Lowes Magazine Issue 125

Issue 125

“Every sunset is an opportunity to reset. Every sunrise begins with new eyes.” Richie Norton

INSIDE TRACK

Lowes client competition 2022 winner WE ARE DELIGHTED TO ANNOUNCE THE WINNER OF OUR 2022 LOWES CLIENT COMPETITION. In January 2022, we asked you to predict the increase in the rate of inflation for each of the Consumer Prices Index (CPI) and Retail Prices Index (RPI) over the 12 month period to November 2022, as published by the Office for National Statistics in December 2022. When we set the competition the latest published inflation figure was 5.1% and not many people would have placed it as over 11% by November. But for numerous reasons, including ongoing

energy and supply chain issues, inflation figures were driven up throughout 2022. The inflation figures as published for November were: CPI = 10.7; RPI = 14.0.

Congratulations to Miss S Wallace who had the nearest prediction to both inflation figures, guessing 9.8 for CPI and 12.4 for RPI. Although a winning answer, it just goes to show no one could have predicted how much inflation would rise. The prize voucher for £500 is on its way to you. See page 10 for details of our 2023 competition.

Inflation November 2021 to November 2022 (%)

16 14 12 10

CPI RPI

8 6 4

Source: Office for National Statistics

Percentage Inflation

Nov 2021 Dec 2022 Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 June 2022 July 2022 Aug 2022 Sept 2022 Oct 2022 Nov 2022

Lowes board member retires HUGH IMRIE, LONGSTANDING Non-executive Director of

‘Alternative’ investments AS TRADITIONAL INVESTMENTS HAVE SUFFERED from volatility in the markets and greater correlation between equities and bonds, more investors are considering what are termed ‘alternative’ investments. Structured products are often cited as one of these investments. We consider structured products to be more of a mainstream product, categorised as alternative simply because they are less widely used than funds invested in stocks or bonds. We successfully use structured products to help diversify clients’ portfolios and, while like all investments there are risks involved, we have seen the majority deliver defined returns year on year, as well as protecting capital along the way. If you have not considered using structured products before or want to know what products are currently available for investment, please contact your Lowes Adviser or call 0191 281 8811.

Lowes and more recently Client Representative on the board, is stepping down from the role. Hugh has been a client of Lowes and a personal friend to company founder, Ken Lowes since the early 1970’s and joined the board in 1996. As a long term client, almost since Lowes inception, he

has been perfectly placed to wholly understand what the company does and able to apply his experiences to continually improve and adjust how Lowes has built its relationships with clients, making sure we as a company are constantly evolving. His many years contribution to Lowes is very much appreciated and we wish him all the very best for the future.

This magazine is for general information purposes only and does not constitute advice or a personal recommendation. It does not consider your specific circumstances as an individual and/or corporate investor. If you wish to establish if any of the products, services or options discussed are suitable for you then you should contact us for advice. Remember that the value of your investments can go down as well as up and that you could get back less than you invest. Best endeavours have been made to ensure all information contained within the magazine are accurate at time of writing, however they may be subject to change later.

Covershot: Portrait shot of a stag. Source: Lewis J Newman, Shutterstock.

2 LOWES Issue 125 · Published January 2023

INSIDE TRACK

Capital gains tax exemption changes

Consolidating pension pots

THERE ARE SOME IMPORTANT CHANGES TO CAPITAL gains tax (CGT) exemption rates being introduced over the next two years which may affect your financial planning. In his Autumn Statement, Chancellor Jeremy Hunt announced that the annual exempt amount for CGT is reducing from £12,300 for individuals to £6,000 from April 2023. And there will be a further reduction from £6,000 to £3,000 from April 2024. This significant 50%+ drop in the amount that can be earned free of CGT will affect gains from investments held outside an ISA or pension, as well as when you sell or gift items, such as antiques and art, over the value of £6,000. It also affects owners of second homes and landlords of residential properties. Individuals in the basic rate income tax band pay 10% on their gains and 18% on gains from a residential property. Higher and additional rate taxpayers pay 20% on gains and 28% on residential property. If you intend to dispose of assets subject to CGT after 5 April of this year, you should consider whether to sell earlier to take advantage of the current exemption rates. If you need help or have any concerns, your Lowes Adviser can assist you.

IF YOU HAVE BUILT UP A NUMBER OF pensions over the years and want to simplify managing them, it is possible to consolidate all your pension pots under one plan. As well as making things simpler, this also can reduce the charges you pay. However, as some pensions have guarantees or other benefits included, which may be lost if the pension is moved, it will pay to seek professional advice to ensure the best result is achieved. For a pensions health check, please speak to your Lowes Adviser, or call 0191 281 8811.

