Category: Blog
Guide: 7 useful questions if you plan to take a flexible income from your pension
When you start to access your pension, how will you take an income? One of your options may be to withdraw a flexible income that suits your needs through flexi-access drawdown.
A flexible income puts you in control and means you can adjust how much you withdraw from your pension if you need to. However, you also need to consider what income is the “right” amount to balance your short- and long-term needs.
As a result, there are some factors you may want to think about when managing pension withdrawals if you’re using flexi-access drawdown. This guide covers seven important considerations, including:
- How long does your pension need to provide an income?
- How could inflation affect your income needs?
- What tax could your pension withdrawals be liable for?
Download your copy of “7 useful questions if you plan to take a flexible income from your pension” to understand some of the areas you might want to consider if you plan to use flexi-access drawdown.
If you have any questions about your pension or how to create an income in retirement, please contact us to arrange a meeting.
Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.
Investment market update: August 2023
Globally, signs suggest the pace of inflation is slowing. However, businesses in some sectors are struggling and weighing on economies. Read on to discover some of the factors that affected investment markets in August 2023.
According to a Purchasing Managers’ Index (PMI) from JP Morgan, reports indicated that manufacturing in Asia, Europe and the US is contracting. New orders declined for the 13th consecutive month, which could have medium-term consequences for investment markets.
When reviewing your investments, remember to take a long-term view. Volatility is part of investing and, usually, sticking to your long-term strategy makes sense, rather than reacting to short-term movements.
If you have any questions about your investments or the current climate, please contact us.
UK
The UK economy beat forecasts to post growth of 0.2% between April and June 2023 to avoid stagnation.
Yet, some institutions, including consulting firm RSM UK, warn the UK could still slip into a recession next year. This concern is compounded by PMI data showing contraction in the manufacturing sector.
While slowing, the rate of inflation remains stubbornly high. It was 6.8% in the 12 months to July 2023.
Bank of England (BoE) governor Andrew Bailey said he expects inflation to fall to 5% in October. However, he added that high interest rates are likely to remain for at least two years.
The inflation figures led to the BoE increasing its base interest rate again. As of August 2023, it is 5.25% – a 15-year high.
The decision was met with criticism. Think tank IPPR warned the central bank was “tightening the screws too much, given the UK economy is weakening, the labour market is slow, and productivity is falling”.
The rising interest rates are placing particular pressure on mortgage holders.
At the start of the month, the interest rate of an average two-year fixed mortgage deal exceeded 6.5%, although rates started to fall by the end of August.
Unsurprisingly, rising interest rates have led to house prices falling. According to Nationwide, property prices fell by 3.8% in July 2023 when compared to a year earlier.
UK Finance also reported 7% more homeowners are now behind on their mortgage repayments when compared to the first quarter of 2023. The figures suggest landlords are struggling the most – the number of buy-to-let mortgages in arrears jumped by 28%.
As a result, house prices could fall further. Estate agent Knight Frank predicts prices will fall by 5% this year.
Demonstrating the difficulties businesses are facing too, beloved high street store Wilko fell into administration after rescue talks failed. It places more than 12,000 jobs at risk across the UK.
Europe
The eurozone is facing similar challenges to the UK.
PMI data shows manufacturing firms have cut prices at the quickest pace since 2009. In addition, new orders, employment, and production all fell in July at a faster pace than the previous month.
As the largest economy in Europe, Germany is often viewed as the stalwart of the eurozone economy. Yet research group Sentix warned the country is “becoming the sick man of Europe and is weighing heavily on the region”.
Findings from the Ifo Institute support this warning. A report suggests the number of German construction firms in financial difficulty doubled in July when compared to a month earlier. In addition, 19% of companies reported cancelled orders, against a long-run average of 3.1%, which could signal medium-term challenges.
There was some positive news for the eurozone economy – in June it boasted a large trade surplus.
According to Eurostat, sharply falling imports from Russia and China led to a trade surplus of €23 billion (£19.7 billion) in June. Just a year earlier the economic region recorded a trade deficit of €27.1 billion (£18 billion).
Early in August, the decision to impose a windfall tax on banks in Italy led to stocks tumbling before the government watered down the announcement.
