How Much Does University Cost?

Many parents would like their children to be able to go to university, but the rising costs are beginning to influence these decision more and more. With a current estimate of nearly £60,000 for a 3 year undergraduate course, the need for some strategic financial planning well in advance is becoming critical for many people when planning for their children’s future.

There are of course many factors that could influence the actual cost parents have to bear, including for example where the university is located {London will cost more to live in than say Exeter}. Tuition fees have a current maximum of £9,000 per year with more and more universities now charging this maximum, but again the choice of university effects the total bill.

A lot of students will be eligible for student loans to cover their course fees and possibly some of their living costs. Whilst the rates are preferential, currently 1.5% interest is charged, and the students do not have to start paying this back until they earn more than £21,000 a year, this could be a huge debt to start a working life with. Over the duration of a three year course this debt could easily rise to over £40,000. Even at this level though, there is still a shortfall in covering the costs so some financial planning will be required.

There are a number of options that may be available for parents to make providing for university costs more efficient, depending upon their circumstances. However, for this article let’s assume that the parents decide to cover the whole £60,000 personally. The first major event that needs to happen would be the parents deciding that this may be a reality and that they want to do something about it well in advance of the start of the degree course. We are not talking a couple of years, but probably 10 years or longer. This sort of personal financial planning is an important element of a couples’ lifetime financial plan and should be considered when they are starting a family.

So, let’s also assume that the decision to make provision has been made 10 years ahead of time, i.e. when their child is 8 years old! This may seem too soon, but one thing we have realised whilst working with clients over the longer term is that time can fly past.

Another important decision would be deciding to seek some financial advice regarding this matter. Even the seemingly simple questions like where to put the regular savings required could have big consequences. If for example a bank account was chosen over a well managed investment portfolio, then the sums needed to be put away each month could be 50% higher. Inflation should also be considered along with factors such as tax, other funds available, possible inheritance and the list goes on.

So, starting from scratch and looking to cover the full cost of university in 10 years time, parents may need to save around £500 per month. At a growth of 6% per annum and with inflation being added to the cost at 3% each year, the final fund value would be around the inflated £80,000 future costs needed. It would also make sense to add a premium to this so that in the event of a parents death, the future plans are protected.

Again, this all falls back to the parents seeking independent financial advice at the least and ideally thinking about their own longer term goals and establishing a financial plan for themselves. At Carlton Smith Private Wealth these are common needs from our clients and is why they seek impartial wealth management advice from us. If these issues are of concern to you, then please do get in touch.

September 2014 And That Back To School Feeling

Setting goals can be challenging and shouldn’t be done in a hurry. You will therefore need to arrange time and space to devote to thinking about and setting your goals. At first, don’t rule anything out. Think outside the box. Be creative, and think as broadly as you can. Be imaginative, and allow yourself to dream. As ideas come to you, write them down, and keep going until you have exhausted all possibilities.

Then these need refining and a properly refined goal should have a number of characteristics, SMART characteristics.

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Time Specific

This mnemonic is useful, but sometimes we like to consider it differently… Single minded. Memorable. Awesome. Radical. Treasured by you.

As a reminder of how important it is to stop putting it off and to get going, I have a included a message from an 85 year old man who had but just a few days left to live.

“If I had my life to live over again, I’d try to make more mistakes next time. I wouldn’t be so perfect. I would relax more. I’d limber up. I’d be sillier than I’ve been on this trip.

In fact, I know very few things that I would take seriously. I’d be crazier. I’d be less hygienic. I’d take more chances. I’d take more trips, I’d climb more mountains, I’d sail more seas, I’d swim more rivers, I’d go to more places I’ve never been to. I’d eat more ice cream and fewer beans. I’d have more actual troubles and fewer imaginary ones!

You see, I was one of those people who lived sanely and sensibly hour after hour, day after day, year after year. Oh, I’ve had my moments, and if I had it to do over again, I’d have more of those moments – moment by moment by moment.

I’ve been one of those people who never went anywhere without a thermometer, a hot water bottle, a raincoat and a parachute.

