Lowes Magazine Issue 127

ISSUE 127

“The only way you can predict the future is to build it.” Alan Kay

INSIDE TRACK

We’re here to support you

We understand life happens and certain situations can mean you need additional support. At Lowes, we’re flexible in our approach, ensuring you get personal, sound financial advice in a way that suits you. Whether you would like a family member or trusted friend to attend your appointments with you, as an extra pair of ears, or need communications adapted to make them easier for you to digest, please make your adviser aware or contact us on 0191 281 8811 .

Thinking ahead to April 2024 In the Autumn Statement the Chancellor announced that the Capital Gains Tax exemption would be reducing from £12,300 a year to £6,000 in the 2023 2024 tax year and would be cut again to £3,000 from 6 April 2024. If you are planning to realise any assets that would generate a capital gain post April 2024, which will be greater than the £3,000 exemption at that time, it is worth considering whether you can bring forward that date to take advantage of the exemption in the current tax year. Your Lowes Adviser can help you allocate assets and calculate the capital gains. Financial security is now the biggest influence on when people retire, whereas health and wellbeing used to be the biggest factors, according to the latest Retirement Voice study from Standard Life. People’s desire to build a solid pension pot to fund the duration of their retirement has also affected when people think they will retire. Those currently aged between 45 and 64 envisage they will retire at 68, after the state pension age. In comparison, current retirees stopped work, on average, at the age of 61. Thinking about your retirement, and putting plans in place to build your pension pot as early as possible will help you to retire when you want, with the lifestyle you’re accustomed to - or even sooner if possible. Financial security affecting retirement dates

NI top up deadline now 2025

The government has extended the deadline to pay voluntary National Insurance (NI) contributions, which can boost an individual’s state pension, to 5 April 2025. Gaps in NI are normally allowed to be paid for the previous six years. However, as part of the transition to the new State Pension in 2016, voluntary contributions to fill up any gaps have been allowed from April 2006 to April 2016. The deadline for making these additional payments was originally 5 April 2023; this was pushed back to 31 July 2023. It has now been extended to 5 April 2025. The cost of filling one year’s gap is currently £907.40 and the additional benefit is currently around £303 a year for as long as you draw the state pension (increasing each year in line with the triple lock), so checking your contributions via the gov.uk website and topping up any shortfall is well worth doing.

The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

Covershot: Mosque in Morocco Photo: Pixabay

2

LOWES Issue 127 · Published July 2023

INSIDE TRACK

New planning ideas needed for future generations Mutual assurer, Royal London has warned parents wanting to help live-at-home adults to get on the property ladder to not be hasty in releasing funds from pensions and investments to do so. The consequences could be adverse for both parents and children. Parents could be reducing their planned retirement lifestyle by depleting accumulating funds or retirement income pots. The children on the other hand could be taking on mortgages that last into their retirement also affecting their standard of living in later life. In future, rather than having a mortgage fully paid up and a home to live in, retirement money for younger generations may well include ongoing mortgage or rent costs. This will require a different set of financial planning to the present day, Royal London predicts. Lowes usually recommends that wealth should not be given away and certainly not without a full review, as this can result in financial uncertainty in later life.

Make your money work. Best bank & building society rates

Amount

Provider

Account

Gross Rate

Contact

Personal Easy Access Account (Issue 1) 1

Unrestricted instant access accounts

£1 - £500,000

Oxbury Bank

4.46%

www.oxbury.com

Online Double Access Issue 2 2

£1 +

Principality B.S.

4.45% www.principality.co.uk

Accounts with restrictions

£1,000 + £1,000 + £1,000 - £85,0000

FirstSave FirstSave

1 Year Bond 2 Year Bond

6.10% 6.15%

www.firstsave.co.uk www.firstsave.co.uk

Fixed rate bonds

Investec Bank

3 Year Fixed Term Deposit

6.06%

www.raisin.co.uk

Notes: Not to be considered an endorsement for any institution or account. 1 Same day withdrawals limited to 1pm cut off time. 2 Maximum of two withdrawals permitter per year.