Make your money work. Best bank & building society rates Amount Provider Account

Gross Rate

Contact

Unrestricted instant access accounts £1 - £85,000 Zopa

Smart Saver

2.82% 2.75% 1

www.zopa.com www.ybs.co.uk

£1 - £500,000

Yorkshire Building Society

Internet Saver Plus Issue 13

Accounts with restrictions £1+ - £250,000

Coventry Building Society Limited Access Saver (Online) (7) 2

2.85 %

www.coventrybuildingsociety.co.uk

Fixed rate bonds

£1,000 - £85,000 £10,000 - £85,000 £10,000 - £85,000

SmartSave SmartSave SmartSave

1 Year Fixed Rate Saver 2 Year Fixed Term Deposit 3 Year Fixed Term Deposit

4.26% 4.41% 4.56%

www.smartsavebank.co.uk www.smartsavebank.co.uk

www.smartsavebank.co.uk Notes: 1 Tiered rates: 2.75% £1 - £9,999, 2.85% £10,000 - £49,999, 2.90% £50,000+. 2 Limited to 6 free withdrawals per annum. You may also wish to consider Premium bonds offered by National Savings and Investments (NS&I), maximum £50,000. Whilst interest not guaranteed, they do offer the opportunity for tax free winnings which, with ‘average luck’ should generate at least 2.4% pa. Measures of inflation - The average change in prices of goods and services over a 12 month period to December 2022 Retail Prices Index (RPI) 13.4% Consumer Prices Index (CPI) 10.5% Sources: Providers’ websites, Office for National Statistics, www.thisismoney.co.uk, www.moneysupermarket.com, www.moneyfacts.co.uk 17/01/2023. All accounts subject to terms and conditions.

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If you would like to receive further information on any of the subjects featured in this issue please call: 0191 281 8811 , fax: 0191 281 8365 , e-mail: client@Lowes.co.uk , or write to us at: Freepost LOWES FINANCIAL MANAGEMENT . Lowes ® Financial Management Limited. Registered in England No: 1115681. Authorised and Regulated by the Financial Conduct Authority.

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COMMENT

Contrary to popular opinion

As, in time, the cost-of-living crisis eases and global growth picks up, stock markets will already have started to recover – and that could be at pace. Those invested in the market when things seem bleak, will be best positioned to benefit when that market recovery occurs. Nevertheless, the future is not known – as unexpected events of 2022 proved – and markets could fall again in the meantime. So our portfolios must prepare for a variety of outcomes. This is why we diversify our clients’ portfolios with different asset classes and investment products – looking for steady growth over the long term rather than chasing potentially transient opportunities. As we stand, there is plenty of negative news around, but contrary to popular opinion, markets may currently provide the best opportunity to invest than has existed for some time. If you are looking to invest or know someone else who would benefit from professional investment advice, please talk to your Lowes Adviser and have them call us. As ever, we will be delighted to help.

AS WE START 2023 THERE IS PLENTY OF negative news around – high inflation, interest rate rises and a recession predicted by the Bank of England to be one of the longest in recent years – which can all weigh heavily on the collective psyche. This is not limited to the UK, economies around the world are also affected. For investors, 2022 was a difficult year, with very few assets preserving capital let alone earning a positive real return. Global equities and bonds suffered steep falls, in the case of bonds, one of the worst periods in decades. It is not surprising therefore, that the general perspective on the economy and the prospects for investments in the year ahead have been suffering. Popular opinion would have you believe this is the worst time to invest. But it is markets like this in which professional investors build wealth. How the investment market and the economy are assessed differ, and this is important. Data on the economy is always backward facing – published at least a month in arrears. Stock markets on the other hand are forward facing. Investors will look to where the economies are going rather than where they have been. An example of this is the positive reaction of markets to small improvements in inflation data – looking ahead to when inflation begins to reduce and growth starts to return. Professional investors will be used to the ups and downs of the stock markets and know that markets invariably recover earlier than economies. They will look for areas which can weather the current storms and to where there are signs of recovery. For this reason we believe active fund management is essential to deliver the best returns for investors, staying clear of areas which may suffer over the next couple of years and finding the opportunities amidst the negative noise. For ordinary investors, it can be difficult when there is a negative outlook to want to continue to put money into the market. But it is when markets are at a low point that having a contrary outlook can be the most rewarding.

