After a turbulent week in which the financial markets have dominated the headlines, the Financial Times considers a calmer and less obviously time-sensitive matter. The excellent Josephine Cumbo reports on a proposal now being considered by Parliament which would extend the rights of surviving partners to company pension entitlements after the deaths of their unmarried partners.
The issue, says Cumbo, is particularly pressing because the numbers of cohabiting couples has grown from 1.7 million in 1997 to more than 3.3 million today. And although same-sex marriages have the same full entitlements as opposite-sex marriages, there has been no categoric movement on the rights of unmarried partners, or of civil partnerships. At least, not where opposite-sex partnerships are concerned. Same-sex partners retain most or all of the entitlements.
This strange anomaly is what seems to have sparked a long-overdue review of the pension rules. And the recent pressure to let opposite-sex partners register a civil partnership rather than a stuffy old-fashioned marriage is another driver. There are, of course, many exceptions to the way that pension trustees treat unmarried partners in the event of one partner’s death, but the new measure being proposed would seem to draw a legal line under the situation, which surely can’t be a bad thing.
The author is careful to distinguish between the defined benefit and defined contribution patterns of corporate pensions, of course, and also from the state pension, where a married woman might find her personal entitlement boosted by £2,500 a year after the death of a husband, but an unmarried partner would not. Ms Cumbo discusses some of the strategies which unmarried partners might currently want to consider to avert losing out – such as life insurance policies that pay into trust. An informative read.
Ever sensitive to the needs of hard-pressed borrowers during these difficult times, the Telegraph carries a feature on how aspiring home-owners (and current owners too) can get the jump on the upcoming rises in interest rates.
It’s not just the Monetary Policy Committee that’s hinting at rises this year, it says (although the members stayed their hands last week) – it’s the inevitability which seems to be dictated by the fact that “both the two-year and five-year swap rates have almost trebled since around the time of the Brexit referendum, from 0.39% to 0.99% for the former and from 0.44% to 1.43% for the latter.” The combined effect of these shifts will soon feed through into higher mortgage rates, it suggests.
Up to a point, the urge to raise rates will be tempered by an expected slowdown in overall borrowing during 2018, the Telegraph says. Competition between lenders will put a brake on the trend.
But for all that, borrowers need to grab a last chance to review their arrangements. There are still attractive fixed rate loans on the table for those with at least 40% equity – and the paper also lists a selection available for those with just a 10% deposit. But the need to check out the transfer fees and other charges has never been more urgent, because some of these are creeping up in a way that might affect the relative advantages of borrowing rates that might seem to be more attractive.
The Daily Mail does at least fall into line with the expected news story about the stock market gyrations of the last week. Its two minute summary of the reasons behind the correction – basically, healthy US employment figures sent the markets into a frenzy of worry about rising inflation and hence higher US interest rates, and it took no time for the UK market to follow suit – seems a little on the light side, but it asks its readers to consider the possibility that further falls may follow.
And what to do in that event? For most people, the accepted wisdom of staying invested still holds true, the Mail says. But for some investors this should be a wake-up call to re-examine the balance of their portfolios, or to consider the advantages of higher-yielding UK stocks. Or to take a fresh look at out-of-fashion markets such as Japan, where healthy economic policies are being followed hat haven’t caught the crowd’s attention yet.
Not to mention the importance of considering the usual end of financial year strategies – topping up your ISAs, bed and ISA, and adding one-off pension contributions. There may not be a better moment for many years.
The front page of the Sunday Times Business and Money supplement doesn’t exactly make for positive reading. There’s a warning from Tim Buckley, the new Chief Executive of Vanguard, that the era of super-sized stock market gains is coming to an end and that it would not be a “surprise” if there were further market falls. After a nine year bull run, share valuations had become “stretched” he said and “people should be lowering their expectations for global stocks, especially US stocks”.
Then there’s a report based on Bank of England data that Brexit wiped £7.7bn of business investment because of uncertainty. The Bank had surveyed 1200 firms and its report suggests that corporate investment was 3%-4% lower in the period to June 2017 than it would have been – especially given “strong global demand and supportive financial conditions”. Oh dear.
