Month: June 2018

Is inflation back? Don’t panic

How to protect the value of your money from its effects

Is inflation back? After two years when consumer prices in the UK barely rose, the annual rate of inflation has risen above the Bank of England’s (BOE) target of 2% in 2017. The combination of high inflation and limited wage growth – as well as uncertainty about the terms on which Britain will leave the European Union in 2019 – is expected to mean Britain’s economy grows more weakly than other EU economies this year.

The BOE forecasts that consumer price inflation will remain above 2% in each year until 2021. While nowhere close to historic highs, higher inflation stands in contrast to near record low interest rates offered on cash savings.

To protect your purchasing power over time, your savings need to grow at least as quickly as prices are rising. So how can savers and investors protect the value of their money from its effects?

Cash is not king
The positive for cash savings is that they are very secure up to £85,000 in a bank or building society through the Financial Services Compensation Scheme, unlike other investments where your capital will be less secure. And keeping enough cash aside to cover any foreseeable costs you might face is always sensible.

However, relying solely or overly on cash might prevent you from achieving your long-term financial goals, which may only be possible if you accept some level of investment risk. And in an environment where the cost of living is rising faster than the interest rates on cash, there is a danger that your savings will slowly become worth less and less, leaving you worse off down the road.

Inflation-linked protection
Bondholders receive regular income payments, known as ‘coupons’, from the Government or company that issued the bond. Where coupons are fixed in value for the life of the bond – often several years – the real value of this income will be eroded if prices rise. The nominal value of the bond (known as the ‘principal’) will also be worth less when it matures and the loan is repaid.

Protection against this threat is offered by inflation-linked bonds, whose coupons and principal will track prices. By linking coupons to prices, the income that investors receive will rise in line with inflation, so they should be left no worse off – unless, of course, the bond issuer fails to keep up with repayments (an unavoidable risk for bond investors).

However, if prices fall, so would the value of inflation-linked bonds and the income from them – in contrast to bonds, whose principal and coupons are fixed, and so would then be worth more in real terms. If inflation falls, protection from it rising can therefore come at a price.

Combining equity returns
To beat rising prices, the total returns from any investment – being the combination of capital growth and any income – must be greater than the rate of inflation. Company shares, or equities, potentially offer long-term investors a degree of protection during inflationary periods. Ultimately, shares are claims to the ownership of real assets, such as land or factories, which should appreciate in value if overall prices increase.

In theory, equity returns should therefore be inflation-neutral, so long as companies can pass on any higher costs they face and maintain their profitability. In turn, a company’s ability to make money will typically be reflected in its share price and its ability to provide investors with an income in the form of a dividend. Also, the sum of a company’s shares can be much greater than the value of its physical assets.

Where higher inflation squeezes consumers’ purchasing power, however, some companies may find it difficult to pass on higher costs, reducing profitability and, probably, investment returns. Just as a company can raise its dividend in line with inflation, it can choose to cut or stop the payout at any point.

Take an active investment approach
Selecting the right combination of investments to navigate rising inflation could be challenging for many individual investors. By investing through a fund that pools your money with other investors, you can gain access to expertise as well as a wider range of investments.

Professionally managed ‘active’ funds will aim to achieve a specific objective by investing in certain assets, with an approach to risk and return that may align with yours. The objective of an actively managed fund could resonate with your own goals – something that ‘passive’ funds, which look to mirror the performance of a broad index, may not be able to do.
Active fund managers can take inflation into account in pursuit of their objective, which could be providing their investors with a growing income stream or achieving capital growth over the long term.

Some funds even specifically aim to deliver total returns in line with, or greater than, a given measure of inflation – for example, consumer prices in the UK. Unlike those who passively invest, active managers can handpick assets they think are less likely to suffer, or more likely to gain, from any change in the rate of inflation.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

One in eight will retire with no pension in 2018

Excuses to avoid facing the difficult work of saving for retirement

Retirement is one of our biggest financial challenges. As with any daunting challenges we face, we tend to think up excuses so we can avoid facing the difficult work of saving for retirement. Worryingly, nearly one in eight people retiring this year (12%) have made no provision for their retirement, including 10% who will either be totally or somewhat reliant on the State Pension, according to new research[1].

