5 practical things to check as part of a financial midlife MOT

Rishi Sunak is reportedly drawing up plans to provide a “midlife MOT” to assess the financial health of workers and retirees. Taking stock of your finances in your 40s and 50s could lead to greater financial freedom in the future. Read on to discover five initial steps you can take to review your wealth.

Sunak’s plans are focused on encouraging people to get back to work as employment figures are still not back to the levels they were before the Covid-19 pandemic. Early retirees that gave up work during the pandemic are now feared to be hampering the UK’s economic recovery.

There are also concerns that some early retirees made the decision based on assumptions about their finances before the cost of living crisis. Over the last year, inflation has been high and it could mean some retirees face a financial shortfall now or in the future.

While Sunak’s plans are designed to encourage more people to join the workforce, a midlife MOT can be useful for keeping your plans on track.

Your mid years are often crucial for building wealth that could mean you are financially secure in the future. So, taking stock now is a worthwhile task.

Here are five areas you should cover in your financial midlife MOT.  

1.  Review outstanding debt

Reducing your expenses as you near retirement could provide far more financial freedom. One key way of doing this is to create a plan to reduce outstanding debt.

One of the largest debts you have is likely to be your mortgage. If you can, a plan to own your home outright when you retire can significantly reduce the income you need. Paying off credit cards or loans could also boost your disposable income in the future.

Having debt, including a mortgage, doesn’t mean you can’t retire, but you should factor repayments into your budget when assessing the income you need.

2.  Assess your savings

Spend some time assessing your savings and understand if they would provide a safety net if you faced a financial shock, like an unexpected property maintenance bill or being unable to work due to an illness.

Having savings to fall back on when you need them can provide vital financial security now and in the long term. It means you could weather financial shocks and you don’t have to dip into other assets that you earmarked for other goals.

As the Bank of England has increased interest rates, it’s worth shopping around to see if you’re getting the most out of your money.

3. Look at your investment portfolio

Regularly reviewing your investment portfolio can help you understand how it’s performing – remember to review returns with a long-term view, rather than focusing on how the value of investments have changed over weeks or months.

It’s also a good opportunity to ensure your portfolio continues to reflect your goals. Changes to your circumstances or aspirations could mean adjustments to your investments make sense.

If investing isn’t something you’re already doing, it could help you reach long-term goals.

While investing does involve risk and the value of investments can fall, historically, markets have delivered returns over longer time frames. So, if you’re saving for a goal that is more than five years away, investing could grow your wealth and help your assets keep pace with inflation.

When you invest, it’s essential you consider the level of risk that’s appropriate for you and your circumstances.

4. Set out your retirement plans

When you think about retirement planning, it may be finances and pensions that come to mind. However, when and how you want to retire are crucial pieces of information if you’re to create a reliable retirement plan.

Set out what your retirement plans are – do you want to phase into retirement by working part-time? Or are you hoping to retire early?

You should also consider what you want your lifestyle to look like when you give up work. This can be useful for understanding the income you need your pension and other assets to deliver to reach your goal.

5. Check if you’re on track to reach your pension goal

With a clearer understanding of your retirement plans, you can review your pension – are you on track to have enough to live the retirement lifestyle you want?

It can be difficult to understand how the value of your pension will change between now and retirement, and what the value needs to be to provide financial security. As well as considering what contributions you’ll make, you may also need to consider things like investment returns. So, working with a financial planner here can be valuable.

Going through your pension now could uncover potential gaps and provide an opportunity to fill them.

CLICK HERE - Get in touch to arrange your midlife MOT

New Form

A financial review can help you take stock of where your finances are now and the steps you could take to reach your goals. Please contact us to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts. 

Investment market update: February 2023

Statistics suggest that some of the pressures facing economies, such as high inflation and recession concerns, are starting to ease. However, there is still a risk that economies could fall into a recession in 2023. Read on to find out what influenced the markets in February 2023.

As an investor, remember to focus on your long-term goals when making decisions. Volatility is part of investing, and you should ensure that any investment matches your risk profile.

