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Global Recession or Golden Opportunity?

If you already hold equities (shares, bonds, stakes etc.) then be prepared to see a downward turn in your portfolio this month…China´s position has seen ALL markets worldwide follow a downward trend, but fear not, and DO NOT PANIC, for many this could prove to be a blessing in disguise – withdrawing funds is not the answer.

Commodity producing countries such as Brazil are certainly suffering because of low prices but many other parts of the world are better off, seeing lower input costs in manufacturing. Lower oil prices are also resulting in lower diesel and petrol prices, boosting disposable incomes for consumers. It is widely believed that the US will be the first major economy to raise interest rates with much commentary centered around September as the likely starting point. However, the recent further fall in the oil price suggests that inflation levels will remain subdued for the foreseeable future.  Nevertheless, even if rates were to rise next month, it is likely to be a token increase, with subsequent movements very slight indeed. In the UK, inflation is also conspicuous by its absence and any moves seem unlikely until well into next year.

So what does all this mean for YOU?  Share prices have suffered a very sharp correction in the last few weeks, albeit after many stock markets reached all-time highs in the Spring. Valuations are around the average for the last twenty years, so the current weakness offers a great entry point. Moreover, dividend yields remain well above government bond yields, underlining the income attractions of equities. Low commodity prices are likely to keep the lid on inflationary pressures, removing the need to raise interest rates. This suggests that bond yields are likely to remain low for some time. Therefore, while stock markets may remain volatile over the coming months, investors shouldn´t be afraid of taking advantage of the recent dip in prices to add to positions where they can.

In layman´s terms, if you have cash in the bank with an expected low yield, and you are not in any rush to utilise the funds, then there has never been a better time to consider investing medium to long term in the equities markets, with products available that have potential to achieve returns in excess of bank interest rates.

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

Retirement Planning: Why Waiting  Could Seriously Impact Your Retirement

For some, retirement feels a lifetime away. For others, it’s right around the corner. Yet, whether you’re 30, 50, or already considering slowing down, one truth is becoming harder to ignore: most people are not saving enough for retirement. According to the BlackRock Read on Retirement 2024 survey, 50% of UK Defined Contribution pension holders […]

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Final salary pensions – why now is a good time to cash in

Juicy lottery-sized sums are being offered to savers to tempt them out of gold-plated workplace pension schemes and into personal plans. We’ve explored whether you should consider taking a final salary pension, as well as the benefits and drawbacks of withdrawing.

What is a final salary pension?

A final salary pension, sometimes referred to as a gold-plated pension, is a special style of retirement fund that is based on your final or average salary.

The main difference between this and a defined contribution pension is that a final salary scheme gives you a guaranteed sum annually for the rest of your life when you retire.

To work out the value of your final salary scheme, consider a few factors: 

  1. Your final or average salary at your place of employment (confirm this with your employer)
  2. Your length of service
  3. The final salary scheme’s accrual rate (this is often 1/80th)

Your final salary pension will take each factor into account, and the resulting figure will be the guaranteed annual sum you are entitled to.

For instance, if you worked somewhere for ten years, and leave on a salary of £100,000, with an accrual rate of 1/80th, you will have a guaranteed retired annual income of £12,500.

It is possible to undertake a final salary pension transfer. Depending upon how long you expect to enjoy retirement, this could be a favourable choice. However, it’s important to consult a financial advisor to make your final salary pension transfer values work harder.

What are the benefits of transferring a final salary pension?

Assessing your final salary pension transfer value, you might consider it worthwhile to withdraw. We’ve outlined the main benefits of taking your final salary pension:

Receive the cash value of your final salary pension

Withdrawing from a final salary scheme allows you to receive a cash lump sum in return for forfeiting your guaranteed income in retirement. This final salary pension transfer value is the main reason to withdraw from a scheme, as it offers you financial freedom.

Remove ties with your employer

This is an especially important point if you’re concerned that your employer may not exist throughout your full retirement. For most, the pension protection fund (PPF) will cover your pension, but, for especially high earners, there is a PPF ceiling of £41,461 (as of April 2020).

Enjoy a flexible income in your retirement

A final salary scheme entitles you to a guaranteed annual income when you retire, but if you go down the route of transferring your final salary pension you will be able to enjoy a little more flexibility in how you receive your income. Usefully, by withdrawing from your final salary scheme, you can choose to take more out in your younger years.

Choose how you want to invest your pension

A final salary scheme is controlled tightly to accommodate all employees and their interests. When withdrawing from the scheme, however, you can take complete control over how your pension fund is invested.

The considerations you should make before transferring your final salary pension

While there are certainly benefits of going down the route of transferring final salary pension funds into various other pots, it’s important to consider what you’ll be giving up:

  • Entitlement to a fixed annual income for the rest of your life
  • A safe income that doesn’t fluctuate with volatile markets and share prices
  • Spousal and family benefits that come with a final salary scheme

 Example: Should I cash in my final salary pension?

An example is Mrs Dee (not her real name), 4 years ago she asked for her final salary transfer values, which came in at £250,000 – a nice sum, you may think. After reviewing all the facts and figures available, however, I advised Mrs Dee to leave her final salary pension where it was, which she duly did.

Towards the end of last year, because of favourable market conditions, I applied again to see the value of transferring her final salary . This one came in at just under £600,000.

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