This leaves some retirees starting their retirement with an income of just £1,452 a year, below the Joseph Rowntree Foundation’s (JRF) Minimum Income Standard for a single pensioner[2]. But neither panicking nor putting off the matter will solve the problem. For those people that have a shortfall in their retirement savings, there are many immediate steps that can and should be taken. If you have any concerns about your retirement provision, we can help you look at the different options available to you.

Planning to retire without a pension
There is good news, as the numbers retiring without a pension is lower than the 14% in 2017, and now nearly half the 23% recorded in 2008. Women are more likely to have no retirement savings – 18% will retire without a pension this year, compared with 7% of men. The gap is narrowing over time – in 2016, 22% per of women had no retirement savings, compared with 7% of men, while in 2008, a third of women (32%) were planning to retire without a pension.

An acceptable standard of living
A tenth (10%) of those retiring in 2018 will either rely somewhat or solely on the State Pension, which for those retiring after April this year will mean an income of £164.35 a week[2], or just over £8,500 a year. Taking the JRF’s Minimum Income Standard of £192.27 a week for a single pensioner, which is a benchmark of the income required to support an acceptable standard of living[3], those relying on the State Pension will fall short of the minimum standard by £27.92 a week, or £1,452 a year.

Significance of the State Pension
The research highlights the significance of the State Pension to people in retirement, including those with pension savings of their own. On average, people expecting to retire this year estimate that the State Pension will account for more than a third (33%) of their income in retirement.
Of those retiring in 2018 who do have a pension of their own, two fifths (42%) have the majority of their pension in a workplace final salary scheme, one in eight (13%) have their savings in a personal pension which is not through their employer, and 12% have the majority in a workplace defined contribution scheme.

Source data:
[1] Research Plus conducted an independent online survey for Prudential between 29 November and 11 December 2017 among 9.896 non-retired UK adults aged 45+, including 1,000 planning to retire in 2018.
[2] Benefit and pension rates 2018-2019 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/662290/proposed-benefit-and-pension-rates-2018-to-2019.pdf
[3] Figures taken from the 2017 update of the Minimum Income Standard for the United
Kingdom published by the Joseph Rowntree Foundation – https://www.jrf.org.uk/report/minimum-income-standard-uk-2017

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Easing into retirement

Older workers are increasingly valuable members of the gig workforce

We tend to associate young people with the gig economy, but new research shows that older, more skilled workers are increasingly making the move. The gig economy has been enthusiastically embraced by millennials who favour the flexibility it offers, although it appears that it is older workers who might be benefiting the most.

However, over a third (36%) of gig workers aged 55 and over take on ‘gig’ jobs to help them ease their way into retirement, according to research from Zurich UK.

Published within Zurich UK’s ‘Restless Worklife’ report – based on UK-wide analysis from YouGov of over 4,200 adults, of which 603 were gig workers – the research found that the same amount (36%) said flexibility and being able to choose the work they take on was the main attraction. In fact, over one in ten of all gig workers questioned only expect to stop gig work when they are over the age of 75, almost ten years after passing State Pension age.

Number of over-50s working
The number of workers over the age of 50 has grown significantly over the past few decades, with government figures showing the employment rate for people aged 50 to 64 has grown from 55.4 to 69.6 per cent over the past 30 years.

However, the gig economy itself has attracted its fair share of criticism, with little job security or access to workplace benefits, given most are not defined as full-time employees. Lack of workplace benefits such as income protection, holiday and sick pay was put forward by 44% of gig workers over the age of 55 as the main drawback, while over a third (34%) said it was not knowing where their next paycheck would come from, and 27% said it was not having access to a workplace pension.

Popular choice for near-retirees
Not everyone wants to jump straight from working full-time into retirement, whether that stems from reluctance to stop a familiar routine or an enjoyable job – or simply because it will mean waving goodbye to a salary. As such, gig work is clearly a popular choice for near-retirees, allowing them to keep a form of money coming in without the traditional 9–5.

Instead of fully retiring, older people are using the gig economy to supplement or boost their retirement income, and it could play an increasingly important part in stretching out their pots as they live longer. However, as the world of work continues to change at a rapid rate, it shouldn’t come at the expense of financial protection, particularly as older workers are more susceptible to illness.

