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Making the most of your pension savings

  • By Richard Ellis
  • 25 Apr, 2013

People approaching retirement will now receive much greater support to get the best possible retirement income under a compulsory Code of Conduct launched by the Association of British Insurers (ABI). 

People approaching retirement will now receive much greater support to get the best possible retirement income under a compulsory Code of Conduct launched by the Association of British Insurers (ABI).


ABI figures show that a third of people do not shop around for an annuity when they reach retirement and, as a result, may be missing out on a higher income, potentially losing thousands of pounds over the course of their retirement. In addition, many customers who could qualify for an enhanced annuity, due to medical conditions or lifestyle choices, buy a conventional annuity, which may mean they miss out on a higher income during retirement.

The ABI’s Code of Conduct will ensure customers have access to information to enable them to make an informed decision about annuities appropriate to their needs and lifestyle in retirement.

The Code of Conduct aims to ensure that pension providers:
  • Provide clear and consistent communications to ensure customers are able to make informed and proactive decisions about retirement income products, and are able to shop around for the most appropriate product.
  • Prominently highlight enhanced annuities, and the much higher income they can potentially offer, and inform customers whether they offer these products, and how to find out who does.
  • Clearly signpost customers to advice and support, both from regulated advisers and government-backed advice organisations.
  • Establish transparency in the annuity market so that customers have a clear picture of how individual providers’ product offerings fit in with the wider market.
The ABI’s compulsory Code of Conduct was implemented on Friday 1st March 2013 and providers will have to evidence what they are doing to comply.

At Fraser Heath we believe that this approach is a positive step in the right direction which should lead to better consumer outcomes. If you are approaching retirement and would like to hear how we can help please contact us  for a free initial consultation.

Fraser Heath News

By Mark Fletcher 01 Jul, 2017
As we can see from the above commentary, markets generally continued to make progress in May despite plenty of uncertainty and conflict around the World.
By Mark Fletcher 01 Jun, 2017

Our reason for showing these graphs is to highlight that the VIX index is trading back at 2007 levels of low volatility while stock markets are at all-time highs. We can no more see the future than anyone else but we do know that when it comes to investing, the most money is often made when every sinew in your body is screaming that it is madness to invest, and that sometimes the opposite is true.

By Mark Fletcher 01 May, 2017
A mixed set of results this month reflects the fact that markets are waiting to see what happens in various political arenas around the Globe. Politics is definitely at the forefront of most news bulletins, whether it be President Trump's latest tweets, the UK government triggering Article 50 or the fight to become the next President in France or Chancellor in Germany.
By Richard Ellis 01 Apr, 2017

It has been a strong start to the year for investment portfolios, mostly driven by signs of continued strength in the US Economy and the promise of more to come under the Trump presidency. Markets always move ahead of the economy so to make money, investors will position portfolios to benefit from what they think is around the corner. But what if the promise does not materialise? One fund manager described this recent wave of enthusiasm as the “Trump Bump” and that this may well be followed by the “Trump Dump” if the new President is unable to deliver on his campaign promises due to lack of support from political colleagues. In this respect, it seems that the failed repeal of Obamacare has given investors pause for thought over the last week or so.

While some asset classes are looking expensive, on an individual basis, there remains optimism amongst fund managers. Those who particularly seek to invest in undervalued, unloved but robust companies can see plenty of scope for increased valuations in their investment pool.

Eight years have now passed since the FTSE 100 hit its Credit Crunch low point. In investor memory, particularly among younger investors, we are getting to the point when the slide that started in summer 2007 down to its nadir risks being forgotten. We don’t know what the future holds but the past tells us that investing needs time on your hands to ride out the tough times. We’re confident that investing remains the best long term strategy for your money but make sure that you understand the strategy you are taking and that your portfolio is right for your attitude to investment risk and your time frame.

By Richard Ellis 01 Mar, 2017

Markets made a much better start to the year compared to this time last year. However, investors remain wary of problems that are likely to rear their heads later in the year and so, in general, markets have paused for now. Politics seems likely to dominate sentiment again this year, with a number of key general elections to be fought in Europe, most notably in France and Germany. Volatility is likely to spike during these events. However, market volatility can be the friend of the active fund manager and in recent meetings and conference calls with managers many have expressed the view that there are plenty of good opportunities and are generally cautiously optimistic about prospects for the year as a whole.

Our view is that the strong equity returns we saw in the second half of 2016 are “in the bank”, as it were, so if markets do sell off at some point in the next few months, these profits can be eroded before we are worse off than we were before the EU referendum on 23rd   June 2016.  