UK

Official figures for the end of 2022 meant the year started with some good news – the UK narrowly avoided a recession.

GDP in December declined by 0.5%, but this was offset by gains in the previous two months. A technical recession means an economy has contracted for two consecutive quarters. As the UK economy contracted in the third quarter of 2022, there was a recession risk. Investors should still be prepared for volatility though, as economists are predicting a recession this year.

The Bank of England (BoE) also believes the UK will face a recession, although it expects it to be shallower and shorter than previously forecast. The BoE predicts economic output will fall, from peak to trough, by less than 1%. This compares to more than 6% during the 2008 financial crisis and 3% during the 1990 recession.

After a year of high inflation, it is starting to ease and fell to 10.1% in January. The figure is still much higher than the BoE’s 2% target, so it’s not surprising the central bank increased the base interest rate to tackle the rising cost of living.

The BoE’s Monetary Policy Committee voted to increase rates from 3.5% to 4% – a 14-year high – and cautiously said it believed the peak of inflation was now behind us.

One of the key factors continuing to drive inflation is high energy prices. So, energy firms announcing huge profits has led to criticism and calls for further windfall taxes. In February:

• Oil giant Shell reported earnings of almost $40 billion (£33.2 billion).

• BP posted record profits of almost $28 billion (£23.2 billion).

• The owner of British Gas, Centrica, reported its profits tripled to more than £3 billion.

The cost of living crisis has led to nationwide industrial action. The Office for National Statistics found that more than 840,000 working days were lost due to strike action in December. During February professionals from teachers to Border Force staff participated in strikes.

There could be some good news for workers struggling because of the rising cost of living. Research from the Chartered Institute of Personnel Development found that 55% of recruiters plan to lift pay this year to improve staff retention and hiring.

Data suggests that many businesses are still facing challenges:

• The S&P purchasing managers’ index (PMI) for the manufacturing sector found it has contracted in the six consecutive months to January. However, the pace of the downturn slowed when compared to December.

• The UK service sector suffered its worst month in terms of output in two years as both consumers and businesses cut back their spending.

• Figures from the Insolvency Service show insolvencies jumped 7% year-on-year in January. When compared to the start of 2020, just before the pandemic hit, insolvencies are 11% higher.

Despite reports showing there are still obstacles ahead, the FTSE 100 reached record highs during the month. At the start of the month, it surpassed the previous record set in May 2018, which was then beaten several times during the next few weeks.

Europe

Similar to the UK, the European economy narrowly avoided a technical recession at the end of 2022. The European Commission (EC) expects the final growth figure for 2022 to be 3.5%.

An S&P Global report also indicates the eurozone economy grew for the first time since June 2022 in January. The reading lends weight to the hope the bloc could avoid a recession as companies report higher levels of business activity.

Looking to the year ahead, the EC expects Ireland to lead the recovery. The country is forecast to grow by 4.9% in 2023 following last year’s estimated annual growth of 12.2%, which made it the fastest-growing economy in Europe.

In contrast, Germany, which is often deemed the powerhouse of the EU, could face challenges. Signs suggest the country could fall into a recession after industrial output fell by 3.9% in December. This fall is linked to high energy prices, with output from energy-intensive industries falling by 6.1%.

Inflation remains a key challenge in the eurozone, but, again, it is easing.

In January inflation was 8.5%, down from 9.2% a month earlier, according to Eurostat. High energy costs, which increased by 17.2%, are still driving the rate of inflation.

After increasing interest rates by 50 basis points, the European Central Bank said it will “stay the course in raising interest rates significantly at a steady pace”. So, households and businesses should expect further rises throughout 2023.

US

The US also beat recession fears after GDP increased by 2.9% in the final quarter of 2022.

However, the PMI data indicates businesses are still facing headwinds. Output declined at the start of 2023, driven by a sharp contraction in new orders and subdued sales from both domestic and export markets.

