Brexit & EU Tourism

While the Brexit debate rages on, much of the attention has been focussed on banks and their highly-valued EU passports. It is, however, worth remembering that Brexit could impact on other industries, particularly tourism, which has varying degrees of importance across the EU. In a post-Brexit world, there are a number of factors which could influence its economic health.

Pound v Euro exchange rates

If the pound continues to fall then it will become cheaper for people from other EU countries to come to the UK for leisure travel. While the UK’s weather may not be enticing, it has plenty of other attractions and a soft pound could be just what the UK’s tourist industry needs to encourage more visitors. On the other hand, if the pound strengthens, then it may be more of a challenge to attract EU tourists to the UK, but it could be easier for UK tourists to head overseas. If, however, exchange rates settle to a consistent level, then different factors are likely to come in to play.

Ease of Travel

All visitors to the UK are currently required to go through border control but at this time visitors from the EU only require national identity cards, rather than passports. In theory this could change, but it is an open question as to whether or not this would actually happen. Travellers from the UK already expect to have their passports checked at least once when they arrive on the EU mainland. If the EU continues as an open-borders zone, participating in the Schengen agreement, then it is a reasonable assumption that UK tourists would be allowed to pass freely between member states. If the Schengen agreement is abolished, then it is likely that border controls would return, but this in itself would not necessarily mean that UK tourists would need a visa, just that they would need to be prepared for passport controls as is already the case when travelling outside the EU.

Cost of Travel

There are various factors involved in the cost of travel. One is oil prices, which are highly unlikely to be impacted by Brexit. Another is local taxation, which may or may not be impacted by Brexit. A third is, quite simply, supply and demand. At this point in time, there are numerous EU nationals living and working or studying in the UK as well as UK nationals doing likewise in the EU. This generates a certain amount of demand for travel as people visit friends and family who are now resident in a different country to them. If this situation changes and the demand for travel drops then, counter intuitively, this may well result in higher travel prices. The reason for this is that some airlines, particularly the budget ones, may begin to drop routes or even abandon their business completely, which would leave their remaining competitors in a stronger position to raise fares and improve their own margins.

Cost of Insurance

At the moment, those who hold an European Health Insurance Card
(EHIC) card can access local health services on a like-for-like basis with residents of the relevant country. Depending on how Brexit happens, this right may be withdrawn, which would mean that travellers would have to take out insurance to cover any medical issues. While this is also the case outside the EU, the actual price charged by insurers might be a factor in any travel decision.

The “feel-good factor”

While many of the issues surrounding Brexit have been couched in economic terms, it’s probably fair to say that for many people, emotional issues are also an important consideration. In simple terms, holidaymakers want to know that they’ll be welcome in any country they choose to visit. Safety is another key point. If the UK manages to project an international image of hospitality and security, then there is a very good chance that visitors will still choose to come here even if other destinations are cheaper and/or more convenient.

Pension & Brexit

phone-1209230_640Much of the post-Brexit discussion has focused on what might be called “visible” topics, such as immigration. It is, however, also important to think about financial matters and to take whatever steps are necessary to mitigate any potential negative consequences. In this article, we’ll take a look at Brexit and what it means (or could mean) for pensions and pensioners.

The UK state pension

The UK state pension is based on National Insurance contributions. These are paid by those in employment (which can include self-employment) and are paid on behalf of those in receipt of certain benefits. While it is arguably unlikely that any changes would be made to current entitlements for existing pensioners, there are plenty of open questions regarding future entitlements. George Osborne has already indicated that he thinks that taxes (and presumably NI) would need to go up and spending would need to go down to cope with the economic impact of a Brexit. This could have a number of implications for the state pension such as increased NI contributions being required to claim it, the state-pension age being increased (further) and/or the triple-lock guarantee being abandoned.

Defined-benefits workplace pensions

This type of pension scheme has already largely been abandoned in the private sector and employers who continue to offer such schemes tend to be ones in which there is a significant degree of union influence, this generally means the public-sector or formerly-national industries such as public transport, some of which at least continue to receive government (for which read taxpayer-funded) subsidies. Public-sector pensions have become an increasingly-contentious issue over recent years and could feasibly become a new battle-ground in a post-EU UK.

