Author Archives: Richard Smith - Money Trainers

March 2019 Podcast – All About Debt

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Dealing with this area of your personal finances is really the kingpin or the starting point to improving your future wealth and happiness.

it does seem to be the case that we are all overloaded with debt of some description or another and this seems to be at the very start of people’s lives, my daughter was being offered credit on her 18th birthday, just as soon as she was legally able to consumer court. the problem with credit is the if it is not used correctly then it effectively steals your future. one of the reasons credit is such a powerful medium for those that are offering it is this, it guarantees them a share in your future income. Money that you should be using in order to provide the things that you need and want, ends up being paid in interest charges. But, it’s worse than that, the entire system is designed so that you never effectively repay debt and are caught on a treadmill of having to give up future income in order to service the financial liabilities you have. From the lenders point of you it becomes a very good stream of income from your point of view, it is a very large stone hanging around your neck.

Given that we now have things like student loans, it is accepted that every 24 or 25 year old will end up with some kind of long term debt. even if there is no student finance to be considered then there is car finance, lease plans and bank overdrafts and credit card lending. The numbers involved or truly fantastic, and I will cover more of these in the content below. The problem from your point of view, is this if you have any form of debt and you are currently still working your debt, is going to be serviced out of your future income. That is money you have not earned yet. if this money is going to be earmarked for somebody else, for example your debt repayments then it can’t work for you.

Importantly, most of the things we tend to buy on credit are the things that go down in value, or are consumable which makes things even worse. You end up with no long-term value and the benefit goes to the manufacture of the product or of the service and the credit card company. Sure it is the system of capitalism that gets us to this point, problem is far too many people don’t think about this subject in a mindful way or bother to really consider the options and the short term future.

This is exploited by the banks and credit card providers. If for a minute you did sit down and think about what today’s credit card borrowing was going to do for your future income, you probably wouldn’t borrow. You’d probably make a plan b. This is the plan b I would encourage you to consider sooner rather than later.

it is not possible for you to have a rock solid, and independent financial future if you have debts kicking around. Sure, there are such things as good debt – but in the main debt of any description is a bad thing. Over at moneytrainers.co.uk co.uk I have a couple of downloads on this particular subject.

It is vital that you review your existing financial circumstances as a matter of urgency and consider very carefully the level of debt but you have and what that is going to look like in the future.

DEAL WITH DEBT

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Charles Dickens, David Copperfield

Current UK National Debt – the amount owed by the government is £2.156 trillion (at December 2018). At the end of December  2018 personal debt – the amount owed by us all personally was £1.65 trillion or £59,261 each.

UK National Debt now stands at £2,156 trillion. It’s currently increasing at around £5,000 per second. http://www.nationaldebtclock.co.uk. Someone will have to repay this at a future date.

Just so you know: a trillion seconds = 31,688 years or would take to back to 29,000 years bc.

Jesus was just a twinkle in an eye somewhere fact not born for another 27,000 years or so. These numbers are mind boggling.

There is something about debt, on one level it seems we can’t live without it, yet millions do manage it. Supported by the government and the banks we are encouraged to live now, buy now, have it all now on borrowed money – effectively mortgaging your future very nicely.

Borrow if you need, just understand how bad it can be for your financial health – like smoking it feels good at the time, but stuck in a cancer ward with terminal lung cancer does not seem that great.

The message we get from all of those trying to sell us things is this …Imagine how good you’ll feel when you have x or y. Just do it! There are many problems with this kind of thinking or approach to having stuff, and most of the stuff we all buy on credit is just stuff; first problem is this.

It’s a poor man’s (or woman) approach to life. The wealthy understand the truth about borrowing – you mortgage your future income in order to get that car or holiday this week rather than next month or next year, waiting for the right time, perhaps when you have saved enough.

Wealthy people, those that are able to earn and keep hold of money have very different spending patterns to most of us, and certainly don’t borrow to buy stuff. Working on your buying decisions is one way to ensure you become FI (financial independent) at some time in your life.

Long after the buzz of the purchase has gone, you will still paying for it out of your future income. Debt, effectively robs you of a future, an independent future.

It’s also stressful, and stress is a killer. Debt equals death, bit harsh, but go ask anyone in debt.

Repay/Overpay

I have a budget planner available from my website (email me on admin@moneytrainers.co.uk and ask me for a copy of it.

On the debt side of this planner I ask you to rank debt in order of it’s interest charge. Often you will find that the actual interest charge on much of your debt varies from 16% – 28% right down as low as 1% for mortgages.

You should then consider what borrowing can be repaid without penalty – credit cards are not normally a problem, but loans and other types of finance may have a penalty, check first.

Once you know what the most expensive debt is you should start to make larger payments to this, and maintain the minimum or contracted payment to the rest of your debt.

This method provides you with a ‘snowball effect’ as the more expensive debt starts to reduce, thus you’ll be paying less interest and more capital; forcing the debt to reduce.

True Cost Of Credit – Alison Average.

A few years ago Alison went on a very nice holiday and she put the cost of this on her credit card which leaves her with just half of the UK average debt of £4500.

This is likely to be paid off over the next ten years or so if she doesn’t spend any more on her card. Based on average repayment time, and an interest rate of 18.66% assuming she makes the minimum payment she should clear the balance completely in around 31 years, and pay £6350 in interest. Total cost is over ten grand.

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March Update – Pesky Spam Filters

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Pension Select Committee

I’ve been busy again in relation to this important committee  – that does seem to miss the point quite a lot. My most recent submission related to the ‘costs of pension transfer advice’ and the issues surrounding that – again we’ve seen a good deal of miss-advising going on with Defined Benefit Pension Transfers – notably with British Steel Members. My comments are here Pension Select Committee (link is not secure – can you believe)

Given that advice in mandatory for most of these transfers you’d think the regulator would be overly cautious  – reality is it’s not and a tiny number of really bad apples create chaos.  If you are lucky enough to have a final salary type scheme  – then it is unlikely it will be in your best interests to move it away – really.

Importantly if you are cold called or approached about moving it is more than likely a scam.

The really sad news is that last year 245 victims lost an average of £91,000 each – with few prosecutions so far. Sadly, the regulators, scheme trustees and our police service seem unable to stop it.  Spread the word, pension transfers are often a problem.  As a rule of thumb – never accept the advice of one adviser always get it reviewed independently, preferably by an independent Actuary.

