Summer Newsletter

Depledge Update

After a slightly protracted wait Depledge Strategic Wealth Management Limited was authorised by the Financial Conduct Authority (FCA) on the 22^nd January 2014. It has been all systems go since this time and we have now been trading for 6 months with the team having worked tirelessly in getting transaction records completed on our database. We now expect to operate at much quicker turnaround times for the second half of the year and beyond.

Sense Network

The Financial Times list of top 100 Independent Financial Advisers in 2013 has Sense Network listed as the 34th largest in the UK. Having worked with Sense Network for the last six months, we are delighted to report that we have a good working relationship in place with our new partners. The technical content of their training days are of the highest standards and having attended 3 full day sessions to date. Much has centered on the major legislative pension changes detailed later in this briefing.

New member of the team

We are delighted to announce the newest member of the Depledge team, Marcus Barclay.

Marcus will be working closely with Principal Director, Andrew Day enhancing the service offered to our clients and providing a great platform for Marcus to continue his training and development towards becoming a Chartered Financial Adviser. Graduating with an Economics degree from Manchester Metropolitan University, Marcus had already begun studying for the Diploma in Regulated Financial Planning before joining Depledge. Marcus will keep busy as he balances continued study and development with real-world experience with us. Outside of his studies, Marcus is a keen runner, football follower and avid reader.

New Partners: Higos Insurance Services Ltd

We are pleased to announce a new partnership with Higos Insurance Services Limited, a general insurance broker, allowing us to extend our service to look after all your personal and business insurances.

Higos can provide cover for your home, car or holiday and also offer insurance for the complete range of business risks. Like Depledge, Higos are independent so they are not tied to any one insurance company and can offer totally impartial advice. Higos will take the time to understand your personal requirements and provide insurance cover tailored to your individual circumstances. Named Independent Regional Broker of the Year in 2008 and amongst the highest levels of qualified staff in the UK, we are delighted to be working with Higos who will provide the same high levels of service for your general insurance needs.

If you house insurance is above the £400 p.a. mark then Higos’ specialist services could improve your cover and / or reduce the cost. Speak to us in the first instance and we will arrange for an expert from Higos to contact you at a convenient time to suit you. Depledge Strategic Wealth Management Ltd is an appointed representative of Sense Network Limited and introduce business to Higos Insurance Services Ltd. Sense Network Limited and Higos Insurance Services Ltd are both authorised and regulated by the Financial Conduct Authority.

Pensions Legislation

The biggest change in pension legislation since time began or 2006:

With the dust still settling on the ‘once in a lifetime’ changes for pensions in 2006, the chancellor hit the market with further ‘once in a lifetime’ changes in the March Budget with further clarification around the new rules in a July statement. The full details are expected to be released in the Autumn and are well received by the team at Depledge as it will allow many of our clients new freedoms and opportunities in their retirements.

The new pension rules expected to be implemented in April 2015 will provide more flexibility in accessing your accumulated invested based pension fund. A summary of the proposals as they currently stand is as follows:

Defined Contribution (DC) income flexibility from April 2015

The July statement confirmed that the headline income flexibility changes will go ahead as promised. Clients of pension age will be able to take what they want from their DC pension pot, when they want it. The key is using this new flexibility sensibly to meet financial needs tax-efficiently – which is where Depledge advice comes into its own.

Clients will have a new right to transfer to a new scheme or provider to access DC flexibility where their current scheme doesn’t offer it. In particular, existing restrictions will be lifted so that members of occupational schemes will now be able to transfer at any point up to their scheme’s normal pension age.

And existing ‘secure income’ rules will be relaxed to allow income providers to innovate when designing new income solutions to meet changing client needs.

Anti-avoidance controls

Once a client has accessed the new flexibility, their pension annual allowance (AA) will drop to £10k. The trigger for this drop in AA will be when a client first starts taking drawdown income. Taking a secure income, or solely taking tax-free cash, won’t trigger the AA cut. Neither will accessing a DC pot worth less than £10k under the ‘small pot’ rules. Existing ‘capped drawdown’ users on 5 April 2015 won’t be caught, as long as their drawdown income remains within the income cap, and existing ‘flexible drawdown’ users will benefit from the £10k AA.

This is to prevent over 55s abusing the new flexibility at a yearly cost to the Exchequer of up to £24Bn, so is an understandable, pragmatic, and proportionate, solution in the circumstances. Government estimates only 2% of pension savers will be affected, so this won’t damage the auto-enrolment initiative to boost private pension saving. And it creates planning opportunities for those wealthier savers who might be impacted. Filling the pension wrapper first should largely mitigate any adverse impact when the time comes to access the new flexibility.