If I had it to do all over again, I’d travel lighter next time. If I had it to do all over again, I’d start out earlier in the spring and stay away later in the fall. I’d ride more merry-go-rounds, I’d watch more sunrises, I’d play with more children,

If I had my life to live all over again… But you see…   I don’t.”

The 85 year old man was Jorge Luis Borges (an Argentinian philosopher and poet) and isn’t this a beautiful reminder that we only have so long on this planet. Let’s make the most of it!

If this doesn’t spur you on then perhaps the short one minute video on our homepage will – top right-hand corner, “How do you spend your time?”

www.cspwealth.com

When our clients fully understand lifestyle financial planning it helps them to get more out of life. It creates a sense of urgency to get things done, to live life to the full, to do stuff now, before it’s too late. Life is NOT a rehearsal!

Wouldn’t it be far better to look back and say “I’m glad I did” rather than “I wish I had”.

New ISAs

Next month NISAs will replace ISAs, meaning new rules for the tax-free savings accounts. In March, George Osborne announced the introduction of NISAs – or New ISAs – as part of a major change to tax-free savings. The new rules take effect on July 14, but what are they and how can you make the most of them?

How do NISAs differ from ISAs?

As their name suggests, NISAs are a new incarnation of the ISA, or Individual Savings Account. The main difference is a significant rise in the tax-free savings allowance: the maximum amount you can pay in each year will rise from £11,880 to £15,000. Within that limit, savers will be free to put as much money as they like into stocks and shares or cash deposits, and to switch between the two.

So NISAs are more flexible…

Yes. ISAs only allowed savers to transfer cash into stocks and shares, but the new accounts allow transfers in either direction. Until now you might build up large amounts of money in a stocks-and-shares ISA, but you couldn’t switch it into cash and enjoy the tax benefits of a cash ISA. Now you will have the scope to switch from equities to cash and back as often as you like.

How profitable could a NISA be?

We would estimate that the scheme could allow savers to build a nest egg of £1m within 25 years. If you invest the maximum amount every year and your investments grow at a relatively modest 5 per cent annually, you will have £1m in 25 years’ time. The short-term rewards are equally appealing. Putting £5,940 into Tesco’s one-year fixed-rate ISA (paying 1.65 per cent) would earn interest of £98, whilst putting £15,000 into the same account would produce interest of £247.

Cornish Pilot Gig Rowing

Looking for a team sport and a reason to do some exercise, George joined Rock Rowing Club in early 2012 as a complete novice rower, although a very keen one. Rock is set in the idyllic Camel estuary opposite the well know harbour town of Padstow and is also in one of the driest parishes of Cornwall.

The training is arduous and requires a good amount of dedication as the club trains right through the summer and winter seasons, come rain or shine! There are normally a couple of training sessions each week with regattas on most weekends during the summer. The season seems to be back to front, with the World Championships happening in May, the beginning of the summer regatta season, at St Mary’s island in the Isles of Scilly.

This year was the 25th anniversary of the competition and Rock had several crews out there. Whilst the ladies Vets came in a very close second place, most of the other teams did pretty well also. The Men’s A team came in about a third of the way through the 147 boats with the Men’s B team about two thirds of the way through, although they did top their group. Competing in the Men’s B team was Sandy Towers, aged 87! This truly is living to the max.

The past few weeks in Cornwall have been glorious and rowing in the sea becomes an absolute pleasure. George often comments how wonderful it is to be out on the water in the really enjoying all that life has to offer.

C100 Granting

We support the Cornwall 100 Club (C100), which is part of the Cornwall Community Foundation (CCF), both financially and by providing our time and expertise. The latest Grants Panel meeting in March 2014 had applications totalling over £32,000 to appraise and decide whether to support. After much deliberating on the many worthy causes, 10 applications we agreed to be supported. The total amount to be granted out was £17,694. An amazing amount really going towards groups such as St John Village Hall, The Seeds Project and Falmouth & Penryn Sea Cadets.