House In Spain

I have finally purchased my holiday home in Spain. It’s taken a year. Some important lessons on that.

Use TransferWise for all overseas payments (even comes with a debit card if you choose) exchange rate and fees are far lower than the banks and for me better than the likes of Currency’s Direct. I’ll be honest, provided you are happy to deal online Transferwise seem hard to beat – all currency options and with the debit card and app means simplicity. If you are not tech savvy –  i don’t have any answers at the moment.  My purchase costs were about £1800 less than my bank (HSBC) quoted.

Second point – Spain seems to be pretty open to us British living and buying homes there, for me it was the weather and the beaches and the fact we seem to be wanted was a godsend.

Top Tip – I used a British Law firm to oversee the purchase, increased cost of about £900 but  I saved that on the currency switch. In Spain they only speak and write in Spanish  – the law does not accommodate any other language.

Financial Independence Retire Early (FIRE)

This movement has been getting quite a lot of flack recently – but I can assure you this.  In the past two years i’ve met over a dozen who have effectively retired – at 40 something.  The advisory industry seems to be disinterested in this kind of planning. What’s really interesting about what the movement is doing.

  • Not using pensions.
  • Investing their own money on a low charge basis.
  • Invest for income in the main – once it’s paid it’s yours.
  • Being mindful about what they purchase.
  • Having a side business if working full time.

Importantly, they are not spending hours of time managing or worrying about money – most of the time they are just making small tweaks to a handful of principles. I have some more to come on this, but here is a brief summary of what the #fire movement is doing.

Some of this is easy peasey, but when you dig deeper on these points the differences are profound, when compared with the usual advice.

  • Not using pensions.
  • Investing their own money on a low charge basis.
  • Being mindful about what they purchase.
  • Having a side business if working full time

That’s it for now.

Richard

Pension Scheme Trustees Obligations

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In August of 2018 the Pensions Ombudsman upheld a complaint from a policeman after he had transferred his pension from the police scheme to scammer without the scheme carrying out adequate checks.
http://www.pensions-expert.com/Law-Regulation/Ombudsman-s-police-ruling-highlights-trustee-duty-of-care?ct=true

Now, on the face of it you could say that that was an acceptable approach from the scheme, in that a formal request submitted by the member in order to transfer benefits from one scheme to another should be processed,  and that they [the scheme] should accept that request and move the funds.

Considering it further, the trustees of the scheme do have an obligation to the member in order to ensure that the funds and benefits they hold on behalf of that member, are managed correctly. And in accordance with the normal rules and regulations that go with this type of scheme. Is it fair to expect the trustees to be ‘trusted’ to make sure that any transfer made fits with this obligation?  As the ombudsman ruled.

My view would be that, they do have some responsibility and a duty of care. The Pension Ombudsman agree.

The Police Pension Scheme (PO-12763)


https://www.gov.uk/government/consultations/ban-on-cold-calling-in-relation-to-pensions/ban-on-cold-calling-in-relation-to-pensions-consultation-on-regulations

There is also the issue of woefully adequate enforcement after the event of a transfer. When these dodgy transfer businesses are finally caught, it ends up with a major paperchase which it seems few police forces are able to cope with and the attitudes towards white collar crime mean that a lot of these people [bad guys]  get away with it. The National Crime Agency reports that it’s working with regulators – yet very little seems to be done – limited action.

http://www.nationalcrimeagency.gov.uk/crime-threats/fraud

Project Bloom also seems to be woefully inadequate in reporting on these matters and clearly not estimating the size of the problem correctly, based on it’s own assumptions.

https://www.parliament.uk/documents/commons-committees/work-and-pensions/Correspondence/Letter-from-Chief-Executive-The-Pensions-Regulator-to-the-Chair-relating-to-Project-Bloom-13-November-2017%20.pdf

In February 2017 the Pensions Regulator even called for a Safe Schemes list.

https://blog.thepensionsregulator.gov.uk/tag/project-bloom/

Fact is this important and no doubt expensive project has been around for a number of years and delivering very little.

I have been approached by several campaigners on this matter in recent months and the evidence is frightening, these firms are transferring pension business and committing crime on an industrial scale. This is not some backstreet firm, it’s organised and professional.

When I submitted my returns to the Pension Select committee a few months ago one of the things I suggested was that we should make the various regulators a bit more responsible for what is actually happening here.  Now I know that passing the buck to pension scheme trustees or to the pension regulator may not be the right answer. That said we have a particular problem, we have a problem where lots of individuals are losing big chunks of their hard-earned pension money.

My suggestion is we consider very carefully the obligations that trustees have in order to make sure pension money is protected and that it goes to the right place if moved.  We also make sure that any advice provided is, either second guessed by a third party advisor or actuary. Or indeed it is signed off or accepted by the trustee as being a legitimate transfer.

So far this year we’ve seen more pension mis-selling and poor advice in relation to pension transfers – despite pressure from the regulator –  nothing seems to change.

So, here goes.

The Implementation a very straightforward traffic light system –  red yellow green. Would help consumers, this would follow an assessment by a third party adviser/actuary/pension transfer specialist – and would consider the receiving provider along with (potentially) other issues.  The benefit of this would be to put in place a further checks on the quality of advice that is being provided but also to make the bad guys consider very carefully and understand that there is a checking process in place and they will have to deal with.

There is not an advisor in the country that should be concerned about having a third party check on their advice and to be under external scrutiny. Importantly, by transparently providing an additional check on their advice to a member of the public should make everyone feel a lot more comfortable.  

The truth is, on this matter Government and law enforcement seems powerless to be able to protect individual pension scheme members from the scammers. I would suggest therefore that the industry picks up the baton and puts in place its own systems of checks and balances to ensure the individual members are protected. It has everything to gain and little to lose.

I doubt the industry will because it feels that it has enough to do – but if the pension transfer side of  personal finance wants to be credible in the eyes of the public and doesn’t want to face future regulation it should act now.

Ban Commissions

A end on commissions based on fund value (yeah I know the industry calls them fees – however fees are traditionally paid direct, by  the customer, not from the value of the investment), the simple allowance for advice direct from the scheme. Puts advisers on a par with other professionals and means some of the bad guys won’t be able to function.