Ian H Lowes, Managing Director

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PENSION

The Lifetime Allowance tax trap THE AMOUNT THAT CAN BE SAVED INTO A PENSION over a lifetime – the Lifetime Allowance (LTA) – is catching out more and more people. Latest data from HMRC shows around 8,600 people breached the limit in 2020-2021 tax year and the amount collected in tax rose 11% from £344m in 2019/20 to £382m. As the LTA was frozen in April 2021 at £1,073,100 until April 2026, figures are expected to have climbed for the 2021-2022 tax year, and to continue to do so as many more pension savers could potentially fall foul of the limit and face a tax penalty over the next four years. Those in final salary/defined benefit (DB) pensions may inadvertently breach the allowance as their total pension is assessed by calculating the yearly pension and multiplying it by 20 times, then adding any lump sum which may be taken from the scheme. Also to be taken into consideration is that this is an overall allowance and therefore covers all pensions held by the individual. Anyone who has more than one pension will need to add up their total pension value. Workplace pensions from former employers that haven’t been moved but may have been accumulating in value are included. Any amounts over the lifetime allowance will be subject to either a 25% or 55% tax charge when either an income or lump sum is taken from the pension, or age 75 is reached with unused pension benefits. There are various ways to mitigate against breaching the allowance, such as taking benefits or an income early, taking tax free cash out of the pension, paying into a spouse/partner’s pension, and if eligible, applying for one of the pension tax protection strategies – depending on whether you have a final salary/DB pension or a personal/defined contribution pension. And in some cases, you can be better off in terms of your overall wealth long term by continuing to pay more into your pension and paying the tax – as contrary as that may sound. This is a complicated area so we recommend seeking the help of an Independent Financial Adviser who can talk you through the various scenarios to make sure you choose the right one for your circumstances.

Could you be paying 60% tax?

As with other tax issues, Lowes can help, so please speak to your Adviser or call the office on 0191 281 8811. Anyone with high annual earnings should be looking to maximise their pension contributions particularly where, as in this example, two and a half times the net cost will be allocated to their savings. HIGH EARNERS COULD BE PAYING 60% IN TAX DUE TO one of the complicated rules around income tax in the UK. This arises due to the rule on the tapering of the personal allowance, which affects those earning between £100,000 and £125,140 per year. The tapering applies to the £12,570 personal allowance everyone can earn each year without paying tax. Tapering reduces that amount by £1.00 for every £2.00 earned over £100,000. This means that an individual earning £125,140, will pay 40% on the £25,140 above £100,000 and 40% on £12,570 personal allowance, the sum of which, £15,084 equates to 60% tax paid on this part of the income. Anyone earning above £125,140 does not receive the personal allowance. A way to mitigate this tax is to pay more into your pension in order to lower the amount of earnings to which the tapering applies. An individual earning £125,140 could redirect £25,140 (this includes the basic tax relief) to their pension pot at a net cost to them of only £10,056.

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PENSION

The effect of the Autumn Statement

THE CHANCELLOR OF THE EXCHEQUER’S AUTUMN Statement is intended to increase tax collections in coming years. Several allowances and exemptions have been frozen or reduced, which will bring new taxpayers into the system and progress those with growing earnings into the next tax band. This is deemed ‘stealth’ taxation, on the assumption that tax breaks should increase in line with inflation. Below is a brief summary of the key changes affecting personal finances: Income tax: The basic and higher rate bands have been frozen for a further two years until April 2028. The additional rate band (45%) has been reduced from £150,000 to £125,140, potentially bringing a further 250,000 tax payers into the top rate bracket. This will take effect from April 2023. Dividends: The dividend allowance is reducing from £2,000 to £1,000 in April 2023, with a further reduction to £500 from April 2024. This means someone with a portfolio of £20,000 that yields 5% a year will reach the lower tax-free allowance of £1,000 from April 2023, while someone with a portfolio of £10,000 that yields 5% a year will reach the tax-free allowance of £500 from 2024. Inheritance tax: The inheritance tax nil rate band has been set at £325,000 per individual since 2009, and £650,000 for a married couple. The residential nil rate band of £175,000 can extend this to £500,000, or £1,000,000 for a married couple. Both had been frozen until April 2026 but that has been extended until April 2028. This extension is likely to mean more people will become liable to inheritance tax due to rises in house prices, for example. Capital gains tax: The annual exempt amount is reducing from £12,300 for individuals to £6,000 from April 2023. There will be a further reduction from £6,000 to £3,000 from April 2024. Pensions: The lifetime allowance limit for pensions remains frozen at £1,073,100 until 2026. State Pension: The state pension will increase by 10.1%. This keeps to the state pension triple lock, the system which guarantees the rise in the state pension will be the highest of 2.5%, average earnings growth, or the rate of inflation (CPI). Later life care: The Government’s planned social care reforms, which will limit how much an individual has to pay for social care, has been delayed by two years to 2025. Now, more than ever, there is a need to plan carefully to ensure you’re not paying more tax than necessary. Undertaking regular reviews can help you plan around this and other liabilities.

Reasons people are turning to financial advice A recent survey by the investment house Fidelity, found that an increasing number of people are seeking professional advice to help with their financial planning. The main reasons they cite for doing so are: • Economic uncertainty and financial wellbeing • Impact of cost of living and taxation advice • Market volatility and potential market decline • Concerns about the effects of geopolitical uncertainty If you are now in, or believe you will move into a higher rate tax bracket, or need advice on any issues raised by the Autumn Statement, please contact your Lowes Adviser or call 0191 281 8811. We are here to help.