Another project that was supported was The Sculpture Workshop CIC in Wadebridge. They were seeking funding to deliver unique creative workshops to people who have never been sculpturally creative before and enable them to unlock their own talent. The workshops have been developed over several years to a point where anyone of any age, gender cultural or academic background can participate, engage and benefit from this activity. With this project they will target those hard to reach like young parents, carers, those suffering bullying or social isolation. George was delighted to be able to visit their base and present them with a cheque for £1,899 towards their latest project.

The next round of Grants will be awarded in September and for more information please do visit the C100 website.

Budget 2014 – Pensions

Introduction 

The UK Government’s spring budget has signalled its intent to dramatically reform the way in which members of UK registered pension schemes take benefits.

The key message from Chancellor George Osborne is flexibility; Budget 2014 announces “radical reforms to give people greater freedom over how they access their pension savings and to support savers at every stage of their lives”.  These reforms will radically overhaul the UK Defined Contribution pension market as the UK Government “introduce the most fundamental reform to the way people access their pensions in almost a century by abolishing the effective requirement to buy an annuity”.

Members of personal pension schemes, like Self-Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSAS) will have greater flexibility over how they “access their pension, and will support savers to make the long-term decisions that ensure they can benefit from a better and more secure financial future”.

Summary of Key Points

We have summarised the key announcements and assessed the impact that these will have on pension savers.

Effective from 27th March 2014

  • Increase Capped Drawdown limit from 120% to 150% of an equivalent annuity, for all drawdown pension years starting on or after 27th March 2014
  • Reduced Flexible Drawdown minimum Income requirements from £20,000 to £12,000
  • Increase from £18,000 to £30,000 the total pension wealth that people can have under trivial commutation rules.
  • Increase of the small pension pots limit, raising the size of a pension pot that can be taken as a lump sum from £2,000 to £10,000

Effective from April 2015

  • From Age 55, full withdrawal of pension fund (after 25% tax free lump sum) permitted and taxed at marginal rate of income tax, rather than current rate of 55%
  • Providers of Defined Contributions pension schemes will have a duty to provide free and impartial face-to-face guidance at retirement to their members.

Also Announced….

The Government have also announced consultations to amend legislation to the current tax rules that apply to pensions upon death. They believe that the 55% tax charge is too high and will engage with stakeholders to review these rules.

As a result of the government’s plan to increase the flexibility of Defined Contribution pension schemes, they have announced restrictions on the portability of public sector Defined Benefit (Final Salary) pensions and will therefore legislate to remove the option to transfer benefits away from these schemes. Whilst they have said that in principle they wish to extend greater choice for members of defined benefit schemes in the private sector, they are yet to announce what this will be.

The Government will also legislate to provide Her Majesty’s Revenue and Customs broader powers to prevent pension liberation with greater control over the registration and de-registration of pension schemes. The legislation will provide immediate effect of these powers from 20th March 2014.

The Government will consult on ways to give equivalent treatment to QNUPS (Qualifying Non-UK Pension Schemes) and UK registered pension schemes to remove opportunities to avoid inheritance tax.

What does this all mean?

The increase in the capped drawdown limit from 120% to 150% of an equivalent annuity, will only really be relevant to members already in drawdown, or plan to commence drawdown between 27th March 2014 and April 2015.  For members that are already in drawdown, the increase will not be effective until their next pension income anniversary.

From April 2015, all members in a Defined Contribution scheme will be able to access their entire pension from Age 55. This also includes those already in a pre-existing drawdown arrangement. Individuals will have the option to select the level of income they choose to receive and will be taxed at their marginal rate.

For those of pension age who do not want to wait until April 2015 to access their defined contribution pension fund, the Chancellor has reduced the minimum secured income requirement for Flexible Drawdown from £20,000 to £12,000. Therefore should a member be in receipt of a secure pension (i.e. state pension in payment, annuity, final salary pension) of at least £12,000, they can select an uncapped income of their choosing, which will be taxed at their marginal rate.

Our View

At Carlton Smith Private Wealth, we  welcome the announcements made by the Chancellor in the spring 2014 budget. The Government have excelled in ensuring much greater flexibility and choice available for members of Defined Contribution pensions and view this as a simple grown up approach to retirement planning.