Measures of inflation - The average change in prices of goods and services over a 12 month period to June 2023 Retail Prices Index (RPI) 10.7% Consumer Prices Index (CPI) 7.9% Sources: Providers’ websites, Office for National Statistics, www.thisismoney.co.uk, www.moneysupermarket.com, www.moneyfacts.co.uk 19/07/2023. 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.

Lowes.co.uk

3

COMMENT

Client satisfaction

Many clients will know that for over three decades we have been conducting a biennial Client Satisfaction Survey. This important tool provides valuable feedback on our level of service and performance, overall and in specific areas, and helps us to identify where we need to consider making improvements to our service. I am delighted that in the 2023 survey, the overwhelming majority of respondents, over 95%, rated Lowes as good or very good in almost every category. As a company that is very much focussed on providing both a friendly and professional service, two results that stand out for me, in addition to our knowledge, level of service and investment advice, are staff friendliness at 99% and professionalism at 98%. But maybe the most important marker for us is that 97% of respondents indicated they would recommend Lowes to friends and family. Over the years we have been building Lowes as a company. We now have a substantial, experienced team of individuals and specialists behind the scenes supporting our client-facing advisers, with the aim to provide an excellent level of service in all we do. We are grateful to every client who submitted their response to the survey and we are delighted with the results. You can read more about the survey results on page 8. We are always open to feedback from our clients at any time, so if you did not respond to this year’s survey but feel there are ways we might improve our service, please do not hesitate to contact me personally. July 2023 marked the 20th anniversary of the first structured product autocall. We immediately saw the potential of these innovative solutions and recommended the first one to our clients in 2003. Since then we have helped develop the sector through input into the design of improved products, many of which have been exclusively available to our clients. Having analysed and monitored every new autocall issued to UK retail investors, we have just published a guide to autocalls covering a 20 year review of their evolution. You can find more details and how to get hold of a copy on page 11 of this magazine. An area which has gained in importance over the past few years is inheritance tax planning. The Treasury’s tax take from IHT has doubled in the past decade to £6.7 billion. With the nil rate band tax allowance frozen for another five years, this figure is expected to continue to grow year on year as more and more people are sucked into this tax bracket. For many people it will be the increasing value of their property which helps take them over the threshold and into paying 40% tax on the rest of their life’s wealth. Of late, property market prices have been adversely affected, with predictions of a 30% or more fall in some areas, as mortgage repayments have leapt upward as a result of the Bank of England’s strategy to curb soaring inflation. But this should not lead anyone into thinking this will be a long term effect and will keep them out of paying IHT. History has shown us time and time again that not paying attention to IHT as an issue is

something we can live to regret further down the line. Addressing IHT as a potential issue needs to be pro-active, done sooner rather than later, and as part of the financial planning process is something with which we can help you. In closing, whether or not you responded to our survey this year, I would like to thank you for being a client of Lowes. We look forward to serving you for many more years to come. Ian H Lowes, Managing Director

Lowes.co.uk

4

PENSIONS

Nothing certain but death and taxes

The adage ‘There is nothing certain in life but death and taxes’ has certainly stood the test of time since it was first recorded in the 18 th century. It was said most famously by American statesman, Benjamin Franklin. What is less certain is money given out by governments. State pension costs are set to increase significantly over the next five years as the number of people claiming the state pension will rise from 12.6 million to 13 million. Influencing the figure is greater longevity amongst the UK population – although a proposed rise in the age at which state pension can be claimed to 68 years was recently postponed by government due to longevity figures slowing down. Also to be taken into consideration when assessing the cost, is that the state pension payments are met from the NI and tax contributions of the working population. Currently, there is an imbalance between the number of people at or heading for state pension age and those in employment. As the costs rise, we could see governments revisit the proposed increase to the state pension age, but more likely is a review of the Triple Lock. This was brought in over a decade ago to safeguard against the state pension losing value due to inflation. It ensures pensioners receive the highest of either a flat 2.5%, the increase in average earnings, or inflation measured by the Consumer Prices Index. The government suspended the Triple Lock for the 2022 2023 tax year in favour of a double lock – based on 2.5% or the rise in inflation – reinstating it for the 2023-2024 tax year. The Triple Lock has also been criticised as being intergenerationally unfair, with calls for it to be seriously reviewed or even abolished.