Meanwhile, deeper within the supplement, the Sunday Times Money section has a double page spread entitled “Breathe in deep and hold: how to stay calm in the storm”. That says it all really. They consult a number of experts on whether people should sit tight, sell or buy – unsurprisingly they consensus is to hold on and look for buying opportunities. We’re glad to see that at least. We will spare you the details.
Ian Cowie, in his Personal Account column, confesses to having recently bought a new parcel of shares just before the recent big falls in markets, which he says proves that he has no crystal ball when it comes to such matters. However, it’s a good example as he explains that his new shareholding is still showing a small profit despite market turbulence. He reasserts his belief in the value of long term investing. He also comments on recent suggestions that ETFs are to be blamed for “forcing the market lower” after inversely geared ETPs ( yes, different to ETFs indeed) accentuated fluctuations on the Vix index, and that BlackRock is calling for tighter regulation of ETPs because as Cowie writes, of “their potential to have an indirect impact on the ordinary savers’ pensions”.
Finally, the Sunday Times asks “how big a slice of your money are you losing in fees?” The article suggests that investors are often left in the dark about the full impact of charges on their investments. They refer to a report they call a “damning dossier” which was presented to the FCA last week by SCM Direct, a wealth manager which has been campaigning for greater fee transparency. It suggests that firms are flouting the legislation brought in to do this, and that only a fifth of wealth managers offering traditional face-to-face advice, just under a third of DIY platforms and none of the 10 largest robo-advisers, disclose the full cost of investing with them.
Jeff Prestridge is commenting on the recent market turbulence in the Financial Mail on Sunday. With the rather snappy title “This market wobble and likely rise in interest rates is a wake up call for your money” he wisely reminds readers that there is no simple answer to market volatility and that no one knows what might happen to markets next. However, what we do know is that from recent statements from the Bank of England, is that here in the UK bank base rates are more than likely going to rise this year – maybe once, more likely twice – while inflation will remain an irritant, putting pressure on household budgets. More gloomy news could be coming from Brexit which he says “at the very least is likely to cause economic disruption, at worst another flirtation with recession”. Political turmoil could also unsettle things he says, if Theresa May is unseated or we have another General Election etc.
Against this backdrop, he comments “it is difficult to build a convincing short-term case for investing in equities. Paying down debt – overpaying the mortgage for example – may be more financially prudent if you have anything to spare at the end of the month.”
The MoS fund in focus this week is the Allianz Technology Trust managed by Walter Price. The article reports that rather than seeing the recent market correction as leading to the bursting of a 2018 version of the 2000 dotcom bubble, he prefers to talk about ‘rotation’ within the technology sector. Some sub-sectors, he says, were due a correction while others provide unbound investment opportunities on the back of continued strong earnings growth. The 69-year-old believes the threat of higher interest rates, rising inflation and tighter labour markets – primarily but not exclusively in the United States – will play into some of the technology themes he is interested in. Overall, he is more half-full than half-empty. Phew.
Revealed: how wealth manager fees can halve your total return. With a similar story to that in the Sunday Times, this is the rather worrying headline in the lead story from the Sunday Telegraph Money section. This time it’s particularly about the point that so far, wealth managers need to give information about the entirety of fees paid to manage money only to new customers – existing investors must wait until next year to receive it. The Telegraph says that this doesn’t stop any investor from asking for the information now and quotes that “in one example, provided by one of Britain’s largest wealth managers, it was apparent that annual investment growth would fall by more than 50pc as a result of fees and charges.”
It does point out however, that it more difficult to compare the services of wealth managers than it is fund managers because services offered by the firms differ.
It then reports on some of the details from a mystery shopping exercise carried out, where they asked four wealth managers –SJP, Brewin Dolphin, Rathbones and Netwealth for examples of what information they will be giving to new clients under the new requirements. As you’d expect, the charges vary. We’ll spare you the details here, but if you’re interested then you can read the article of course. Transparency of charging is to be welcomed, but it’s worth noting that if clients are reading articles like this one then it is likely that their advisers and wealth managers will get more questions about charges than they perhaps might have had in the past.