. Continued earnings improvement points to good performance for Japanese equities in 2011.

Europe:
Richard Pease: Fund manager, Henderson European Special Situations.

We enter 2011 with government debt looking poorer value and arguably riskier than some European equities. The turmoil in the sovereign debt markets has held back the advance of European equities, so European equities have the potential to perform surprisingly well in 2011. We enter 2011 with government debt looking poorer value and arguably riskier than some European equities. The turmoil in the sovereign debt markets has held back the advance of European equities, so European equities have the potential to perform surprisingly well in 2011.

Fixed income
Richard Hodges: Fund manager of Legal & General Managed Monthly Income Trust

The only thing you can be certain about for bonds in 2011 is uncertainty. With sovereign credit weakness and consequential concerns about banks spreading further through Europe, and the US employing increasingly desperate measures to stimulate growth, news on the success or failure of policy will involve different segments of the bond market oscillating between euphoria and panic. It will be a year when having breadth of choice for asset selection and being nimble in changing position will be at a premium.

Commodities
Bradley George: Fund manager, Investec Natural Resources

The outlook for 2011 looks promising for certain commodities where there is investment demand and improving fundamental demand. In the precious metals space, demand for gold from different sectors is likely to force a peak that is nearer $1,700/oz in 2011 with $1,100/oz becoming the long-term floor. Crude oil markets have tightened significantly over the past three months and oil prices are likely to average around $100 per barrel on a long-term basis. We also have a bullish view on grain prices over the next six months.

Asia ex-Japan
Allan Liu: Fund manager, Fidelity South East Asia.

South East Asia, with its generally healthy financial systems and solid fundamentals, remains attractive. Domestic demand is robust, supported by increasing affluence, low debt and high savings rates, all of which are likely to support a multi-year growth cycle

UK
Philip Matthews: Fund manager, Jupiter Growth & Income

There are big differences between parts of the market exposed to Western economies and those exposed overtly to emerging markets. Corporate balance sheets are in robust health and we would expect continued corporate activity, especially in the context of subdued global economic growth. We expect equity markets to remain underpinned by their high levels of free cash flow relative to the low levels of return on offer either from government bonds or corporate bonds.

US
Michael Brewis: Fund manager, Baillie Gifford American.

I am optimistic about the outlook for North American equities in 2011. The US economy should continue to recover; the recent upturn in capital spending is an encouraging indicator. Corporate sector profitability and cash generation have been restored, and productivity growth has been excellent, but many companies now need to invest and hire to grow. The housing market is the main negative but should not derail the recovery

SOURCE: Citywire - December 17, 2010.

Economic Review November 2010

The latest edition of our economic review is reading for viewing. To obtain a copy please forward an e-mail to ifa@ferguson-oliver.co.uk and one will be sent on straight away.

This months review covers the following subjects: -

• Crisis in Ireland
• PIGS at risk
• UK Economy
• Markets
• Interest Rates and Inflation
• Business
• China

Positive Market Performance

On entering the early weeks of Q4 2010, we can see global stock markets enjoyed improving performance between July and September. Fears of a double-dip recession have begun to ease and equity markets have displayed positive performance, supported by generally strong corporate earnings.

Q3 2010 Index Returns

FTSE 100 - 12.85%

DJ EuroStoxx 50 - 6.78%

Dow Jones - 10.37%

S&P 500 - 10.72%

FTSE Government All Stocks - 2.32%

Volatility Index (VIX) - -34.66%

(source: Bloomberg, 30 Sept 2010)

Everyone wants to take advantage of positive market performance, while being mindful of the costs associated with investing. So now could be a great time to think about Index Tracking Funds as a low cost way of holding equities.

We would be pleased to form a no-obligation recommendation should you want to consider such an investment as alternative for surplus funds perhaps sitting on deposit and currently failing to maintain pace with inflation, never mind accumulating growth.

Please contact us for further information.

A Closer Look At Emerging Markets

We hear the use of the term ‘emerging markets’ almost daily in the investment world, but what the region can offer investors and where the geographic boundaries lie, is often unclear.