Recently, both the Conservative and the Labour parties have said they will keep the Triple Lock if in power after the next general election. However, at times of high inflation – price and earnings – we may see changes to the terms, or a higher state pension age back on the agenda. These fluctuations and potential changes in government policy affect financial planning for retirement. While still a foundation stone within financial planning and future cashflow analysis, the state pension could be less reliable than it has been in the past. This is one reason why we recommend that personal pension provision forms the backbone of our clients’ financial planning. As tax efficient wrappers for long term investment, pensions – whether final salary, personal pensions provided by assurers, or self-invested pensions plans (SIPPs) – have stood the test of time and remain the most successful form of saving for retirement. A sound pension strategy, combined with investments and other assets can be used successfully to generate and deliver income in retirement. Which type of pension is best and where it is invested, will depend upon individual circumstances, and this is where Lowes Advisers can help. Which type of pension is best and where it is invested, will depend upon individual circumstances, and this is where Lowes Advisers can help. “ ”

Lowes.co.uk

5

TAX

HMRC’s continuing IHT tax take

The burden of IHT on families continues to grow year on year and so, is an important part of our forward thinking financial planning. The amount of tax received by the Treasury for the financial year 2022/23 is projected to be £6.7 billion. This is more than double the amount paid ten years ago – £2.9 billion in 2011/12. Predictions in the market are that it could increase to £7.8 billion within the next five years. The figures for Inheritance Tax receipts for April 2023 alone were £0.6 billion, an increase of £0.1 billion when compared with the same period in 2022. The rise in IHT receipts has been primarily driven by increases in property prices and the long-term freezing of the IHT nil rate band threshold. The tax-free allowance has been fixed at £325,000 since 2009/10 and the Chancellor announced in his last Budget that it will be frozen for another five years, until April 2028. The main residence nil rate band – which provides an additional allowance up to £175,000 of the value of a property left to direct descendants – is also frozen until 2028. The allowances double for married couples and civil partners. Despite this, the number of people who paid inheritance tax over the past year also increased, by a significant 24%. The latest HMRC data shows that an estimated 41,000 people were liable to inheritance tax in 2022/23, up from 33,000 the previous year and the highest level in 20 years. It is nearly double what it was in the 2018/19 tax year when only 22,000 people paid IHT. These figures illustrate the simple fact that more estates are becoming eligible for the tax as their personal wealth through property, savings and investments, exceeds the current allowances.

IHT is no longer a tax on the wealthy but is impacting people it was never intended to affect. Therefore, it is important that families plan for the future and how they will address IHT as an issue. Not to do so can lead to families facing overwhelming administrative and financial burdens during a time of already profound emotional stress. We firmly recommend adopting a proactive approach to IHT, to make sure arrangements are as tax efficient as possible. This can include advice around gifting, investing, donating, and a life insurance policy written into trust, as means to minimise or avoid paying unnecessary IHT charges. More drawn into higher income tax bands The Institute for Fiscal Studies has calculated that one in five taxpayers will be paying a higher rate of income tax by the 2027-28 tax year – around 7.8 million tax payers. This is due to the current freeze on income tax thresholds, which rising salaries are likely to breach. One way to help alleviate the tax charge is through pension payments, particularly through salary sacrifice schemes. In these schemes, the employee agrees to a reduction in their salary or bonus that is equal to their pension contribution. In return, the employer will pay in the employee’s total pension contributions. So pensions contributions lower the individual’s salary and tax paid.

