The Lowdown on Pensions: A Guide for Gen Z

26.03.2021

We enjoy working with people of all ages. One of our recent new clients Miranda Parkinson, is in her 20’s and is a creative writer specialising in media. Having worked with her to establish her investment objectives we asked her to share her perspective on Pensions and whether she feels this is something that resonates for her and her peers. She’s based in London and currently looking for her next position in content creation and writing. Here are Miranda’s thoughts which you may wish to share with young members of your own family.

Veronica Devereux

The Lowdown on Pensions: A Guide for Gen Z Pensions

You heard your parents talking about them once. You’ve got a friend of a friend with a fancy job who’s already started putting heaps of money into theirs – probably. You vaguely remember a teacher mentioning them at school…

…but you’re still not entirely sure what they are.

Never fear – you’ve come to the right place. We’re going to give you the lowdown on pensions, from how to get one and who exactly pays into it to why it’s so important to suss it out early.

Simply put, a pension is a special type of savings account where you put money to be used when you retire. Everything you put into a pension is invested over years so when you get around to using it, it’s had plenty of time to grow.

But how exactly do you start one? In the UK, you’re automatically enrolled into a pension once you’re 22 and earning at least £10,000 a year. Your employer is required to enter you into a pension scheme and contribute at least 3% of your salary. The type of scheme and how much your employer pays will differ – but your employer will fill you in on that.

As well as your own pension, there’s the state pension – money that the government gives you. At the moment, the basic state pension is £134.25 a week and this kicks in when you reach the current retirement age, 66. Without your own personal pension, this money would have to cover accommodation, bills, food and any other living costs you might have.

And here’s the bad news: this is going to change. As of April 2028, the state pension age will be 68 years old, so there’s really no telling what it will be in the future. The age of retirement will increase and the state pension might get lower – or at some stage in the future it might not even exist!

But it’s not all doom and gloom. The younger you start investing in a pension, the bigger the rewards are going to be. One of the main benefits of putting money in early is the effect of compound growth. Let’s say we decide to invest £100,000. If there was growth of 5% next year, it would be worth £105,000. Then, if there was 5% growth the year after that, it would be on this larger amount. This means our money would increase to £110,250…and so on. Even investing small amounts has a powerful effect over time.

Research has traditionally shown that young people are the least likely age group to save money and for many, the idea of putting money away can seem really daunting – especially in something like a pension, where you can’t get at it until you are much older or retire.

If you don’t feel ready to start investing in a pension, opening a LISA is a good alternative. This is a new type of ISA (individual savings account – the L stands for lifetime) created by the government that gives you a bonus of 25% on everything you put in. This can be up to £4,000 a year and all you have to do is open one before you’re 40. Like a pension, delaying opening one could actually lose you money in the long run!

Although we probably won’t be earning much when we start working, investing a small amount gives it more time to grow and it’ll seem much less painful! Instead of having to invest something like 20% down the line, you could invest 5% over a longer period – and thanks to our friend compound growth, you’ll end up saving more.

A healthier bank balance and a growing pension pot? Sign me up!

Miranda Parkinson

Mind the Gap

19.03.2021

Benjamin Graham once famously said that “The investors chief problem and even his own worst enemy is likely to be himself.” Graham was a British born American economist and professional investor who sadly died in 1976. Warren Buffett described him as the second most influential person in his life after his own father.

Since 1994, Dalbar, in the US have been producing an annual study that looks to measure the effects of investor choices to buy, sell and switch into and out of different investments over short and long timeframes. The results are startling over all time periods.

If we just look at the last five years, the US stock market as measured by the S&P 500 returned 8.49% per annum. Over the same period, the average US equity investor achieved a return of just 3.96% per annum.

To put this in context, investors underperformed the market in which they were invested by a whopping 4.53% a year.

The only explanation for this huge difference in returns is INVESTOR BEHAVIOUR. That is, that they made decisions based on emotions rather than sound academic foundations. They simply sold out at the wrong time or they bought in at the wrong time.

The research supports our belief that the dominant determinant of long-term, real-life investor returns is the behaviour of the investor himself. Many investors believe, and have been lead to believe by their financial adviser that their returns depend on being in the right funds or types of investments, or, whether they are in or out of the market at the right time. The dominant determinant is behaviour, NOT selection and certainly not timing.

It is undeniably clear that investors can almost double their return by simply avoiding harmful timing decisions and by maintaining a disciplined and rigorous buy-and-hold strategy.

Carl Richards, a US based adviser and creator of the Sketch Guy column in the New York Times, refers to this phenomenon as the “Behaviour Gap” and wrote a book on this subject in 2012. When we were moving office in September, I stumbled across a box of Carl’s books. I’d like to give these away and will offer a copy (signed by Carl) to the first eight people to message me at damien@brunelcp.com. I’m just sorry I don’t have more copies of this great book.