Facing accusations that banks were reaping billions of euros in extra profits thanks to rising interest rates, the Italian government approved a 40% windfall tax on the profits of banks.
Analysts estimated the tax could mean banks would collectively have handed over more than €9 billion (£7.7 billion). The news sent bank shares tumbling – Intesa Sanpaolo, which is the largest bank in Italy, saw shares fall by 8.7%.
As stock values fell, the government backtracked and said lenders would pay no more than 0.1% of their assets in tax, which analysts estimate will be just a fifth of the sum initially forecast.
US
In an unexpected decision, credit rating agency Fitch downgraded US debt due to “erosion of governance”.
It led to all major US stock markets opening in the red after the announcement. The Nasdaq recorded the largest fall and was down by 1.86%.
The downgrade also had a knock-on effect on European shares. The FTSE 100 fell by 1.7%, and markets in Germany, Italy and France were similarly affected.
While lower than other economies, inflation accelerated in the 12 months to July to 3.2%. To stabilise prices, the US central bank hiked interest rates to 5.5% – the highest level in 22 years.
Data could indicate that business optimism is waning. Figures from the Bureau of Labor Statistics show firms added 187,000 jobs to the economy, which fell short of expectations. In 2022, the average monthly gain was 400,000.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
7 practical reasons to make a Lasting Power of Attorney now
A Lasting Power of Attorney (LPA) could provide you with protection when you’re most vulnerable by giving someone you trust the ability to make decisions on your behalf. Yet, a survey in the Independent, found that less than half of married couples have an LPA.
If it’s something you don’t have in place, here are seven reasons to make it a priority.
1. The unexpected happens
No one wants to think about losing the mental capacity to make decisions themselves. Yet, it’s something that many people experience during their life.
According to the Alzheimer’s Society, someone in the UK develops dementia every three minutes. It may not be something you can change, but you can be in control of how prepared you are.
LPAs don’t have to be permanent either. If you suffered an accident or illness, you could use an LPA to allow someone to temporarily manage your affairs while you focus on recovering.
2. You can name someone you trust as your LPA
By naming an attorney through an LPA, you can choose someone you trust to act on your behalf. It means you have control over who may make decisions for you.
Without an LPA, your family could apply to the Court of Protection. However, the judge will decide who is most suitable to make decisions for you, and it might not be the person you would choose.
3. It ensures someone who cares about you can make health decisions
There are two types of LPA. The first is an LPA that covers health and welfare decisions. It would allow your attorney to make decisions about your daily routine, medical care, and moving into a care home.
Without a health and welfare LPA, it could be difficult for your loved ones to ensure you receive care or treatment if it’s needed.
4. It allows a trusted person to manage your financial affairs
The second type of LPA covers your financial affairs. If you’re unable to make decisions, it may not take long for your affairs to fall into disarray. For example, bills could go unpaid or you may not be able to collect your pension or other sources of income.
An LPA giving someone you trust the power to make decisions about your financial affairs could help with this. They may also be able to make larger decisions, such as selling your home.
5. It may provide an opportunity to set out your wishes
When you name your attorney in an LPA, you have an opportunity to prepare an advance statement of wishes and care preferences.
The document isn’t legally binding, but it could be useful for your attorney to refer to. You could provide information about the care home you’d prefer, views on life-sustaining treatment, or possessions you’d like to pass on to a loved one.
6. It could help protect you from fraud in the future
A report from UK Finance found in 2022 £1 billion was lost to fraud – that’s the equivalent of around £2,300 stolen every minute. While criminals use a variety of tactics, targeting vulnerable people is a common one.
Having a property and financial affairs LPA in place means someone you trust can manage your bank accounts, savings, and more. It may mean fraud is spotted sooner or even prevented.
7. An LPA may form part of your wider estate plan
As part of your estate plan, you may be thinking about how you’d like to manage and pass on assets. Having an LPA in place may ensure your wishes are followed even if you can’t make decisions yourself.
Get in touch to discuss the steps you could take to improve your security
Putting an LPA in place could provide you with security if you lose the ability to make decisions yourself. As part of your financial plan, there might be other steps you may take to prepare for the unexpected too.
Please contact us to talk about your concerns and priorities. We’ll work with you to create an estate plan that suits your needs.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning.