Tax-free cash

The July announcement included welcome reassurance that the Government won’t tamper with the right to normally take 25% of a DC pension pot tax-free. This should give clients more confidence to keep their retirement savings inside the tax-advantaged pension wrapper until they’re needed.

DB transfers

Pre-retirement members of funded DB pension schemes will be allowed to transfer to DC to access the new income flexibility if they want to. But only if they’ve taken advice from an independent FCA-regulated professional first.

Most DB members are likely to be best served by sticking with what they’ve got. There are, however, members whose needs will be better met by moving to the new flexibility – particularly wealthier savers who value tax-planning flexibility and wealth transfer options over a guaranteed income. The existing ban on transfers once benefits are in payment will continue. And members of unfunded public sector DB schemes won’t be able to transfer to DC.

There will be an exemption from the advice requirement for those with rights worth less than £30,000 looking to use the triviality or small pot rules, which will be available from age 55 from 2015.

Death benefit tax to come down from 55%
The tax rate on lump sum death benefits paid from crystallised pots will be cut from the existing 55%. The new tax rate will be confirmed in the Autumn Statement.

This should encourage more clients to seek sustainable income models, rather than strip their funds out to avoid a 55% tax charge on death. Again, advice will be central to obtaining the most tax-efficient outcome to meet clients’ needs.

Pension age – going up

Normal minimum pension age will increase to 57 in 2028, when the State pension age goes up to 67. This will affect anyone born after March 1973. Going forward, the minimum pension age will be linked to 10 years before State pension age.

Goodbye ISAs and welcome to NISAs:

Previously the maximum you could have in your Cash ISA was £5,940 and the rest in your stocks and shares ISA. However, the new ISAs or NISAs as they will be known, has increased the annual ISA limit to £15,000.00 and has allowed investors to hold any combination of cash and Stocks and shares NISA’s. The increased flexibility means that investors can now how place up to £15,000 cash into a NISA.

Under the old system, a Cash ISA could be transferred into a Stocks and Shares ISA, but not the other way around. The NISA also allows you to transfer between your Cash AND your Stocks and shares NISA as many times as you wish. In addition, there is now a much wider range of investments that can be placed into a NISA.

This is great news for our clients and much of the next few months will be spent ensuring that we utilise your new higher allowances where we have a program of ‘bed and NISA’ for existing funds or introducing new funds.

The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

Investment Outlook

With the passing of five years since the credit crisis, it has become evident that certain asset classes on the whole, are performing better than others. Equities have provided evidence to suggest that the fixed interest and commodity classes have experienced a difficult period, which looks like it is set to continue. Global demand for commodities will have to increase in order to witness significant growth.

In the financial markets there is a recurrent debate about the apparent disconnect between high bond and equity prices and the contrast with weak global economic activity. In the view of Invesco’s chief economist,

this reflects two broad misunderstandings.

First, asset prices are driven primarily by the business cycle, with monetary conditions at the forefront. Currently, near-zero central bank interest rates have been effective in promoting equity and other risk asset prices, but have not yet been effective in ensuring repair of private sector balance sheets or restoring normal growth. On this basis it will be a long time – perhaps several years – before the business cycle and asset prices peak.

Second, financial markets are principally reflecting the favorable effect on long duration assets of abnormally low short-term interest rates. As normality returns to household and bank balance sheets enabling growth to resume, higher short-term interest rates will be counter-balanced by stronger economic activity underpinned by recovering wage and profit growth. In other words, a price/earnings or multiple-driven equity market will give way to an earnings-driven environment.

Naturally there are risks in such an outlook, but low money and credit growth provide some assurance that we are not in the same environment as in 2005/07 when rapid credit growth and high leverage made balance sheets acutely vulnerable to any adverse shocks.

In short, this is not a financial bubble of the kind that occurred before the financial crisis. On the contrary, a key feature of the current environment is the gradual healing of household and financial sector balance sheets, to be followed later by the healing of public sector balance sheets.

Thanks to the slow growth of money and credit, inflation should also stay lower for a longer period of time than in previous business cycle upswings. In addition, a more gradual profile for interest rate hikes is expected to at least partially insulate longer duration risk assets from downward shocks. In short, continued moderate GDP growth implies that larger exposures to risk assets may be warranted for several years ahead.

Our key philosophy is to only invest in funds and asset classes that we are confident will link in with your unique set of circumstances. We would only invest in funds and asset classes that we have sufficient information on, and would rather choose to not invest, than risk client’s hard earned money in short sighted investments. We look forward to meeting with you and reviewing your portfolio at your next review date into the second half of 2014 and into 2015. Major Equity Indices for 2014