Also means that members can get access to high quality advice without having to find the costs of advice upfront.

There are many ways to deal with these issues and we know that under the current system, for some reason change will not be coming soon enough – which means there needs to be an alternative. At the moment, the industry ain’t looking that good and the bad guys are still getting away with it – so something needs to change.

Do These Things?

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Sometimes we wait and wait for stuff to happen when instead that is the last thing we are designed to do. If you are waiting around for things to happen, you can be assured they will happen anyway and it’s pure chance if it will be of benefit to you. Fact is most people spend their lives drifting from one financial crisis to another – from one bad relationship to another. Still spending one of the two main resources (money) on stuff – shizzle.

These are things you need to focus on if you really want your life to change.

 

 

 

 

Action – what are the ten percent of things you do that bring the most reward. Think, financial, emotional and spiritual. Go do them and them only.

Meditation/Mindfulness – don’t have time for five minutes of this. Go do an hour.

Gratitude – what you have is what you have – be grateful, express gratitude for this day, your clothes, where you are, you ain’t dead – which means things must be better than they can be.

Focus – bit like Brexit we have a whole load of politicians that can tell you what they don’t want but none that can tell us what they don’t want. The quicker your work out what you want the quicker things will change. What you don’t want  – won’t give you what you want.

Spending your time and money on stuff will not have the impact you think it will. It’s all about  making the inside right, then the outside will follow.

Stop spending hard earned on shizzle.

When you’re ready for more, get on the email list – you will thank me for it.

Your best email address

MoneyTrainers – January 2018 Podcast

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As always – parental guidance – there maybe some naughty words up ahead.

Show notes – January 2019  Audio is linked below.

For many people – not having any money is the default position. JAM’s – just about managing, those living on the streets, relying on benefits – people moaning in the office, at the pub – never having enough, moaning about the rich – how unfair it is that they have all the money – you know, the ‘never enough to go around because…’ story that is often told.

The oldest books we have access to all talk about the issues around money.  The problem with that is we end up with a whole series of negative thoughts around money and I know the reason we have these negative thoughts is because people don’t understand the science around money. They don’t know how to make it grow and how to multiply it. Those that do understand the money is just a resource, like having food in the cupboard or wood for the fire.

Money only solves the problem that is caused by not having any money. It doesn’t solve any other problems.

Money is an amplifier, if you are in a bad marriage with no money. Having more money will not make your marriage any better. but it sure is likely to increase the strain within the relationship.

Having money inside a good marriage makes everything better. It’s like a massive boost, couple getting on OK money kicking around and do the things and by the things I want to do. Surely a perfect scenario great relationship plenty of cash.

For some reason money is the one thing that nearly everybody you meet struggles with. There are few people for some reason, that really get this money stuff. We have all sorts of words and sayings for it, money doesn’t grow on trees, I’d love to afford it but, there is never enough, money is evil.

One of the reasons I do the things I do, it’s not only because I understand how this whole money thing works but large sections of my community seem to struggle with this whole money issue, of course there are plenty of myths and misunderstandings around money and this is part of the problem. The other part of the problem is the lack of a decent money education. people think that this whole making it growing it allowing it to work for you money thing is just far too the reality is it snow harder than learning to drive the reality is it’s no harder than learning to drive a car or ride a bike or to cook a Sunday roast. But it is more akin to making a cake, see if you get all of the ingredients in the right order and use the right chemistry making a cake is really quite easy. getting things in the right order with the right chemistry around your money is an incredibly successful strategy and it’s possible for everyone to learn.

So what are the fundamentals around money.

Spend less than you earn.
Invest the rest.
Always invest for income.
Spread your investment risk.
Never invest solely for tax reasons.
Check, tweak and adjust.
Provided you follow these few steps you’ll be doing better than average.

It is just something that you can use.

Money doesn’t care it has no emotions it’s not interested in who owns it or who owns it. Yet it is a measure of success. I don’t think it’s a very good one because I’ve met plenty of miserable wealthy people. And surely having a successful life means a happy one. Just a thought not a debate.

There also seems to be a widely held belief that money is difficult to come by, difficult to manage and difficult to invest. This perception is pervasive, it’s all around us just ask members of family or the people you work with ask them tell you how hard it is to get and hold on to how to manage.

But that’s not the truth is it, plenty of people have managed to acquire a big pile of cash and use it to fund extremely happy lives. And provided you follow a few basic principles – what I call the science of money  You can enjoy the warm cosy glow of having enough coming in and enough money to live a life.

Before you go on, the next time you are out shopping try this. Find an item you were going to buy, before you drop it in basket, look around, is there are bog off available, a discount for two, an own-brand option – just being mindful about spending often shows up as a ten or sometimes twenty percent saving – you now have some money spare that you were not expecting to have – put that in a safe place – you can invest that at a later date.

Surprisingly there are a very low number of skills that are required in order to provide for a successful financial future.

Simple things.

Invest for income using low charge funds – charges are important.

Use the likes of Peer to Peer lending for some of your cash – returns from Funding Circle can be as 12%.

Invest in Government bonds and company bonds – these work like a loan, you make to a company or to Government

Always have some cash to invest – never ever be fully invested.

 

Learn how to trade your knowledge – if you are in a full-time job – then part-time.

Be careful with pensions – these are only tax-deferred not tax-free, charges eat up all of  any tax relief (get hold of my pension review letter if you are not sure)

Retail arbitrage – new to this one myself – basically means buying an item for a large retailer and selling it online for a profit. I’ve done a couple of sales recently – it’s an interesting model that I’m still learning.

In summary

Spend less than you earn

Remember that once a pound is spent it never comes back to you somebody else now has access to that pound and if they use it correctly it will work for them forever.

Only ever invest for income.

Always focus on the level of charges.

Always invest on the dips – you don’t have to buy that investment now, wait until it goes down in value.

Always make sure you manage your tax liabilities and use your allowances carefully. Note I said “use” not ignore.

If we start to consider carefully the difference between science and a belief, for example, you’ll quickly start to understand that a belief is simply an opinion that is held by an individual or a group of individuals that is not based on any scientific fact. Examples of this are the immunisation debate, whether or not childhood diseases are caused by immunisation and that the earth is flat.