• Concerns around retirement income • Passing wealth between generations

Financial Planner, Alex Molyneux says: It is not surprising that more people are seeking Independent Financial Advice at this time of economic and market uncertainty. People are experiencing an almost perfect storm of inflation and interest rate rises, increasing taxation (through stealth taxes), and market volatility due to the continued geopolitical

and economic uncertainties around the globe. This creates insecurity and a need for reassurance; to know our savings and investments are working as hard as they can for us. This is particularly important for anyone needing to maintain retirement income and for those looking to pass on their wealth in the most tax efficient way, given the freezing of tax allowances and exemptions. The importance of financial wellbeing cannot be understated and the benefit of taking financial advice to achieve this has been proven time and again. The help and expertise of an Independent Financial Adviser can be invaluable in helping to avoid mistakes and putting in place the right savings, investment and tax mitigation strategies.

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RETIREMENT

For anyone planning to retire in 2023, the depression of retirement savings from ongoing market volatility and a recession in the UK may be affecting their decision. Retiring in a recession

Wealth Manager, Michael Dodds offers some options when considering what action to take.

What also matters, is how and in what order we take money out of our retirement assets, as this can have an effect on IHT and passing on our residual wealth to our beneficiaries. So, there is much to consider.

MANY PERSONAL PENSION FUNDS HAVE lost money over the last year as both stocks and shares and bonds have taken hits to their value. This is due to the rarely occurring correlation between these assets in a falling market. Traditionally they work to balance against each other, but in 2022 they became more closely aligned and both have been affected by falling markets. What this means is that for anyone planning to retire in the next year and stop earning, there may be some tough decisions to make. Capital losses in the first two to three years of retirement can significantly affect long term income streams. If the amount we have in our retirement pot diminishes in these years, and money is withdrawn when markets are falling, then we have less money invested and it can be difficult to replace the wealth lost. This means there is less money in the pot from which to take an income. How people proceed with retirement in the current environment will depend on individual circumstances, based on the size and type of their retirement savings, and other savings and investments held.

Here are five options: 1. Reviewing retirement date

This option may not be an ideal solution for anyone looking forward to giving up work. But assuming this is a personal choice rather than a mandatory requirement (for example, for some commercial airline pilots), it’s worth considering, given the economic circumstances, if now is the best time to retire. Temporarily deferring your retirement would mean you could continue to contribute into your pension; whilst investing when markets are down and cheaper to buy. If markets pick up further down the line, you could see greater value added to retirement funds. 2. Phasing retirement Phasing more slowly into retirement, for example by reducing hours and income in steps, means less money needs to be taken from the pensions and investments, again keeping more of the money invested and giving the overall retirement fund more time to recover.

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RETIREMENT

been subscribed for years can find savings through downsizing to a smaller package or simply stopping for a while. Reviewing those little purchases, such as morning coffees or Danish treats, the cost of which all add up to maybe more than we think, also can help. The good news is that recessions do not last forever and the actions we need to take are likely to have a short-term horizon. Above all, it is important that no big or knee-jerk decisions are made in response to the market and economic situations. What you do and how you do it needs to be planned. Retirement is something you have been saving for throughout your working life, so it’s important not to be thrown by events and make a mistake that could impact your long term retirement income. Lowes Advisers are here to help and guide you through tougher times. If you have your sights set on retirement in the next year and you have concerns, please talk to your Lowes Adviser or call us on 0191 281 8811 and we will arrange for someone to contact you.

3. Don’t take pension tax-free cash Many people set their heart on spending their tax free cash from their pension on a holiday or other luxuries when they first retire. Leaving the cash in the pension means there is more invested which can grow as markets recover, and it can be taken at a later date. 4. Use cash accounts Some wealth can be retained in cash to act as a buffer against selling investments in a downturn and for emergencies. Inflation will continue to erode cash accounts and investing a cash buffer in a downturn means it can be used to great effect. But retain some cash for emergencies, such as While reducing expenses may seem obvious, deferring larger purchases – a new car or home improvements, for example – can leave money in your retirement pot to grow. Small changes can also make a difference, such as reviewing our direct debits and subscriptions. How much do we use them really? A spring clean of the TV streaming packages to which we’ve replacing white goods. 5. Reduce expenses

Technology within financial advice TECHNOLOGY HAS BEEN HAVING AN IMPACT ON FINANCIAL ADVICE FOR many years. Much of the technology is used behind the scenes to make fast transactions and obtain pension and investment valuations. It also enables our support teams to keep abreast of market movements. The pandemic accelerated the take-up of technology within financial services and certainly within financial advice, with the use of video calls for virtual meetings and greater acceptance of digital documents and communications. If you are not used to it, technology can seem overwhelming. But it is just a tool we can use to our advantage. It can provide useful ways to improve and enhance a service and help make it easier to deliver some aspects of financial advice. Lowes employs a secure email system which provides added safety in our communications by encrypting messages. This year we also launched a digital solution to enhance the ways clients can see their investments. Lowes Online is available for portfolios of more than £250k through desktop computers or an app on your tablet or smartphone. It uses bank level security and encryption, plus a password protected log in. It provides a clear and uncomplicated view of your investment portfolio, at any time of day that suits you. You can see a snapshot of your overall investment information and valuations, or you can drill down deeper to look at your portfolio’s investment history and keep track of its performance including individual fund activity. Lowes is using technology to complement our service, fully appreciating that we are a people service and there is no alternative to a personal relationship. Our principles are based on the premise of helping our clients manage their personal finances personally, with a human touch. No matter how much technology we use, that won’t change.

