Author Ciaran Scullion

Author Ciaran Scullion

Bank of England Base Rate Remains in an Oasis of Calm

Business, Mortgages, Savings

Bank of England Base Rate going nowhere

Hello, the talk tonight will be of the continuing low BoE base rates. We are only a month away from the 5th anniversary of the base rate being reduced to historic lows of 0.5%. It seems as though these low rates may live forever.

If you are worried how an interest rate rise will affect your finances, then don’t go away, read my previous post. Personally I acquiesce that the BoE is unlikely to raise the base rate until 2015. That said, I don’t think that Lenders will continue to offer the low fixed mortgage rates we’re seeing at the moment for very long either. Existing mortgage borrowers who are on their lender’s standard variable rate are going to have to make some decisions. These are likely to be along the lines of either paying a little more now or paying a little more later.

If you have money held on deposit, don’t look back in anger over the past five years of low returns. Instead go let it out little by little and soldier on.

Some might say that monthly posts about nothing happening with the base rate are well… whatever. I look at it as an opportunity to get mucky fingers and slip as many song titles from a certain Mancunian band in, just for the fun of it. D’you know what I mean?

So how many song titles did you count?

What if interest rates rise?

Business, Mortgages, Savings
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How would an interest rate rise affect you?

The Bank of England (BoE) Base Rate has been held at 0.5% since March 2009 and they have previously indicated that they will not consider a rate rise until the UK unemployment rate is below 7%.  Even then the BoE has announced that a rate rise isn’t guaranteed so we can all relax and worry about it in a year or so, right?  Well, no.

BoE Base RateIt’s all well and good that the rate is unlikely to rise in the short term but it is essential to consider the effect of a rate rise on your finances before making any decisions.  Variable mortgage rates tend to increase directly in line with the BoE base rate and this in turn increases the monthly mortgage payment. A 1% rise in interest rates will add an extra £83.33 per month onto a £100,000 mortgage.  If this would seriously affect your monthly budget than a fixed rate mortgage may be a better solution for you.

Bond investments are also affected: as interest rates rise, bond prices go down in order to bring the rate of income they pay back in line.  Businesses are also affected by rising interest rates in the form of higher borrowing costs, which can ultimately hit the share price and have a knock-on effect across your investment portfolio. As usual keep an eye on your long term goals and assess if you are still on track before making any decisions in any circumstance.

From Acorns Financial Planning Ltd are based in Tyrone, Mid Ulster and provide a comprehensive Financial Planning service to both personal and business clients across Northern Ireland and the UK.

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5 reasons not to take out Protection Insurance

Critical Illness, Income Protection, Life Assurance, Protection
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Why you shouldn’t take out protection Insurance

“Who on earth wants to pay for insurance, sure it never pays out anyway!”

“The state can look after me if I get sick, that’s what I’m paying my taxes for!”

“My employer will look after me if I can’t work.”

“Life assurance costs too much”

“Sure it won’t happen to me?”

These are some of the answers I have received when I ask clients about whether they have thought about protecting their family.

We all know it’s a legal requirement to insure your car and if you have a mortgage your lender will insist that you insure your house.  However we choose whether or not to protect our family in the event of our death, in the event of being diagnosed with a critical illness or simply being unable to work due to ill-health.

Protection Advice

Types of Protection Policy

Protection can be split into the following 3 groups:

Life Assurance – This can pay out a lump sum or an income to your dependents if you die

Critical Illness Cover – This pays a tax-free lump sum if you are diagnosed with a serious illness and can also be added to a Life Assurance policy

Income Protection – This can pay out a monthly sum to cover bills in the case of sickness or injury

The plan will have no cash in value at any time, and will cease at the end of the term. If premiums are not maintained, then cover will lapse.

The policy may not cover all definitions of a critical illness. For definitions please refer to the Key Features and Policy Documents.

The Protection Insurance Myths

1. Sure it never pays out

If you read the tabloids you can be forgiven for thinking that insurance never pays out.  According to research carried out by Life Search the general public believe that only 38 per cent of protection insurance claims get paid.