I’m not saying that the belief in either is wrong but the belief is not supported by the evidence. Anti-vaxxers and flat-earthers are entitled to their opinion, and their belief but that does not make them right. The truth is that the world is in fact round like every other planet in the universe and vaccinations do save lives.

When it comes to money there is also a clear science behind making it and managing it. Without a doubt making money is rules-based and provided you adhere to the rules your money will continue to grow. There is an obvious science of money, provided you apply the rules of money science to your money you will get a result. It doesn’t matter who you are or how much money you have if you stick to the scientific rules of money you will end up with a result based on those rules.

Managing your money is a simple science. It’s based on facts and very specific rules. Quite simply apply the rules to your money and your life and you will end up with the result based on the science.

The reason many people on this planet live in poverty is because they don’t use the rules of the science in order to improve their financial situation. I know, that you will provide me with a whole load of comments and narrative in relation to this statement. Explain to me the reasons why poor people are poor, however, the evidence again seems to prove otherwise. There are plenty of people that have been born into abject poverty but have somehow managed to improve their financial situation.

The science behind improving your financial situation is very straightforward. It revolves around education, action and self-discipline. Provided you stick to the rules you will end up with a science-based result.

Money, like nature, doesn’t care about you or any other individual it has no biases quite simply provided you follow the rules of money you will end up with more than you need. Money will flow towards those people that follow the rules. this is the reason why we have a 1% population on the planet that is 1% of the population controls a large proportion of the overall wealth on the planet. Sure some of these people and companies have exploited their position, however, they has all applied the science of money in order to magnify whatever money they have had.

Money science tells us that we should get her money working for us rather than us working for it. Having your money working in the background whilst you do other things is money science. And a bit like every other form of science, it is ignored by many. If you want you can call these poor people. They ignore the basic principles of money. I spent a large chunk of my working life not understanding the principles, my parents never understood the principles. none of them ever had any money, and neither did I until I started to apply the money science.

if you are a bit of a cynic and you don’t believe me go have a look at your own personal financial situation, there is a good chance that you do not have sufficient money. That you do not have enough. this is all the evidence you need that you don’t have an understanding of the silence around money. You have not bothered to learn what is required and take the appropriate action. This is not complicated period this is science.

science /ˈsʌɪəns/ noun

the intellectual and practical activity encompassing the systematic study of the structure and behaviour of the physical and natural world through observation and experiment.

The last two lines of this simple explanation kind of sum up exactly what I mean. Observation and experiment, the great thing about these two is that all of the observing and experimenting has been done for you. you don’t have to learn and carry out these experiments they’ve all been done by somebody else in the distant past all you need to do is to copy them. Really it’s that straightforward.

All of the effort, all of the study, all of the observing has all been done for you period all you need to do is apply to your own circumstances and make the science work for you. It is now 2019, we have many hundreds of years of knowledge and experience behind us. We know what works.

In the same way we all know that not exercising and eating rubbish food along with smoking cigarettes and drinking alcohol will shorten our life. We know these things, they are facts. If you do any of these you all live a shorter life than those. Facts.

Money is no different, we know exactly how it’s made and how it works. for the same reason you wouldn’t feed your pedigree dog or champion horse on rubbish food, you shouldn’t feed yourself it either. Managing and growing your money is based on the same thinking, once you know what works you just do more of the same. you apply the rules in the same way you would apply the rules of food and healthy living to your pedigree pet.

Most people seem to be in an abusive relationship with their money, I think there is always more to come, I think it will all end up ok. the fact is it will if you plan for it and manage it properly once you understand the rules, the science you know what to do next.

These are the things that money trainers is about. When you are ready, get on my email list and I’ll update you with some further information and also the 2019 training dates. this is where we spend 2 to 3 months working together in order for me to educate you on the basic money facts, The science and you can start to do the same with your own money. Anti-vaxxers and flat-earthers need not apply.

You can find out some more on https://www.moneytrainers.co.uk/about or directly on https://www.moneytrainers.co.uk 

Contact me here >>

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Update – Pensions – Deposit Accounts – Pensions Select Commitee

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Christmas is close – however, there is an interesting shift in spending patterns with a lot of retailers seeing sales down and discounts starting early – I don’t think anyone should be surprised by that given the political situation – that just seems to be getting messier and messier.  Keep your eyes open for a bargain.

Meanwhile  I am speaking to clients that are giving…
Homemade gifts – pickles/oils and sauces.
Waiting for the sales to start
Gifting second hand/recycled items

All of these make sense for the environment and of course, save money. As we all know, once a pound is spent, that’s it gone, it never comes back and is not able to be used again by us.  If you get in the game of preserving pounds, one at a time your financial life will soon change.

Pension select committee links
Earlier in the year, I submitted my response to a Pension Select Committee. For some reason it rattled big chunks of the advice industry, mainly because I asked for clarity over pension charges. Especially over the disclosure of the true costs.

Remember this – if you have smaller than average pension fund (£30k) and charges of just 2% – lucky you – many pension contracts are far higher, the amount deducted from your pension fund will be £600 per year or £50 per month. Double that to £60k and the costs become close to that of the average UK council tax, treble that to £120k and your charges will be £1800 every year – roughly the lease cost of a new Suzuki Swift .

Go do the maths on your own fund, you’ll be surprised I’m sure.

The link to my response on the subject of pension charges – on the  Government portal is here.
http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/work-and-pensions-committee/pension-costs-and-transparency/written/88360.html – the link is not https – I have no idea why.

Pension review offer
If you’d like a review of your existing pension(s) I have a done for you service.https://www.thefinancezone.co.uk/product/pension-finder-and-review-service/ you can order online, it normally takes around four weeks to complete – most pension providers take three weeks to produce the information  – this review could be worth thousands of pounds and is currently discounted – until the end of December.

If you would like to do the whole thing yourself I have a template letter, usually £5.99 but at no charge to you. If you want it, drop me an email to richard@thefinancezone.co.uk  and I’ll send it back.

Link to previous newsletter covering interest rates 

Interest rates continue to be low, for those that missed my comments in the last email it’s linked below.

https://www.moneytrainers.co.uk?newsletters_method=newsletter&id=2

Rule of Seventy Two
I’m sure some of you will have heard of this before, once you start to get your head around how this works for you, you can immediately look at a potential investment and work out how good or how bad it is likely to be – roughly.