By Mark Fletcher 31 Jan, 2017

The prospect of a protectionist Trump presidency and actions to spend their way to economic growth have led to a swing in investor sentiment towards those companies that will benefit from the US finally entering a period of strong economic growth.

UK

  • UK equity markets continued to rise in December, ending an initially volatile year on a strongly positive note. On the back of a “Santa Claus” rally, the FTSE All-Share index closed the year at an all-time high.
  • As was so often the case in 2016, the mining and oil & gas sectors fuelled much of the rise; following agreement by OPEC members on a production cap, the oil price hit its highest level since 2015.
  • On the macroeconomic front –the Consumer Price Index (CPI) rose by 1.2% in the 12 months to November 2016, its highest level in two years.
  • Market expectations of the impact of Brexit in 2017 weighed on sterling, which faltered against the Euro and US Dollar into the Christmas period.


US

  • The fed raised the interest rate by 0.25% in December. It also announced its intention to raise interest rates three times in 2017, the central bank indicated that it would likely raise interest rates by 0.25% each time.
  • The post-US election rally saw the S&P 500 index hold onto the previous month’s gains to post solid returns of 1.98%.
  • Stock sectors, led by so called ‘defensives’, across the board recorded positive monthly returns
  • The US Manufacturing Purchasing Managers Index (PMI) hit a 21-month high.
  • US Manufacturers reported stronger hiring and higher prices for raw materials, which support other signs of labour market strength and higher inflation, pointing to improving manufacturing conditions.
  • December also saw consumer optimism about the state of the US economy increase to the highest level since August 2001
  • US GDP growth for the third quarter 2016 surprised markets with a better-than-expected growth rate of 3.5%.
  • Positive contributions to GDP growth came mainly from exports, private inventory investment, personal consumption expenditure and federal government spending
  • In a sign that the post-US election rally was expanding, investors regained interest in so-called ‘defensive’ sectors while profit taking by investors weighed somewhat on the performance of financials stocks
  • Healthcare shares lagged most other sectors during the month. In particular, biotechnology companies in the S&P 500 tumbled the most since October 2016 after Trump declared himself an opponent of high drug prices.


EUROPE

  • European equity markets advanced in December, posting one of the best monthly performances in 2016.
  • Markets surged in the aftermath of the Italian referendum, a political event which had been significantly weighing on sentiment over the last few months.
  • With the vote out of the way, market participants regained confidence amid increased talks of fiscal stimulus globally, aimed at spurring economic growth.
  • Within European markets, cyclical sectors (more sensitive to economic cycles) continued to perform strongly, reversing the trend observed in the early months of 2016 where deflationary fears dominated investment decisions
  • On the macroeconomic front, the month of December witnessed important decisions from central banks in Europe and overseas. Following its governing council meeting on 8 December, the European Central Bank (ECB) decided to extend its quantitative easing (QE) programme by 9-months, to the end of 2017, or beyond if necessary, until it sees a sustainable increase in Eurozone inflation towards the ‘below 2%’ target level


ASIA & EMERGING MARKETS

  • Returns from the MSCI Asia Pacific ex Japan Index in December were largely flat in sterling terms, although there was a notable divergence in performance between the region’s equity markets with Australia joining in the broader rally in developed markets, while Hong Kong and China were the notable laggards
  • Most Asian currencies continued to weaken relative to the US dollar with expectations that the US Federal Reserve will raise interest rates further in 2017.
  • Investor sentiment towards China was impacted by an apparent shift in policymakers’ focus from prioritising growth to concentrating on credit risks.
  • Higher commodity prices, particularly for crude oil and iron ore, helped support Australia’s equity market performance, which also benefited from further rotation into financials.
  • It was a quiet end to the year for global emerging equity markets although there was significant dispersion of performance between the regions.
  • The EMEA (Europe, Middle East and Africa) region came out on top with all countries here registering gains for December. The Russian equity market led the advance, drawing support from higher oil and gas prices.
  • Latin American equities treaded water for most of the month with most countries here trading flat, except Colombia which got a boost from an interest rate cut.
  • For the second consecutive month, the Russian equity market advanced strongly with the energy sector benefiting from the commitment of global oil producers to cut supply. Sentiment towards Russia was also enhanced by a belief that relations between the country and the US are set to improve in 2017 following Trump’s presidential election victory.
  • Russia’s inflation rate continued its downward trend in December with the annual CPI rate falling to 5.8%. While not enough to trigger any change in monetary policy, Russia’s central bank said it would consider an opportunity to cut interest rates during the first half of 2017.


JAPAN

  • The Japanese equity market ended the month higher in local currency terms. The market has rallied due to a better outlook for global growth in 2017 combined with yen weakness versus the US dollar post the US election
  • Macroeconomic data releases were generally positive over the month. The Bank of Japan upgraded its economic outlook stating that the economy has continued a moderate recovery trend, and maintained all components of its monetary policy.