Despite this, job figures indicate businesses are feeling optimistic. The US job market added 517,000 jobs in January, far surpassing the 185,000 economists predicted.

Like Europe, inflation is slowing in the US. The cost of living increased by 6.4% in January.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Your guide to pension consolidation: The pros and cons you need to know

Do you have multiple pensions? It could make it difficult to manage your pension savings during your working life and when you retire. In some cases, consolidating them could be beneficial.

This guide explains what you need to know about transferring your pension savings, so you have fewer pots to manage. It could help you feel more in control of your retirement and, in some cases, reduce the amount you’re paying in fees.

However, there are reasons why consolidating your pension may not be right for you:

• You have a defined benefit pension

• Your pension has additional benefits

• You may need to pay an exit fee

• You could benefit from using “small pot” privileges.

Download “Your guide to pension consolidation: The pros and cons you need to know” now to read more about pension consolidation and understand if it could be the right decision for you.

If you have any questions about your pension or retirement, please get in touch.

The essential guide to ISAs

ISAs have been around for more than two decades, but they’ve changed significantly since they were first introduced. This guide can help you understand why using an ISA to save or invest could be a valuable part of your financial plan.

Read the guide to find out:

• Why ISAs are a tax-efficient way to save and invest

• Discover the different types of ISA you can choose from

• What you should consider when deciding if you should save or invest through an ISA

• How Junior ISAs could help you build a nest egg for children or grandchildren

• How you could leave your ISA to loved ones when you pass away.

Download your copy of “The essential guide to ISAs” to understand why around 12 million adults contribute to their ISAs each year.

If you have any questions about the topics covered in the guide, please contact us. We can help you manage your savings and investments in a way that reflects your goals, including ISAs if they’re appropriate for you.

McLaren Market Insights January 2023

McLaren Insights

Investors should expect further volatility in the markets in 2023, experts suggest.

Economies around the world are facing recession due to factors including high inflation and rising interest rates. The International Monetary Fund’s Kristalina Georgieva predicts that a third of the global economy will be in recession this year.

 The World Bank also has a similar outlook, as it cut its global growth forecast from 3% to 1.7% after risks identified six months ago materialised. The organisation warned that fresh setbacks could lead to the second global recession in three years.

As an investor, remember that volatility in the markets is normal. Take a long-term view of your portfolio’s performance and focus on your overall goals rather than short-term market movements.

Here are some of the factors that affected markets in January 2023.

UK Financial News

There was a positive sign that the UK could avoid the long recession that some experts have predicted – the economy grew by 0.1% in November.

The UK inflation rate also dipped slightly to 10.5% in the 12 months to December. It suggests that inflation is starting to ease, but it’s still far higher than the Bank of England’s (BoE) target of 2%. However, the BoE’s chief economist Huw Pill warned that the UK could face persistent challenges if domestically generated inflation gained momentum. For example, if firms try to maintain real profit margins, it could prolong the high inflation environment.

High energy prices in particular continue to be a challenge for both households and businesses. Chancellor Jeremy Hunt will slash the current energy support scheme for businesses in March. He told business leaders that the current scheme is “unsustainably expensive”. Trade body MakeUK, which represents around 20,000 manufacturers, criticised the news. It warned that two-thirds of businesses expect to cut production or jobs as a result of energy prices.

The UK government’s borrowing reached a record high in December, which highlights the cost of the energy support scheme. The government borrowed £27.4 billion, the highest amount recorded since records began in 1993. The high figure was linked to the cost of energy and interest rates rising. The figure was £9.8 billion more than the Office for Budget Responsibility forecast, potentially leaving little room for Hunt to cut taxes in the upcoming spring Budget. 

According to the Office for National Statistics (ONS), industrial action also affected firms, with a quarter of businesses said they were unable to obtain the necessary goods for their operations during the month. The ONS data suggests that some businesses plan to make cuts to their staff in the next three months. 5% say they could make redundancies, while two-thirds plan to take action to cut staff costs. Yet, the figures also show that a third of businesses are experiencing a shortage of workers.