Inheritance Tax could be scrapped to secure election votes
Reports suggest that the Conservative party will make scrapping Inheritance Tax (IHT) part of its manifesto pledge in a bid to secure the general election. Frozen tax thresholds meant HMRC raked in a record amount of IHT in the last tax year. Read on to find out more about the reports.
While there have been reports that IHT would be abolished next year, according to the Guardian, it’s something prime minister Rishi Sunak is considering as a manifesto pledge.
The controversial tax could help boost election votes, as more estates are paying IHT due to frozen thresholds.
In 2023/24, the nil-rate band is £325,000. If the total value of your estate is below this threshold, no IHT is due. In addition, if you leave your main home to direct descendants, you may also be able to use the residence nil-rate band, which is £175,000 in 2023/24.
The government has frozen both the nil-rate band and the residence nil-rate band until April 2028.
HMRC data shows the government collected a record amount through IHT in 2022/23. In total, families paid £7.1 billion in IHT last tax year. HMRC said the rise was likely due to a combination of “recent rises in asset values and the government’s decision to maintain the IHT nil-rate band thresholds”.
The graph below shows how IHT receipts have climbed over the last 20 years:
Source: HMRC
Scrapping IHT may seem contradictory following reports that Sunak’s priority is reducing high inflation over tax cuts.
However, while £7.1 billion in IHT may seem substantial, it accounts for just 0.28% of GDP. So, the government may view scrapping IHT as a way to boost election-day votes without having a significant effect on its coffers.
For some people, abolishing IHT could affect their estate plan. For instance, if you’ve decided to gift assets during your lifetime to reduce a potential IHT bill, you may want to review this decision if the plans went ahead.
There are calls for an Inheritance Tax overhaul rather than abolishing it
While some have welcomed reports that the government could scrap IHT, others are urging for an overhaul to make the tax “fairer”. There are several ways Sunak could change IHT.
Reduce the Inheritance Tax rate
The portion of your estate that exceeds the IHT thresholds is currently taxed at a standard rate of 40%. One option that might still deliver an election boost is to slash the tax rate to reduce the bills estates are paying.
Increase the Inheritance Tax thresholds in line with inflation
As mentioned above, the nil-rate band and residence nil-rate band have both remained the same for several years and are frozen until 2028. Reversing this decision and increasing the thresholds in line with inflation would mean fewer families will need to consider how to manage IHT.
Changes to gifting rules and other allowances
Alternatively, Sunak could change gifting allowances and other rules that estates may use to mitigate a potential tax bill when estate planning.
According to the Guardian, Paul Johnson, the director of the Institute for Fiscal Studies, said current IHT rules were “genuinely unfair”.
He added a report shows the “effective rate of IHT on estates of more than £10 million was only half the effective rate on estates of £2 million” as the tax is more difficult to avoid if a large portion of your wealth is your family home.
Don’t adjust your estate plan until changes are confirmed
While it can be tempting to try and get ahead of the curve by responding to the reports now, the potential changes aren’t set in stone. The government could alter its plans for IHT or decide to make no changes at all.
For most people, sticking to your existing estate plan and carrying out regular reviews makes sense. If the government announces changes, give yourself time to understand them and what they could mean for you and your beneficiaries before you react.
As financial planners, we can work with you to create an estate plan and ensure it continues to reflect current regulations. Please contact us to arrange a meeting to talk about your estate and wishes.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning or Inheritance Tax planning.
2 excellent ways you could boost your State Pension
While the State Pension may not be your main source of income in retirement, it’s often an important one. If you’re not on track to receive the full amount, there might be things you could do to boost it.
For 2023/24, the full new State Pension is £203.85 a week, adding up to around £10,600 a year. However, your National Insurance (NI) record will affect the amount you receive.
To claim the full new State Pension, you’ll usually need 35 qualifying years on your NI record. If you have between 10 and 35 years, you’ll normally receive a proportion of the State Pension.
There are many reasons why you may have gaps in your NI record, such as taking time away from work to raise children. If you don’t have the 35 years needed to claim the full amount, reviewing how to boost your State Pension entitlement could be worthwhile.
You can use the government’s State Pension forecast tool to see how much you could receive.