Best wishes

Damien Rylett

Damien Rylett
CEO

Good Money

12.3.2021

One of the many pleasures of my work is that I meet people from all walks of life who bring different perspectives to their financial planning. Different people will often view money differently too; some want to know that they have just enough for their lifetime while others who have perhaps inherited their wealth or act as an Attorney feel a real sense of responsibility and stewardship to pass their money on or to use it for a specific purpose. What is equally fascinating is the different ways they and we value money and the other elements that make up our lives, be it health, family, work, or those special items that we save up for.

At the end of last year, I listened to the Reith Lectures delivered by Mark Carney the former Governor of the Bank of England and now the UN Secretary-General Special Envoy for Climate Finance. Mark Carney has a real skill for communicating and my observations above came to mind as what he said really chimed with me. In these lectures which I wholeheartedly recommend if you have the time and interest, he looks at how as a society we have come to prioritise financial values over human values and the consequences of this.

It’s true that value and indeed success is often measured in financial terms for example a company’s profit, someone’s salary and the contribution goods or services make to a country’s economy (GDP). These are all essential to make our economy’s function but in isolation they can give money undue power. This single minded vision can also contribute to financial crises, our climate crisis. As my nephew aged 14 commented “so not only have you messed up the planet, but you have messed up the economy too”. I don’t think he is holding me solely responsible but for a number of decades money has been the primary concern at the expense of all else. It seems that our social values have often sat outside the financial markets.

HOWEVER……….. all is not lost as we are seeing a real shift in the role money has to play, which for a number of reasons will be more than a passing phase. This started before the pandemic (yes there was such a time!) and has since been accelerated by recent events. It was driven largely by the climate crises and the targets set by Governments worldwide including the UK’s ambitious target of achieving net zero carbon emissions by 2050 whereby we remove the same level of carbon from the atmosphere as we emit, with a significant reduction to be made by 2030.

Governments are not going to be able to achieve this alone, they will need large corporations, private finance, and the investment markets to all pull in the same direction. Companies will need to adapt and change their practices hugely to ensure they minimise their carbon emissions and operate in a climate friendly way – those that do not will not succeed.

We have also seen in the last year how Governments have prioritised health over the economy. We have come to value those who work in the healthcare sector and parents experiencing home schooling have come to value teachers. We have seen generous displays of civic duty with vast numbers of people volunteering, without them the vaccine rollout would not be the success it is, and many more people are wanting to be active in their community.

We are moving towards an alignment of monetary and social values where we are seeing that the companies who are doing well are those whose purpose is not just to create a profit but also do good for society.

I am lucky enough to have a number of clients in their 20’s and for them this is the norm, they are wondering why we have only just arrived at the party.

Tamsin WesthorpeSo, the future is bright, and we are all making a difference. I hope you have a great weekend, it doesn’t look as though its going to be a good one for gardening. If gardening is an interest the daughter of one of our clients, Tamsin Westhorpe, who is a renowned Gardener has written an excellent book that is providing me with lots of practical tips each month ……. perfect rainy day gardening!

Veronica Devereux - First Female Adviser at Brunel Capital Partners

Veronica Devereux DipPFS
Financial Planner

Budget Week and What is in the News?

05.03.2021

The Chancellor’s self-promotion and prominent position in the Cabinet have led him to be dubbed Dishy Rishi by his admirers. And in the run-up to Wednesday’s Budget, Sunak was hardly camera shy. The 40-year-old posted an almost six-minute-long video on Twitter on Monday reflecting on his past year in No 11 – which has since been viewed more than 700,000 times. Can anyone imagine ‘spreadsheet Phil’ being on Twitter and having a video of himself prior to his last budget. I understand, this has raised eyebrows in Westminster and seen the Chancellor installed as the 5/2 favourite to be next prime minister by Ladbrokes. Sunak has an approval rating of 41 per cent, according to a YouGov poll, making him one of the most popular chancellors in recent years. Watch out Boris. Time to visit the Barber (once they open in April of course).

So, here are a couple of the headliners from the Budget and our thoughts:

  • Income, CGT and IHT Thresholds all frozen until 2026. As far as we can see, nothing in the budget today stops IHT mitigation as we know it. ‘We can still make large tax-free gifts, transfer assets into trust and opt to pay the lower rate of CGT on any gains rather than suffer the death rate of 40% IHT’.
  • Corporation Tax to rise to 25% in 2023. Corporation tax is a tax on profits, not turnover, so it is only a tax on businesses that are thriving. ‘The worst thing we could have had was more changes to pensions or savings legislation, particularly with so many people having to adjust their retirement plans due to the pandemic. So, a tax that puts more burden on successful businesses without impacting ordinary savers or retirees makes a lot of sense.’

These are also very much worthy of a mention, especially as we follow our roadmap out of lockdown:

  • Fuel duty and alcohol duties are frozen.
  • Coronavirus Job Support Scheme extended to September 2021 across the UK (employer contribution of 10% required in July and 20% in August and September).
  • Self Employment Income Support Scheme (SEISS) extended to September 2021 across UK, with those who filed a tax return in 2019/20 now being able to claim for the first time.
  • Stamp Duty Land Tax (SDLT) temporary cut in England and Northern Ireland extended until September 2021. The £500,000 nil rate band will be extended until 30 June 2021 then it will be set at £250,000 until 30 September 2021 returning to its standard level of £125,000 on 1 October 2021.
  • New mortgage guarantee scheme to enable all UK homebuyers to secure a 95% mortgage on properties up to £600,000 – only a 5% deposit needed.