Readings from the S&P Global Purchasing Managers’ Index (PMI) indicate that sectors are struggling. A reading below 50 indicates contraction.

• The manufacturing sector ended 2022 in a downturn, with a reading of 45.3. It’s the fifth consecutive month of decline.

• A fall in new orders affected the service sector, but only marginally, with a reading of 49.4.

The ONS has warned that some households could face a significant rise in their outgoings. In 2023, 1.4 million fixed-rate mortgage deals will end, and many of them have an interest rate below 2%. As interest rates climbed throughout 2022, this means homeowners could face a much larger mortgage bill than they expect when their current deal ends.

Figures from the BoE also show that consumers are borrowing more to cope with the rising cost of living. £1.5 billion was borrowed in November. Most of this, around £1.2 billion, was on credit cards and was the highest figure recorded since 2004.

European Financial News

Inflation in Europe could be stabilising. In Germany, the figure for the 12 months to December 2022 fell to 8.6% from 10% a month earlier. However, food prices (20.7%) and energy costs (24.4%) are still much higher than a year ago.

The PMI data suggests the construction sector in the eurozone is suffering a “sustained contraction” after the reading fell to 42.6. All three of the largest economies the survey covers in the eurozone – Germany, France, and Italy – suffered a drop.

Total output is still in the contraction territory, but it is easing with a reading of 49.3, and the service sector moved back into growth with a reading of 50.2.

While still challenging, the pressure easing is reflected in a survey from the Ifo Institute. It found that German business morale is up as the economic outlook improves.

Unemployment figures from the eurozone also indicate that businesses are feeling confident about their prospects. Eurostat reported that unemployment remained at a record low of 6.5% in November.

US Financial News

There are positive signs for the US economy – inflation fell and the number of jobs increased. In the 12 months to December 2022, US inflation fell to 6.5%. It indicates that the cost of living pressures are starting to ease. The US job market ended 2022 on a high. The Department of Labor reported that 223,000 jobs were added to the economy at the end of the year. Unemployment also fell to 3.5%, taking it to its pre-pandemic low. Yet, some businesses are still struggling. The PMI for the factory sector suggests it suffered its fastest rate of decline since May 2020, with a reading of 46.2.

Unsure about your investment portfolio? Why don’t you get in touch with one of our financial advisers for a consultation on us.

Would you like to receive McLaren’s monthly market insights directly to your inbox? Sign up below.

McLaren in the press.....

Financial wellbeing resonates with the type of financial planner I want to be…………………….

McLaren Market Insights December 2022

McLaren Portfolios

December returns were mixed but overall, the marketplace felt it was having a bear rally towards year end. As fund managers wound up for the year end and contemplated the prospects for 2023 many now have the outlook that the second half of the year will be much more settled once inflation is calmed, and positive gains will be possible across most sectors.

The key highlights for McLaren portfolios were,

• The McLaren portfolios all made a strong recovery over the last six months

• The positioning in healthcare equity continued to deliver positive returns

• Asian and European equity assets in general saw some rebound

• Short-dated bond funds avoided most of the sell-off seen in the bond market and look well-placed to have a good year ahead

• Infrastructure assets which were affected by the big sell-off in Gilt markets but partially recovered some of the losses made

Whilst it has been a challenge to make and keep any gains for investors in 2022 it has been reassuring that the strategy and diversification has continued to dampen the worst of the market sell-off.

Global Financial News

Developed markets had another mixed month reacting to political and economic news flow.

• The market anticipated a slowdown in the rate of interest rates hikes from the US Federal Reserve as data started to point more to a pull back of inflation and an increasing concern of recession hitting the US economy in 2023 pervaded. The US Dollar weakened slightly on the news as well after having a period of strengthening. Capital markets started to factor in a lower peak in Fed rates and bonds priced higher as a result.