The State Pension may be valuable in retirement for two key reasons.
- It provides a guaranteed income. In retirement, your other sources of income may not be reliable, so having a guaranteed base income that will cover essentials could improve your financial resilience. Knowing that you’ll receive the State Pension every four weeks could provide peace of mind.
- It increases each tax year. Under the triple lock, the State Pension rises each tax year by at least 2.5%. This can help preserve your spending power throughout retirement, as the cost of goods and services may rise. In 2023/24, pensioners benefited from a record 10.1% increase in the State Pension due to high inflation.
To increase your State Pension, you often need to add more qualifying years to your NI record. Here are two options that could boost your retirement income by thousands of pounds.
1. Claim NI credits if you’re caring for grandchildren
Working parents struggling to balance childcare costs and careers often turn to grandparents or other family members for support. But did you know if you’re under the State Pension Age and provide care for a child under the age of 12 regularly, you could apply for NI credits?
According to Royal London, almost 6 in 10 over-50s aren’t aware NI credits can be claimed as a carer or grandparent.
In fact, it’s estimated that grandmothers could be missing out on more than £6,300 worth of State Pension payments for every year of NI contributions they don’t claim.
There’s no minimum number of hours you need to look after the child.
However, the child’s parent must register for Child Benefit, even if they earn too much to receive it. Child Benefit entitles the parent to an NI credit if they aren’t working or earn a low income. If they aren’t claiming the NI credit, they can transfer it to those providing childcare, such as grandparents.
If you’ve cared for a child under 12 in the past, you may be able to backdate your claim to 2011 and boost your State Pension.
2. Purchase additional qualifying years
The government has extended the deadline for a scheme that allows you to fill in gaps in your NI record until April 2025.
Currently, you can fill in gaps going back to 2006. After the April 2025 deadline, you’ll only be able to fill in gaps from the last six tax years. So, it could be worth reviewing your NI record to identify potential gaps now.
The cost of a full NI year will vary depending on which tax year you’re filling in. However, for some people, purchasing an NI year could pay for itself within a few years of reaching the State Pension Age.
Don’t immediately fill in gaps you find – take some time to work out if it could boost your State Pension first. If you’re still several years away from retiring, will you reach the necessary 35 qualifying years without filling in the gaps?
If you decide to fill in gaps in your NI record, you’ll need to contact HMRC by phone and send the money either through bank transfer or cheque.
Do you have questions about your State Pension and other income in retirement?
We can help you create a retirement plan that combines the State Pension with other sources of income you may have. Please contact us to talk about how you could use your assets to fund your retirement.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
8.5 million over-65s are paying Income Tax. Do you need to consider your tax liability?
A combination of frozen tax thresholds and rising inflation mean an increasing number of retirees need to consider tax. Read on to find out what you need to know about Income Tax in retirement and how you could manage your tax liability.
According to the Independent, in 2023/24, 8.5 million over-65s are paying Income Tax – that’s around a 10% increase when compared to a year earlier.
Usually, you will need to pay Income Tax if your income exceeds the Personal Allowance. For 2023/24, the Personal Allowance is £12,570.
As well as keeping the Personal Allowance in mind, when managing your tax liability, you should also consider the thresholds for paying the higher- or additional-rate of Income Tax, which are £50,271 and £125,140, respectively, in 2023/24.
There are several reasons why more over-65s are paying Income Tax, including:
- The cost of living crisis means some workers are putting off retirement: High inflation over the last 18 months means household budgets are under pressure. For some workers, it may mean they’ve delayed their retirement plans. As a result, more over-65s are likely to be working and paying Income Tax.
- Inflation may have pushed incomes above the Personal Allowance: The rising cost of living may have increased your income in retirement. For example, the State Pension increased by 10.1% in April 2023 due to inflation, or you may receive an income from an annuity that rises each year. Subsequently, many retirees could find that their income is now liable for Income Tax.
- The thresholds for paying Income Tax are frozen: While retirement incomes may be rising, the Personal Allowance has remained the same for the last three tax years, and the government has frozen it until 2027/28.
If you find that you’re paying Income Tax in retirement, there may be steps you could take to reduce your liability.