There is no one fixed definition of the emerging market region but we can use the constituents of the MSCI Emerging Market Index as a general guide. See the red areas on the map above for a visual overview.

In terms of regions; the CIVETS, BRIC, LatAm, MENA and EMEA currently lead in terms of visibility and investor accessibility. Let’s take a closer look:

CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South America): The new kids on the block in terms of growth potential. The CIVETS have been grouped together for their potentially superior growth capability over the next 10 years. Each country has a large young population and a diverse, dynamic economy.

BRIC (Brazil, Russia, India, China): These markets are arguably the most well known within the region. China and India have significantly increased their dominance over the past 5 – 10 years to become global players in terms of economic growth, market capitalisation and business activity.

LatAm (Latin America): Spanning 20 countries within Central and South America and 14.1% of the world’s land mass, the region enjoys a vast and diversified geographic territory. The positive economic development of Brazil has brought attention to the region which in turn has become increasingly more accessible and attractive in comparison to previous years. (source: Wikipedia)

MENA (Middle East and North Africa): This diverse geographic region has historically been subject to political instability but a strong focus on improving corporate governance has helped to move it forward, enabling financial markets to become more stable and attractive.

EMEA (Europe, the Middle East and Africa): Capturing both the investment hub of the Middle East alongside the more newly founded regions of emerging Europe and Africa, the EMEA region is a little more established in the emerging market scene. Fast-moving political and technological activities in Dubai are spearheading the region’s development, which is supported by the vast wealth held in the Middle East.

Why Invest? The investment case for the emerging market region is supported by a broad range of factors. The market’s track record over the past 10-years is appealing in itself as the graph above illustrates. In summary the region offers:

• Rich resource reserves – such as oil, gas and soft commodities


• Supportive demographics – large, young populations


• Strong growth potential – financial markets are growing alongside business activity


• Stabilising political systems – emerging markets are adopting more transparent political structures and addressing corporate governance issues


• Accessible financial markets – rising foreign capital inflows

The investment case for the region is compelling but it is important to remember that new markets are less stable than developed ones. The key risk considerations include:

• Higher market volatility


• Political instability


• New indices - short track records


• Barriers to investment entry and exit

If you are interested in investing in the region please contact us for an independent assessment and recommendation.

SOURCE: HSBC Global Asset Management

For those of you that like to follow current data and statistics here are a few hot of the press from Fidelity relative to UK production and output:

June industrial production was down 0.5 percent and up 1.3 percent on the year. Manufacturing however was up 0.3 percent and 4.1 percent on the year. The sector as whole was held back by earlier than usual oil and gas rig maintenance closures which saw output in this area sink 6 percent on the month. The decline here was compounded by a 5.7 percent drop in the equally erratic mining and quarrying sub-sector. Within manufacturing the best performers on the month were chemicals (2.0 percent), metals (2.1 percent) and food (1.6 percent). Advances here were partially offset by declines in engineering (1.3 percent) and textiles (0.8 percent).

July input prices declined 1.0 percent and were up 10.8 percent on the year while output prices edged up 0.1 percent on the month and were 5.0 percent higher on the year. Factory gate prices were supported by a 0.7 percent monthly jump in food costs that alone added 0.1 percentage points to the headline index. Other smaller positive impulses were to be found in textiles & clothing, paper, metals & electrical and optical goods (all up 0.3 percent). The largest negative impact came from petroleum products (down 1.0 percent) which essentially offset the positive effects of higher food costs. Core output prices edged up 0.2 percent on the month and were up 4.7 percent on the year. Input prices, down 1 percent, were dragged lower on the month by sharp declines in home food materials (4.0 percent), crude oil (2.3 percent) and imported parts & equipment (0.5 percent). The only increase in prices of note was in fuel (1.9 percent

Double-Dip Fears: Justified or Scare-Mongering

Just as soon as the war against recession was apparently won along come the infamous "double-dip" fears.

