Scammers have various ways of getting you to depart with your pension, and once you make that transfer, your retirement money is gone. Scammers can be very hard to spot; they know exactly what they’re doing. Let’s explore how you can protect your pension and reduce your risk of falling victim to these scams…
Warning Signs
Cold calling- since January 2019, there has been a ban on cold calling about pensions. Unless you’ve asked a company to contact you about your pension, they are not allowed to. So, if someone tries to get into contact with you out of nowhere regarding your pension, steer clear!
Claiming to know ways of avoiding tax or saving on tax- yes, tax can be frustrating, but it is there for a reason. We are sorry to say that there’s no loopholes here!
Promising limited time offers or one-off investments- if it sounds too good to be true, it probably is
Offering a loan or cash back from your pension- don’t be tempted by the promise of cold hard cash. It’s false
Rushing you to make decisions- take a step back and question why you are being rushed. If they are legitimate, why would you need to make a decision so quickly about money you’ve been putting away for decades?
Getting you to download software or apps- scammers may do this to gain remote access to your devices in order to access things like your bank details
Free pension reviews- as one of the most popular pension scams, this sounds harmless but it won’t end up being just a review at all
Claiming to help you access your pension before age 55- you cannot do this without ending up with a very high tax bill from HMRC
Offering complicated investment schemes- a good rule to follow is that if you don’t understand it, don’t do it
Putting your money into a long-term investment- scammers may use this tactic as you wouldn’t necessarily notice for years that there is something not right
Suggesting you funnel all of your pension pot into a singular investment- the investments most scammers persuade you to buy into are incredibly high-risk, meaning you risk losing all of your retirement savings. Most regulated financial advisers will suggest diversifying your investments to reduce risk
Protecting your Pension
Many pension scammers have convincing websites and online presences to make them seem like they’re legitimate. This is why it’s so important to take extra precautions with your pension.
Check the FCA register to check if they’re legitimate
Check the FCA Warning List to see the risks associated with a potential investment
Talk to a regulated financial adviser before transferring your pension
Check it isn’t a clone firm. Some scammers pose as legitimate firms by using their name but different contact details. Make sure you use the contact details which are on the FCA website to ensure you don’t fall into this trap
If you think you’ve been scammed, contact your pension provider to see if they can stop the transfer if it hasn’t taken place yet
Your pension pot is made up of your hard-earned money, so why risk losing it all? Take these precautions and watch out for scammers! If you have been a victim of a pension scam, contact Action Fraud to report it.
Click here to learn more from our sister company about protecting yourself from financial scams.
by Red Star Wealth
With the Bank of England’s emergency bond buying support set to end today (Friday 14th October), we think it’s important to fill you in on what exactly has been going on.
The Mini Budget
Kwarteng’s mini-budget on 23rd September 2022 saw the Government announce enormous tax cuts with very little explanation as to how these would be funded. This has triggered strong waves of uncertainty which have in turn affected the UK’s financial situation.
It led to a steep drop in the value of the pound as well as rises in government borrowing costs.
Government Borrowing
One of the ways in which the Government generates enough money to fund its spending plans is by selling government bonds (also known as gilts) to investors. This acts as a form of debt which is paid back over time with the addition to interest.
They sell these bonds to investors such as large pension funds and big banks on international markets.
These investors have been demanding much higher interest rates to lend to the UK government because they have concerns over whether their tax cut plan will actually work.
What is the Link with Pension Funds?
Pension funds tend to invest in bonds as they are seen as a low-risk investment, giving a low but reliable return over a long period of time. They also buy a form of insurance to protect the value of these bonds.
As government borrowing costs increased, insurance providers began charging a higher rate of interest.
In order to afford these extra payments, many pension funds began selling their bonds, with further reduced their price and pushed up their interest.
This created a negative spiral, as the more bonds pension funds sold, the higher the cost of government borrowing became, meaning insurance payments rose, meaning even more bonds were sold, and so on, and so forth.