Market Review – January 2014

2013 In Review

The best performing equity market in 2013 was Japan, up 52%, whilst Brazil was the worst performing and down 18% over the year. The FTSE was up 14%, the US up 30% and STOXX 600 index (Europe) was up 17%.

Strong performance at the start of the year was helped by the FEDs asset purchase program and Fiscal Cliff negotiations passing without a hitch – the FTSE World returned 4.5% in January. This was the start of the great rotation of out safe haven assets into higher risk assets. Attention increased in Japan after returning nearly 10% over the month. The UK 10y Gilt was at 1.79% and the US at 1.69%.

February saw increased volatility due to the Italian elections, Moody’s downgrading UK sovereign debt to Aa1 and poor macroeconomic indicators from Europe. Despite this markets returned positive with government bond yields increasing.

In March equity markets had their first correction due to a funding shortfall in Cyprus, however, investors saw this as a buying opportunity with markets quickly recovering these losses. In April and May rumblings that the FED may begin tapering lead to increased volatility with gold being particularly hurt during this time whilst Chinese growth was starting to causes concerns. Japan has another standout month returning over 12%.

Despite all these concerns the FTSE recorded its 12th straight month of positive returns with the peak close coming on the 22nd May at 6840. However, with markets looking overbought and Bernanke spooking the markets on tapering fixed income and equity markets were sent crashing down in tandem in late May and the majority of June. The sell-off in the FTSE was some 800 points from peak to trough – nearly a 12% fall – wiping out the gains made so far. Government bond yield spiked with the UK 10 y moving from 1.68% at the end of April to 2.45% at the end of May, whilst the US 10 y moved from 1.67% to 2.49% over the period – a significant movement and depreciation in capital value.

Equity markets recovered somewhat in July with volatility remaining at elevated levels whilst gold stabilised as fears grew that the West was going to attack Syria. Bond indices did not recover their losses and remained fairly flat over the month but with increased volatility.

With bad news continuing to be good news (as this would mean that the likelihood of tapering would be decreased) October was a strong month for returns with the focus on data from the US.

However by December and with tapering finally announced the markets took this as a sign that the US was strong, with the data backing this up and the equity markets rallied into the end of the year. Bonds continued to perform poorly with the Barclays Global Agg ending the year down -4.41%, US treasuries down -7.8% whilst gold ended down 28%.

2014 Going Forward

Developed government bonds look more attractive than a year ago, but migration of the monetary policy in developed countries towards a more normalised position generates a low probability of a sustained rally in government bond prices. We don’t exclude a potential rerating of developed government bonds caused by deterioration in macro sentiment, but in our opinion this is going to be short lived. This expected behaviour is going to influence the whole fixed income spectrum but with different degrees of propensity.

Equities as an asset class will continue to be favoured relative to fixed income but we should not expect last year’s performance across the whole equity spectrum. The catalysts that will generate this year’s returns are going to be more complex than in the past, when the behaviour of investors was driven by a rerating of expectations.  This year those expectations need to be met by increasing earnings momentum  as well as M&A activity that should benefit from the opportunities given by access to low rates of credit and substantial cash holdings on corporate balance sheets.

US equities have the potential to continue performing in a low volatility regime but the catalysts that would determine this performance are influenced  by the propensity by which the market participant are willing to move away from paying attention to Federal Reserve rhetoric and concentrate on the economic behaviour. Strategy selection is going to be crucial when incorporating this exposure.

The market expectation for UK equity is to continue the upside trend started last year fuelled by the economy performing in a higher growth environment (relatively speaking). The BOE new communication exercise with regards to the implementation of the monetary policy is going to have a large influence on the expected performance and can push the volatility into a higher regime as a monetary tightening decision could be brought forward and surprise markets. Also the market expectation with regards to the economy performance is high, as positive news continues to fuel the positive sentiment. Any short term derailment of the economy performance can generate a steep correction.  Caution should prevail, as any realisation of the potential detracting factors above, can act together and force equity markets to dislocate.

Japan equity performance is highly dependent on the Abenomics efficiency combined with the BOJ unprecedented quantitative easing. The Japanese yen rerating that were a determinant of the equity performance during 2013 will have a lower impact going forward. We consider that the past year performance is going to be hard to be replicated during 2014.