Planning for a bigger retirement income

Looking forward to having more time to explore faraway places

Today, with more Britons living longer and healthier lives, the concept of retirement is much different to what it was only one generation ago. For each retiree, retirement is different. Perhaps you’re looking forward to having more time to explore faraway places, or maybe you dream of simply waking up each day and doing whatever takes your fancy.

However you see your future, retirement is a time for you to do the things you’ve always wanted to do. After all, deciding when to retire will be one of the most important decisions facing all of us at some point.

It goes without saying that investing in a pension is an essential part of modern-day financial life. If you want to enjoy a comfortable retirement, then starting to save early and ensuring you keep putting money aside is vital. These are some tips that could help you increase the money you have available in retirement.

Do you know where all your pension pots are located? 
Locate pension pots that you may have forgotten about. The Pension Advisory Service and the Pension Tracing Service can help you to trace forgotten pension pots

Remember to take your State Pension into account

Time to consider topping up your pensions? 
Think about topping up your pension in the years leading up to your retirement. That little bit extra could make a difference

Remember, you might be eligible to top up your State Pension too. This could be particularly beneficial if you’re self-employed or a woman, because it’s possible your State Pension entitlement may be low

From age 55, you can draw your pension savings as and when you need it and still pay into your pension. You’ll continue to receive tax relief on your payments up to age 75, although taking benefits flexibly will limit how much you can put in

Have you considered retiring a little later than you’d originally planned?
Delaying your retirement might give your pension fund more chance to grow Remember, though, if your pension fund remains invested, the value could go down as well up, and you may not get back what you put in. If you defer your retirement, it’s also important to check whether this will affect any state benefits you’re entitled to

Working part-time for a while after you finish full-time work might enable you to delay drawing money from your State Pension or your pension, meaning your money may last longer when you do retire

Maybe you fancy trying something new, like setting up your own business. Becoming your own boss could be a good way to stay active and keep earning

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Retirement rewards

Common planning mistakes lead to an opaque future

With increasing life expectancy and rising cost of living, the need to plan for one’s golden years is essential. Although retirement is one of the most distant financial goals, it is in our own interest not to ignore it. And almost three quarters (73%) of people aged 45 or over are longing for the day when their life is no longer confined by their working routine, according to new research[1].

Yet despite an eagerness to retire, the research shows that almost half (46%) of over-45s with a pension have no idea how much it is currently worth, and that more women (52%) than men (41%) don’t know the value of their own pension savings. A fifth (19%) of those aged 45-plus don’t have a pension in place yet.

Shift in lifestyle
Two thirds of those aged 45-plus (67%) are hoping for a shift in lifestyle, keen to retire early before the State Pension age commences. But only one in ten of them (12%) has proactively increased how much they are investing in their pension when they’ve been able to, in order to help make this happen.

Once people reach the age of 55 (age 57 from 2028), they can benefit from pension freedoms which allow them to start withdrawing money from their pension savings if they need to. It’s a point at which some key decisions can be made, and the importance of knowing the value of their pension should come sharply into focus. But even among this group of people aged 55–64, some 45% still have their eyes shut and don’t know what their pension savings are worth.

Life after work 
Retirement is changing, and life after work in the future will not look the same as it did for our parents or their parents. But while many of us might dream of what we’re going to do when we retire and when that might be, without a plan in place, these dreams are likely to stay just that.
Once you stop working, it’s more difficult to boost your savings than it is when you’re still working. So I would urge everyone to really understand how they are progressing and make plans for building up their life savings while they are best placed to make a real difference. Almost all employers now have workplace pensions which include an employer contribution, so that may well be a good place to start. τ

Source data:
[1] The research was carried out online for Standard Life by Opinuium. Sample size was 2,001 adults. The figures have been weighted and are representative of all GB adults (aged 18+). Fieldwork was undertaken in November 2017.

This time next year we’ll be ‘million-heirs’

Larger individual wealth and expectation of substantial inheritances

With estate planning, you can decide what happens to your money and possessions – even your pets – if something happens to you. But estate planning is useful in other ways too: it can help you minimise any Inheritance Tax liability and ensure your wishes are carried out in the event of your death or if you need to go into care.

Put simply, Inheritance Tax is a tax charged on your estate when you die. The Government set a tax-free allowance called the ‘nil-rate band’, which is currently £325,000. Any amount above this level is taxed at 40%. Your estate is the value of everything you own, such as your house, car, investments, life assurance policies and the contents ofyour home.