If the month of June was anything to go by we at Ferguson Oliver were extremely nervous that double-dip might just be more of a possiblity than had previously been considered. That said after attending investment seminar after investment seminar it became clear that there was still a bullish air hanging around and despite all the negative news appearing on our TV screens most economists I listened to were remaining up-beat mainly in the hope and belief of strong corporate results.

July & August appear to support the bulls with a strong bounce back and numerous healthy corporate returns. So has the fear of a double dip left our shores or should we still be wary.

With a wide range of different opinions I will leave it to far brighter minds than mine to express where we sit at present.

• A recent consensus of business minds quoted the possibility of a double dip at 10%-15%.

• This morning an e-mail arrived in my inbox quoting Schroders house view as "While we expect growth to moderate, we also believe that there is now enough momentum built up to avoid a double-dip recession".

As we all know by now we cannot count anything for certain and bad news might just be lingering around the corner. There is no doubt balance sheets are strengthening and with dividend income on the rise the stronger corporate sector might just manage to help us win the next battle.

So we will watch the next phase of the recessionary curve with great expectation.

What went wrong with the markets in the second quarter?

The optimism seen after the European Central Bank’s May bailout package has evaporated with the FTSE ending the quarter down 12.8%.

It had all started so well with the ECB agreeing a €750 billion rescue package and European governments signing up to tighter fiscal policies. The news that China was to accept a revaluation of the renminbi also added to the positive vibes that many expected to help send markets into a June rally.

Instead, markets have tanked and investors have been running pushing US Treasury yields below 3% for the first time since August 2009. Virtually leading indicators have taken a major turn for the worse with sell-off pushing most indices into death cross territory as their 50 day moving averages fell below their 200 day moving averages.

‘One explanation is that most economic data releases have been, at best, disappointing,’ says GaveKal economist James Barnes. ‘Take the past 24 hours as an example: in Japan, we witnessed a rise in unemployment, a large increase in hours worked relative to output (implying weak productivity growth) and a roll-over in industrial production.’

‘In Europe, we saw weak eurozone surveys from retail to construction to services, a negative Spanish CPI release and a drop in UK M4 monetary aggregates.’

In the US, the news has been as bad. Weak Case-Shiller housing data for April and a 10 point drop in consumer confidence have both tested investors’ nerve and raised fears of a double dip recession.

Indeed, the ECRI Weekly Leading Index has declined to -6.9% and Dr. John Hussman, manager of the Hussman Strategic Growth fund, warns that if the ISM Purchasing Managers’ index falls back to 54% from 59.7% currently, history suggests that this will be sufficient to tip the US back into recession.

‘Taking the growth rate of the WLI as a single indicator, the only instance of when a level of -6.9% was not associated with an actual recession was a single observation in 1988,’ he says. ‘Of course, the evidence could be incorrect in this instance, but the broader economic context provides no strong basis for ignoring the present warning in the hope of a contrary outcome.’
‘Indeed, if anything, credit conditions suggest that we should allow for outcomes that are more challenging than we have typically observed in the post-war period.’

The credit markets remain very much at the forefront of investors’ concerns with Spain and Portugal having vast amounts of debt to rollover this week and Barnes says that many are worried that the ECB will not play ball.

He believes that the ECB will have to allow these countries an extension on their due payments, but the mixed messages being sent out from policymakers in the meantime are unsettling investors.

‘Combine that uncertainty with disappointment at the emptiness of the G20 meeting and the upcoming summer holidays and the usual desire to reduce risk and positions before heading to the beach and this is more than enough negative news to push the markets lower,’ he says.

Source: Citywire

Pension Savings Hit By Downturn

The number of people saving enough for their retirement has fallen by 6% to 48%, according to a survey by Scottish Widows.

The Edinburgh-based life and pensions provider said the figure was the lowest since 2006. The economic downturn was blamed by 41% of people in the UK for saving less.

The study, carried out in April, found women over 50 were worst hit with 38% putting aside enough for retirement, compared with 52% last year. Scottish Widows said although the credit crunch began two years ago it was only now that the effects were trickling through to pension savings. While the previous three years had seen a rise in the number of people saving adequately, the latest research showed a reverse of this trend. A fifth of those that could and should be saving were found not to be putting anything by at all.Retirement on hold.