Defined-contributions workplace pensions

These are the de facto standard for workplace pensions and have been heavily promoted by the government over recent years (“We’re all in”). In these schemes, employees and employers both make contributions to a pension pot in readiness for an employee’s retirement. These contributions are currently determined as a percentage of the employee’s salary. When the auto-enrolment scheme was announced, the plan was to mandate a steady rise in the level of contributions over the forthcoming years. The Brexit decision may cause that position to be rethought. It may also cause employees to rethink their commitment to workplace pensions and either to look for alternative ways to save for retirement (ones which offer more flexibility) or to suspend their preparations for retirement in order to focus on present needs.

Personal pensions

Personal pensions are essentially defined-contributions pensions without the involvement of an employer. They allow the self-employed and those out of employment (e.g. home-makers) to save towards a pension, but as with their workplace counterparts, they may lose favour to more flexible (if less tax-efficient alternatives) if people need to focus on the present.

Pensions in general

Ultimately all pensions, including taxpayer-funded ones are dependent on the returns from private enterprise (or state-owned assets). As the city of Detroit has so clearly demonstrated, life can get very interesting when commitments made by governments or government-backed organisations prove too much for the revenues which can reasonably be generated by the current generation of taxpayers. Likewise governments which have worked to incentivise people to save towards their retirement are likely to be very unhappy if they find that people have taken advantage of tax benefits only to lose the money they have saved over the years through poor investment choices. Hence it is possible that some people in government make seek to reverse the (relatively) new pensions freedoms and force pensioners back into annuities. The potential problem with this approach, however, is that it may simply encourage people to avoid pensions, in spite of their tax benefits.

Whilst all decisions are very much up in the air, if you have any concerns or questions regarding your current financial options we recommend that you talk to a financial adviser who should be able to allay your fears and answer your questions.

Brexit & EU Property

In all the press excitement about Brexit and the property market, one group of (potential) property owners seems to have been largely overlooked. This is, of course, the people who either have bought, are in the process of buying or would like to buy property in the EU. On the one hand, this is understandable since they are very much in the minority of property owners in the UK. On the other hand, this is probably of scant comfort to those who are currently in this situation and wondering where they stand.

Sorting out your status

One of the reasons why it’s so difficult to give any sort of firm comment on anything to do with Brexit is because at this time it’s totally unclear what Brexit actually means in reality. Sadly this state of affairs is likely to continue until the Conservative party elects a new leader and, we assume, article 50 is invoked and the exit negotiations begin in earnest. Even then there could still be a long wait for any final outcome since the parties concerned have up to two years to conclude their negotiations and, in principle, could actually take longer if there was agreement from all concerned. The outcome could be anything from the UK moving essentially seamlessly into the European Economic Area (EEA), in which case it will be largely business as usual, or failing to reach any agreement at all, in which case the relationship between the UK and the EU would be governed by World Trade Organisation (WTO) rules. Alternatively it could be some sort of halfway-house agreement, as yet to be determined. Anything short of full EEA membership could impact on the plans of those looking to ease into a “soft” retirement, i.e. one bolstered by some work as well as those currently relying on some level of local income.

Getting there and back

Regardless of whether an EU property is a permanent home or a holiday property, it’s a reasonable assumption that there will be at least a certain degree of travel between the property and the UK. Given that those with UK passports can travel to numerous countries without needing a tourist visa, it seems highly unlikely that Brexit would cause difficulties in this area.

The pound in your pocket

To be fair, the issue of Pound/Euro exchange rates has been an issue for UK pensioners living in the EU for a long time. The sudden drop in the pound did, however, bring it into sharp focus. In the long term, a more pressing issue could be how pensioners would be treated by the UK government in a post-Brexit world. At the moment, EU-based pensioners are treated the same way as their UK-based counterparts and any increases in pensions are automatically passed on to them. Even if the UK joins the EEA, it may be within the bounds of possibility that the UK will seek to treat EU-based pensioners in the same way as their counterparts living outside the EU, meaning that they could feasibly be excluded from future rises in the state pension. Even if this was, technically, a breach of the freedom-of-movement rules which also apply to EEA countries, the other member countries might allow it if they did not see this as having an impact on their citizens.