Bank of England Emergency Intervention
The Bank of England (BoE) decided to implement an emergency bond buying scheme as a temporary measure to stop the prices of government bonds falling any further and thus limit the need for pension funds to sell any more of them.
It did this by buying lots of government bonds. By buying these bonds, government borrowing costs should reduce, as it eliminates the need to pay those huge interest rates demanded by investors we mentioned earlier.
By buying these bonds, the BoE has helped stabilise their price, preventing further sales from pension schemes that could ultimately cause their collapse. They have essentially halted the market turmoil that was putting pressure on pension funds.
Despite announcing that they would buy up to £65bn bonds, with a daily purchase limit of £5bn a day, they have only bought around £5bn in total.
Only a Temporary Measure
The BoE’s intervention is a temporary measure aimed at maintaining financial stability. Their bond-buying scheme is due to end today, despite pension funds trying to get them to extend their intervention.
On Wednesday, when they announced that their emergency support would end on Friday as planned, the price of 20-year UK bonds hit new lows, with interest rates going up to levels not seen since 2002.
However, the idea behind the BoE stopping their intervention is that they expect demand to increase as pension funds rebalance their portfolios and stabilise. Think of the measure of them allowing pension funds some time to get back on their feet.
The BoE has not completely withdrawn support either. They have announced further measures to help pension fund sthat have been negatively affected by the recent market volatility. Under this measure, funds will be able to use a wider range of assets to access money to meet short-term financial needs. This should mean less pension funds having to turn to selling government bonds to raise cash, which is what was happening after Kwarteng’s mini-budget.
What a mess! If you’re still worried about what this means for you and your pension, reach out to a financial adviser for help.
by Red Star Wealth
Have you been considering becoming a Buy to Let landlord but don’t know whether its worth the investment? If so, you might want to read on…
Changes in Stamp Duty Land Tax (SDLT)
Since 2016, there has been a stamp duty surcharge on second homes and Buy to Let properties in England, Wales and Northern Ireland.
This means that anyone who owns an existing property and chooses to buy another for £40,000 or more is now subjected to an additional 3% SDLT. In a nutshell, if you own another property, you’re charged for it.
As of 2021, an additional 2% SDLT (on top of the aforementioned 3% surcharge) has been added for overseas buyers purchasing additional properties in the UK, even if this is their first UK property purchase (with their other property being overseas).
What About Tax Relief?
Since April 2017, a new plan has been phased in wherein mortgage interest tax relief for individual landlords is being restricted by the government.
As of April 2020, landlords can no longer deduct mortgage expenses from their rental income to reduce their tax bill. Instead, they receive a tax-credit, based on 20% of their mortgage interest payments. This is far less than the previous system for higher rate taxpayers, wherein landlords effectively received 40% tax relief on their mortgage payments.
Scrapping the Wear and Tear Allowance
Previously, landlords received a wear and tear allowance (a type of tax relief). This was 10% of the “relevant rental amount,” and acted as a flat rate allowance, claimable every year regardless of the actual expenditure of new furnishings.
As of April 2016, this has been replaced by a renewals allowance, wherein landlords of residential properties can only be granted tax relief on the costs they actually pay for replacing furnishings, appliances and kitchenware.
Higher Rate of Capital Gains Tax (CGT)
CGT is a tax on the profit when you sell off an asset that has increased in value.
April 2016 saw the rate of CGT reduced for all chargeable gains except in relation to those on the disposal (selling) of residential property.
This means if you were to dispose of shares or mutual funds, you would be taxed at 10% or 20%, whilst if you were to dispose of residential property, you would face CGT of 18% or 28%.
Lettings Relief
Landlords used to get up to £40,000 per owner if the property was rented out for part of, but not all of, the period of ownership. However, this is now only available if the owner has been living there with the tenant, meaning lettings relief has effectively been abolished.
Final Years Relief
Final years relief is an exemption from CGT. It used to be granted during the last 36 months of ownership, regardless of whether the owner had occupied the property or not during this time.