All you need do is take the number 72 and divide it by the potential return of any investment and you will end up with a rough number of years it will take for your investment to double.

Compounding interest is a wonderful thing and it is for that reason that I only ever recommend that any investment you make provides an income. Capital growth is never guaranteed and once income is paid it’s yours forever and can never be taken away. Unlike capital growth which will be removed as soon as the market falls.

This just leaves me to wish you a wonderful Christmas break, watch your money – no one else will.

Richard
www.moneytrainers.co.uk

PS there are a number of industry professionals on this list – I’ll be honest, no problems at all with that – but if you use any content without permission I will come knocking  – my bots are watching.

 

Inter generational wealth

Integenerational Fairness / / by

 

It can’t be right that house prices go up in value more than earned income on an annual basis and that is tax free, or that the overall taxation advantages of owning your own property are – well, considerable.

Complete tax free growth during your lifetime and on sale and for most on death.

It can’t be right that those who rent and also pay taxes don’t get the same tax breaks.

But it gets worse for the non property owning taxpayer.

  • Help to buy is a home buyers subsidy there is no equivalent for those renting.
  • No VAT on new property sales is a tax break to builders and buyers and a cost to you the non property owning taxpayer
  • There is no capital gains tax on the growth in value of your home if you own
  • Even on death homeowners still win with an additional £150,000 tax free allowance (Inheritance Tax relief on main residence)
  • Selling off part of a garden is also exempt from income and capital gains tax

It can’t be right that today’s working youngsters – those under forty are forced to make contributions to the pension scheme of others – knowing that they will not benefit from a similar pension. Example of this, the State Pension, today’s National Insurance contributions pay the pensions of those currently retired. Like a PONZI scheme

There is only a limited fund in Government savings if any at all.

Many of the pensioners retiring and retired have enjoyed or will enjoy good final salary pension schemes – these have all but disappeared.

State employees enjoy a taxpayer supported Final Salary pension scheme, the liability of these schemes falls on future tax payers. Government is refusing to fund state pensions with a reserve of money – a proper pension pot. Yet it forces you to make contributions to your own pension pot – by law. You have no control over charges and limited control over the investments. It’s called auto enrolment.

It can’t be right that Student Loans are a £105bn liability that is now placed back on individual students in the form of loans. Those completing their further education before 1998 would have no loans to repay. The whole further education system was funded by taxpayers until then – it meant that the cost of a degree was little if anything.

[http://researchbriefings.files.parliament.uk/documents/SN01079/SN01079.pdf]

That means most of the current Ministers of Parliament would have secured a very low cost further education, along with all the people you meet over forty years of age that have a degree.

How does it feel having to repay some £50k of debt that many of the people you’ll be working with didn’t have that to find?

  • It can’t be right that you’ll have to fund the over forties pensions and additionally fund those working in Government departments well into retirement and cover your own education costs, along with being forced to make pension contributions – whilst not being able to afford your own home.
  • It can’t be right that it will be even harder to own your own home especially as your Student Loan restricts the amount you can borrow and in London – house prices are 14.5x salary across the UK it’s around eight times and in 2009 it was around five times (ish)
  • It can’t be fair for unearned house price profits to be handed down tax free to those few who made a decision to buy a property in the 90’s or before
  • It can’t be fair that under the Right to buy – under this scheme some fifty thousand – taxpayer funded properties were sold to tenants- at up to a seventy percent discount in the last nine years. When those under forty will have little or no access to an instant asset, like the right to buy
  • It can’t be right that those borrowers looking to invest in a property via BTL have a more generous lending criteria than those looking to fund a purchase as a main or only home

So how do we balance that up, how do we try and equalise all of that?

The government would have you believe that all we need to do is roll over and let things continue as they have done for the past 50 years, reality is that’s no longer working for most.

Evidence is all around – less than half of the population now own a property, prices in London are around 14.5 times income. They have never been so high. Importantly in places like Croydon there are hundreds of ovepriced flats available for sale, mothballed waiting for the market to return.

Most of these will be left empty, no one knows for how long.

For many years house prices sat around 4 to 5 times income, and at one time tax relief was allowed on interest payments. And then central government made a policy of selling off council homes under the right to buy and not building enough houses to cope with the population growth that it encouraged.

Population. It’s all very simple to blame it on the immigrants, but that is not the answer. If Government wants to grow a population by several million in a very short period of time it needs to make sure that infrastructure is put in place or we end up with a bubble, and a shortage. Ring any bells.

Good examples of this – shortages of GP’s and school places and a lack of housing. I guess I’ll continue that in another post.

There are several ways we can start to adjust the system. Government could allow any rental payment to be offset against income tax. Yep that’s right tax relief on renting. When you think that homeowners benefit from unlimited tax-free growth in the capital values this would be one way of balancing the whole thing up.

Sure many people would agree that there is unfairness in the system and this unfairness needs to be addressed however no Conservative or Labour government has so far wanted to deal with it. That is a potential problem and a problem that needs to be addressed by the taxation system at some point in the future, the unfairness doesn’t make sense. You are all told – the under thirties, under forties are important on one hand – then shafted by the system that has been created.

The status quo as it is cannot continue. I’m not sure why that conversation is ignored, I think Labour accept it as a hot potato and Conservatives are completely in support of their current policy – I have some of that in writing.

They seem to be happy to introduce taxation on spending and leave capital to be treated very fairly by the tax system, this of course benefits the half that own assets like a home and directly disadvantages those who rent.

If we consider carefully what happens in places like the United States of America where capital gains tax relief on main residences is allowed at a fixed figure. Sure you can benefit from tax-free growth from your property but the amount is limited as an allowance. The problem is as I see it, the UK government, successive UK governments have used the increase in property values as a feel good factor. Basically, Governments can do what they like provided house prices keep going up.

We could look at it from another perspective.

We could start to offer tax relief for those people purchasing, provided they are coming from rented accommodation, that’s even it up. The end sale could be taxed. They do it with pensions – tax relief currently costs £50bn per year.

We could immediately scrap right to buy, we could immediately scrap help to buy.

The answers it seems are unlimited the problem is inaction on behalf of our Government. It doesn’t seem to be that interested in fairness and balancing things up.

Pensions
If we look at those people that are currently drawing on a state pension, or a final salary company pension scheme we will find that they have been very well looked after by successive Governments and successive enhancements to pensions.