The results showed that the gender gap had fallen compared with last year, with 52% of employed men saving at adequate levels, compared with only 43% of women. Scottish Widows said the group hardest hit was those over 50, who should be saving the most for their retirement.

In particular, 26% of women in this age group were not saving at all, compared with 22% last year. In contrast, 60% of men over 50 were saving adequately for their retirement.

The whole nation is feeling worse off than a year ago and this is really starting to take its toll on pensions savingsIan Naismith Scottish Widows. The economic downturn was found to have affected peoples' attitudes towards saving. Two-fifths had saved less because of the recession and nearly a third of people with a pension and not yet retired thought the size of their pension pot had been reduced. The recession had led to 18% putting retirement lower on their list of priorities.

Ian Naismith, head of pensions market development at Scottish Widows, said: "The whole nation is feeling worse off than a year ago and this is really starting to take its toll on pensions savings.
"While there are signs that the economy is recovering, the nation's saving habits paint a very different story."

He added: "There is still a great deal that needs to be done from both the government and the industry to better encourage pensions savings for the long-term."

The poll of more than 5,000 people found 37% of those questioned fitted the target group of being of working age and earning more than £10,000 per year.

Source: BBC/Scottish Widows.

What now.....

As David Cameron settles in to Number 10 and the shape of the coalition government between the Conservatives and Liberal Democrates emerges, here is an overview of the areas expected to feature in the oncoming Emergency Budget.

- The planned rise in national insurance is unlikely to go ahead

- The proposed £6 billion of cuts to non-front line services to go ahead

- Capital gains tax (CGT) is likely to rise on 'non-business' assets.

- The Lib Democrats's 'mansion tax' on houses that are over £2 million is likely to be scrapped.

- Plans to increase the inheritance tax threshold to be put on hold

- The introduction of Liberal Democrats' proposed cut to income tax for lower paid workers on the first £10,000 of earnings.

- Marriage could be recognised in the tax system. The Liberal Democrats have agreed not to block the Tories' proposed tax break for married couples, but do not support the policy.

More comment……..

As we wake up to a new coalition government – at last – it looks as though we may be able to look forward to a reasonable future, perhaps the best of all possible worlds.

Lower income families can look forward to an extra £700 in their pockets as one of the main planks of the new coalition is that the Conservatives will support the Lib Dem’s proposals to raise personal income tax allowances to £10,000. We don’t yet know when it will happen but it is something to look forward to. There might, however, be clawback of the higher tax allowance - as currently exists with the higher personal allowances given to the elderly which progressively brings their allowances back down to the same level as the under 65s as their income rises.

We won’t be seeing the inheritance tax starting point going up to £1 million any time soon – but that was never really on the cards anyway. With a transferable allowance of £325,000 per person, very few families pay IHT anyway and numbers will fall. As a quid pro quo we almost certainly won’t see the introduction of the ludicrous ‘mansion tax’ of 1% a year on the value of properties worth more than £2 million proposed by the Lib Dems.

We might see the abolition of the much disliked Home Information Packs (although it is an EU requirement to produce an Energy Efficiency Certificate and that will remain). This costs nothing and the abolition of HIPs would be a help to get the housing market moving again. This is not likely to be a priority however.

But don’t start celebrating. A £10,000 personal tax allowance costs around £12 billion to implement if there is no clawback – coincidentally almost exactly what a rise in VAT to 20% from its current level of 17.5% would raise. Neither the Conservatives nor the Lib Dems ruled out such an increase in their respective manifestos.

Reforming Stamp Duty, due to rise to 5% on property valued at £1 million and above, won’t be a priority either although there might be a suspension of the 5% rate, due to be introduced in 2011. In the March Budget, Alistair Darling said that he would use the extra revenue from a permanent increase in the top rate of Stamp Duty from 4% to 5% to fund a two-year suspension of the 1% rate on homes bought by first-time buyers that are worth between £125,000 and £250,000.