The availability of mortgages

Regardless of whether central governments lay down any rules restricting the ability of non-EU nationals to obtain mortgages, it is entirely possible that lenders may feel more nervous about advancing funds to borrowers who are non-EU nationals, particularly if their home country is experiencing economic and/or political turbulence, which could affect exchange rates and hence the borrower’s income. If they choose to lend at all, they may demand larger deposits and higher interest rates.

A Financially Rewarding Retirement

A financially-rewarding retirement is not the only contributor to a satisfying, healthy and enjoyable life, it’s still a pretty important one.

For most, during working life, financial wellbeing will depend on whatever they do to earn money. However, as well as securing the living standards you want when you’re working, it’s also important to think carefully about putting some of that income aside for your future.

Generally speaking, the more you save and the earlier you start saving, the better shape your financial assets are likely to be in when you need to draw on them.

Choices at retirement

When work ends or reduces, your financial assets have a bigger part to play. And for many their pension fund will be an important (but not necessarily their only) financial asset. The decision on where to draw funds from when money is needed to replace or supplement earned income will be an important, and sometimes complex decision and there are many factors that can influence it:

  • whether to convert pension savings held either in a personal or workplace pension
  • how to make your pension income last (given most of us are living longer)
  • how to protect your income against the effects of inflation

Historically, most people have bought a ‘lifetime’ annuity on retirement. In April 2015, there were some big changes to the ways in which you can take money from your pension fund. The new options introduce more choice – and more complexity. The fundamental principle though, is that once you’ve reached age 55 you will have the ability to access all or any part of your pension fund, albeit taxed, however and whenever you want to.

The State Pension

For many, the pension the State provides will form a key part of their retirement income. The amount of State Pension you’ll get usually depends on the National Insurance contributions you’ve paid. The age at which you can claim State Pension is changing. It’s currently 65 for men. State Pension Age (SPA) for women is gradually increasing from 60 and will reach 65 by November 2018. SPA for both men and women will then increase to 66 by October 2020 and then to 67 and eventually 68 by 2046. A new single tier State Pension of £155.65 maximum a week, replacing the Basic and Additional pensions, will affect people reaching State Pension Age from 6 April 2016 onwards.

Ensuring good decision-making

Self-evidently, the greater the value of your investment, the greater chance you will have of a financially rewarding retirement. But the more investments you have, the more important it will be to think very carefully about where you take money from when the time comes to take it.

A good understanding of the tax rules that apply to your investments will be essential to good decision making. You’ll also need to think about the relative importance of certainty of income, access to capital, and preservation of capital for your family, as well as the degree of risk you’re prepared to take to achieve your required level of return on the investments that remain in your pension fund.

The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen  

If you’d like expert advice on your retirement choices, please get in touch.

Summer Holiday Tips

It’s coming to the time when many people will be thinking about their summer holidays. Before heading off on your travels, take a look at our tips on how to save money.

1. Make sure you have the right insurance

This tip is so important we’d like to highlight it. Even if you’re travelling within the EU and have an EHIC card, it’s still very worthwhile considering taking out extra medical insurance as well, particularly if you don’t speak the language of the country you’re visiting. If you’re going outside the EU then it’s crucial to have medical insurance as a minimum and this needs to cover both the country or countries you intend to visit at the time you intend to visit them and also any and all activities you could possibly wish to undertake. Remember that lower-priced insurance policies may have restrictions which could invalidate your policy so be sure to check. If you do have an accident or fall ill on holiday, having the right insurance could make a world of difference to your situation and prospects.

NB: EHIC cards expire so check yours is valid before you travel.

2. Keep your browsing clean

You can be tracked on the internet. Websites might not know who you are (unless you register) but they can generally tell when a particular computer is making repeat visits to them and get an idea of why based on the user’s activity, for example their searches. They may then use this information to adjust their offers and prices to encourage the user to spend the most money. To avoid this, keep your browsing history clean. If using Google Chrome avoid this by right-clicking on links and choosing “Open link in incognito window”. For other browsers, check the internet to see how to clean your browsing history.