As of April 2016, this period of relief from CGT has been reduced to 9 months, making it just a quarter of what it used to be.
Electrical Safety Standards
As of June 2020, all landlords must get the electrical installations in their properties inspected and tested at least once every five years. If their tenants or the local authorities request it, they must be able to provide a copy of the electrical safety report.
This is great for keeping tenants safe, but it is one of many things that Buy to Let landlords will have to stay on top of and pay for.
Finding Tenants
Buy to Let property is intrinsically reliant on tenants. You have to find tenants in order to get an income, and you will still be incurring costs regardless of whether the property is empty or not.
Is Buy to Let property investment becoming more hassle than it’s worth? That’s for you to decide. Though this blog has focussed on its decreasing desirability, it can still be a very good source of income and is still a popular asset.
by Red Star Wealth
If you feel like you haven’t quite been able to wrap your head around the enigma that is cryptocurrency, this blog is the one for you
What is Cryptocurrency?
Cryptocurrency is any form of currency that exists virtually, using cryptography to secure its transactions.
Rather than using ‘real’ money in the ‘real’ world, cryptocurrency exists entirely within the digital sphere… it is not tangible.
What is cryptography?
Whilst its name makes it seem complicated, cryptography is just a way of encrypting transactions to keep them secure
An Inversion of Traditional Banking
Cryptocurrencies are entirely self-governing, with most being supported by a technology called a blockchain. Every transaction made is automatically logged onto a database referred to as the Blockchain. This Blockchain acts as a kind of digital accounts book, shared amongst numerous computer systems.
This is very different to traditional banking systems which favour a single ledger that only a central authority can access. In short, with traditional banks, you can’t always see what they’re getting up to!
The complete transparency of cryptocurrency is deliberate, made in reaction to the 2008 Financial Crisis.
The Financial Crisis in a Nutshell
Banks and other lenders recycled enormous levels of debt into subprime financial products that were far too complicated for most people to understand. Very few people had access to the books, as access is of course restricted to a central authority.
When the products defaulted, the world economy was hugely affected, which led to massive amounts of money being given to banks to bail them out for the same problems they had caused.
People using cryptocurrencies make direct online payments to one another, cutting out the middle-man of banks and traditional financial agencies.
Now the complicated bit… how does it work?
Today, there are thousands of different cryptocurrencies being traded, so let’s just stick with one. We will use Bitcoin as an example, as this was the first modern cryptocurrency.
Source: https://coinmarketcap.com/all/views/all/, showing the number of cryptocurrencies (20,876) at time of writing
Every ten minutes or so, bitcoin transactions are batched into a block, which is then added to the blockchain we discussed earlier.
Adding the new blocks into this shared ledger is called mining, which is the way that new bitcoin are released into its virtual system.
Whoever wins the competition of solving the cryptographic problem can then add the new transactions block to the larger blockchain. They are also rewarded by gaining new bitcoin.
What’s the Catch?
This all sounds good, right? Avoid the banks and take matters into your own hands! But you may want to rethink that, as cryptocurrency is incredibly volatile. It is entirely driven by demand and supply, with no outside regulation from institutions like the Financial Conduct Authority, meaning it has huge fluctuations.
The reason you might have heard stories where people have made their millions off Bitcoin, is because the rewards of cryptocurrencies can be incredibly high. Those who make their millions do so by trading currencies as the rates rise and fall in order to take advantage of the peaks and troughs of the market.
As Isaac Newton said, every action has an equal and opposite reaction. Therefore, the chance of high reward also brings the chance of high losses. In fact, Bitcoin is down more than 50% this year, and is worth just 70% of its highest recorded price. These are not fluctuations to be taken lightly.
Read the Guardian’s interview of former primary school teacher, Duncan, who has faced losses worth £36,000 from investing in cryptocurrencies. If you still want to invest in cryptocurrency after this read, it might be a good idea to avoid putting all your life savings into it at least.
