Happy New Year and I hope that you all managed to have a relaxing festive period. As always seems to be the case, it feels like a lifetime ago now! For this review, we will have a quick look back at December, as well as giving a brief overview of how the year panned out for the major investment indices.

As we reported in last month’s review, the Bank of England (BoE) raised the base rate to 3.5%, a 50 basis points increase. This was the ninth consecutive increase for the key base rate here in the UK. Interestingly, the monetary committee were not all in agreement, with one official calling for a 75-basis increase and two others voting for no change. There was a slight decrease in the inflationary figures in November. The annualised rate of consumer price inflation fell to 10.7% from 11.1% in October. A small comfort, but prices have still risen at the most rapid rate for over 40 years.

During December, both the FTSE 100 Index and FTSE 250 Index fell by 1.6%. However, when you look at 2022 as whole, there was a marked difference in their performance. The FTSE 100 Index saw a very small increase of 0.9%, whereas the FTSE 250 Index declined by 19.7%. In large part, this is because the FTSE 250 Index is far more aligned with our domestic economy, where the FTSE 100 Index is more international. During 2022, the pound weakened against the US dollar, finishing at US$1.21 from US$1.35. Of course, during the year the pound was far lower, and has recovered somewhat.

Despite the UK economy growing by 0.5% in October, overall, in quarter 3 The Office for National Statistics advised that GDP fell 0.3% compared to quarter two. This was slightly worse than the expectation of a 0.2% contraction.

Over in the US

The Federal Reserve (Fed) increased their key interest rate by 50 basis points, meaning this was the seventh rise in 2022. However, this did show a slight loosening in their monetary tightening as the previous four rises had been at 75 basis points. The inflationary pressures in the US seem to show signs that the peak has been reached, as November saw their year-on-year rate fall to 7.1% from 7.7% in October. During December the Dow Jones Industrial Average Index dropped by 4.2% and by 8.8% over the course of the year. The S&P 500 Index fell by 19.4% over 2022, which was its worst year since 2008.

In Europe

Continuing the trend of increasing interest rates, the European Central Bank (ECB) raised its rates by 50 basis points to 2%. It is now expected for the ECB’s inflation rate to stay above its target of 2% until 2025. The President of the ECB advised “We’re not slowing down. We’re in for the long game”. The German’s Dax Index fell by 3.3% in December and by 12.3% in 2022.

In Japan

The Bank of Japan (BoJ) surprised markets by announcing that it would relax the cap it imposes on long-term yields from ±0.25% to ±0.50%. This saw a selloff in the Japanese bond markets. However, the BoJ remains largely on its own over monetary policy, as once again it didn’t raise interest rates, in direct contrast to the other central banks in the developed markets. The Nikkei 225 Index fell by 6.7% during December and by 9.4% during the year.

I am hopeful, that despite the falls in the markets in December, we are starting to see a more positive outlook. It does appear that the global inflationary issues are abating but are of course still extremely high. With this, it may well be that the rapid rises in interest rates could be nearing an end, as was seen with the Fed’s last rise. There is a long way to go and I am sure that there will still be some news that could have a downward effect on the markets during this year. But let’s hope that 2023 sees some growth on the portfolios and sees the long-term outlook of the investments start to pay dividends.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 29 2067 5204/ +44 (0) 7917 390 344 or emailing richard.brazier@hanoverfm.co.uk and we will be happy to talk to you.

As we approach the festive season, are we starting to see some positive news on the economic front? November saw global equities generally build on the positive returns seen in November. This meant, for the first time since last summer, equities saw consecutive months of gains. A lot of this positivity is on the hope that the pace of economic tightening is set to slow from central banks.

During November, the US Federal Reserve (Fed) raised their rates by a further 75 basis points to a range of 3.75% to 4%, which was the sixth consecutive increase. This is the highest level since January 2008. However, later in the month the Fed Chair, Jay Powell, indicated that the next rise would be 50 basis points. This was positively received by global equities markets. The Dow Jones Industrial Average Index saw a 5.7% increase during November.

There are some tentative indications that inflationary pressures are showing signs of peaking. The latest data in the US showed that inflation in October slowed to 7.7%, less than the anticipated 8%, representing the lowest level since January. In Europe, the rate of inflation in the eurozone saw its first fall since July 2021, easing from 10.6% in October to 10%. However, here in the UK, the annualised rate of inflation rose from 10.1% in September to 11.1% in October.

The Bank of England (BoE) raised interest rates by 0.75% to 3% in November, which was the most significant single hike since 1989.  The UK does, however, appear to be economically steadier following the volatility caused by the previous Prime Minister and Chancellor. In November, the Chancellor, Jeremy Hunt, announced £30 billion in spending cuts and £25 billion in tax rises during his autumn statement. The BoE has indicated that further rate rises will follow, but it is expected these won’t be as severe as was predicted a couple of months ago.  Indeed on 15 December, the BoE raised interest rates again to 3.5%.

It is very probable that the UK is already in a recession. The UK economy contracted by 0.2% in the third quarter, which followed a 0.2% increase in the second quarter. It is believed that this recession could last until the middle of 2024. During November, the FTSE 100 Index rose by 6.7%, whilst the FTSE 250 Index climbed by 7.1%.

The German economy is also expected to fall into a recession, with a predicted contraction of 0.3% in 2023, according to the Organisation for Economic Co-Operation & Development (OECD). Despite this prediction, the German Dax Index rose by 8.6% by the end of November.

One of the big talking points of the last month was China’s continued controversial zero Covid policy, which saw protests in many of their cities. This had a negative effect on investment sentiment both towards their economy and the wider global prospects. In Japan, their economy has seen a contraction of 1.2% year on year in the third quarter. Much like many global economies the rising prices have seen consumer spending curbed. In November, the Nikkei 225 Index increased by 1.4%.