3. Avoid getting caught out by add-ons

Low-cost airlines have become somewhat infamous for this, but there are plenty of other culprits including car-rental companies, insurance companies and hotels. Make sure you compare prices which include everything you need rather than just looking at headline prices.

4. Turn off your data

Even if you’re travelling within the EU, data charges can add up for the simple reason that there’s a temptation to use more data, for example to look up online maps. A bit of advance-planning can put a stop to this. For example, you can use an app like Navmii to download maps to your phone. Admittedly it’s more basic than true satnav but it does the job without the cost of data. Similarly an old-fashioned paper-dictionary and/or phrase book doesn’t need a data connection. If you don’t want to carry one, download an ebook to your phone. If you’re travelling outside the EU, data charges can be very expensive and turning it off completely is arguably the best way to avoid nasty surprises when you get home.

5. Check any local laws

This is particularly true if you’re planning on driving. Again, if you’re planning on driving within the EU, your UK driving licence should be accepted in all member countries. There may, however, be local rules to which you are still expected to adhere. For example, in many EU countries it is compulsory for motorists to carry a warning triangle in their car and some require other equipment as well such as a reflective vest and/or first aid kit. In France motorists are also required to carry an approved breathalyser. While this is only likely to be checked if you are stopped for any reason, a bit of prior research can help to avoid problems with local law enforcement. If you’re travelling outside the EU, you will need to check if you need an International Driving Permit. If you do, make sure to use a reputable source such as the Post Office to get one. Please note most countries require an IDP 1949 but Brazil, Iraq and Somalia still require an IDP 1926. You will also need to check up on other local laws related to driving.

Brexit Initial Review

It was the result which took the bookmakers by surprise. Maybe it would have been different if the weather had been dry and sunny in the South East of England. Since you can’t run history twice, we’ll never know. What we do know is that the UK as a whole voted to leave the EU, so let’s look at what that means in practical terms for those seeking to take care of their finances.

Impact on the Pound

The pound dropped in the run up to the referendum, but began to climb again as polls indicated that the Remain camp had secured a significant lead. Notwithstanding this, the news carried stories of panicked travellers queuing to secure their holiday funds before a potential Brexit saw a drop in the value of the pound. Brexit is now confirmed and it is only to be expected that, in the short term at least, it will have an impact in the value of the pound. A drop in the value of the pound is, of course, bad news for holidaymakers (and the companies which serve them) and it’s bad news for those who depend on imports. On the other hand, it makes the UK a cheaper holiday destination for people from overseas and it’s great news for exporters.

Impact on Business as a Whole

Obviously any impact to the pound could have a knock on impact to UK-based companies. Those that benefit from a strong pound could be hurt by a fall, whereas those who aim to attract custom from overseas could benefit from it. Access to the EU’s single market is a more interesting issue. The Remain campaign touted it as one of the major benefits of membership. The Leave campaign, however, pointed out that trade is (or should be) a two-way street and that countries which set up trade barriers against UK exports can expect to have their own exports treated the same way. How this works out in practice remains to be seen. It also remains to be seen what impact this will have on the highly-controversial TTIP(The Transatlantic Trade and Investment Partnership). In the short term, it is highly likely that there will be a drop (or at least volatility) in the stock market; this could open up a window of opportunity for investors to find bargains amongst companies with solid fundamentals, which have simply been caught up in economic turbulence.

Impact on the Financial-Services Sector

At the moment UK financial institutions can operate across the EU under one licence (or passport), whether or not they retain this ability depends on a number of factors. If the UK moves, more-or-less seamlessly into the EEA/EFTA then it could feasibly be business as usual. If not then the UK would have to negotiate specific agreements with its former EU partners. Given the strength of the UK’s financial-services sector and the fact that European rivals would presumably love the opportunity to take over business from them, then this might prove trickier than negotiating trade agreements.

Impact on the Housing Market

If the UK’s population drops then it seems a reasonable assumption that the demand for housing (to buy or to rent) will also drop and since prices in a free-market economy are a function of supply and demand, it therefore follows that prices for accommodation will also drop. As is so often the case in life, there are winners and losers in this situation. While sellers and landlords may regret the reduced demand, the plight of “generation rent” and “would-be first-time buyers” has been a constant source of news topics and any fall in house prices (or rental prices) would presumably be welcomed by them.