In the News This Week

As you know, I like to add in a few little news stories that have either made me smile or cringe!

In the news this week, we have:

  • Free Trip to the Moon – A Japanese billionaire has invited eight members of the public to join him for a free trip around the moon on Elon Musk’s SpaceX flight. “I want people from all kinds of backgrounds to join,” said Yusaku Maezawa in a video on Twitter. He says the successful applicants will advance “whatever activity” they are in to “help other people and greater society in some way” and be willing to support other crew members who share similar aspirations.
  • Fat Chance – a healthy 32-year-old man was offered a Covid vaccination last week, because in his NHS files he was recorded as being 6.2cm tall and morbidly obese. Liam Thorp, who is in fact 6ft 2ins and weighs 17.5 stone said he had been surprised to be offered the jab months ahead of schedule. So, he checked with his local GP surgery and discovered that as a result of being listed as 2 inches tall, officials believed he had a BMI of 28,000 (or around 1,000 times the UK average.
  • Dolly Parton has been given a Covid-19 vaccine after urging others to follow her example by adapting the lyrics to one of her hit songs, Jolene. “Vaccine, vaccine, vaccine, vaccine, I’m begging of you, please don’t hesitate,” sang the 75-year-old in a video before receiving the Moderna shot at Vanderbilt University Medical Center in Nashville, Tennessee yesterday. Parton has donated $1m (£716,000) to the centre. Great work Dolly!

…and finally, you may remember I did my little obituary to Eddie van Halen a few months ago. For all you cycle fans, you must see this paint scheme for a custom bike which was inspired by the iconic Eddie Van Halen ‘Frankenstrat’ guitar. Firstly, I love the paint job and who would not want to own a bike by the UK bike brand Windymilla. Inspiring!

UK bike brand Windymilla

As always, stay safe, healthy and keep a sense of humour.

Best,

David Buchan

David Buchan
Finance Director

The Diary of Financial Planner aged 51 ¾

26.02.2021

Like most of my colleagues my days are very varied. In my dealings with clients, I keep getting reminded about the fragilities of life. It is impossible to keep some conditions at bay, but I am aware that keeping healthy is important (especially for a long retirement), so I start the day with a run.

Typically, the working day starts by heading into the office to deal with any messages that may have been sent overnight via our portal or email.

Then onto a meeting with my team – Harriet and Katy setting out the priorities for the day ahead. Harriet is my Paraplanner providing technical information/report construction etc. and Katy deals with the wide ranging administrative tasks (and there are many!).

Around 11am I may have the first client meeting of the day. Today with new clients who I had met before and wanted to retire but didn’t know if they had enough to do so. Harriet, Katy and I had worked to gather their information, looking at their ‘wish list’ of what they wanted to do in retirement and how much it would cost. The construction of the cashflow reports takes time but is so key in demonstrating what is possible. On this occasion, it was a privilege to let them know that they could retire. You can ‘feel’ the weight almost lift off their shoulders when you say this and the whirring in the brain and excitement of ‘what’s next?’.

After lunch my second meeting of the day is an Annual Planning Meeting with an existing client. They are in the fortunate position that they have enough income for their lifestyle and have said they don’t want to end up ‘the richest in the graveyard’. During the meeting, we talk about a gifting programme to ensure that the right people get the right money at the right time. Many clients have said that they would far rather gift money now to their family when they need it and get a pleasure out of seeing how the gift can help rather than waiting until they die. This is a good conversation to have and a plan is developed.

Talking to my colleagues we are all looking forward to getting back to having these meetings face to face.

I speak with many clients who have been and are going through different stages in life – especially retirement. This has influenced my own thinking of what life after work could look like for me, of course everyone is different. I have many years to continue planning for this as with a 10 year old in tow, I am aware that demands on my wallet will only increase!

Someone once told me that in terms of travelling I should work from the ‘outside in’ – this means travelling to the furthest countries that I wish to visit during my early years and work my way back closer to the UK, as travel becomes more challenging the older you get.

Another tip I picked up from a GP whose friend was a Geriatrician – his advice was walking every day (at least 3 mph) and get a dog. That’s the second GP who’s advised getting a dog in retirement, and not just for exercise – there may be something in that as our cat tends to just walk from the sofa to his food bowl. You don’t get healthier the older you get – a generalisation I know, but reasonably accurate. In other words, ensure that you do the most physically demanding and fun travel/projects as soon as possible.

All things to consider and I’m sure many more ideas will be relayed to me over the coming years.

Have a good weekend and if you have a dog, enjoy exercising in this spring weather and if you don’t, perhaps think about it!

Neil Pinney
Chartered Financial Planner

Brunel Capital Partners is a sister company of Pilgrim Financial Planning