Client trends October 2020:
Revising retirement plans becomes a priority as yield becomes harder still to find

Our users have clearly heeded expert warnings that retirees are going to have to pull back on planned spending levels as a result of the pandemic, with bad news on dividends and interest rates adding further urgency to the hunt for yield.

Retirees get a rude awakening

We have heard from a significant number of users citing stark figures recently cited in the press warning retirees of the need to dial down the amount they plan to withdraw from their pension pots.

Pensioners may have previously banked on being able to withdraw 4% a year, but new research by LCP insists reduced growth rates should mean the new golden rule is 3%. The pension consultancy also counselled savers to accept the need to assume greater investment risk to achieve the returns they need – and warned them not to de-risk too far in the withdrawal phase.

Pension planning is undoubtedly one of the most complex areas of wealth management, not least due to the need to regularly tweak your strategy and holdings over the years

Pension planning is undoubtedly one of the most complex areas of wealth management, not least due to the need to regularly tweak your strategy and holdings over the years. Wherever you are on your journey, having a pensions health check with an expert adviser is likely to be a very clever move.

Rethinks required as dividends continue in the doldrums

Share dividends are a vital source of income for many people, particularly retirees. Enquiries are coming thick and fast from those realising that a dividends recovery may be a long time coming and that their investment strategy may no longer be fit for purpose. The pandemic has caused a dividend bloodbath, with hitherto strong payers reducing or even cutting dividends altogether. By the third quarter, 31 dividend payments from FTSE 100 firms had been cancelled, 12 suspended and 9 cut[i].
Investors relying on dividend payments and who have the all-too-common home bias in their portfolio will be dismayed to learn that this year FTSE companies will pay out a third – or £30 billion – less than expected
Investors relying on dividend payments and who have the all-too-common home bias in their portfolio will be dismayed to learn that this year FTSE companies will pay out a third – or £30 billion – less than expected. While the average current FTSE 100 dividend yield is 3.63%, 18 are paying 0% and 9 less than 1% – levels last seen in 2014.

[i] GraniteShares, September 2020

Are negative rates to be the new normal?

The Bank of England may be holding the interest rate at a record low 0.1% for the time being, but experts are warning investors to take the Monetary Policy Committee’s talk of negative interest rates very seriously. Such a move could come as soon as February 2021 in the UK, depending on how COVID-19 and Brexit are playing out economically, it is being said.

Savers were dealt a further blow recent when National Savings and Investments announced interest cuts to many of its flagship savings products, bringing them as low as High Street banks. The odds of winning a prize from a Premium Bond were also cut.

We’ve noticed a real uptick in users starting to see danger in the notion that “cash is king” and who are looking for alternative safe havens for their wealth

We’ve noticed a real uptick in users starting to see danger in the notion that “cash is king” and who are looking for alternative safe havens for their wealth. Rest assured, there are many a wealth manager can take you through in a no-obligation discussion of your needs.

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Top Tip

We’ve been matching investors with advisers at record-breading volumes in recent months as people increasingly feel that the massive changes in investments, economics and tax warrant revision of their strategies. Periodically checking your plan is good policy at the best of times, and essential now. Let us set up a discussion with an expert fast and free of charge now.
Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

Tax takes centre stage in driving financial strategies

High Net Worth Individuals of all kinds have been alarmed by talk of a range of possible tax changes to come as the government attempts to repair its depleted coffers.

A rumoured “simplification” of the Inheritance Tax has been frequently mentioned during our discussions, but so too have been potential reductions to pensions tax relief for higher-rate payers and an alignment of Capital Gains Tax with Income Tax levels. This last change could mean the sale of second properties could attract tax as high as 45%.

A rumoured “simplification” of the Inheritance Tax has been frequently mentioned during our discussions, but so too have been potential reductions to pensions tax relief for higher-rate payers and an alignment of Capital Gains Tax with Income Tax levels

We’ve also seen a growing number of calls from business people concerned about a possible rise in Corporation Tax to 24% (from 19%) and Dividends Tax also being aligned with Income.

High Net Worth Individuals need to keep their eyes on many tax balls, particularly if they are business people. You may be surprised to learn what you might gain by taking more of a unified approach to your personal and business finances – aligning objectives and maximising reliefs is the kind of holistic work wealth managers excel at.

What are your current money worries?

It looks like an exceptionally busy autumn will follow an unusually busy summer as investors contemplate the huge number of variables affecting their wealth for the rest of the year and beyond. The pandemic, forthcoming US elections, Brexit, a possible range of tax rises and a background of general economic uncertainty are rightly inspiring people to take action in huge numbers.

If you are clear about the areas where you need expert guidance, then use our smart matching tool to find your best-matched advisers in minutes. Alternatively, for an informal, exploratory discussion, get in touch with our expert team to discover all the ways the leading wealth managers on our panel could help.

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