As with all changes, it makes sense to not make rash decisions based on yesterday’s vote but to take a view on what’s happening and keep an open mind. There will be initial fallout – for instance the drop in the pound but over the next few weeks the dust will clear and ways to move forward will become clear.

The Lifetime ISA

The Lifetime ISA will be available from April 2017 and will work on a top up basis, meaning that for every £4 saved, the government will add £1.
At the same time the ISA allowance will be raised to £20,000. Anyone between the ages of 18 and 40 can open a Lifetime ISA, and any savings put in before their 50th birthday will receive an added 25% bon
us from the government.
The ISA can be used for either retirement saving or towards a house deposit.

The money can be withdrawn tax-free after the savers 60th birthday, but if it is withdrawn at anytime before the age of 60 savers will lose their government bonus, including any interest or growth. They will also have to pay a 5% charge.

Pushed into pensions

The Lifetime ISA could become part of the pension regime, falling under the £40,000 annual allowance for pension contributions.

Your annual allowance for pensions will be £40,000, but you have to deduct from it any payment you make into your Lifetime ISA. It could be the beginning of the end of the current regime as we know it, albeit something that takes place over the next 30 to 40 years, he said.

Claire Trott, director at Sipp provider Talbot and Muir, pointed out people who wanted to withdraw savings before they turned 60 faced a large exit penalty.

You can use the funds at any time to buy your first home, however if you want to withdraw the funds at any time before youre 60, the government will reclaim their bonus, and theres a 5% charge as well, including any growth, she said.

Brexit & The Property Market

On 23rd June, the UK will go to the polls to decide whether or not to remain as part of the EU. At this time the end result would appear to be anybody’s guess. If there is a Brexit, what impact could it have on commercial property investment?

Demand might be severely impacted

Immigration is undoubtedly one of the hot topics in the Brexit debate. On the one hand there are a number of EU immigrants currently living in the UK, who could potentially (but not definitely) find themselves being required to leave if the UK chooses to exit the EU. On the other hand there are a number of UK nationals living in the EU, who could potentially (but not definitely) be obliged to return home if the UK chooses to exit the EU. From a property-investment perspective, the worst-case scenario would be the EU immigrants being forced to leave without the UK nationals being obliged to return. While this would seem unlikely on the face of it, it could not be completely ruled out since many of the UK nationals living abroad are retirees, who are not competing in the local job market.

There could be a flood of property on the market

If EU immigrants are obliged to leave the UK then those who are housed in rental property will need to terminate their rental contracts. EU immigrants who are owner-occupiers may choose to sell their property or they may choose to hold onto it and become landlords themselves. This, in and of itself, may not necessarily be bad news. A short-term glut of supply could become a buying opportunity, although it’s always worth remembering that there is a difference between low-priced and a bargain. Investors always need to be looking for quality property with the right features rather than just grabbing properties which are “priced to sell”.

There could be a shock to lending

Mortgage lending is at the core of the housing market and even those who have sufficient funds to operate purely out of their own funds can find themselves being affected by it. In simple terms, the more relaxed lenders feel, the more likely it is that there will be competition for the best properties since it will be easier for people to buy them with the help of mortgages. Conversely the more anxious lenders feel, the easier it is for cash buyers to build their own portfolios without competition from people who need mortgages. Also, when it is difficult to get a mortgage, people are more likely to rent, if only because they are unable to buy, which creates further demand for rental property.

A Brexit could trigger a second independence referendum in Scotland

During the independence referendum in 2014, much was made of the fact that an independent Scotland could not consider itself guaranteed membership of the EU. While it is unclear what impact (if any) this ultimately had on people’s voting choices, however many pro-independence commentators in Scotland have argued that it was such an important plank of the “No” campaign that a vote for Brexit should trigger a second referendum in Scotland, particularly if the majority of the people in Scotland vote to remain in the EU, but are, effectively, over-ruled since England has a much more substantial population. This could raise a whole new set of questions relating to a potential new relationship between Scotland and England, which, as a minimum, could create uncertainty in the property market, at least in the short term. As always, however, it’s important to remember that property investment is a long-term game and issues which create short-term volatility or other challenges are generally resolved over time.