Lowes.co.uk

6

PLANNING

Our retirement planning tool

could be identified, which will help us to put steps in place to increase your funds before retiring. It gives you an insight into how life events could impact your finances Let’s face it, life rarely goes to plan, and that doesn’t change in retirement. Even with work out of the picture, you’re likely to experience big life events which will inevitably influence your finances and retirement plans. When building your cashflow plan, we can develop various scenarios which take into account your goals and consider possible events that could occur during your retirement. This will enable us to gain an understanding of the potential impact of these events on your income. These events could include planned decisions, such as downsizing, or situations which may happen, for example, receiving an inheritance or going into long-term care. Using cashflow planning can show if your retirement aspirations could be achievable, helping you to make a more informed decision when it comes to your retirement plan. But it goes beyond that. It’s a process that can give you reassurance that there are steps you can take to overcome life’s financial obstacles once you retire. Let’s take a look at an example Our client is aged 56 and has the aspiration to retire at 60 with a £2,250 per month income throughout their retirement. Our client is currently working full time, earning £40,000 a year and has no liabilities. To build a picture of what their retirement could look like, based on their goals, we will take into account the range of finances and assets the client has, to get a comprehensive picture of their wealth. This will include property, pensions, savings, investments, and any other wealth they may have.

Lowes Adviser and Client Servicing Manager, Rob Earl explains how cashflow planning can be a useful tool to help assess whether a client’s wealth is enough to achieve their retirement goals.

Will you retire when you want, with the lifestyle you’re accustomed to? After all, retirement is a major life event, one which many of us dream about for most of our working life. Whether you want to spend your retirement travelling, making memories with friends and family, or enjoying hobbies, old and new – it’s important to have a goal in mind and a plan in place to help make it a reality. Our sophisticated cashflow modelling software takes into consideration the wealth a client has accumulated, and it crunches the numbers, including anticipated rates of investment and savings growth, as well as inflation. It’s an invaluable way of building a picture of how their wealth could last over their retirement and highlight any potential shortfalls – ultimately helping us to determine if more needs to be done to help the client achieve the retirement they want. Benefits of cashflow planning It gives you a visual representation of your financial future It can be difficult to understand how your retirement provisions will change over time; particularly when you begin to factor in areas such as investment growth and inflation. Cashflow modelling helps to forecast how your wealth will stand the test of time in a visual and easy to digest way. This makes it far easier to grasp the bigger picture. It will showcase where you are now, how your wealth may be affected over time, the level of income you can afford to take in retirement, whilst taking into consideration the age you wish to retire. You might be pleasantly surprised by the possible date that you could comfortably retire, or shortfalls

Lowes.co.uk

7

PLANNING

Scenario 1 Current Position

Scenario 2 Delay retirement by two years

£60K

£60K

Average Life Expectancy

Average Life Expectancy

£50K

£50K

£40K

£40K

£30K

£30K

£20K

£20K

£ in today’s terms

£ in today’s terms

£10K

£10K

£0

£0

56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 Client’s Age

56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 Client’s Age

The diagram above forecasts how the client’s retirement could look if they were to retire at 60 in their current position. As you can see, the client receives a salary until retirement at 60, then their income comes mainly from tax free cash and withdrawals from their personal pension until they are entitled to receive payments from their final salary pension and the state pension at age 67. However, as highlighted by the blocks in red, the cashflow modelling establishes that the client is likely to have an income shortfall from aged 82, based on the various assumptions considered, and therefore retiring at 60 may not be in their best interest. However, there are always options available and a financial adviser can help you to make an informed decision on which one is the most suitable for you and your circumstances. They will also complete a pension review to ensure your pension provisions are aligned to your retirement goals. Options the client could consider from here: • Delay retirement: A couple of years can make all the difference to your retirement outcome. • Reduce retirement income: Consider whether you need that level of income every month, reducing your required income could help your money last longer. • Phase into retirement: Reducing the amount of days or hours you work could help to cover any shortfall. You will also be making contributions during this time, helping to grow your pension pot. • Increase your pension contributions: If you are able to, increasing your pension contributions will increase your pension savings, and can offer tax relief on your earnings.