5 practical steps that could reduce your Income Tax bill in retirement
1. Make use of the Marriage Allowance
If you are retirement planning with your spouse or civil partner, you may be able to use the Marriage Allowance.
If you or your partner don’t use the full Personal Allowance, you could transfer £1,260 of it. It could reduce your combined Income Tax bill by up to £252 in the 2023/24 tax year.
The partner with the higher income must be a basic-rate taxpayer to use the Marriage Allowance.
2. Use other tax allowances to boost your income
Depending on your circumstances, there may be other ways you could boost your retirement income without increasing your tax liability.
For example, if you’ve saved or invested through an ISA, withdrawals are not liable for Income Tax, so you could use your ISA to supplement your income from other sources. Or, in 2023/24, you can receive up to £1,000 in dividends, which you may receive from some investments, without paying tax.
3. Spread out taking your pension tax-free cash
When you access your pension, you can usually withdraw up to 25% of your savings without paying tax. You can take the tax-free cash as a lump sum or spread it across several withdrawals.
By spreading the tax-free cash across several tax years, you may be able to reduce your tax liability even if your total income exceeds the Personal Allowance.
4. Manage your pension withdrawals
If you choose to access your pension flexibly, you’re in control of how much you withdraw from your pension. You can increase or decrease the income you receive depending on your needs.
As a result, you could adjust your pension withdrawals with your Income Tax liability in mind. Lowering your withdrawals could mean your entire income stays below the Personal Allowance or higher-rate tax threshold.
5. Make tax planning part of your financial plan
To effectively manage your tax liability, you may want to consider all your assets. It might highlight how you could use other sources of income to fund your retirement without increasing the amount of tax you pay.
Making tax planning part of your wider financial plan could help you get more out of retirement. Please contact us to discuss your retirement income and potential tax bill.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
Investing 101: 4 useful questions to answer when reviewing your portfolio
Over the last few months, you’ve read about the potential benefits of investing, what to consider when creating a risk profile, and how you could improve tax efficiency.
Now, read on to discover why reviewing your investment portfolio is a crucial part of managing your assets over the long term.
Reviewing your investments too frequently could encourage short-term thinking
Reviewing your investments provides an opportunity to ensure your portfolio still suits your needs and understand whether you’re on track to meet your goals. So, how frequently should you be reviewing your portfolio?
With daily headlines about company stocks that have risen or fallen, it can seem like you should be checking your portfolio every day or week. Yet, this could encourage a short-term mindset when managing your investments.
Looking at your investments too frequently can make it tempting to try and time the market. While selling high and buying low is something every investor wants, many factors affect the markets and it’s impossible to consistently time it right. It could mean you miss out on long-term growth opportunities.
Instead, reviewing your portfolio once or twice a year is often enough for many long-term investors. This frequency may help you strike a balance between understanding how your portfolio is performing and focusing on the long term.
4 key questions to answer during the review process
1. Have your long-term investing goals changed?
The reasons you’re investing may affect which options are right for you. As well as looking at figures, taking some time to review your investment goals may be important.
If your goals have changed, it could affect the investment time frame and how much risk is appropriate. As a result, you might adjust your portfolio to ensure it continues to reflect the outcomes you want.
2. Are your financial circumstances the same?
As well as your goals, you may want to consider if your financial circumstances have changed since your last review.
Again, your financial security and other assets you hold often influence your risk profile when investing. So, significant changes to your situation could mean adjustments to your portfolio make sense.
For example, if you’re approaching retirement, you may decide to reduce the amount of risk you’re taking to preserve your wealth. Or, if you’ve received a wealth boost, you might want to increase the size of your portfolio and allocate a proportion of it to higher-risk investments.
3. How has your portfolio performed?
While it’s often a good idea not to review your portfolio’s performance too frequently, the returns are a crucial part of the review process.
If your portfolio hasn’t performed as well as you’d hoped, be cautious of making knee-jerk decisions in response. The key thing is to focus on long-term trends rather than short-term movements.
Volatility is part of investing, and it’s normal to see the value of your portfolio rise and fall. Yet, when you look at the performance over the years, the peaks and troughs often smooth out.
Even after market shocks, such as when the markets fell sharply during the Covid-19 pandemic, historically, they have recovered and gone on to deliver returns when you look at the bigger picture.