The final changes on this should have been the pensions triple lock which was introduced by the Conservative/ Lib-dem Government. This triple lock means that pensioners that are currently drawing on benefits will continue to be looked after for a very long time. This triple-lock actually paid for by current taxpayers. Many of whom will be under 40 and are unlikely to benefit from these enhancements. In fact those of you that are under 40 are likely to to see your pension benefits from the state reduced quite substantially. This is not an acceptable way to spread wealth.

It would seem that relying on any form of state benefit means that you will be substantially worse off than your parents and most certainly your grandparents. Obviously no intergenerational sharing going on there.

We also face a situation where your parents and grandparents had the option of well paid jobs that secured an above minimum wage income and also long-term security. What used to be known as jobs for life. These no longer exist for the under 40’s – these people are also being asked to contribute substantially more via taxation than their grandparents or parents.

Taxation has been increasing in recent years, despite the level of government borrowing which is also going up – we should question where the money is going? Importantly, any proposed Labour government is also saying that it will increase taxation I do hope it thinks very carefully about that.

Answers to that on a postcard please.

It does seem a bit of a mess that Government is increasing it’s borrowing and increasing taxation at the same time, yet doesn’t want to answer awkward questions about where that money is being spent. I can assure you that it’s not going to provide pensions for the under 40s.

Let me give you some answers to this, some answers that so far no political party wants to address. The Conservatives – want the current system to continue. They think it’s working. Labour wants to increase taxation – to spread the wealth, yet make no plans for equalisation of the system to treat all taxpayers more fairly. For example, it could focus on getting the environment right and tax accordingly. Or it could introduce taxation on main residences. both of which will introduce some fairness into the system but will make them unelectable.

There is a need for.

Fairness in the taxation system.

Fairness in relation to pensions.

Fairness in relation to capital allowances particularly those that relate to property.

Capital taxes favour those that have capital and these are also supported by tax-free growth on houses and inheritance tax breaks for those that have  one to pass on at death.  There are no such tax breaks given to the 50% of the population that is currently renting.

Suggestion here would be to limit capital allowances on a main residence. It cannot be right that in most market conditions you make more money from the growth and value of your property than you do from working, but only if you own one.

We also need to balance up the pension system, it does seem incredibly unfair that the liability being caused by today’s pension scheme members are going to be funded by future taxpayers. Successive Governments have so far failed to address all of these things and that needs to change. Sure there are some unpalatable things to consider, but the truth is the truth.

It’s the same as the alcoholic waking up to the fact that they can no longer have a drink, it may be incredibly hard – but it has to be done.

Comments welcome on this one.

Financial Services – What’s Changed Since 1988

Saving Money / / by

 

I started working for the Prudential assurance company at the Holloway Road office, I thought that we were indeed living in very modern times. We didn’t quite have the level of technology you see nowadays, for example the office only had one computer. And that was kept covered most of the time.

There were no self invested personal pensions nor were there any form of peer to peer lending or borrowing – and we certainly didn’t have any of the more creative mortgages that are around today. Sure things were far simpler then, that said the overall thinking was exactly the same. Save some of your hard earned cash in an investment area that made sense and hopefully at some stage in the future you would be substantially better off.

There was no buy-to-let market, personal pensions had only just been introduced and we were right in the middle of a property market crash. Margaret Thatcher was the leader of the Conservative Party and therefore our Prime Minister we also had the satirical TV show Spitting Images every Sunday.

The Prudential was one of a number home service companies that had survived ever since the beginning of the century. Nearly every working class person had access to a trusted advisor that collected 4 weekly cash premiums on the doorstep. These were not loan collections – these were savings.

All of those that wanted it had access to someone that could provide them with financial advice and guidance. Sure the industry will hate me for saying that, however the system worked perfectly. The man from the PRU, or the Liverpool Vic or the Pearl were trusted and respected individuals the were all known locally.

So what happened? The marketplace moved on and most of these insurance companies were replaced by electronic and automated systems. Which meant the man from the PRU was no longer needed.

Ok, the products that sold then were never particularly competitive and certainly wouldn’t be considered in today’s world as being an ideal plan. But for many millions of people these savings meant that they had some cash available at some point in their lives which paid for children’s driving lessons and important birthdays, along with making sure that money was available for funerals and at various intervals holidays and high days. Unlike today’s enforced savings, money was made available at important intervals instead of a of at retirement.

The enforced savings we have available now – auto enrolment pensions, mean that payments are tied up until retirement date and can’t be accessed before age 55. And – certainly not the kind of investment you would make if you were looking to achieve financial independence before then, and certainly not making any sense when you consider it in light of the FIRE movement we have today.

The FIRE movement is a movement whose goal is financial independence and retiring early. The model is particularly popular among millennials, gaining traction through online communities via information shared in blogs, podcasts, and online discussion forums. From Wikepedia https://en.wikipedia.org/wiki/FIRE_movement

My working area for the PRU was concentrated in a tiny part of North London, the bulk of which was a handful of large council estates. I would guess that at least half of the residents had some form of arrangement with an industrial branch company. Which meant that at least half of the people living there had some form of long-term savings. Importantly at least half of the residents had access to a trusted advisor somebody that had financial experience and was able to assist with financial and technical expertise. Sure, there was always an element of sales. There always is.

Home Service
The home service model served the British Public for many years. I guess it just became too expensive to maintain and the contracts that were available started to look a little out of place in the modern world. And things move on, insurance companies needed to evolve just because it had worked for the previous 70 or 80 years didn’t mean it was going to work looking forward.

Advice on the doorstep.
I get the fact that times have changed however making sure that individuals could get access to financial advice in their own homes on a weekly or monthly basis just makes perfect sense.

Even if they had a particularly simple enquiry it could be answered, I had many clients that made notes and stuck them on the mantelpiece or inside the payment books. To make sure by asked the question when I arrived. If you compare that with what’s available now, you can pop over to Money Advice or even the main regulator site and if you are lucky they will be able to answer the question, the reality is any of the government sponsored sites are limited in terms of the explanation and of course are not interactive. Advice, on the doorstep may seem quaint now but for many it was extremely valuable.

Everybody who wanted it had access and in their homes.