UK’s massive wealth increase 
One person in 25 expect to become ‘million-heirs’ and inherit an estate worth £1 million or more, according to Canada Life’s[[1] annual Inheritance Tax Monitor survey of people over 45. Around one person in 50 expects to inherit more than £5 million.

The figures reveal the financial impact of the UK’s massive wealth increase in recent decades, with rising stock markets and increased property values contributing to larger individual wealth and the expectation of substantial inheritances.

Lack of knowledge around the rules
However, without financial planning, much of the estate is likely to be lost in Inheritance Tax for assets above the available nil-rate band threshold. On an estate worth £1 million, over one fifth (£230,000) would be lost in Inheritance Tax, or roughly the equivalent of an average UK house price.
Compounding the problem is the lack of knowledge around the Inheritance Tax rules. The majority of people (70%) could not identify the standard nil-rate tax threshold (£325,000). Meanwhile, only one in 20 of those surveyed knew about the residence nil-rate band tapering for estates over £2 million, likely leading to greater tax bills for larger inheritances.

Substantial amounts of money lost in tax
People’s expectations are likely to be substantially wrong without financial planning, and it’s quite likely they could lose substantial amounts of money in tax. Yet it’s quite possible to ensure that by using a straightforward trust, the entire amount goes where it is intended – the beneficiaries.
There are several straightforward ways to reduce the amount of Inheritance Tax that is due. And for people expecting around £500,000 or more in inheritance, there is still a danger of losing tens of thousands of pounds in tax. The risk of a big Inheritance Tax bill drops to zero at the Inheritance Tax threshold of £325,000, below which there is no tax.

Source data:
[1] Survey of 1,001 UK consumers aged 45 or over with total assets exceeding the standard inheritance nil-rate band of £325,000. Carried out in October 2017. Percentages may not add up to 100 due to rounding or multiple answer questions. Research conducted by Atomik.
[2] The person taking out the trust must survive seven years after making the gift into the trust for the gift to become totally exempt from the estate.

Protection matters

Families face a precarious situation if the worst were to happen

Everyone’s circumstances are different, but most people start to think about cover to help protect their family financially once they have children. But research from Scottish Widows[1] reveals that 60% of women in the UK with dependent children have no life cover, leaving their families in a precarious situation if the worst were to happen.

The research also shows that only 13% of mums have a critical illness policy, leaving many more at risk of financial hardship if they were to become seriously ill.

Placed at financial risk
Three in ten (31%) mums admit their household would be placed at financial risk if they lost their income due to unforeseen circumstances. One in four (25%) claim they could only pay their mortgage for a maximum of three months, while two fifths (39%) say they would have to use their savings to pay for such adverse circumstances.

The research also suggests that many mothers are underestimating the value of their role within the household. Almost a quarter (24%) say that they’ve not taken out life insurance because it’s not a financial priority or they don’t think they need it. And 7% of mums without critical illness cover say they’d rather take the risk of not having it than take out a policy.

Everyday responsibilities
However, on top of any day jobs, mums spend almost 23 hours a week on childcare and chores such as school runs and housework[2] – tasks which they believe their families could not afford to pay for should the worst happen to them. Three fifths (61%) of women with dependent children also say their household would struggle to complete everyday responsibilities or pay household bills if they were to fall ill or pass away.
Lack of planning is leaving many families in a vulnerable position. When asked how they’d cope should they or their partner not be able to work for six months, three in ten (29%) mothers say they’d rely only on state benefits. And more than half (57%) don’t have the protection of a Will or guardianship arrangement in place for their families.

Support reduction 
With a new Bereavement Support Payment system now in place, which may result in a significant reduction in the period over which support will be available, it’s more important than ever for mothers to review their financial protection needs. This is especially the case for cohabitees, who still don’t qualify for bereavement benefits.

The value of protection is to provide long-term peace of mind about having financial security in place for your dependents. And changes to bereavement benefits mean that it’s more important than ever for mothers to review their financial protection needs and seek advice to make sure their household is covered.

Source data:
[1] Scottish Widows’ protection research is based on a survey carried out online by Opinium, who interviewed a total of 5,077 adults in the UK between 16 and 27 March 2017.
[2] This number is calculated by combining women’s self-reported time spent per week on taking children to school, preparing family meals, helping children with homework, housework, getting children ready for school, picking up children from school and watching children play sport.