FIXED INTEREST

  • The 10-year Gilt yield fell 18 basis points (bps) to end the year at 1.24%. US government bond yields were higher following the hike in US interest rates, however, the pace of the increase was more modest than recent months with the yield of the 10 year US Treasury rising 6bps to 2.44%. Given the more benign government bond market, corporate bonds outperformed.
  • Deutsche Bank announced it had agreed a US$7.2bn settlement with the Department of Justice. This is significantly below the US$14bn figure initially proposed in the summer and the market reaction to the news was positive.


What do we think?

Talk of the UK Government’s stance to not join the Single Market has weakened the pound further in recent weeks, leading to a continuation in the increase in the value of the overseas assets in portfolios and the earnings expectations of UK companies with overseas earnings.

The prospect of a protectionist Trump presidency and actions to spend their way to economic growth have led to a swing in investor sentiment towards those companies that will benefit from the US finally entering a period of strong economic growth.

This has been a bizarre bull run in investments since the October 2008 Credit Crunch, as price rises have been focussed on safe and secure investments, while the riskier investments that often trigger the exuberance at the end of an investment cycle have largely been ignored. The movement towards those stocks has seen some of the reliable heavyweight fund managers underperform of late with their riskier counterparts finally being rewarded. That this rotation into these stocks has been due to the promises of The Donald should give us all good reason to tread carefully.


Date of next meeting:      21st February 2017

By Mark Fletcher 22 Dec, 2016
What we are pretty confident about is that equity and bond markets are likely to be volatile in 2017 ahead of the negotiations between our Government and the EU and the myriad of other political and social issues that continue to dominate news headlines. It may be another year for investors to hold their nerve and let the storm pass.  
By Mark Fletcher 24 Nov, 2016

The shift in the political landscape in the developed economies has been marked this year and how this will influence our economies going forward will bring more uncertainty. The initial investor response in the States to the Trump election has been positive, with arguably over-optimism in some areas.


UK

  • Rising Gilt yields and sterling declines dictated UK equity market movements during October. Mid-month, the pound plumbed new lows against the US dollar, while the FTSE 100 index rose above 7000 for the first time since May 2015.
  • Third quarter GDP figures beat consensus forecasts; strong performance in the services industries offset falling output in construction, agriculture and production.
  • The UK government backed a third runway at Heathrow airport, bringing an end to the extended contest with rival prospective site Gatwick; the £22bn proposal pledging new jobs and improved trade links is expected to win parliamentary approval next year.
  • Barclays reported a 35% rise in revenues during the third quarter; despite a return to pre-tax profit territory for quarter three. RBS however warned it will not meet 2019 cost-cutting targets due to the UK’s low growth and low interest rate environment.

US

  • Burdened with heightened market uncertainty about the outcome of the closely contested US presidential race, the S&P 500 index was unable to hold onto initial gains during the month, posting negative returns of -1.82% in October.
  • UK-based investors, however, continued to benefit from extended currency weakness versus the US dollar, as the S&P 500 index generated a healthy 4.13% in sterling terms.
  • Due to the economy expanding at its fastest pace in two years, inflation rising and sustained labour market strength, the third quarter rise in GDP could help dispel any lingering fears that the US economy recovery was at risk of stalling.
  • However, most market segments, apart from financials and utilities, slid into negative territory in October, as investors’ sentiment continued to sway between highs and lows. This was in part due to repeated profit taking during the month, particularly in the energy sector following recent oil price rises, and heightened market nervousness as the US presidential election entered its final phase.
  • There was a surge in blockbuster M&A activity, which made October one of the busiest months for global deal making on record, this signalled renewed corporate confidence in the outlook for the US economy.


EUROPE


  • European equity markets remained broadly unchanged in October as investors awaited the outcome of the US presidential election, the future of the European Central Bank’s (ECB’s) stimulus programme and the timing of the US Federal Reserve’s (Fed’s) next interest rate increase.
  • ‘Value’ perceived sectors performed strongly while bond-proxy sectors lagged. The financials sector was the best performer. Better-than-anticipated earnings posted by a number of European banks, combined with rising bond yields, led to a significant improvement in sentiment towards European financials.
  • Meanwhile, the technology sector was the biggest detractor. The healthcare and consumer goods sectors, which are sensitive to interest rate movements, also lagged the broader market amid rising government bond yields.
  • Data released this month also indicated that the fourth quarter of 2016 has got off to a good start. October’s flash Eurozone Composite Purchasing Managers Index (PMI), a survey of private sector business activity, rose to the highest level this year, signalling an acceleration of economic momentum and a pick-up in GDP growth.    