Industrial Branch
The policies and plans that were arranged under industrial branch regulations were very simple, simple savings and investment products and simple life assurance products which paid sufficient for working-class customers and their circumstances. Many of these products had been available for decades and met the needs of most. There was never any need for complexity nor is there now. In fact the industry overcomplicates what are very simple matters.

What happens when you die? What happens if you live too long? All of these questions were answered by simple industrial branch policies and the man from the PRU.

When I first came into the financial industry, in 1988.

I  started working for the Prudential assurance company at the Holloway Road office, I thought that we were indeed living in very modern times. We didn’t quite have the level of technology you see nowadays, for example the office only had one computer. And that was kept covered most of the time.

There were no self invested personal pensions nor were there any form of peer to peer lending or borrowing – and we certainly didn’t have any of the more creative mortgages that are around today. Sure things were far simpler then, that said the overall thinking was exactly the same. Save some of your hard earned cash in an investment area that made sense and hopefully at some stage in the future you would be substantially better off.

There was no buy-to-let market, personal pensions had only just been introduced and we were right in the middle of a property market crash. Margaret Thatcher was the leader of the Conservative Party and therefore our Prime Minister we also had the satirical TV show Spitting Images every Sunday.

The Prudential was one of a number home service companies that had survived ever since the beginning of the century. Nearly every working class person had access to a trusted advisor that collected 4 weekly cash premiums on the doorstep. These were not loan collections – these were savings.  

All of those that wanted it had access to someone that could provide them with financial advice and guidance. Sure the industry will hate me for saying that, however the system worked perfectly. The man from the PRU, or the Liverpool Vic or the Pearl were trusted and respected individuals the were all  known locally.

So what happened? The marketplace moved on and most of these insurance companies were replaced by electronic and automated systems. Which meant the man from the PRU was no longer needed.

Ok, the products that sold where never  particularly competitive and certainly wouldn’t be considered in today’s world as being an ideal plan. But for many millions of people these savings meant that they had some cash available at some point in their lives which paid for children’s driving lessons and important birthdays, along with making sure that money was available for funerals and at various intervals holidays and high days. Unlike today’s enforced savings, money was made available at important intervals instead of a of at retirement.

The enforced savings we have available now  – auto enrolment pensions, mean that payments are tied up until retirement date and can’t be accessed before age 55. And –  certainly not the kind of investment you would make if you was looking to achieve financial independence before then, and certainly not making any sense when you consider it in light of the FIRE movement we have today.

The FIRE movement is a movement whose goal is financial independence and retiring early. The model is particularly popular among among millennials, gaining traction through online communities via information shared in blogs, podcasts, and online discussion forums. From Wikepedia https://en.wikipedia.org/wiki/FIRE_movement

My working area for the PRU was concentrated in a tiny part of North London, the bulk of which was a handful of large council estates. I would guess that at least half of the residents had some form of arrangement with an industrial branch company. Which meant that at least half of the people living there had some form of long-term savings. Importantly at least half of the residents had access to a trusted advisor somebody that had financial experience and was able to assist with financial and technical expertise. Sure, there was always an element of sales. There always is.

Home Service

The home service model served the British Public for many years. I guess it just became too expensive to maintain and the contracts that were available started to look a little out of place in the modern world. And things move on,  insurance companies needed to evolve just because it had worked for the previous 70 or 80 years didn’t mean it was going to work looking forward.

Advice on the doorstep.

I get the fact that times have changed however making sure that individuals could get access to financial advice in their own homes on a weekly or monthly basis just makes perfect sense.

Even if they had a particularly simple enquiry it could be answered, I had many clients that made notes and stuck them on the mantelpiece or inside the payment books. To make sure by asked the  question when I arrived. If you compare that with what’s available now, you can pop over to Money Advice or even the main regulator site and if you are lucky they will be able to answer the question, the reality is any of the government sponsored sites are limited in terms of the explanation and of course are not interactive. Advice, on the doorstep may seem quaint now but for many it was extremely valuable.

Everybody who wanted it had access and in their homes.

Industrial Branch

The policies and plans that were arranged under industrial branch regulations were very simple, simple savings and investment products and simple life assurance products which paid sufficient for working class customers and their circumstances. Many of these products had been available for decades and met the needs of most. There was never any need for complexity nor is there now.  In fact the industry overcomplicates what are very simple matters.

What happens when you die? What happens if you live too long? All of these questions were answered by simple industrial branch policies and the man from the PRU.

Regulation

When regulation first arrived in 1988 and the industry was forced to separate into tied and independent advisors, there was a flurry of activity. And the likes of Abbey life and Allied Dunbar continued to promote their high priced and expensive products to support a BMW/Mercedes driving sales force. both of these companies should have been regulated out of existence –  that said they still exist but under a more modern look. Consumer choice is one thing…

Cost of regulation

Despite years and years of regulation we have seen mass mis-selling still continue in fact the level of Consumer Protection now seems to be not much more than it was in 1988. the costs of regulation are met by the product providers, these are funded by the profit from the sale of products, therefore it is the consumer that ultimately pays for its own regulation.

There is a perception that the financial regulators are good at what they do  – the reality is much of the work from the various regulators that has overseen more and more bad stuff going on.

For some reason they seem powerless to stop it. even advisors that were fully regulated and authorised by modern regulators have mis-sold on a massive scale. Along with fraudulent activity.

That’s more than a bit mad it is not acceptable and should never happen in a modern regulated financial services industry.

Old School Stuff

There are  any number of aged principles when it comes to managing money. None of this is taught in schools, none of it forms part of a curriculum in any educational establishment. There is no GCSE in Money Management.  It seems that a financial education can only be learnt once you are outside of the mainstream schools – sure I get that fact that money items are on on some curriculums.

There are a number of principles in relation to money and money management and these will probably be reduced down to 8 or 9 separate points in  a Moneytrainers seminar or workshops.

I work with these financial principles which crossover, or as I prefer – dovetail. By making sure you work with and adhere to these principles you will be able to leverage your money so that it works for you rather than it working for everyone else.  Simple things like comparing Building Society accounts on a regular basis make so much sense yet so few actually do the work.

It’s for these reasons that I work with people to make sure they understand what it is that makes the difference and how to ensure that your money works for you.