It will be interesting to see how quickly the new coalition moves to produce a Budget. Cameron committed the Conservatives to producing one within 50 days but it might come sooner. Depending on how soon public spending cuts are introduced – which incidentally don’t need new legislation and could have been introduced by a minority Conservative government without support from the Lib Dems – we might also see tax rises in VAT and Capital Gains Tax, which is likely to rise from the current 18% closer to 40%.

The abolition of higher rate tax relief on pension contributions – a Lib Dem Proposal which raises a very useful £5.5 billion to replenish the Treasury coffers – is a very real possibility and redresses a very unfair situation where most of the tax relief goes to wealthier individuals who pay higher rate tax. This could be tempered with a promise to introduce more incentives for lower income families to save at a later date - such as an increase in Child Trust Fund vouchers paid to families on benefits or a new saving scheme – which has been piloted by Gordon Brown’s government – of matching savings, pound for pound.

One thing is certain we are in for interesting times ahead as not only a new government but a new style of government hits the UK.

Top financial goals !

Here follows five top financial goals everyone should have

1. Pay off your debts:

If you have any outstanding debts paying this off should be one of your main goals. While saving is great, any interest rate you earn will be less than the interest you will have to pay on any loans you've got so the golden rule is to pay off debt before saving.

2. Sort out a rainy day pot:

While it is tempting to spend all the money you've got on specific goals such as going on holiday or sprucing up your home, it's important to build up a savings buffer to cover for any unexpected events.As a minimum, this should be equivalent of three months' salary but ideally it should tie you over for at least six months.

3. Start a pension to ensure you can retire:

Even though this might be far away for some of you, when it comes to saving for your retirement the earlier you start the better. If possible you should start as soon as you start work as long as you haven't got debts to pay off. The longer you leave it the more you will have to pay in each month to be able to enjoy your retirement.

4. Get onto the property ladder:

While we've seen the property market drop over the last couple of years, buying a property is still an investment so long as you consider it a long-term one, and you get to live in it too.

5. Protect your finances:

While buying insurance is not the most exciting financial goal to have, it could be one of the most important decisions you ever make.If you have dependants make sure you've got life insurance, should something happen to you and if you are relying on your income to make ends meet it could be worth taking out income protection insurance that will cover you in the event of getting ill or injured and unable to work.

The most common reasons we fail to meet our goals:

1. The more grandiose your goal, the less likely you are to achieve it. At the end of the day, we're unlikely all to become millionaires by the age of 30. But we might be able to pay off our mortgage by the age of 45.

2. Our goals don't reflect the 'real' us. Sometimes you don't need much money to achieve a particular goal. For example, one adviser found that his clients' long-desired goal was to attend the Chelsea Flower Show, which only cost a train ticket, a night in a London hotel and a few pounds for admission.

3. We don't plan thoroughly enough. It is possible that you will never face redundancy. But experience suggests it makes sense to factor potential job loss into your goals, as they determine how much you may want to spend of your income right now and how much more you set aside for a rainy day.

4. We fail to review our goals regularly. Circumstances change, what was important five years ago may not be today. Stockmarkets can fall sharply, or mortgage rates may have gone up, or an annuity - the annual income paid from a pension lump sum - may be worth less now than it was.

5. We don't take expert advice. Good independent financial advisers can be worth their weight in gold. They can find the cheapest mortgage, the best pension, the most appropriate insurance policy and help choose the best investments - all allowing you to meet your goals more quickly and more easily.

First Time Buyers Better Off

First-time buyers who scrape together a 10% deposit are in a better financial situation now than if they had bought in autumn 2007, according to analysis from Moneynet.co.uk.

The website agrees lenders’ demands for a large deposit are making it hard for first-time buyers to access the housing market.

But it calculates that due to corrections in house prices and the raising of the Stamp Duty threshold for first-time buyers to £250,000, first-time buyers are now paying less on their mortgage payments than they would have at the peak of the market in 2007.

Based on Nationwide’s house price calculator, Moneynet works out that a property worth £130,000 in Q3 2007 has now fallen 11.5% to £115,000 in Q1 2010.