Emerging market as a whole is no longer driven just by BRIC countries and deterioration in sentiment generated by some countries running budget deficits in conjunction with the tapering exercise that reduces the attractiveness of a carry trade will create a higher volatility regime.   We also have to mention the short term liquidity issues arising from China. Depending on the amplitude of the current sentiment we appreciate that the evolution would have four layers of degradation: currency, government EM bonds, corporate EM bonds and EM equities. Depending on the sentiment deterioration we might see a contagion of the positive sentiment in developed markets. Opportunities might be found in some regions where steps were taken to realign the local economies to global trends of growth but it is difficult to pin point the catalyst that will drive buying pressure across the board.

There are a number of key events worth highlighting which will add volatility and could impact portfolio returns over 2014 as outlined below:

  • Key Fed Meetings                           Jan, Mar, Apr, Jun
  • Debt Ceiling Negotiations            7th February
  • European Elections                       22nd May
  • Scotland Independence Ref         18th September
  • EU Bank Stress Test Results        October
  • Brazil General Election                  5th October
  • US Senate / House Elections       4th November

Overall looking forward, 2014 promises to be an interesting year where behavioural biases might have a higher influence in the market performance and where early detection of sentiment degradation is going to be crucial. We also take the view that risk management is crucial when budgeting risk by incorporating a framework that utilises a strategy approach to directional asset exposures.

Market Commentary – January 2014

Global Summary

The last month of 2013 turned out to be positive for developed market equities after some profit taking before the last Federal Reserve meeting. The event of the month that also affected both equities and fixed income was the Federal Reserve’s decision to start the tapering process in January after the US budget negotiations came to a favourable resolution. Once the tapering decision was made public, equity indices moved higher and reached new 2013 highs, with some indices making new all time highs and closing the month on an optimistic note. Yields on developed government bonds moved higher with UK and US 10 years yield trading above 3% as the Federal Reserve took steps towards a more normalised monetary policy.

UK Summary

In the UK the OBR’s forecast, contained in the annual autumn budget update to parliament suggested that UK growth would reach 1.4% in 2013 up from 0.6% predicted back in March and in 2014 a 2.4% rise. These updates backed by improving macroeconomic readings coming from manufacturing and construction sectors  pushed equity indices  higher, whilst speculation about an increase in interest rates sooner than expected moved UK 10 year Gilts above 3%.

European Summary

In continental Europe, finance ministers continued to make progress in reaching an agreement on a Single Resolutions Mechanism (SRM) and Single Resolution Fund (SRF) that will form the core of the banking union. In the same period Ireland became officially the first European Country to leave its bailout program. The economic readings coming both from developed as well as peripheral countries continued to surprise on the upside which fuelled market optimism.

US Summary

In the US the first half of the month was marked by speculation surrounding the FED tapering decision and negotiation around the US budget. Once the US budget was voted, the Federal Reserve announced that a first tapering round of $10 billion would be implemented in January 2014. The decision was saluted by the equity spectrum which recovered from the beginning of the month modest decline and continued the positive trend for the rest of the month with the S&P 500 closing on a new all time high. The yield on 10 year US government bonds climbed above the 3% threshold and will probably continue the upside trend for the foreseeable future as the tapering process unfolds.

Japan Summary

It was another positive month for Japanese equities with Topix gaining another 3.5% whilst Nikkei 225 closed above 16,000 for the first time since 2007 and had the biggest yearly advanced in more than 4 decades. The 2013 economic reforms launched by the Abe Government and the loose monetary policy have been the main drivers of Japanese equity performance.

Emerging Markets Summary

It was another month of underperformance coming from emerging markets as FED tapering speculations and in the end inception generated a higher level of volatility, the Chinese financial system was  under intense pressure as the seven day repurchase rate spiked 140 basis points to 6.6% and forcing the People’s Bank of China to supply $32.9 billion of short term funds. Going forward, as the tapering process is implemented  we expect elevated levels of volatility to characterise the EM space with inferior risk adjusted returns compared to developed equities.