No one can predict the future, and cashflow modelling is no different. Although a useful tool for painting a picture of what your retirement could look like and considering how your assets could be utilised, there are no guarantees it will play out that way. When making big financial decisions, cashflow planning is just one of the many tools an independent adviser can use, and here at Lowes we take a holistic approach to financial planning, reviewing all your assets and wealth to ensure your money is in the best place to support your long-term financial goals. If you’re looking to build a retirement fund, ready to access your pension savings or want to understand your pension options, we can build a bespoke financial plan which will help you achieve the retirement you want. Get in touch by visiting Lowes.co.uk/hello or by calling us on 0191 281 8811. For example, if the client was planning to retire, but a market crash happened, cashflow modelling could help to forecast the impact this could have on their finances long-term, enabling them put steps into place to prevent a shortfall later in life. Here are some of the options the client could consider if a market crash were to occur: • Potentially downsizing or using equity release to generate capital to be used for retirement income shortfall. • Delay retirement • Reduce retirement income • Phase into retirement • Increase pension contributions By delaying retirement until 62, the client would benefit from a further two years of salary, pension contributions and possible additional growth within their investment portfolio. As you can see, the client wouldn’t start to run out of money until the age of 90. We could also look to factor in a reduction in income as the client heads towards the later stages of retirement, as they may no longer require the desired income of £2,250. One of the key benefits of cashflow planning is its ability to stress test your finances, covering a wide range of eventualities, such as a market crash.

Key

Salary

State Pension

Pension Income Savings Spent

Pension Withdrawals

Pension Cash

Shortfall

Essential Expenditure

Total Expenditure

Events

Lowes.co.uk

8

CLIENT SURVEY

Results of our Client Survey 2023

fuelled by inflation. While we cannot control external factors and their effects on markets and economies, we can make sure we are there for our clients during tougher times. We’re delighted that over 95% of clients, rated Lowes as good or very good in almost every category. In particular, it is pleasing to see the professionalism and helpfulness of our staff rank so highly and that over 97% of clients would recommend Lowes to family, friends and colleagues. That said, we use the survey to seek ways to improve our service and offering to clients, taking on board the feedback shared to implement enhancements and efficiencies going forward. This valuable insight has helped us to continuously deliver first-class financial advice, decade after decade, for over 50 years.

As an organisation which prides itself on delivering a personal service, it is important to us that we regularly assess our level of performance with clients. So every other year we carry out an in-depth survey to see how you believe we are doing for you, and how we might improve, across our overall service and in specific areas. Our aim is to ensure we are always doing our best and delivering service in accordance with our philosophy of being a company “where personal finances are cared for personally.” Over a third of all clients participated, completing our questionnaire and providing their views and feedback. This is invaluable to us. Thank you to everyone who responded to this year’s questionnaire. Over the past 18 months we have all been affected by the Russian invasion of Ukraine and the cost of living crisis,

Key

Clients who rated Lowes as very good or good in this year’s survey

Very Good Good

Average Poor

96.3%

98.1%

97.8%

98.3%

Professionalism

Client service

Approachability

Depth of knowledge

99.0%

97.4%

95.9%

98.5%

Staff friendliness

Ethics

Investment advice

Staff helpfulness

Over 97% of clients would recommend Lowes to family, friends and colleagues

Average Star Rating

4.62

Lowes.co.uk

9

PLANNING

How we help our clients

Sometimes there may not have been any changes and we can leave things as they are; other times, we may need to plan a new course of action. When estate planning, for instance, as your wealth increases it may be beneficial to make gifts during your lifetime to reduce the assets liable to IHT, or to put assets in trust for the younger generation. It’s important when reviewing a financial plan it is done over the short, medium, and long term, to ensure it captures predictable eventualities and better enables you to fulfil the goals and wishes you have for your wealth. There will be unexpected events, such as stock market corrections, which cannot be planned for but which good financial advice will help you weather. Over time, through these regular reviews, which help us get to know the needs of you and your family better, we can build a bigger picture that can take in not just your personal financial planning but intergenerational planning too – making sure your wealth is passed on in the way you want and without paying any unnecessary tax. Many of our clients have been with Lowes for decades and in some cases are second or third generation clients. That’s because we put in the time to ensure we know you and your circumstances and we regularly review what is best for you and yours now and over time. Simply from an estate planning perspective – reviewing what you have and how that might change over time, enables an effective financial plan to be put in place, ahead of time. “ ”

A financial plan is not a ‘once and done’ event or process. It requires regular review, as Rob Quigley, Financial Planner explains.