It just remains for me to wish you all a very Merry Christmas and a Happy New Year. As ever, if you ever need to speak to us, please do not hesitate to contact us. We look forward to working with you in 2023.

Clients frequently ask us this question and this article is designed to give you a basic overview of the legislation governing pension fund death benefits.  However, nothing is an adequate substitute for specific information tailored to your personal circumstances, so if you would like further information please get in touch with us for more specific guidance.

Pension fund death benefits

The answer to this question will depend on not only legislation, but also the rules of your pension fund.  Therefore, your first step should be to consult your pension fund administrator/trustees to double check that your scheme is fully compliant with current legislation.  Luckily, if your pension fund is with Hanover on our latest SSAS Trust Deed & Rules then you will benefit from the full flexibility of the current legislation, brought in by the Taxation of Pensions Act 2014 (TOPA 2014).  The details below are mainly aimed at plans offering full flexibility, so different rules could apply if you have alternative plans, such as contract based defined contribution or defined benefit schemes.

When a member passes away, the legislation allows trustees to use any remaining funds attributed to the member to pay death benefits from the scheme.  These benefits can be split into two categories:-

1. The trustees can pay a lump sum from the scheme.
2. The trustees can pay a dependant/nominee/successor pension.

Benefits are paid at the discretion of the trustees, and therefore are usually paid outside of the member’s estate and free of Inheritance Tax (IHT).  If the member passes away prior to age 75 then the above benefits can usually be paid tax-free.  If the member passes away after the age of 75 then benefits are typically taxed as income in the hands of the recipient.  Benefits may be tested against the members remaining Lifetime Allowance, depending on when they are paid and whether the member has drawn retirement benefits prior to passing away.

A tax efficient way of passing funds to the next generation

Although benefits are paid at the discretion of the trustees the member has the ability to state their wishes by completing an Expression of wish death benefit nomination form.  With the ability to pay a lump sum and/or pension benefits directly from the scheme and the IHT benefits, members often use their pension benefits as a tax efficient way of passing funds down to the next generation.  This can either happen on the death of the member or on the death of their spouse, if they elected a dependant’s pension when the member passed away.

Once death benefits are in payment, the trustees will liaise with beneficiaries to ensure that updated Expression of Wish death benefit nomination forms are completed.  As long as sensible investment and pension drawing strategies are implemented the payment of death benefits can continue down several generations under the current legislation, so a member could potentially use their fund to provide benefits first to their spouse, then their children, then grandchildren etc.

A number of options available

There are a number of options open to members when considering death benefits; for example whether to pay benefits to beneficiaries directly from the pension fund, or whether to pay benefits to a family trust that then distributes payments to selected beneficiaries.  This is where Hanover clients will benefit from being part of the wider Ince Gordon Dadds group.  Our colleagues have a wealth of knowledge in family planning and providing IHT advice to individuals, encompassing not just the pension fund but also their wider income and estate planning.  We would be happy to put you in contact with one of our partners who could provide you with specific expert advice based on your personal circumstances.

We hope that the above details are of use in giving some general guidance regarding the legislation surrounding the payment of death benefits.  For further information specific to your particular circumstances please contact your usual Hanover consultant.

Articles published on this website were correct when they were written but may be out of date by the time you read them. While we make every effort to ensure that the information contained on this website is correct you should not rely on it without taking advice from a member of the firm.

By Richard Brazier  |  7 March 2019

Many times I am asked by prospective clients why they should pay for ongoing advice on investment products. Surely, they reason, once the plan is set up my work as an adviser is completed and no longer necessary. So long as I have done my job well the fund will be invested in line with their agreed risk profile and will look after itself, in a contract that has been identified to meet their requirements.

Most of the people that I meet can absolutely see the benefits of the initial advice that we provide. They can see that we can help to identify their financial needs and quantify these into simple to understand objectives. From there we can recommend products that meet these objectives, and having agreed their attitude to investment risk, a portfolio to match this risk profile.

But why I am needed going forwards? Why should I pay you an ongoing fee once you have you recommended a contract and portfolio?

Of course, these are fair enough questions and I would liken it to how we look after our own cars. Once you have decided on the car you want and all the factors that come into this decision, most important being the colour of course, the garage’s job is done? Much as the same as ours is when you set up the recommended contract.

But is the garage’s job done at this stage? Much like an investment plan there are costs of running a car that can’t be avoided. With a car you will always have to pay for fuel and tax, and for an investment plan you will always have to pay for the annual contract charges and investment fund charges on a yearly basis.

You do, however, have the choice as to whether you pay for regular servicing on your car. If you elect to avoid this cost, the chances are your car will continue to work and get you from A to B. But you do run a greater risk of the car breaking down, especially over the longer term. Of course, just because you get your car serviced doesn’t guarantee it won’t break down but you are increasing the odds that it won’t.

And the same is true with paying for an adviser to regularly review your investment contract. This service means that you at least once a year get to speak to your adviser to review your plan. During which they can discuss whether your objectives have changed, whether your risk profile has changed and if your circumstances have changed to name a few. From there they can advise you if any changes should be made to your contract or investment portfolio. You will receive regular updates on how your investment is performing and you have access to your adviser throughout the year on an ad hoc basis.

Like the car, I can’t promise that by paying for an ongoing service will guarantee huge amounts of growth each year, much the same as a regular service doesn’t guarantee the car won’t breakdown. However, the ongoing service should provide reassurance that you have an adviser that is committed to looking after your investment contract. They will be able to ensure the investment continues to meet your needs and objectives as these inevitably change over the years.