Echo: November 2011

Here at Ovation, we like to make your finances accessible and transparent, which is one of the reasons we use Ascentric as the platform for your investments. However, it would seem the latest Ascentric Valuations have managed to create some concerns. This note will therefore help clarify the situation:

Although sent out on 23rd October, the Ascentric valuations refer to the period between 1st April & 30th September. On the 30th September the FTSE 100 was down to 5,128 a drop of 14.7% from the 1st April. It has since recovered to 5,510 (up 7.5% since Ascentric valuations) which corresponds to a drop from 1st April of 8.3%. So we just want to assure clients that their portfolios should have recovered since the Ascentric valuations were sent out.
By comparison the average balanced managed pension fund (which we use for as a benchmark for medium risk portfolios) has fallen 4.5% since 1st April.

We advise clients not to draw too many conclusions from a snapshot of investments at any one point in time. It is also important to note that all our clients are invested in a diversified portfolio of assets to balance risk.

In Autumn 2011 at the Buttonwood gathering of bankers, Mervyn King said "For all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary – indeed absurd –levels of leverage represented by a heavy reliance on short-term debt." He added that any solution needed to make sure that the costs of bailouts (he called it Maturity transformation) should fall on those who enjoy the benefits. Not many of us would disagree with his last statement. As a consequence of the banking system collapse, The Government commissioned the Independent Commission on Banking (ICB)’S to report into the shake-up of the banking system. Published in September, Adrian Kidd looks at whether this report delivers the radical changes that will protect its customers?

The report has a package of measures that will impact across UK banks’ aimed at protecting the consumer and making UK banks better able to absorb losses. Here are the core recommendations:

Ringing-fencing of the UK Banks’ retail activities: Aimed at making it easier to sort out which divisions of a Bank get into trouble. Ring-fencing the retail divisions should protect the consumer, isolating problems elsewhere in the banking system. The measures will hopefully protect the consumer from the banking crisis that caused the collapse of the Icelandic banks. It is hoped that these measures will also discourage the Banks from taking excessive risks to begin with.

Strengthening the Banks’ capital positions: Equity-to-risk weighted assets ratio of at least 10% are now required of the largest ring fenced banks, I.E: For every £10 they lend out, they must hold at least £1 in reserve against potential losses.
Capital rules have been toughened since the Basel III proposals and activities falling outside the retail ring-fence are to be subject to international rules.

A nationalised Bank: Bids are being sought for a ‘challenger’ bank in the UK market, once the sale of Lloyds bank branches, as required by the EU, is completed. This challenger bank should enhance competition and improve the service ‘offer’ to consumers. It is anticipated that it will have around a 6% share of the personal current account market and already Northern Rock and Virgin money have submitted proposals. There is also a requirement to reduce the barriers to switching current accounts and generally improve miss-directed payments.

A new Financial Conduct Authority (FCA): The report also recommends that a new Financial Conduct Authority (FCA) should be formed, charged with promoting competition and transparency in the banking industry.

Whilst the changes might take some time to implement, the ICB is setting a target date for completion of 2019 and the ICB report will form the basis of a basket of banking market reforms. There is a question of how these measures will be funded and costs are anticipated to be in the region of £7 billion p.a.

If you're struggling to find a great idea for a child or grandchild's Christmas present this year - here's an idea that will make sure you are very popular in years to come...

Junior ISAs or JISA (if you like acronyms)

In October last year the government announced that it would create a new tax-free savings vehicle for children, called Junior ‘Individual Savings Account’ (ISA). These new JISAs bring to an end the old system of Child Trust Fund (CTF). Although existing plans may continue and parents/ grandparents could make contributions to them, there is no new money from the Government for children born after 2 January 2011. The Junior ISA has become the new way for saving and investing money for your child or grandchild’s future.

What are Junior ISAs?

The JISA will work in a very similar way to ISAs for adults. You will be allowed to save up to £3600 for your children each year, and like ISAs will be tax-free. In essence they are simply ISAs aimed at parents who wish to make savings and investments for the future in order to pay for such expenses as costly university fees or first cars.