Rather than reviewing just the last 6 to 12 months of data, consider how your portfolio has performed since you set it up. You may also want to consider long-term projections too, although keep in mind these cannot be guaranteed.
As well as looking at your portfolio’s performance, reviewing the wider market may be useful. If your portfolio has suffered a dip, has the rest of the market fared similarly?
4. What investment fees have you paid?
The fees you pay when investing will reduce your overall returns. As a result, it’s also worth considering what fees you’re paying, how they relate to your portfolio, and how they compare to alternative options.
We can help create and manage your investment portfolio
Whether you’re just starting to invest or want support managing your portfolio on an ongoing basis, we could offer professional advice.
An investment strategy that’s tailored to you could reflect your aspirations, financial circumstances, and tax-efficient opportunities. We can also incorporate your investments into a wider financial plan that’s focused on your goals.
Please contact us if you have any questions about investing or would like to arrange a meeting.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investment market update: July 2023
Data from economies around the world indicate business output and confidence could be slowing. Read on to find out what influenced the investment market in July 2023.
Despite some data suggesting there could be a downturn in some areas, the International Monetary Fund (IMF) has lifted its global growth forecast for 2023. The organisation now expects the global economy to grow by 3%, up from its previous prediction of 2.8%.
Globally, both households and businesses could face pressure as energy prices may rise in the colder months. The International Energy Agency warned that, if China’s economy rebounds this year, energy prices may spike in winter.
UK
The pace of inflation in the UK is slowing. Yet, it remains stubbornly high and above many other economies at 7.9% in the 12 months to June 2023. The latest inflation figures prompted the Bank of England (BoE) to hike its base interest rate again – as of July 2023, it stands at 5%.
The IMF predicts the BoE will need to keep interest rates high for longer than expected due to economic challenges.
Further rises could cause market volatility – the FTSE 100 hit its lowest closing level of 2023 ahead of the July BoE announcement at the start of the month.
The interest rate increases have led to mortgage rates soaring. In July, the average five-year fixed-rate mortgage deal exceeded 6% for the first time since 2008. In fact, by the end of 2026, the BoE predicts that 1 million households will see their monthly mortgage repayments increase by £500.
While many borrowers have been affected by interest rates increasing almost immediately, saving rates have been lagging. The Financial Conduct Authority set out expectations for “fair and competitive savings” during the month, and savers may have started to see the earnings on their savings rise as a result.
The latest release from the Office for National Statistics shows that between February and April 2023, the average wage increased by 7.2%. While growth is good news, the figure is below inflation and so wages are falling in real terms.
As well as soaring mortgage costs, food inflation has significantly affected household budgets. So, it may be of little surprise that a survey for i newspaper found 67% of consumers would back the idea of a price cap on essential goods.
Data suggests many businesses are struggling too.
According to a Purchasing Managers’ Index (PMI) UK factories shrank at their fastest pace in six months in June. Output, new orders, and employment levels all fell and could signal the challenges will continue into the medium term.
As businesses struggle with rising costs, insolvencies are expected to rise. Figures released by the Insolvency Service show business bankruptcies were 27% higher in June when compared to the same period in 2022.
Begbies Traynor, a business recovery and financial consultancy, believes insolvencies will rise over the next 18 months due to interest rate hikes. The firm added that “zombie” businesses have been able to continue operating due to cheap borrowing costs but will now struggle to service debts.
While there have been ups and downs in the market throughout July, the pound hit a 15-month high after all major UK banks passed BoE stress tests.
Europe
Inflation in the Eurozone fell to 5.5% in the 12 months to June 2023. While still above the long-term average, it’s lower than the 8.6% recorded in June 2022.
In response, the European Central Bank increased interest rates to its highest level in more than 20 years. The deposit rate is 3.75% as of July 2023.
PMI data indicates businesses in the Eurozone are facing similar challenges to the UK. Overall business activity fell and moved into negative territory. Factory output was also weak in June, particularly in Austria, Germany and Italy, and employment fell for the first time since January 2021.
US
Steps taken by the Federal Reserve have successfully slowed inflation in the US. In the 12 months to June, it was 3% – a two-year low.