Making the most of your pensions

Have you accumulated multiple plans that need reviewing?

By the time we have been working for a decade or two, it is not uncommon to have accumulated multiple pension plans. There’s no wrong time to start thinking about pension consolidation, but you might find yourself thinking about it if you’re starting a new job or nearing retirement.

Consolidating your pensions means bringing them together into a new plan, so you can manage your retirement saving in one place. It can be a complex decision to work out whether you would be better or worse off combining your pensions, but by making the most of your pensions now, this could have a significant impact on your retirement.

Retirement savings in one place
Whenever you decide to do it, when you retire it could be easier having a single view of all of your retirement savings in one place. However, not all pension types can or should be transferred. It’s important that you obtain professional advice to compare the features and benefits of the plan(s) you are thinking of transferring.

Some alternative pension options may offer the potential for a better investment return than existing pensions – giving the opportunity to boost savings in retirement, without saving any more. In addition, some people might benefit from moving their money to a pension that offers funds with less risk – which may not have been available before. This could be particularly important as someone moves towards retirement, when they might not want to take as much risk with their money they’ve saved throughout their working life.

Keeping track of the charges 
If someone has several different pensions, it can be difficult to keep track of the charges they’re paying to existing pension providers. By combining pensions into a new plan, lower charges could be available – providing the opportunity to further boost retirement savings. However, it’s important to fully understand the charges on existing plans before considering consolidating pensions.

Combining pensions into one pot also reduces paperwork and makes it easier to estimate the income someone can expect to receive in retirement. However, before the decision is made to consolidate pensions, it’s essential to make sure there are no loss of benefits attributable to an existing pension.

Review your pension situation regularly
It’s essential that you review your pension situation regularly. If appropriate to your particular situation and only after receiving professional financial advice, pension consolidation could enable existing policies to be brought together in one place, ensuring they are managed correctly in line with your wider objectives.

Gone are the days of a job for life. So many of us may have several pensions accumulated over the years – some of which we may have left with former employers and forgotten about! Don’t forget your pension can and should work for you to provide a better quality of life when you retire. Looked after correctly, it can enable you to do more in retirement, or even start your retirement early.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Money’s too tight to mention

Financial impact on annual retirement income after divorce

First comes marriage, then for some couples comes divorce. But a stable marriage is one of the best paths to building and maintaining wealth. Divorce, on the other hand, is expensive. Possessions, money, financial assets and debt acquired during (and sometimes before) marriage are divided between former spouses. Putting a price tag on a divorce is tricky.

However, for some couples, no amount of marriage counselling is enough to avoid a divorce. It’s a tough process emotionally and financially. Untangling two people’s money can be messy. Long before spousal or child support is awarded or your post-divorce budget is in place, you’ll need to prepare your finances for the work ahead.

Marriage breakdown impact on pension saving
Divorcees who plan to retire in 2018 can expect their yearly income to drop by £3,800 compared to those who’ve never divorced, new research[1] shows. The findings reveal that the expected annual retirement income for those divorcees retiring in 2018 is £17,600, compared with £21,400 for those who have never experienced a marriage break up.

The latest available divorce statistics from the Office of National Statistics[2] covering up to 2016 showed that the number of people getting divorced has started to rise again, and that those over the age of 55 saw the greatest increase in 2016 compared to 2015.

Divorcees are more likely to retire in debt 
Those who have been divorced are more likely to retire in debt (23%) than those who have never been divorced (16%). But it’s not all bad news for divorcees though, as they will retire with lower debts (£30,500 compared with £36,900).

However, divorcees are more likely to have no pension savings at all when they retire (15%) than those who haven’t been through a divorce (11%). And they’re less likely to reach the minimum standard for their annual income set by the standards the Joseph Rowntree Foundation (JRF).

Huge financial impact on people’s lives
Around one in seven (14%) who have been divorced expect to have incomes lower than the JRF’s benchmark of £192.27 a week, or £9,998 a year, compared with 12% of those who have never been divorced.

Divorce can have a huge financial impact on people’s lives. Many may not realise that the cost of divorce can last well into retirement, as divorcees expect retirement incomes of nearly £4,000 less each year than those who have never been divorced.