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PLANNING

FINANCIAL CONSULTANT, CHRIS MILSOM outlines a way to help mitigate inheritance tax payments in the light of the new taxation policies laid out in the Autumn Statement, through Business Relief. The freezing or reduction of tax allowances and exemptions in the Autumn Statement mean that How we help clients

Another benefit of business relief is that the money, although out of the estate after two years, remains in the control of the investor. This mitigates a concern of many people, providing peace of mind, especially with the rise in inflation increasing living costs and as the government dithers around the cap to long term care costs. Business relief also fulfils its original function, enabling owners of a business (or those who hold a stake in one) to pass on their shares in the business free from IHT – as long as the business’ activities meet the qualifying criteria for relief. This also applies if they sell some or all of the business – as long as within three years they invest some or all of the proceeds in another business relief-qualifying business. It can also be useful tool for people who have built up significant ISA investments over their lifetime. While free of income and CGT, ISAs fall within a person’s estate for IHT purposes. Transferring some or all of an existing ISA into one that’s invested in business relief-qualifying shares enables the investor to retain ISA tax benefits, as well as control of their money. Once they have held the new ISA for two years, it should be zero-rated for IHT. For individuals potentially facing a large IHT bill, business relief could be an option, bearing in mind the risks involved. If you’d like to know whether business relief is suitable for your circumstances, please contact your Lowes Adviser or call 0191 281 8811. What are the risks? As with most investments, capital is at risk and the value of a business relief-qualifying investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest. Business relief investments are typically made into companies which can be smaller or early-stage businesses. Hence the investments can be more volatile than, for example, companies listed on the main market of the London Stock Exchange. They may also be harder to sell. For these reasons, we would consider them high risk investments although the 40% IHT relief can serve to mitigate some of the risk. Also, the tax treatment depends on individual circumstances and that the companies invested in maintain their business relief qualifying status. Tax rules could change in the future.

the estates of many more people could become liable to pay IHT. IHT is charged at 40% on the value of an estate over the current nil rate band – for an individual, currently this is £325,000 plus the £175,000 residential nil rate band if applicable. But the inheritance tax nil rate band has been set at £325,000 per individual since 2009, and £650,000 for a married couple. When he was Chancellor of the Exchequer, Rishi Sunak extended the freeze until 2026, and the new Chancellor Jeremy Hunt, has frozen the allowances further until April 2028. Originally intended to only affect the very rich and wealthy, house prices alone could see families who never thought IHT was something they’d have to worry about, dragged into the IHT trap – one in 42 homes in the UK are now valued at £1 million or more. The residential nil rate band of £175,000 can extend this to £500,000, or £1,000,000 for a married couple but this has also been frozen until April 2028. This can have a huge impact on families at risk of incurring an IHT liability. Business relief One way to pass on wealth outside of an estate is through business relief. This relief was established to allow family firms to pass on their business through the generations without incurring large tax bills. However, it was extended to include any unquoted shares in a trading company, which allows it to be used in estate planning. This is how it works. Investments into a business relief-qualifying company becomes zero-rated for inheritance tax after two years. If held until death, they can be passed on free from a 40% inheritance tax charge. This time frame is in contrast to the IHT exemption for gifts, which take seven years to pass out of the estate. This can make it a consideration for the very elderly who have not done as much estate planning as they might have wished, or for those who are in ill health.

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TAX

WITH APRIL 5, THE END OF THE TAX YEAR APPROACHING it can pay to ensure you are making full use of this tax year’s allowances and exemptions, as they could provide significant rewards in the longer term. This is especially so as some have a ‘use it or lose it’ status. 1. ISAs The annual ISA allowance is one such tax benefit which is lost if not used. Each tax year you can save up to £20,000 into an ISA which grows free of income tax and CGT liabilities. There are various ISA types, with their own limits. These are: Cash or Stocks and Shares £20,000 5 considerations for the tax year end