ASIA & EMERGING MARKETS


  • The performance of the Asian equity markets was mixed in October on the back of increasing expectations of a US interest rate hike in December and mounting concerns about the outcome of the US presidential election.
  • There was also a notable divergence in performance between markets, with Taiwan’s equity market the notable outperformer, while the Philippines equity market was among the weakest.
  • China’s equity market was marginally weaker on profit taking after a strong performance over the third quarter of 2016. In September, consumption data was robust, with a notable pick-up in car and house sales year-on- year, while third quarter GDP growth of 6.7% year-on- year was in line with forecasts. However, industrial profit growth was less than expected due to weak export growth over the same period. This highlights that challenges remain which could limit the magnitude of economic growth in China going forward.
  • Global emerging equity markets paused for breath during October, ending just marginally higher than the previous month in US dollar terms. By comparison, equity markets in the developed world lost ground, as better-than-expected US GDP data increased the probability of a hike in US interest rates before the end of 2016.
  • Regional performance within emerging markets was diverse, with strong returns being registered in Latin America, underpinned by double-digit gains from Brazil.
  • Equity performance in EMEA (Europe, Middle East and Africa) was mixed, with stock markets in emerging Europe faring reasonably well, whereas those in the Middle East struggled somewhat.
  • Sentiment towards Russia was enhanced following the release of an upbeat manufacturing survey, which recorded its highest reading since 2012, providing more evidence that the economy has turned a corner.  


JAPAN


  • The Japanese equity market ended the month higher in local currency terms, buoyed by the yen’s weakness versus the US dollar and more visibility surrounding monetary policy following the Bank of Japan’s policy review announced at the end of September.
  • The Bank of Japan governor, Haruhiko Kuroda, reiterated the central bank’s resolve to maintain ultra-loose monetary policy until Japan has met its 2% inflation target, and signalled expectations of “moderate” growth.
  • Materials, financials and energy sectors outperformed the defensive sectors including healthcare and utilities; a rotation seen more broadly across global equity indices.
  • Third quarter corporate results delivered a mixed outlook for earnings, while corporates continued to shore up balance sheets by pursuing share buybacks, given the low interest rate environment.


FIXED INTEREST


  • Government bond yields were sharply higher over the month. The biggest change was experienced in the Gilt market, with the 10-year Gilt yield rising by half a percentage point to the end of October, at 1.25%.
  • The increase in government bond yields reflects a combination of factors. One of the most important of these is a rise in inflation expectations. This is primarily due to a stabilisation of oil prices and the base effect of higher prices feeding through to inflation calculations over the next six months.
  • In the UK, the effect is accentuated by the large fall in sterling over the summer. Meanwhile, better than expected economic data reduced the demand for safe-haven assets such as government bonds.
  • There was also an increasing sense, within the market, that monetary policy has reached the limits of its efficacy, which has led to rising speculation that fiscal policy will in future need to play more of a role in stimulating economic growth. The changing expectations have put pressure on yields, as the market seeks to discount better economic growth and higher borrowing costs. Finally, government bond yields had, in many cases, reached unsustainable levels.
  • Merrill Lynch reports the following index data. Gilt yields returning -4.1% and Sterling investment grade corporate bond yields returning -3.7%.


What do we think?

Political issues influence investment markets more than ever. The impact of quantitative easing by Central Banks has been criticised by both Theresa May and Donald Trump for their impact on rising asset prices for the “haves” while alienating the “have-nots”. The shift in the political landscape in the developed economies has been marked this year and how this will influence our economies going forward will bring more uncertainty. The initial investor response in the States to the Trump election has been positive, with arguably over-optimism in some areas.

Knowing that political decisions can strongly influence investor confidence and decision making, we should also keep in mind that political error could have a negative impact. In this regard the team of advisers that Donald Trump is assembling and their relative experience suggests some trepidation may be warranted.  


Date of next meeting:  15th December 2016

By Richard Ellis 04 Nov, 2016
The most common strategy for pension funds has been to automatically switch your money into long dated gilts as you near the policy retirement date as they tend to mirror the price of buying an annuity. If you have been in this strategy you will have benefitted but if you are not expecting to buy an annuity when you reach retirement and expect to make use of the pension freedom rules, there has never been a greater risk that the value of your pension might unexpectedly fall dramatically just when you were ready to spend it.
By Richard Ellis 07 Oct, 2016
  It’s worth keeping in mind that the best time to invest is actually when every bone in your body tells you it’s mad to do so, and that often when everything feels safe and cosy after a rise in values it’s the wrong time.
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