Market Commentary – December 2013

Global Roundup

November turned out to be a mixed month for markets with most developed markets being influenced by the tapering discussions. A number of FED officials expressed their views on the current state of the US economy and how best to implement the tapering process. During her confirmation hearing in front of the Senate Banking Committee Janet Yellen assured the markets that her view is to continue with the monetary policy initiated by Ben Bernanke. Her comments regarding the current level of unemployment was perceived as advocating for a continuation of loose monetary policy  which is currently in place, ie postponing the tapering decision. Speculations surrounding the time of the first tapering decision drove asset returns across the globe with yields on government bonds again under pressure. The remainder of the year will  see renewed US budget negotiations – this  has the potential to cause market turmoil.

UK Summary

UK economic indicators continued to improve during November, with industrial output being at the highest level since 1995 according to the Confederation of British Industry, whilst unemployment dropped to 7.6%. Mark Carney announced that the Bank of England’s Funding for Lending scheme will no longer stimulate mortgage financing; instead it will  refocus on financing small companies. All UK equity indices returned negative for the month, with small cap equities outperforming large caps once again on the downside.

European Summary

The ECB reduced its key interest rate to 0.25%, the lowest level in the institution s  history, as deflations concerns dominated the headlines. Overall continental equities performed in the same volatility regime as the US – following  an upside trend. There were exceptions from the general trend: Spain, Italy and France had slightly negative performances.  France saw its  credit rating lowered by the S&P ratings agency by one notch to AA. Angela Merkel progressed on the path of creating a new governing coalition with the markets reacting positively due to concessions regarding increasing government spending

US Summary

US equity performance in November  was marked  by tapering speculations and assumptions. The latest FOMC meeting minutes showed that the FED considered the partial government shutdown as having little impact on the economy and also that a potential decrease in interest rates on the deposits of commercial banks  held with the Federal Reserve is desired in order to stimulate growth. Both S&P 500 and Nasdaq Composite reached new highs as equity markets seemed to adjust to the fact that tapering will take place and will follow a period of improved macroeconomic dynamic

Japan Summary

The Japanese Topix closed the month up by more than 5% –  being one of the top performers globally in November. Once again  we saw increased volatility due to disappointing macroeconomic readings, especially the GDP reading,  which  made the market participants believe that an acceleration of QE is going to be implemented in order to further stimulate the economy.

Emerging Markets Summary

Emerging markets experienced negative performance with Chinese Communist Party’s Third Plenum holding the headlines. Market expectations were higher as actions taken during this meeting were viewed as positive for future economic development. Meanwhile tapering off discussions made yields of some emerging markets economies spike once again causing turmoil on those economies where budget deficits reappeared.

Local Support Helps Us To Be Rated In The UK’s Top 200, Twice!

Cornwall and Suffolk based Independent Financial Advisers, Carlton Smith Private Wealth, have had their 2 advisers, Nic and George, both voted as one of the top 200 Rated Independent Financial Advisers (IFAs) in the UK by their clients.

George and Nic have been an advisers at Carlton Smith Private Wealth for 3 years, since it was established, and their achievement will be announced in The Times on Saturday 19th October.

Comments Nic: “There are over 20,000 Independent Financial Advisers in the UK so we’re thrilled to be in the www.VouchedFor.co.uk Top 200. What makes it even more special is that we’ve been selected thanks to our clients. It means a lot that they’ve gone out of their way to support us and we’d like to thank them all.”

Continues George: “We’re passionate about independent financial advice. While talking about how to look after your money isn’t ‘sexy’ with a growing pension and savings gap planning your financial future is more important than ever. In a nutshell that’s what financial advice is all about – making sure you make the most out of your hard earned cash and aren’t left short of funds in retirement or on a rainy day.”

Nic and George Carlton-Smith were selected as a result of local clients reviewing and rating their services on consumer ratings website VouchedFor.co.uk. The site, which enables people looking for financial advice to find a recommended IFA, works like TripAdvisor. You can search for an adviser free of charge based on location and services provided. Advisers are then listed based on client reviews giving those seeking advice confidence that the adviser can be trusted.

For tips on financial planning, take a look on http://www.cspwealth.com/financial-future-security.html