3. CGT exemption Currently, the CGT exemption is £12,300 for individuals, although this is reducing to £6,000 from April 2023, and then down to £3,000 from April 2024. This can be a useful tool to top up income in retirement if a person’s income level threatens to breach the next tax rate band. Growth investments typically incur CGT but only if the gains take an individual over their current tax exemption amount for the year. 4. Venture capital trusts (VCTs) VCTs are an efficient tax solution and can be useful for anyone who has maxed out their other tax reliefs or is close to breaching their pension lifetime allowance. They allow investors to claim upfront tax-relief worth 30% of the amount invested, up to an investment of £200,000, and earn tax-free dividends and capital gains. VCTs focus on early-stage growth companies and can offer entrepreneurs and small businesses much-needed support. However, as such they should be considered higher risk investments. 5. Changes to tax rates From April 2023 the dividend allowance is reducing from £2,000 to £1,000, with a further reduction to £500 from April 2024. Also, the annual exempt amount for CGT is reducing as mentioned above. Anyone receiving dividends above the changing amounts, should consider making the most of the current allowance and exemptions and seeking advice for future years. Likewise, for investments which will incur CGT charges. An option available to transfer from non-ISA investments into a tax-efficient ISA, where no income tax or CGT is paid, is called ‘bed and ISA’. This enables non-tax free assets to be sold and used to top up or open a new ISA account. However, CGT may need to be paid if the gains on the sale of the investment exceed the CGT limit. It is worth pointing out that the tax tail should not be allowed to wag the investment dog – in other words, the main focus of financial planning should be to find the most appropriate investments and then ensuring those investments are held within tax efficient wrappers.

Junior ISA

£9,000 a year

Help to Buy ISA

£200 a month (for existing accounts only – as this ISA is no longer available)

Lifetime ISA

£4,000 a year

Flexible ISAs allow funds to be withdrawn from an ISA as long as the funds are replenished in the same tax year as the withdrawal was made. 2. Pensions Saving into a pension can be one of the best ways to save for retirement, as income tax relief is received on personal pension contributions. Under current rules, up to £40,000 can be saved into a pension per tax year, or 100% of your salary – whichever is lower. For higher earners with an income of over £100,000 a year, the annual pension allowance will gradually reduce, down to as low as £4,000. This is known as the tapered annual allowance. If not made in the current tax year, pension payments may be carried forward for up to three years. As pension planning can be a complex area, speaking to an Independent Financial Adviser can be beneficial in making the most of retirement savings and the tax reliefs available.

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INVESTMENT

Is now a good time to be investing in the UK?

The UK market also suffered towards the end of 2022, which has been attributed to a number of factors including the pandemic, Brexit and the war in Ukraine. Companies’ share prices and value, measured by their price/earnings ratio, dropped. Yet, conversely, this could make the UK market a good place to buy, if you have a long term investment horizon, as valuations are comparatively cheap. A recent poll among investment managers put the UK as the most attractive region in 2023 and over the next five years. What makes the UK market attractive? First is that many companies listed in the UK derive their earnings internationally, rather than primarily from the domestic market. According to FTSE Russell, over 80% of FTSE 100 earnings are sourced outside the UK. Secondly, at time of writing, the average price/earnings ratio for a company – which measures how much investors are willing to pay for a company relative to its current earnings, which reflects investors’ expectations of future earnings growth – is several times higher for the S&P 500 than for the FTSE All Share or the FTSE 100, illustrating the value to be had in the UK market. And, as well as sourcing their earnings from around the world, the UK market is renowned for the high number of companies paying dividends, which can deliver useful returns when growth markets are suffering. As investors, we can often feel more comfortable investing in our domestic market. With Independent Financial Advice to help in careful selection. Now could be a good time to follow that instinct.

A KEY PRINCIPLE OF SUCCESSFUL INVESTMENT IS holding a diversified portfolio. It is primary to the strategy which we at Lowes use for our client portfolios. The reason for this is to increase the ability of the portfolio to ride the markets up when they are rising and help to protect wealth when markets fall, as they invariably do from time to time, by spreading the risk by investing across a range of assets and investment types. Then if one investment is being negatively affected by market forces, this should be at least in part offset by different assets which may be benefitting from those market forces. So for example, if stocks and shares (equities) are under performing at a certain time, fixed income investments held in a portfolio will usually (but not always) offset this to some extent. The trade-off here is that equities tend to outperform fixed income in rising markets. But holding the two can provide for a more stable portfolio over the long term. Adjusting the level invested in each asset within a portfolio – a process termed asset allocation – is how the investment team at Lowes looks to ensure Lowes portfolios deliver on the upside as much as possible and help protect on the downside. We do this by investing in a range of professionally managed funds which offer the level of diversification needed. This is not a strategy always adopted by market participants. Over the past couple of years we have seen investors in general plough into the US, as it was seen as one of the best performing markets, in part due to the proportion of technology stocks in the market, which drove up growth. However, in 2022, technology stocks fell from their highs, taking the S&P 500 lower with them. Client Competition 2023 THE RESIDENTIAL PROPERTY MARKET HAS COME under scrutiny recently as pressure from the Bank of England interest rate rises and the prospect of a long recession have served to dampen the market. As a nation of home owners, our properties are one of, if not the largest of our financial assets. Alongside money we often have much emotional capital expended in them. Over the years the residential property market has tended to withstand the vagaries of the economy. But with the Bank of England predicting a potential two year recession, and loose monetary policy coming to an end, can it continue to do so in the way it has in the past? This year’s Client Competition is to predict the annual percentage change (rise or fall - all property types) to two decimal places, as recorded by the Land Registry for November 2023, (data is due to be published in January 2024). The change recorded to November 2022 was 10.3% – please see the right hand column of the table for the annual percentage change in other months in 2021/22.