Insurers generally publish their claims statistics for life cover, income protection and critical illness on an annual basis.  As stated earlier pay out rates for most providers are generally over 90%.

2. The State can look after me

If you are unable to work because of illness or disability, you can claim Employment and Support Allowance.  However if can live on the following, good luck to you:

Time period

Circumstance

Weekly amount

First 13 weeks

Under 25

£56.80

First 13 weeks

25 or over

£71.70

From 14 weeks

Work Related Activity Group

Up to £100.15

From 14 weeks

Support Group

Up to £106.50

You can insure your income for up to 65% of your gross earnings (depending on the insurer).

It’s important to note that if you die there is no significant payout from the state to your family. 

3. My employer will look after me if I can’t work.

Most UK employees will only receive Statutory Sick Pay of £86.70 a week for the first 28 weeks if they were off sick long-term. You may get slightly more if your employer generous.

Swiss Re estimate that only a quarter of UK employers provide any life insurance, income protection or critical illness cover as a benefit to their employees.

Note that if you are one of the lucky employees check that you are not over insured. For instance two separate income protection policies covering 50% of your income will still be limited to a maximum pay out of 65% of your pre injury gross income.

4. Life assurance costs too much

Regardless of the price there will always be those who say it costs too much.  However the reality is life assurance is cheap, dirt cheap if you are young, fit and healthy.

The price of protection policies is affected by factors such as your age, health, family history, the amount and term of the cover.

You can get life assurance cover from as little as £5pm.

5. Sure it won’t happen to me

Of all the dodgy reasons not to protect your family, this is my favourite. This one is straight from the mouth of each and every ‘Mr Invincible’ in the country.

More than 1 in every 3 of us are likely to develop some form of cancer during their lifetime.

We all have a relative that just loves to tell us about so-and-so down the road who had a car accident and will never work again. Or thon eejit down the road who got badly injured playing football and him with three young children to look after too.

But sure it’ll never happen to you.

Hopefully I have smashed some of the common misconceptions about protection policies and made at least one person think again.  Remember once you have a family, the insurance you buy is not just for you it’s for them.  You are protecting your family’s lifestyle, their home and most importantly their future.

If you decide to ignore these needs then so be it but it is essential that we understand the consequences of our actions and take responsibility for them.  If the proverbial hits the fan, don’t let these myths be the reason you decided to nothing.

If you would like some advice on protecting your family, please give us a call on 02895 815000.

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Status Quo for the Bank of England Base Rate

Business, Mortgages, Savings

Bank of England Base Rate remains at 0.5%

The BoE Monetary Policy Committee has today again announced that rates will continue to be held at 0.5%.  The base rate has been held at the record low of 0.5% since March 2009.  Having indicated that the rate may not even consider a rate increase until the unemployment rate falls below 7% back in August, the Bank has given no further guidance.

The latest figures have the unemployment rate at 7.4% and some experts expect that it will fall below 7% this year.  A few months ago the Bank predicted that unemployment would not reach 7% until 2016 which means an interest rate rise may happen sooner than we thought.

I don’t expect the Base rate to rise but like a good former boy scout I recommend that you ‘be prepared’. Do your sums and make sure you understand the consequences of any rise in interest rates for your personal and/or business finances.

In other news I have decided, on behalf of From Acorns Financial Planning Ltd, to sneak rock band names into random post titles.  Status Quo have not made any comment that I know of regarding the Bank of England Base Rate.

Why I Hate New Year’s Resolutions

Financial Planning, General
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What a load of…

I hate New Year’s Resolutions and all the nonsense that comes with them. I don’t know exactly when I came to the conclusion that they are a load of nonsense but it is now ingrained deep within me. So much so that I don’t remember one I have ever made and certainly none that I have ever kept.