Pension Scams – Don’t Get Caught Out

While the new pensions freedoms have been welcomed by many, some have raised concerns about the prospect of retirees being scammed out of their hard-earned pension pots. While this is a possibility, it’s worth remembering that the days of buying annuities had their own challenges, with people realistically looking at a seriously-impaired quality of life if they went for an inappropriate provider. Those on the verge of retirement were, therefore, regularly advised to shop around for the best deal. Similar logic applies in the light of the new pensions freedoms, caveat emptor, let the buyer beware. Here are some useful pointers to avoid being parted from your money.

1. Get to know the provider thoroughly before you part with your cash.

In the old days, it was standard advice never to be pressurised into giving details to a cold-caller. This is still good advice, but in this age of e-mail and internet, you need to be cautious about digital communications too. In particular look out for any e-mails which purport to come from financial services companies, including ones with which you already do business. Check the actual e-mail address (it’s often easy to spot scam e-mails just by looking at this) and avoid clicking any links in the actual e-mail. If it says it’s from a particular company and you think it is, go to the company’s website and find the information yourself or use an external, reputable, telephone directory to find the company’s number and call them. Even when you’re happy that you know the identity of the person you’re dealing with, make sure you thoroughly understand any deal on offer before parting with your cash.

2. Never let yourself be rushed into anything

If a deal’s good today then why would it stop being good tomorrow or next week or even next month? If someone’s trying to pressurize you into acting quickly, you have to ask yourself why. There’s a huge difference between buying tickets to the must-see event, which is guaranteed to sell out quickly and investing a pension pot to create an income which will last you for the rest of your life.

3. Be very suspicious of changes to established services

Companies in general (and financial services companies in particular) tend to give their customers as much notice as possible with regards to changes in their service. This is especially true when it comes to anything involving customers being able to send money to them. If you receive any communication purporting to be an urgent change to an established service then you should verify it directly with the provider by phone (or face to face). If you receive an e-mail advising you of a change in bank-account details then you absolutely must verify it before making any payment into it as there is a distinct possibility it is a scam.

4. Understand the rules around pension funds

Making sure you understand the ground rules of pension funds can help you to make better-informed decisions, which will also help you to avoid scams. For example, if anyone says (or even implies) that they can make it possible for you to access your pension pot before the age of 55, then alarm bells should start ringing immediately. As always, if a deal sounds too good to be true it probably is.

5. Be aware of the risks of unusual investments

There can be a very fine line between high-risk investment and scam, in fact it can arguably boil down to the provider’s intentions. You may be prepared to use part of your pension pot for a bit of a gamble in the hope of achieving the highest returns, but be ready to investigate such investments very thoroughly so that you are totally aware of (and comfortable with) the time-scale and element of risk.

Are you saving tax efficiently?

bank-20795_640If you’ve always been a saver but never considered an Individual Savings Account (ISA) you could be losing out to the taxman.

Make your savings work harder

ISAs are tax-efficient savings plans that allow you to shelter up to £15,240 in the 2016/17 tax year from income and Capital Gains Tax. Around 13 million adult ISA accounts were contributed to in 2014/15. That’s around £79bn being saved with an average of £6,064 in each account.

There are two types of ISA: cash ISAs, and stocks and shares ISAs. You can put your money in to one cash ISA, or one stocks and shares ISA or split your investment between the two.

Tax efficiency

With a cash ISA you don’t pay tax on savings accounts interest.

For a stocks and shares ISA you don’t pay tax on any income or capital gains tax you’ve made on your investment. You can include shares in companies, unit trusts and investment funds, corporate bonds and government bonds.

More freedom

Since 6 April 2016, you can withdraw and reinvest money into your ISA without losing your ISA tax benefits as long as the repayment is made in the same tax year as the withdrawal. Please seek advice or check with your provider before making withdrawals.

A higher allowance from 2017

The Chancellor’s most recent Budget announcement confirmed an increase in the allowance to £20,000 from April 2017. This welcome move will allow people to save even more money in a tax efficient way.

The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances.

Although there is no fixed term, you should consider stocks and shares ISAs to be a medium to long term investment of ideally five years or more.

The value of your stocks and shares ISA and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.