According to PMI data, the US factory sector took a “sharp turn for the worse” in June. The results mirror the situation in Europe, with new orders falling. It’s increased concerns that the country could slip into a recession in the second half of the year.
While there may be worries about the US economy, official data indicates businesses are still confident about their future. American companies added half a million jobs to the economy in June and US wages increased by 4.4%.
In company news, Twitter’s rebrand to X is estimated to have wiped billions off the company’s value.
Since Tesla owner Elon Musk took over the social media platform in October 2022, he’s made a raft of changes. In July, Musk revealed a new name and logo for the platform, which have drawn criticism. According to Fortune, changing the name has wiped out between $4 billion and $20 billion in brand value.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
How impact investing could provide a solution to social challenges
Do you want your investments to have a positive effect on the world and society? Allocating some of your wealth to “impact investing” could be right for you. Read on to find out what impact investing is and what you need to consider first.
Impact investing aims to generate a positive, measurable social or environmental impact alongside a financial return.
As society faces many challenges, such as alleviating poverty, reducing greenhouse gases, or improving access to healthcare, a huge amount of investment is needed. And targeted investments from individuals could add up to deliver real change.
2 difficult challenges the UK faces that impact investing could help solve
One of the benefits of impact investing is that it focuses on particular issues. So, as an investor, you can target those that you’re passionate about. Here are just two examples of social challenges in the UK that could benefit from investment.
1. £7.7 billion is needed each year to meet care demands
The UK faces significant challenges in meeting care demands.
As people are living longer lives, more will need to rely on care in their later years and a growing number will have complex needs. As public services struggle to meet this demand, private investment could help provide the facilities, skills, and services that society will benefit from.
Earlier this year, the Guardian reported on a significant government shortfall in care funding. It suggested there is a £2.3 billion-a-year hole in the finances of the care system, which currently looks after almost 200,000 people aged over 65.
A report from Schroders suggests the care sector will need investment of £7.7 billion a year to meet long-term demand. Investment in areas like care homes, support services, and medical technology, could help to relieve some of the pressure.
2. £16.9 billion is needed each year to tackle the housing crisis
The housing crisis is another challenge that features heavily in the news. A housing shortage and soaring prices mean many families are struggling to find affordable homes.
A government report suggests around 340,000 new homes need to be supplied in England each year, of which 145,000 should be affordable. However, new homes have fallen significantly short of this goal – around 233,000 new homes were built in 2021/22.
To tackle the challenge of housing in the UK, Schroders suggests £16.9 billion of private investment will be needed every year.
Measuring the impact in impact investing
While impact investing can be attractive, one of the key challenges for investors is it can be difficult to measure and verify the success.
Investment opportunities may provide you with data on past success and goals for the future. However, as there is no standard way to present this information, it can be difficult to compare the options.
On top of this, there isn’t an independent body that will verify the impact the investment is having and it could mean you’d need to carry out your own research if you wanted further information.
So, if you want to be part of impact investing, it’s important to note that it may not generate the impact desired and it could come with challenges too.
It’s essential to balance impact with your investment goals
Impact investing isn’t just about solving some of the world’s biggest challenges, but delivering a return too. You should still treat it like other investments, which means considering areas like risk and potential performance.
If you’ve found an impact investing opportunity that’s interesting, you may also want to consider:
- The investment time frame: Usually, it’s advisable to hold investments for a minimum of five years as they can experience short-term volatility. Consider if this matches your investment goals and whether you’d feel comfortable holding the investment over the long term.
- Whether it matches your risk profile: While all investments carry risk, the level varies. So, when you’re looking at a new investment opportunity you should weigh up if the risk involved is right for you. Your risk profile should consider many factors, from your overall financial stability to the reason you’re investing. If you’d like to learn more about risk profiles, please contact us.
- How it could fit into a wider investment portfolio: You may also want to consider what other investments you hold, and how the new opportunity could fit into your portfolio. Creating a diversified, balanced portfolio with your risk profile in mind could reduce volatility and help you reach your goals.
Do you want to talk about the impact your investment could have?
If you want to discuss whether impact investing could be right for you, please get in touch. We can talk about the issues you’re interested in and how you could use your finances to tackle challenges in a way that reflects your goals and financial circumstances.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.