From my observations New Year’s Resolutions have mostly vague statements of intent, some grandiose notion that this year we will achieve everything we have ever dreamed. What a load of…

Stormtroopers New Years Resolutions

 

I have never been one to set New Year’s resolutions, growing up I noticed that they were mostly set by people wishing to lose weight or get fit. These have never been a concern for me, I have always been lucky in that I am sports daft and I have played football in one form or another since I was six years old. As an adult my weight has fluctuated by about a stone give or take a banana but I could always rely on preseason training to get rid of any turkey belly.

In the gym in January and February you will always see the usual influx of seasonal exercisers. People who would vow to lose weight and join the gym with good intentions of going every week. By the end of February most will have given up.

But New Year’s Resolutions and Financial Planning have a lot in common; they both involve setting a goal, designing a plan to achieve that goal and reviewing that plan on an annual basis.

So why do I hate New Year’s Resolutions?

That’s easy:

They’re too vague – I want to lose weight, get fit, pay off some debt or earn more money.  These are pure waffle in terms of a goal. A goal needs to have a specific measurable target – I want to lose 20 lbs, I want to run 3 times a week, I want to earn an extra £3,000 per annum.

It’s all in your head – New Year’s resolutions are rarely written down, this makes it is easy to lose track of your goals. According to research by the Dominican University in California you are 42% more likely to achieve your goals simply by writing them down.

They don’t come with a plan – A goal without a plan is simply a dream. Once you have a setback, New Year’s resolutions tend to get discarded.  Just look at how busy the gym is in January/February compared to later in the year. Goals and their respective plans should be reviewed and amended regularly.

What is the Alternative?

Get a plan by setting some SMART goals for life not just the New Year. SMART goals have been around for years now but just to clarify a SMART goal is:

Specific

Measureable

Achievable

Realistic

Time Bound

Wishing for a comfortable retirement is too vague whereas aiming to retire on £25,000 per annum by the age of 60 is a specific goal.  Instead of aiming to reduce your debt you should be aiming to be debt free in 5 years.

These are goals that are specific, measureable and time bound. Your personal financial circumstance will dictate whether they are achievable and realistic but you get the picture.

I suppose then it’s not the setting of New Year’s Resolutions that I hate but the manner in which we tend to set these goals. So I invite you all not to create New Year’s resolutions but set smart goals for the next year and beyond. Commit them to paper and create a plan to achieve them.

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What Christmas Movies teach us about Personal Finance

Financial Planning, General
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Christmas Movies & Personal Finance

It’s that time of year again! We eat a lot, possibly drink a little too much and end up watching the same old Christmas movies as we do every year.  So, what can we learn about personal finance from these classic movies and their characters.

Merry Christmas

It’s A Wonderful Life

Despite dealing with some dark issues, It’s A Wonderful Life is the ultimate Christmas feel good movie.  In it, we are spun the tale of the suicidal George Bailey who faces jail and his business faces bankruptcy when his uncle misplaces $8,000 of the company money. An angel called Clarence turns George around when he teaches him how important he is to his family and the local community in his own inimitable way.

The Lesson:

Financial problems, debt and depression are very topical issues coming up to Christmas.  There can be a lot of pressure to spend an increasing sum of money on Christmas.  For some, this adds to their financial worries and can lead to ‘Christmas being put on the credit card’.

Pete Matthew of Meaningful Money has a very good podcast on the subject: Surviving Christmas with your finances intact that is worth listening to. In it, he explains the benefits of setting a budget for Christmas and sticking to it.  He explains how he and his wife put money aside each month throughout the year to pay for Christmas, to avoid that one-off “shock” expense and allow them to enjoy the seasonal festivities

Die Hard

Die Hard is a holiday staple in my house as John McClane (the legendary Bruce Willis) tears the Nakatomi Plaza apart when a band of thieves, led by the immense Alan Rickman rudely interrupt his wife’s Christmas work do.

The Lesson

During Christmas, like the rest of the year, it is essential to protect you and your family.  If the need for protection is from an imminent physical danger then by all means protect them at all costs.  However, in terms of personal finance you might want to consider an affordable budget to get appropriate insurance in place to protect your loved ones.