People often seek out an Independent Financial Adviser to help them with a particular financial situation. That could be investing their inheritance, the need to find the best way to save for their retirement, through to tax and estate planning. The reasons are numerous and will vary from person to person. Once they see the value of advice in helping them find the best course of action, or solving a problem, more often than not they will remain as clients. A key reason for this is that they realise financial planning is an ever moving feast, which will change through the different stages and aspects of their lives. It will also be affected by external influences like tax and other legislative changes, as well as the ups and downs of the investment markets, to name a few. Simply from an estate planning perspective – reviewing what you have and how that might change over time, enables an effective financial plan to be put in place, ahead of time. If we think of what might change over a lifetime, or even over a few years, we can see why we need to regularly review our financial situation and make decisions at each point in time. Here are a few instances which typically need to be considered: • The value of your property rises over time, potentially making your beneficiaries liable to inheritance tax. • Your investment portfolio grows to a size that adds to this IHT issue. • You build up a number of pensions with different employers, which may work better for you in a consolidated pension fund. • Your family has new additions or becomes extended. • You inherit wealth.

Lowes.co.uk

10

INVESTMENT

Cash saving in and outside of an ISA

Despite rates of interest rising on savings accounts, they remain substantially beneath the current rate of inflation, which means cash is losing its spending power month on month. We would recommend keeping some cash in an emergency fund but then making your wealth work harder for you by investing in stock market based investments. Over time, investments usually deliver more than cash in returns. Alternatively, consider saving into a pension, which benefits from tax incentives, if you can wait until retirement to access your money. Managing your ISA wealth One of the issues we see when people self invest in their annual ISA over a period of time, is that often the investments can be chosen at random and are not revisited. This means that over time, people can build up a valuable portfolio of ISA investments which could be in poor accounts or invested in areas where the levels of risk are higher than the individual would now wish to take. Reviewing an ISA portfolio on a regular basis – we suggest annually – is crucial to ensure it is in the best account and aligns with your current investment strategy and is not taking a level of risk with which you are uncomfortable.

March and April 2023 saw a record-breaking Cash ISA season ahead of the end of the tax year, with £17.8 billion paid into cash ISAs. This is nearly six times the amount of money that was paid in during the same two months in 2022. £11.9 billion was paid in during April alone. One reason for this influx of money may have been the higher rates of interest being offered on cash deposits, following consecutive increases in the interest rate by the Bank of England. This, in turn, may also have affected the second reason, the need to protect savings returns from income tax. Savings within a cash ISA tax wrapper are free of income tax when you draw them out. But cash savings outside of an ISA are taxed. Tax payers saving outside of an ISA, have an annual Personal Savings Allowance, which gives £1,000 tax-free on savings and investment returns for basic-rate taxpayers, and £500 for higher-rate taxpayers. There is no allowance for additional rate taxpayers. With the freeze on personal income tax allowances until April 2028, over time more people will move into the next income tax band. This will impact not only the income tax they pay but also, their Personal Savings Allowance and how much tax they pay on savings and investment returns. With the additional rate income tax band starting from £125,140 for the current tax year, more people will see their Personal Savings Allowance taken to zero and so will pay 45% tax on their savings and investment interest.

Lowes.co.uk

11

INVESTMENT

Structured product maturities The second quarter of 2023 saw a raft of structured product maturities with those most commonly held by our clients shown in the table below. Most of these were designed in cooperation with Lowes utilising the FTSE 100 or its close cousin, the FTSE CSDI, as the underlying and all of these out-performed their respective underlying index over their holding periods. Unfortunately, this quarter witnessed the maturity of the first loss-making structured product in a long time. However, this product was linked to the performance of three individual shares, rather than an index and as such was a high-risk, speculative investment only used for a small element of larger portfolios. The decline in the Vodafone plc share price meant the acceptance of the high risk did not pay off on this occasion.