What’s Changed

In this modern life, this modern world we live in, access to information is everywhere.  What used to be made privy to just a few is now available to everyone. The changes we have  seen in the last 5 years have been dramatic with information and high quality guidance along with low-cost products on widely available — being your own financial advisor is now so easy and so straightforward.

And in support of the DIY approach we have information coming out of the financial independence movement (see FIRE above)  which is starting to transform the lives of those working with it. Being financially independent at age 35 or 40 he is now possible for everyone, sure you might need to do a little bit of work in order to get there. But it’s certainly achievable.

This financial Independence was not really achievable as a DIY option 20 or 30 years ago but it’s certainly available now and using money as a leverage tool to improve your personal financial situation is a must-do. Even if you don’t attain independence in your 20s and 30s being financially independent in your 40s or early 50s is something to aspire to.

Can you imagine not having to go to work from age 40 to 43, can you imagine having sufficient income from your investments in order to be able to live the life of your dreams and only  work 1 or 2 days per week? Hold on to that thought for a moment.

It really is achievable and many hundreds of thousands of people are already doing it.

If you are ready  get moving on this, get in touch and I’ll explain how you can do it and how easy it is.

 

Pension Transfers | Pension Scams | Pension Advice – New Way

Pension Swindle / / by

In August of 2018 the Pensions Ombudsman upheld a complaint from a policeman after he had transferred his pension from the police scheme to scammer without the scheme carrying out adequate checks.

http://www.pensions-expert.com/Law-Regulation/Ombudsman-s-police-ruling-highlights-trustee-duty-of-care?ct=true

Now, on the face of it you could say that that was an acceptable approach from the scheme, in that a formal request submitted by the member in order to transfer benefits from one scheme to another should be processed, and that they [the scheme] should accept that request and move the funds.

Considering it further, the trustees of the scheme do have an obligation to the member in order to ensure that the funds and benefits they hold on behalf of that member, are managed correctly. And in accordance with the normal rules and regulations that go with this type of scheme. Is it fair to expect the trustees to be ‘trusted’ to make sure that any transfer made fits with this obligation? As the ombudsman ruled.

My view would be that, they do have some responsibility and a duty of care. The Pension Ombudsman agree.

The Police Pension Scheme (PO-12763)

But we have a problem, we have a problem with bad guys and bad firms attempting to transfer money away from all kinds of pension schemes in order to defraud the members of their pensions. Despite 30 years of regulation we have seen that the bad guys continue to get away with their bad actions. Indeed Government has recently announced bans on cold calling in order to prevent some of these bad transfers, the reality is we still don’t have a proper ban in force and many more individual members of pension schemes will end up losing money.

https://www.gov.uk/government/consultations/ban-on-cold-calling-in-relation-to-pensions/ban-on-cold-calling-in-relation-to-pensions-consultation-on-regulations

There is also the issue of woefully inadequate enforcement in the event of a transfer. When these dodgy transfer businesses are finally caught, it ends up with a major paperchase which it seems few police forces are able to cope with and the attitudes towards white collar crime mean that a lot of these people [bad guys] get away with it. The National Crime Agency reports that it’s working with regulators – yet very little seems to be done – limited action.

http://www.nationalcrimeagency.gov.uk/crime-threats/fraud

Project Bloom also seems to be woefully inadequate in reporting on these matters and clearly not estimating the size of the problem correctly, based on it’s own assumptions.

https://www.parliament.uk/documents/commons-committees/work-and-pensions/Correspondence/Letter-from-Chief-Executive-The-Pensions-Regulator-to-the-Chair-relating-to-Project-Bloom-13-November-2017%20.pdf

In February 2017 the Pensions Regulator even called for a Safe Schemes list.
https://blog.thepensionsregulator.gov.uk/tag/project-bloom/

Fact is this important and no doubt expensive project has been around for a number of years and delivering very little.

I have been approached by several campaigners on this matter in recent months and the evidence is frightening, these firms are transferring pension business and committing crime on an industrial scale. This is not some backstreet firm, it’s organised and professional.

When I submitted my returns to the Pension Select committee a few months ago one of the things I suggested was that we should make the various regulators a bit more responsible for what is actually happening here. Now I know that passing the buck to pension scheme trustees or to the pension regulator may not be the right answer. That said we have a particular problem, we have a problem where lots of individuals are losing big chunks of their hard-earned pension money.

My suggestion is we consider very carefully the obligations that trustees have in order to make sure pension money is protected and that it goes to the right place if moved. We also make sure that any advice provided is, either second guessed by a third party advisor or actuary. Or indeed it is signed off or accepted by the trustee as being a legitimate transfer. So far this year we’ve seen more pension mis-selling and poor advice in relation to pension transfers – despite pressure from the regulator – nothing seems to change.

So, here goes.

The Implementation a very straightforward traffic light system – red yellow green. Would help consumers, this would follow an assessment by a third party adviser/actuary/pension transfer specialist – and would consider the receiving provider along with (potentially) other issues. The benefit of this would be to put in place  further checks on the quality of advice that is being provided but also to make the bad guys consider very carefully and understand that there is a checking process in place and they will have to deal with.

There is not an advisor in the country that should be concerned about having a third party check on their advice and to be under external scrutiny. Importantly, by transparently providing an additional check on their advice to a member of the public should make everyone feel a lot more comfortable.

The truth is, on this matter Government and law enforcement seems powerless to be able to protect individual pension scheme members from the scammers. I would suggest therefore that the industry picks up the baton and puts in place its own systems of checks and balances to ensure the individual members are protected. It has everything to gain and little to lose.

I doubt the industry will because it feels that it has enough to do – but if the pension transfer side of personal finance wants to be credible in the eyes of the public and doesn’t want to face future regulation it should act now.

Ban Commissions
An end on commission income based on fund value for pension transfers (yeah I know the industry calls them fees – however fees are traditionally paid direct, by the customer, not from the value of the investment), a simple allowance for advice paid directly from the scheme. Puts advisers on a par with other professionals and means some of the bad guys won’t be able to function.

The legislation is already in place, just needs extending and promoting.

Also means that members can get access to high-quality advice without having to find the costs of advice upfront.

There are many ways to deal with these issues and we know that under the current system, for some reason change will not be coming soon enough – which means there needs to be an alternative. At the moment, the industry ain’t looking that good and the bad guys are still getting away with it – so something needs to change.

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