Average property price (all types)

Annual % change

Month

Nov 2021 Dec 2021 Jan 2022 Feb 2022 Mar 2022 April 2022 May 2022 June 2022 July 2022 Aug 2022 Sept 2022 Oct 2022 Nov 2022

267,370 268,250 273,368 273,389 275,175 278,420 281,599 284,415 289,761 293,250 295,258 295,864 294,910

8.66 8.17 9.48 9.54 8.55

11.27 12.06 7.05 14.55 12.60 9.76 12.35 10.30

Source: Land Registry

To enter, please visit www.lowes.co.uk/client-comp or use the tear-out card included with this magazine and send it to: FREEPOST LOWES FINANCIAL MANAGEMENT . No further address is required. The winner will be the person who most closely predicts the percentage change. The prize is £500 of Amazon vouchers. In the event of a tie, the prize fund will be split.

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INVESTMENT

Lowes recommended structured product maturities

We were pleased to see that the industry followed suite and began to offer 7-8 year terms, although recently we have been disappointed to see some return to 5 year maximum terms again. As the table shows, the performance of these products most commonly held by Lowes clients, has been notable, given the volatility in global markets during their terms. All were autocalls linked to the FTSE 100. There are risks involved, as with any investment, which we can explain, but in general we have seen these products deliver for investors year on year.

OF THE 10 STRUCTURED PRODUCTS SHOWN in the table below, which matured in the final quarter of 2022, seven were investments which benefited from Lowes expertise at the original design stage. For nearly 20 years now, Lowes has been using our industry recognised expertise to help in the design of structured products which we feel offer great value to our clients. One of the key developments was the lengthening of the maximum investment term from the typical 5-6 years to 8-10 years for autocallable contracts. Having a longer term means that should market downturns occur, as we have seen over the past three years, then there is longer for the investments to progress to a positive maturity for investors.

Counterparty Morgan Stanley Morgan Stanley Goldman Sachs Société Générale Société Générale Morgan Stanley Morgan Stanley Morgan Stanley HSBC Bank

Maturity date

Term (years)

Gain (%)

07/11/2022 07/11/2022 15/11/2022 22/11/2022 22/11/2022 22/11/2022 19/12/2022 19/12/2022 19/12/2022 22/12/2022

2 2 3 3 3 3 2 2 2 5

18 23

24.6

30.75

22.5

21.75

23 18

14.3

Natixis

35

Past performance is not a guide to the future.

Annual Structured Product Performance Review 2023 Each year, Lowes produces the sector’s only Annual Performance Review, sharing insight into product maturities for the previous year and how these have performed for investors. Of 634 plans that matured throughout 2022, 624 generated positive returns for investors, with an average annualised return of 6.45% over an average

term of 3.24 years; no products lost capital. To read the full Structured Product Annual Performance Review 2023, please visit Lowes.co.uk/SPReview2023

Despite a very difficult investment climate in 2022, the UK retail structured product sector continues to shine.

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SPOTLIGHT

Spotlight on Lowes staff

Helen also participates in Redstart, a charity for primary-school children which delivers financial education through progressive learning. “I’m also an Education

HELEN GRIEVES IS A LOWES FINANCIAL Adviser and the lead of the Lowes Academy, the training centre launched to encourage new recruits into the financial advice profession. Helen is well qualified to lead the Academy having six years as a secondary school maths teacher under her belt. She studied for her professional qualifications while still teaching and took her Advanced Diploma in Financial Planning just eight weeks after giving birth to her first child. She did so well in her exams that the governing exam body, the Chartered Insurance Institute, awarded her the highly prestigious Maddocks Prize, given to the person with the highest percentage score overall in the Advanced Diploma exam. “The Academy was launched in 2020, as a facility to support people going through their professional qualifications who wanted tutoring, rather than to have to read through thick text books on their own,” Helen explains. “We wanted to have a course which enabled anyone who was interested in joining financial services, no matter what their background, to do so at a reasonable cost. People often fall into financial services as a career and many people don’t know about financial advice and the various career opportunities it offers. This is one way to get that message out there.” Initially the course was envisaged as face-to-face training. “But, of course, the Covid pandemic and the subsequent lockdowns made that impossible, so we pivoted and started training via online services,” Helen says. “That changed the dynamic of the Academy as it meant we could reach more people, in fact anyone in the UK who needed training in becoming a financial adviser.” The Academy offers two different workshop streams, depending on trainees’ level of experience, both of which break down the exam study into manageable sections and offer tutoring to help candidates pass their exams. “We have people who have never worked in financial services before take the courses, as well as candidates from other financial advice firms who are unable to offer this level of training themselves,” Helen explains.