We have just marked the 20th anniversary since the first structured product autocall was issued. We recommended the first one back in 2003 and since then, they have evolved to become the mainstay of the UK sector. Lowes’ influence, such as the introduction of the 10:10 and 8:8 Plans, has helped to shape

the sector for better investor outcomes. Lowes evaluates each new autocall when issued and monitors all through to eventual maturity, giving us a comprehensive view of the market. Lowes has marked the 20th Anniversary by publishing an extensive Consumer’s Guide to Autocalls, providing an independent review of the sector and its performance. The report can be accessed at: Lowes.co.uk/autocall-guide

Counterparty

Maturity date

Term (years)

Gain (%)

Société Générale Morgan Stanley

03/04/23 11/04/23 12/04/23 28/04/23 09/05/23 22/05/23 22/05/23 16/06/23 26/06/23 28/06/23 28/06/23 28/06/23 28/06/23

2 2 2 2 2 2 2 6 2 4 5 4 2

14 18

BNP Paribas

14.9

Morgan Stanley Société Générale

13 15

Citigroup Citigroup

22.4 18.3

Natixis

-66.88*

Goldman Sachs

13.4 31.6 35.7 41.2

Citigroup

Natixis

Citigroup

Credit Agricole

14

* High risk, speculative, share linked plan. All others linked to FTSE 100 or FTSE CSDI.

Lowes.co.uk

12

SPOTLIGHT

Barry Hopper was recently appointed to the role of Commercial Director at Lowes. Barry is steeped in Lowes culture, having been with the company for nearly 20 years. He followed in the steps of his father, David, as a Lowes consultant, even taking on some of his father’s clients when he retired, before more recently stepping into business development. Now, his role is to help Lowes grow as a company, while it continues to look after its clients in line with its long held principle of being a business with a ‘family’ feel, ‘where personal finances are cared for personally.’ Barry brings a wealth of experience and knowledge to the role, not just from his many years of advising Lowes clients but from previous corporate manager roles; prior to Lowes he worked for Sage plc and British Airways. Spotlight on Lowes people

Describing his new role, Barry says: “In a nutshell, I oversee a team with a focus on making the advice journey as smooth as possible for our clients, making the business itself more efficient and effective, and ensuring our customer service is second to none. “Financial planning is becoming increasingly complex, which means independent financial advice is becoming more important in helping people achieve their financial lifestyle objectives. Take as an example, inheritance tax. This was introduced as a tax for the very wealthy but now more and more people are being caught in that tax trap. Showing clients how they can avoid paying unnecessary tax is where we can help. “It’s important to us that our clients get the best possible outcomes and that they know Lowes is here to support them and give them the personal advice they need.” Good service can only be delivered by good people, and one of Barry’s responsibilities is to ensure Lowes staff have everything they need to give their best for clients. “Our people are core to delivering and developing our service, so we look to help them develop their potential and to gather skills as they progress through their career with us. The more comprehensive the experience of our people and the more knowledge they have, the better they can serve our clients.” Another focus for Barry is developing the technical aspects of how Lowes delivers its service. “In today’s digital world, we need to be able to deliver excellent service in a range of ways,” he says. “That includes giving our clients a choice in how they access our financial services – whether that’s via the web, telephone or face-to-face. We’re already well under way in refining our services and investing in technology to make us more efficient and easier for clients to deal with. The personal element remains paramount, but some clients are more comfortable using technology.” Asked if 20 years ago he could have pictured himself as Commercial Director of Lowes, Barry says: “Whilst I really enjoyed the financial adviser role, I always felt that my corporate experience would prove of further benefit and working in such a capacity at Lowes was a logical step. I have known Ian Lowes for nearly fifty years, our families have worked together at Lowes for approaching forty years and whilst I hadn’t banked on such, it seems like a case of destiny that I am now a director of Lowes Group.”

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13

DOUG’S DIGEST

Interest Rate Conundrum

The chart below shows that the cumulative roll off for existing deals extends out to 2027.