So, that’s cryptocurrency all summed up… if you prefer handling ‘real’ money, you might want to check out this blog discussing whether cold, hard cash helps us budget!
by Red Star Wealth
Though the Bank of England has not officially predicted a recession later this year, it is looking increasingly likely. This is due to the huge increases in the rate of inflation and the labour shortages continuing from Brexit and Covid. Here are some ways of preparing your personal finances in case a recession takes place.
Save, save, save
It may be a good idea to start building up your savings account, wherever possible. Having a strong emergency fund means you are prepared for unexpected costs. You never know what’s round the corner so it is best to prepare for the worst and expect the unexpected.
For example, your income may reduce from either losing your job or having your hours cut down due to less consumer demand in the economy. This would make essential payments harder to deal with, especially those arising out of the blue, such as your car breaking down or your bills rising (the latter being incredibly likely at the moment).
Go Debt Free
Try to pay off existing debts wherever you’re able to. Consider making a debt repayment plan… this could involve paying off priority debts first, before focussing on the ones with the highest interest rates in order to save money on interest repayments.
Priority debts are things like gas and electric bills and mortgage arrears (missed mortgage payments). These debts should be prioritised as they have the potential to cause the most issues, such as having your electricity cut off, or losing your home.
Avoid taking on any extra debts as you don’t want the amount you owe to become unmanageable
Shop Around
You can try to reduce your expenses by switching to cheaper options. Even though switching accounts can be a pain, it’s worth it in the long run.
If your weekly shop costs a bomb, maybe try to find a cheaper supermarket and cut down on certain luxury goods. If there’s ever a time to be frugal it’s now.
Avoid Investment Panic
Don’t let panic affect your investment choices. You shouldn’t let emotion cloud your judgement. Your investments dropping in value in the short-run during a recession does not mean they lack long-run profitability. For more info on this, check out this previous blog on the importance of long run investment.
It’s also worth considering diversifying your investments now so that one industry facing a decline during recession doesn’t sink your whole portfolio.
by Red Star Wealth
Increasingly, investors are taking into account non-financial factors when considering potential investment opportunities
What does ESG stand for?
Environmental
Social
Governance
Environmental
The environmental component of ESG investment concerns a company’s impact on the environment. When looking at potential investments, investors may be interested in things like:
whether a company has policies addressing climate change
what its energy efficiency is like
its greenhouse emissions
Global warming is (quite literally) a hot topic in society at the moment. This has led to more investors considering companies’ environmental footprints
Social
This looks at a company’s employee, supplier and customer relations, as well as its relationship with the surrounding community
Regarding customer relations, this may be as simple as wrongful dismissal of employees, or how well the business adheres to health and safety regulations
However, this can also be expanded to cover far broader violations. For companies which undertake production abroad in order to cut costs, investors may be interested in the existence of any exploitative labour practices. For example, any use of child or slave labour or workers working long hours with no breaks
Governance
Governance basically concerns any decision making element of a company and how it is run. This covers things like its leadership, salaries for those in executive roles, audits, and shareholder rights
The ‘G’ component can sometimes be overlooked by those discussing ESG investment. However, it still holds significance, as it concerns all of a company’s policies and internal practices
When looking at companies, investors may ask questions like:
Are they effective decision makers?
Is the company run efficiently?
Does it comply with regulations and laws?
ESG on the rise
Source: Morningstar, February 2021
Sustainable investment is clearly on the rise. More and more, investors are considering these ESG factors. Businesses that are socially conscious and completely transparent about their practices tend to fare better amongst investors
Why are investors considering these factors?
ESG factors enable socially conscientious investors to monitor a company’s ethical standards, meaning their investments can reflect their own morals
In recent years, there has been a movement towards sustainable practices. Investor behaviours have began to mirror this societal trend
By considering ESG criteria in their investment opportunities, investors can reduce investment risks. Companies involved in ethical practices often end up being held accountable for their actions, resulting in huge pay-offs. By vetting a company’s ESG practices, investors can avoid these potential losses. Therefore, considering non-financial factors may have a financial pay-off for investors in the long-run