Elf

Elf tells the story of Buddy (Will Ferrell), an orphan raised as one of Santa’s elves, before leaving the North Pole to find his real dad Walter Hobbs (James Caan).  Buddy then proceeds to wreak havoc on his Dad’s life and somehow eventually teaches Walter to re-evaluate his priorities.

The Lesson

There is a lesson to learn from Buddy’s dietary regime and the four main food groups “candy, candy canes, candy corns and syrup”.

An unhealthy lifestyle is getting more expensive every year, with the cost of cigarettes and alcohol generally rising above the rate of inflation.  For most of us, if we cannot work due to ill health then our income will cease, we may depend on state benefits and potentially become a financial burden on our loved ones. That is unless we have some insurances in place and the cost of these insurances will often be significantly more expensive for people who do not take care of their health.

If you don’t look after your health it will inevitably affect your wealth.

Gremlins

In Gremlins Billy Peltzer gets an adorable pet Mogwai for Christmas from his dad and is given 3 very strict rules: Do not get it wet, do not feed it after midnight and do not put it in direct sunlight.  Unfortunately for Billy and the town of Kingston Falls, two of these rules are broken very quickly and everything goes pear shaped.

The Lesson

Unlike Billy’s half-baked inventor dad, most people will opt for a nice dog or cat.  They are easy to look after and fulfil most, if not all of the desired criteria in a pet. This is similar to personal financial planning, in that most people do not need complicated financial products that they don’t understand.  There are very few people that need anything more complicated that an ISA, pension and some appropriate insurances.

Remember, the devil is gremlins are in the detail.

The Muppets Christmas Carol

Now I could have chosen any version of Dickens’ classic tale but everyone loves The Muppets Christmas Carol, don’t they?  In this version Kermit and gang play second fiddle to Michael Caine’s excellent performance as the miserly Scrooge.  The usual Ghosts of Christmas Past, Present and Future take Scrooge on a journey that teaches him the error of his ways.

The Lesson

While there are those who are comfortable and very good at managing their own finances, more can benefit from the advice of a third party.  Not many of us have Scrooge’s money but we can certainly lose sight of, or neglect to align our plans with our goals when managing our money.  A good financial planner can provide an independent advice service that aligns your finances with your life goals.

Let me know what you think of the post or simply what’s your favourite Christmas movie and what can we learn from it?

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What you need to know about the Autumn Statement 2013

Business, General, Help To Buy, Mortgages, Pensions, Savings
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What you need to know about the Autumn Statement 2013

Income

The income tax personal allowance will rise to £10,000 in April 2014 as expected and will rise in line with inflation from 2015/16.  Inflation will be measured by the Consumer Prices Index (CPI) in this context.

From April 2015, a new transferable tax allowance will be made available for married couples and civil partners who are basic rate taxpayers.  This will enable people to transfer £1,000 of their personal allowance to their respective partner.

Benefits

A new welfare spending cap is to be introduced in 2014, although this will not include the cost of providing State pensions or Jobseeker’s Allowance.

Those claiming benefits aged 18-21 will need to demonstrate basic English and Maths, take skills training or they will risk losing their benefits.

Benefit claimants who are out of work for longer than six months will have to start a traineeship; do work experience or a community work placement rather than risk losing their benefits.

Some change is always good

Pensions

The Basic State Pension will rise by £2.95 per week in April 2014, meaning a single pensioner will now receive £113.10 per week.

Plans were announced to increase the state pension age to 68 in the mid-2030s and to 69 by the late-2040s, based on the latest life expectancy figures.

For those with sizeable pension pots there has been no change to the way GAD rates are calculated for Income Drawdown.

Savings & Investments

The Annual Allowance for Individual Savings Accounts (ISAs) will rise to £11,880 in 2014/15 of which £5,940 can be invested in cash.

Junior ISAs and Child Trust Fund (CTF) limits will also increase to £3,840 per annum.

In a drive to encourage funds to locate in the UK, Exchange-Traded Fund (ETF) stamp duty will be abolished.  This could save investors 0.5% on domiciled ETFs next year.