The JISA will work in a very similar way to ISAs for adults. You will be allowed to save up to a certain amount of money for your children each year, and like ISAs will be tax-free. In essence they are simply ISAs aimed at parents who wish to make savings and investments for the future in order to pay for such expenses as costly university fees or first cars.The JISA will work in a very similar way to ISAs for adults. You will be allowed to save up to a certain amount of money for your children each year, and like ISAs will be tax-free. In essence they are simply ISAs aimed at parents who wish to make savings and investments for the future in order to pay for such expenses as costly university fees or first cars. At age 18 the money will belong the child, not the parents. 

Who are they for?

Any child under 18 who is a UK resident will be eligible for the new Junior ISA, providing that they do not already have a Child Trust Fund. This includes children born before 1st September 2002 who were excluded from CTFs.

How do they work?

There will be two kinds of Junior ISA that you can choose from. The first is a Cash Junior ISA and the second a Stocks and Shares Junior ISA. As they are a tax- efficient vehicle for saving and investing the amount that can be contributed to them is a total of £3,600 per tax year (2011/2012). This can be invested all in one type or split between the two different types.

One significant difference is that unlike an adult ISA it will be possible to transfer Junior ISA investments between providers, and also (in either direction) between cash and stocks and shares accounts held by the same child. However, unlike the position for current ISA products, it will not be possible for a child to hold more than one Cash Junior ISA and one Stocks and Shares Junior ISA at any time.

The following bullet points compare the two different types of Junior ISA in more detail:

• Cash Junior ISAs will allow you to save up to £3,600* each year for your child. Interest will remain entirely tax free and can be
withdrawn from the ISA once your child reaches 18. It will also be possible to transfer money from a Cash Junior ISA to a Stock
and Shares Junior ISA.
• Stocks and Shares Junior ISA will allow you to save in investments such as collective investment schemes, bonds and shares.

Just like the Cash Junior ISA you can save up to a maximum of £3,600* a year. Although you can hold cash in a Stocks and Shares 
Junior ISA, your service provider might charge you and the cash may also be taxed. Below we look into both the benefits and drawbacks to Junior ISAs.

Pros......

• Tax- efficient
• Provides a nest egg for your children for University costs, a deposit on a first house or a car
• Could be used to teach your children about how to save, the importance of putting money aside and achieving financial goals
• Simplified due diligence makes it easy for anybody within the family or extended family to make contributions into the ISA
• Easily transferable between providers
• Automatically rolls into an adult ISA at 18
• Parents cannot access the money

.....and Cons

• At 16 the child assumes management responsibility for the ISA 
• At 18 the child has immediate access to the funds 
• Parents cannot access the money 
• The money being locked away until 18, they are a very inflexible form of saving 
• There will be no government contributions, some parents may not be willing or able to set up a savings vehicle for their children
• Child Trust Funds cannot be transferred into either of the Junior ISAs

* Please note the maximum investment will be £3600 per tax year which may be split between stocks and shares Junior ISA and a cash Junior ISA.

Like to know more about JISAs? Give Ovation a call.

During November each year, a kind of hairy madness overtakes the male members of Ovation. This mad Movember movement is responsible for the sprouting of moustaches on the faces of Chris, Tom and Paul, along with thousands of men in the UK and around the world. Their aim? To raise awareness and vital funds for men’s health, specifically prostate cancer and other cancers that affect men. Our aim, to raise money for St Margaret's Hospice in Somerset and support the great work they do. 

If you’d like to sponsor the guys please click here

If an ageing population coupled with a significant pensions’ gap was the reasoning behind compulsory funding for pensions, then no one can fault the logic of NEST (National Employment Savings Trust) - the more we provide for ourselves in retirement, the less the state needs to cough up.
So – we all contribute to NEST and it’s a job well done. Or is it?
As an employer, if you already have a pension scheme in place you’ll need to check it complies with the minimum for a 'Qualifying Scheme' which is:

1. Does it permit auto-enrolment?
2. Are eligible employees auto-enrolled within 90 days of joining the company?
3. Does it have a default investment fund?
4. Does it deliver a minimum accrual rate or minimum contribution?

If your scheme doesn’t meet these qualifying criteria, you’ll need to get your head around NEST because it could have significant implications for your company; you will have to make a contribution to the scheme and fund its administration.
But is NEST the best solution for your company and its employees? Tom Williams has undertaken a comprehensive review of NEST and the other comparable qualifying schemes. This is the subject of Ovations latest “Guide to…” which is now available for you to download. Just click here.