• The continued war in Ukraine and the pressure on commodities continued however a milder winter in Europe, so far, together with more constrained demand from China, has seen oil prices fall back from $100 to $80 per barrel. Continued high levels of European gas storage aided by increased global production volume, has eased fears of a deep recession, however the doubling down of Russia’s military offensive meant that a resolution to the war felt less likely.

• European markets were much less certain despite the huge inroads in securing gas supply, the build out of LNG (Liquified Natural Gas) infrastructure, and EU cohesion, as this was offset by slowing economic activity, labour shortages and inflationary pressures starting to factor into consumer activity. The logjam of up to 51 LNG container ships awaiting to unload was not sufficient to ease the financial pain of consumers being hit by higher food and fuel prices.

Domestic News

A change in the UK Prime Minister, the third this year helped to calm market nervousness and the FTSE100 rebounded to make a small gain over the month. However, the damage was done especially in the Gilt market which sold off aggressively and caused a chain reaction of selling from pension funds caught up in hedging losses. Aside of the bond market the focus continued with the cost of living and inflation, with may in the UK suffering economically from the fast rise in prices, especially housing costs, and a rising level of industrial action is adding to the sense of a repeat of the 1978/9 Winter of Discontent.

Looking Forward – Where to for 2023

Our views of 2023 are that the dilemma of inflation versus recession will continue, and the likelihood of avoiding a global recession is shrinking by the day. Having put up rates aggressively in 2022 the US Fed and other central banks may well be faced with prospect of dropping rates swiftly in 2023.  

Inflation is less likely to fall back to pre-Covid levels, with higher energy, mortgage, and commodity prices and the re-setting of labour costs keeping inflation higher. However, the advent of spring and the slow recovery of China, will likely see a falling of gas prices and a further pull back in inflation.

The race to secure non-Russian energy supplies will be a major issue around the world and investors can expect to see wider use of LNG and inevitably coal for a few more years until renewables and efficiency can be ramped up further. The race is on to build more alternative energy generation, distribution, and storage globally as the impact of the war in Ukraine has spread to all areas around the globe. We expect to see greater opportunities for energy related investments as governments strive to avoid another expensive winter, and to have more resilient networks.

Unlike western economies many parts of the world are still struggling to get out of the impacts of Covid, notably China with its zero-tolerance policy and poor vaccination levels, however this looks likely to be phased out by next summer and should mean that economic activity should ramp up again. A better functioning China should mean that on aggregate there is a higher level of global economic activity. Chinese shares, which are already at low valuations could well see a recovery and drive the region higher.

Outside US large company growth and Indian equity markets share valuations look cheap and whilst may take another step down, the medium-term outlook for strong companies looks benign. If employment can remain high and financial institutions are prepared then it could be a mild downturn, but the risks of an over-reaction remain, especially if the housing and construction sectors are badly disrupted. This looks to be a good market for good fund managers who can invest into strong companies with resilient revenues. Resilient businesses will be as important as strong macro themes such as healthcare which we continue to like. The backlog and added work due to Covid will take many years to overcome, which with the aging of populations and the increasing demand for healthcare will mean this sector has a good tailwind behind it.

And finally,

There was no ‘pigs in blanket’ shortage this festive season, further proof that supply chains are healing.

IF YOU WOULD LIKE HELP WITH YOUR INVESTMENTS, PENSIONS, INSURANCE, OR FINANCIAL PLANNING PLEASE COMPLETE THE FORM BELOW AND ONE OF OUR FINANCIAL ADVISERS WILL BE IN TOUCH.

McLaren Market Insights November 2022

OUR REVIEW OF KEY EVENTS DURING THE LAST MONTH

21/11/2022

McLaren Portfolios

November was a better month for McLaren portfolios as all strategies delivered a positive return spurred on by a Rishi Sunak relief rally and a calming of the interest rate outlook. The key highlights are:

• The positioning in healthcare equity continued to deliver positive returns.

• Equity assets in general saw some rebound from poorer returns earlier this year.

• Short-dated bond funds avoided most of the sell off seen in the bond market.