Champion for the Personal Finance Society, helping deliver financial education for secondary school children too.” Having become a Lowes Adviser in 2022, Helen has been gradually adding to her number of clients and says it’s a role she loves. “My degree was in accounting, but I

couldn’t see myself as an accountant as I was always more of a people person,” she says. “Now, as someone who has been through the exams, I’m able to help others to do the same. And I also get to talk with Lowes clients about their finances and what they want for their lives and then work with them to put in place financial plans to help them achieve their goals. My role at Lowes really gives me the best of both worlds.”

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DOUG’S DIGEST

Looking under the bonnet

companies registered in the UK, was one of the few major stock market indices to produce a positive return. The chart not only shows different equity indices from around the world, but also different asset

THE UK ECONOMY CONTRACTED IN THE THIRD QUARTER of 2022 and is widely expected to have done the same in the fourth, signaling an official recession, which most economists expect to continue for a large part of 2023. As with most developed regions, the UK is struggling with high inflation, initially caused by loose monetary policy during the Covid lockdowns, and then exacerbated by the war in Ukraine. Central Banks have responded by quickly raising interest rates, with the intention of slowing growth and dampening demand. With such a gloomy outlook, it is surprising to discover that over 2022 the FTSE 100 index, which measures the 100 largest

classes as well, with indices measuring UK and global fixed interest as well as UK property. Negative returns across the board like this are a rare occurrence, and last year was a difficult year for investors, which makes the performance of the FTSE 100 index stand out all the more. So, what were the biggest UK companies doing right compared to the rest?

2022 Total Return - Local Currency

Source: FE Analytics. Total Return. Local currency

10 5 0 -5

-10 -15 -20 -25 -30 -35

FE UK Property Proxy

Deutsche DAX 30

Nasdaq

S&P 500

FTSE 100

FTSE 250

ICE BofA UK Gilts All Stocks

ICE BofA Sterling Corporate

ICE BofA Global Corporate

Fixed Interest ICE BofA Sterling High Yield

ICE BofA Global High Yield

Nikkei 225

Composite

TSE TOPIX

Hang Seng

MSCI UK IMI Core Real Estate

MSCI World

ICE BofA Global Government

France CAC 40

Euro STOXX 50

Equity

Property

As always when it comes to investing, it is important to understand just what is going on underneath the bonnet. Of the 100 biggest companies at the start of 2022, 98 made it to the end of the year with two being taken over. Of those 98, only 23 saw their share price rise, with the other 75 falling in value. There was further clustering within the positive companies as well, with 8 being mining or oil and gas companies, benefitting from the re-opening of the world’s manufacturing economy leading to an increased demand for basic materials, plus the war in Ukraine restricting the supply of oil and gas from Russia. A further four were financial services companies, benefitting from rising interest rates around the world. It is clear, therefore, that the make-up of the index of the top 100 UK companies has benefitted from global geo-political events, but with so few actually growing their share price it is still confusing for some that the index managed to give a positive return over the year. The important thing to remember is that the FTSE 100 index is weighted depending on the size of the companies involved. Shell plc, for example, is only one company but its size means it accounts for over 9% of the FTSE 100 index (as at the end of September 2022). BP similarly accounts for 4.51% of the index. In fact, the 23 companies which grew their share price in 2022 account for approximately 58% of the index, so the movement in their share price has a much bigger effect on the overall index performance than the other 75 companies.

For structured products, where the ultimate return is linked to the performance of the underlying index, selection of that index is an important consideration. Over recent years we have seen products coming to the market linked to a variety of different indices, such as the FTSE 150, FTSE 100 Equally Weighted and FTSE 100 Total Return with a fixed percentage dividend withdrawal, to name but a few. Whilst we have adopted the use of one new index, the FTSE CSDI index, this was only after careful research to be sure we fully understood how it worked and the reasoning behind its use as an alternative. Others we stayed away from, despite the attractive returns on offer. Although these indices can seem very similar on the surface, their returns can vary dramatically. For example, despite the FTSE 100 index delivering a total return of 4.7% over 2022, the equally weighted version of the index, made up of the same companies but with each contributing equally to the index return, fell by 12.9% over the same period. In times like last year it is difficult to produce positive investment returns even with the most well diversified portfolio. When one asset class or region is standing out like the largest UK companies did last year it can be tempting to chase those returns, but it is important to understand exactly why they are performing like they are and remain disciplined, avoiding ending up with all your eggs in one basket when fortunes could quickly change.

Constituent list from FTSE Russell website Performance from FE Analytics. Price Return

12 month price return for each company in the FTSE 100 at start of 2022

80 60 40 20 0

-20 -40 -60 -80 -100 Percentage change in share price

Lowes Financial Management and Lowes Investment Management are authorised and regulated by the Financial Conduct Authority Visit: www.Lowes.co.uk | Call: 0191 281 8811 | Email: enquiry@Lowes.co.uk

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