One of the most complex assets to split
The stress of getting through a divorce can mean people understandably focus on the immediate priorities like living arrangements and childcare, but a pension fund and income in retirement should also be a priority. A pension fund is one of the most complex assets a couple will have to split, so anyone going through a divorce should seek legal and professional financial advice to help them do so.
For many more couples, the increase in value of pensions mean that it is often the largest asset. It goes without saying that advice is crucial as early as possible in any separation where couples have joint assets.

The heart wants what the heart wants
This research highlights the importance of divorced couples continuing to pay into their pensions even after a pension share on divorce has been implemented. Usually, a pension built up during the marriage is shared equally on divorce. If the divorcing couple are some way off retirement, this often gives the person receiving the pension share the chance to plan.

The old saying about love is that ‘the heart wants what the heart wants’. When the heart wants a divorce, it can feel like your world is turning upside down. While divorces are gut-wrenching emotionally, the financial implications can be equally devastating.

Source data:
[1] Research Plus ran an independent online survey for Prudential between 29
November and 11 December 2017 among 9,896 non-retired UK adults aged 45+,
including 1,000 planning to retire in 2018.
[2] Latest divorce statistics from the Office of National Statistics, published 18 October
2017 – https://www.ons.gov.uk/peoplepopulationandcommunity birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2016
All expected income figures rounded to the nearest £100.

Cultivating the art of patience

Sticking with a long-term commitment to your investments

If you want to give your investments the best chance of earning a return, then it’s a good idea to cultivate the art of patience. The best returns tend to come from sticking with a long-term commitment to your investments.

The longer you’re prepared to stay invested, the greater the chance your investments will yield positive returns. That means holding your investments for no less than five years, but preferably much longer. During any long-term investment period, it is vital not to be distracted by the daily performance of individual investments. Instead, stay focused on the bigger picture.

Putting your money into the market
Success in the stock market is all about time and patience. But it’s understandable that when you put your money into the market, you will be tempted to check up on how your investments are performing on a regular basis – and in our technology-driven age, you can monitor them 24/7.
Seeing investment prices fall, sometimes with alarming speed, can be enough to spook even the most experienced of investors. But remember that the reasons why you identified a particular fund or share as a sound investment in the first place should hopefully not have changed. The fall could just be down to market conditions as much as anything the individual company or fund manager has done, and in many cases, given enough time, investments should hopefully recover their value.

Leave your emotions to one side 
However, at the same time, it is essential to leave your emotions to one side, because on occasion there could be a good reason to sell. Just because something appeared to be a good investment a year ago doesn’t mean it will be going forward.

Developing the art of patience will help keep you focused on your goals. Whatever happens in the markets, in all probability your reasons for investing won’t have changed.

Some investors develop their own exit strategy knowing in advance how far an investment’s value must fall or rise before they will consider selling. Such a plan can enable investors to ride out short-term market corrections and movements.

Help smoothing out your returns
Bear in mind, too, the benefits of so-called ‘pound-cost averaging’ during periods of market volatility. Essentially, if you are investing on a regular basis, your contributions will buy more shares when prices are low and less when they are expensive. Over the long run, this should help smooth out your returns, though there is no guarantee of this.

Too much tinkering not only undermines your investment aims but will also ratchet up the costs. Every time you buy or sell an investment, there’s a charge – sometimes several will be incurred. Investors can easily overlook the reality that by making even small adjustments, the charges can start eroding any profits earned.

Rebalancing your portfolio’s risk profile 
As a result, for many investors, it’s best not to develop a regular buy-and-sell habit. And remember, no one knows which days will turn out to be the best trading ones – and by being out of the market, you could miss them.

For all investors, there will come a time when the portfolio needs to be rebalanced. A major reason for a realignment is when the actual allocation of your assets – be that shares, government bonds, corporate bonds or cash – no longer matches your risk profile.

Keeping your investments appropriately diversified
Alternatively, it may be because your investment horizons have shortened. Perhaps, for example, your retirement date is getting closer. These are solid reasons for selling some assets and buying new ones to keep your investments appropriately diversified. Any period of active portfolio management should be a process of change, which is both well planned and well executed.

It may be tempting to spend any income generated by your investments, but if you don’t need it in the short term, why not plough it back into your portfolio? This will increase the number of shares you own. And, of course, a bigger shareholding means more dividend payments next time around.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS
AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.