It seems these days that there is only one topic in the news, from an economic perspective at least, which is the “cost of living crisis” caused by stubbornly high levels of inflation and how central banks continue to raise interest rates in an attempt to bring it under control. Inflation has been pushed higher in recent years by several factors, not least rising food and energy prices which rose sharply last year following Russia’s invasion of Ukraine. Whilst those prices have risen significantly, the Bank of England has more of an eye on the core inflation figure. This excludes food and energy as these prices tend to be more volatile, with food prices being affected by other events such as weather conditions affecting harvests, and energy prices being influenced on occasion by supply restrictions from producers. It also excludes things such as alcohol and tobacco, where the pricing is likely to be changed more by taxation than market costs. Core inflation is therefore considered to give a more realistic measure of price rises. Here in the UK, whilst the headline rate of inflation as measured by the Consumer Price Index, or CPI, has fallen in recent months, core inflation has continued to rise, reaching 7.1% last month, the highest it has been since 1992. This is why the Bank of England continues to raise rates despite the headline rate beginning to fall. Interest rates are raised in an attempt to cool an economy over time by raising the cost of borrowing, causing people to spend less as they use their disposable income to reduce debts where they can, and more is taken up servicing those debts they cannot reduce quickly, such as mortgages. As spending falls, so does demand for goods and services, which in turn reduces the upward pressure on prices as they have to be kept lower to compete with others. The cost of borrowing for businesses is increased also, and with costs rising while demand is slowing this can lead to cost cutting, often at the expense of jobs, again making the workforce feel less comfortable to spend money when they do not feel their jobs are secure. In the UK, however, there are several factors which mean this traditional mechanism is not working as well as it has done previously. During Covid, whilst people continued to receive an income, but their spending ability was restricted, with no-one allowed to socialise, and those working from home saving on travel and other costs. This meant that many took the opportunity to reduce their discretionary debts, such as credit cards, and came out of the lockdowns in a healthier financial position. So, for many their only real debt is in terms of their mortgage, and according to figures from J.P. Morgan less than 30% of households in the UK are currently owned with a mortgage – less than a third of all homes. In addition, a decade of extremely low and stable interest rates has changed the type of mortgage people hold. According to figures from J.P. Morgan again, only around 13% of current mortgages are floating rate, i.e. the interest rate moves when the Bank of England raises the base rate. The remainder have fixed interest rate deals, and as such have not been affected by interest rate rises, at least so far.

Types of mortgage rate at the end of 2022

Source: J.P. Morgan

60% 50% 40% 30% 20% 10% 0%

Floating Rate

Fixed, 3 to 4 Years

Fixed, 5 Years

Fixed, 2 Years or Less

Timing of the roll off of 2022 mortgage debt onto new mortgage deals

100% 80% 60% 40% 20% 0%

2023

2024

2025

2026

2027

This means that the base rate rises we have seen so far have not affected many as yet, with only around 12% of all households seeing rate rises in 2023. Rather than seeing a gradual rise allowing time to budget, however, as the existing rate deals roll off many will see a large jump in their monthly mortgage payments over the coming years. As well as the hit to personal finances being delayed by more people having fixed rate deals, the reduction in job security has also failed to materialise so far. The Brexit deal saw many overseas workers leave the UK, and alongside this Covid led many older workers to take early retirement. This meant the workforce in the UK reduced in size between 2020 and 2022, and as a result many firms found it difficult to fill vacancies. As demand has fallen, rather than having to lay people off firms have instead removed the vacancies they had but retained their existing staff. This has kept the unemployment rate at a very low level. All this makes it difficult for economists, including those at the Bank of England, to predict how increasing interest rates will affect the headline inflation rate, and this is borne out by figures in recent months being higher than predicted. Consequently, the Bank of England finds itself in an awkward position, having to appear firm in its fight against inflation, but at the same time not knowing just how much its decisions today will affect households tomorrow. There is a similar quandary in the investment sphere, with the winners and losers in the short term hard to predict. In the long term though, it will still be the strong, well-run businesses that can weather the storm and come out as the winners, and it is for this reason that we favour active asset management when it comes to selecting investment funds. If the better active managers are chosen, then they in turn can select those they believe to be the better companies that will outperform in the long term, whilst diversification will hopefully help smooth the journey in the short term. But for now, we all watch with interest how things play out in the coming months.

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