Mortgages

It was announced that two more lenders, Aldermore and Virgin, are expected to join the Help to Buy scheme in December 2013.

Businesses

From April 2015 employers will no longer have to pay employer National Insurance contributions for 16 to 21 year old employees, a potential saving of £500 for each employee on £12,000 per annum.

The business rate relief scheme for small businesses will be extended for a further year and end in April 2015. Additionally, the planned rate increase for all business premises will be capped at 2% from 2014.  A discount of £1,000 will be available for some small businesses and a 50% business rates discount will be available for those taking on vacant units.

Taxes

Importantly for commuters the planned fuel duty rise next September of 2p a litre was cancelled, that’s as good as we can hope for in terms of fuel duty.

From April 2015 foreign residential property owners will pay capital gains tax (CGT) future gains on the sale of UK property.

We already mentioned the removal of stamp duty on the purchase of ETFs in the Savings & Investments section.

The Autumn Statement also contained a package of five measures to address tax avoidance and tax evasion.

Bank of England Base Rate to remain at 0.5%

Mortgages, Savings

Bank of England Base Rate to remain at 0.5%

The BoE Monetary Policy Committee has announced today that rates will be again held at the record low of 0.5%.  The base rate has been held at 0.5% since March 2009 and the Bank has indicated that the rate will not even consider a rate increase until the unemployment rate falls below 7%.

The latest figures have the unemployment rate at 7.6% and inflation has fallen to 2.2% according to the Consumer Price Index (CPI)

This is further good news for existing mortgage borrowers, especially those on low variable rates and more bad news for savers with money held on deposit.

Auto Enrolment – The Statistics One Year On

Auto Enrolment, Business
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Auto Enrolment – The Statistics One Year On

1st of October marked the first anniversary of Auto Enrolment and the government’s workplace pension reform.  Due to the average size of companies in Northern Ireland we are only beginning to see companies taking action and getting prepared for Automatic Enrolment so it is worth looking at the stats so far from across the UK in our handy infographic.

Auto Enrolment - One year in

Source: Professional Pensions – Figures correct as of 1/10/13

As of the 1st October these are the numbers that define Automatic Enrolment.

Employers auto-enrolled 2,256
Employers staging between Jan-Jul ’14 29,000
Overall opt-out rate according to the DWP 9%
TPR investigations into non-compliance 89
TPR warning letters 38
TPR compliance notices 1
Estimated set-up costs for all employers £15.4bn
Proportion of employers using the NEST who spent more than 10 months preparing for AE 53%

 

It is clear that things are only beginning to heat up so if you need some help with preparing your company for auto enrolment then call us on 02895 815000 and get prepared as early as possible.  It can take over 6 months to prepare for auto-enrolment  and some pension providers won’t even consider companies with less than this to their staging date.

Should employers be concerned about Auto Enrolment capacity crunch?

Auto Enrolment, Business
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Should employers be concerned about Auto Enrolment capacity crunch?

Auto Enrolment Northern Ireland

Pension providers across the UK have been warning employers, financial advisers, employee consultants and pretty much anyone who will listen about the oncoming ‘capacity crunch’ regarding Auto Enrolment.  The question is should we be concerned? In short, Yes.

The only provider on the market that has a legal responsibility to take all employers is NEST.  Every other provider on the market will pick and choose their clients just like any other business.  The problem lies in the number of businesses these few providers will have to choose from, every business in the UK and Northern Ireland!

Back in July Scottish Life started warning that they would only accept employers that started to plan with at least 6 months to run until their staging date and more recently the have warned that they may exit the market in 2015 or sooner if they feel the business is not profitable.  This poses a problem for small to medium sized employers (SMEs) in that the ABI (Association of British Insurers) only lists a total of 10 member providers in the Auto Enrolment market.  There are a few other non ABI member providers out there but this does not answer the problem that the number of companies to be auto enrolled per month could potentially far outstrip the supply.

The best thing any employer can do is get prepared early with good quality independent advice to have the best chance of providing a company pension scheme that works both for them as an employer and for their employees.

Images courtesy of J.Reed on Flickr