A first-time buyer in 2007 would have needed a 5% deposit of £6,500 and had to pay Stamp Duty costs of £1,300. This would given access to a three-year fixed rate deal with Britannia Building Society at 6.19% with a £399 fee. But although a first-time buyer in 2010 would require a higher 10% deposit of £11,500, there would be no Stamp Duty to pay.

The equivalent three-year fixed rate deal has dropped to 6.03% from Nationwide with a £995 fee. This gives a monthly repayment of £675.18 for the 2010 first-time buyer compared to £812.73 for 2007’s first-time buyer.

A spokesman for Moneynet says: “The lower repayments mean that borrowers would recoup the extra £3,700 upfront deposit costs in just 27 months and the total cost of mortgage payments over the term of a three-year fixed rate mortgage work out to be £4,950 lower.

“Raising a 10% deposit may still be too much to ask for some would-be home owners, but if they can make the effort to save the sum required their efforts will be rewarded with lower monthly mortgage costs for the next three years at least.”

But the difference between rates at 75% LTV and 90% LTV still remain stark. Data from Defaqto shows that the average two-year fixed rate deal at a maximum 90% LTV is 1.90% higher than a deal at 75% LTV, while the average two-year tracker is 2.16% higher at 90% LTV compared to 75% LTV.

Source: Mortgage Strategy

Cash ISA's Deemed Unfair

Over the past few months as we have entered the ISA season we have been encouraged by the number of clients willing to consider transfering Cash ISA funds into stocks and shares ISA's mainly through the use of fixed interest style funds.

We have for some time identified the fact that many Cash ISA's are not offering value for money and the following report released today seems to back this up.

Banks are not giving consumers a fair deal on cash ISAs, campaign group Consumer Focus has told the Office of Fair Trading (OFT) today. Consumer Focus has attacked the cash ISA market for the:

• Difficulty in switching. Very few people are switching between ISAs despite the apparently large number of products available on the market. This is because it can take weeks to go through an unnecessarily bureaucratic and inefficient switching process.


• Lack of transparency. It is often unclear how much interest people are earning on their savings. Rates are hidden in complex tables and it is often hard to find interest rates on old accounts.


• Relative decline in interest rates. Interest rates on cash ISAs have fallen much further than what homeowners pay on their mortgages or even the rate of interest paid on other savings accounts.

Banks are ‘bait pricing’. Many providers are using ‘bait’ or ‘bonus’ interest rates to attract savers, but after the initial bonus period has finished there is little competition and the products often offer poor value. Meanwhile, banks are secure in the knowledge that when rates plummet consumers are unlikely to switch.

The Financial Services Consumer Panel has welcomed Consumer Focus’ complaint, comparing the way banks sell cash ISAs to payment protection insurance sales and unauthorised overdraft charges.

Adam Phillips, chairman of the Consumer Panel, said: ‘Here is yet another example of banks being more interested in making money than in their customers getting a fair deal’.

‘We will press the FSA to take action. It cannot be a fair outcome for consumers – or what the Government wanted to achieve in providing this tax incentive – that people end up with little more interest from their tax free account than they would get from an ordinary account,’ he added.

However, the British Banker’s Association criticised Consumer Focus for not discussing its complaint with the banking sector, claiming if it had been given the chance it could have explained the work it is already doing with the regulator to help ISA customers.

(Source: Citywire 31/03/2010)

If you are sitting on dormant Cash ISA funds and would like to explore alternatives please contact us and we will be pleased to present some options.

Good News !!

The UK economy emerged from its 18-month recession at a faster pace than expected, figures released by the Office for National Statistics (ONS) show.

Britain's gross domestic product (GDP) grew 0.3% in the final three months of 2009, up from its first estimate of 0.1% and stronger than the 0.2% revision made by City economists.

It follows better-than-expected showings from most parts of the economy.
The services sector, the biggest part of the economy, grew 0.5% instead of the 0.1% initially estimated; manufacturing was also revised upward, with industrial production growing 0.4% instead of 0.1%. Elsewhere, Government spending increased 1.2%.