• Infrastructure assets which had been doing well were hit by the big sell off in Gilt markets but have already started to recover now markets have calmed down.

Whilst it has been a challenge to make and keep any positive returns this year it has been reassuring that the strategy and diversification has meant that we are performing resiliently.

Global Financial News

Developed markets had a rather mixed but positive month, reacting to mainly economic news and data.

• The anticipated fall in US inflation data led to some relief but the Federal Reserve will want to rely on a trend of data to be confident it is curtailing inflation. Whilst markets rebounded during the beginning of November this does seem somewhat premature. Bond markets began to factor in a slowing of interest rate hikes and yields pulled back.

• The continued war in Ukraine and the pressure on key commodity supplies remained especially with gas. Despite this the EU has successfully been buying up marginal supply at elevated prices. A moderate season so far has meant the EU has been able to ramp up storage reserves to high levels, access a wider source of supply, and to take a range of demand management actions, which has meant a log jam in unloading LNG (Liquidified Natural Gas) at European ports is now materialising. All of these has increased the probability for Europe to survive a cold winter without any significant Russian gas supply.

• The continuing woes in Asia, especially China, where the zero-Covid tolerance program is curtailing economic recovery has meant that Asian equity markets have remained weak as a slower China, commodity, food, and fuel inflation, and unsettling politics continued to weigh down on this region.

• Major western markets saw a bit of a relief rally and some recovery of the poorer returns experienced over the last year, with European markets leading the charge. This may continue if the US Fed signals a slowing in the pace of interest rate slows, but this is likely to run out of momentum and a re-focus on economic slowdown, interest rates, and supply shortages will pervade.

• Housing markets, lower quality loans and leveraged assets faltered as the increasing cost of capital will cause these sectors to come under increased stress. Housing in US and UK markets has already seen a some pull back in deal volume, as well as increased delinquency and foreclosure rates.

Domestic News

• The FTSE100 and especially the UK bond market had a tumultuous time as the focus on a change in government and then the shock of a poorly crafted and unfunded budget unsettled the market and led to a big selloff in Gilts. This weakened the pound and long-term Gilt yields rose to where the Bank of England had to intervene.

• The FTSE100 continued to make a positive return over the month despite political uncertainties held up by energy, banks, and foreign earnings. Company reporting has been in line with expectations and whilst profits reduction has appeared many companies are still in good shape.

• The swift and subsequent change of government, the third this year, has started to settle markets down as a more measured economic and budgetary outlook is being formulated, and a chaste and more cohesive edifice is presented to the public.

Market Data

[Image 1] - Market movements of various global stock indices.

[Image 2] - Gold and Currency prices vs Pounds Sterling

Looking Forward

As before we think the rest of the year will continue to be dominated by two key factors - Gas and inflation.

1.  Gas – as we have discussed the race is on for Europe to avoid a deep recession and wean itself off Russian gas. Outside a cold winter it looks like the EU has done enough to survive without a major shutdown of industrial production, avoiding an even deeper recession.

2. Inflation/interest rates – the downturn in recent US inflation data has given markets some relief, however the US Fed is unlikely to pause its interest rate hiking phase until real evidence of an economic slowdown and the curtailing of inflation can be demonstrated. US Federal Reserve policy is likely to dominate global monetary policy for some while as a weakened Europe and China/Asia overcome regional issues and local inflation. The impact on consumers and producers will continued to be felt, and the likelihood of a recession in 2023 looks feasible.

And finally

Whilst market pricing has been volatile and poor, the underlying assets held within McLaren portfolios are much more realistically priced and dividends can be maintained for now. Bond assets have also seen yields improve substantially, and whilst we expect interest rates to go up further, we believe that inherent returns from bonds will continue to improve.

We believe 2023 is the year that the headwinds of Covid lockdowns, energy security, and interest rates will be allayed, and financial assets will resume on the long road to recovery out of any recession.

If you would like help with your investments, pensions, insurance, or financial planning please complete the form below and one of our financial advisers will be in touch.