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THE RETIREMENT COUNTDOWN:  PEOPLE AROUND THE WORLD NOW SAVING SEVEN YEARS LONGER FOR RETIREMENT

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THE RETIREMENT COUNTDOWN: PEOPLE AROUND THE WORLD NOW SAVING SEVEN YEARS LONGER FOR RETIREMENT

People now expect to save for seven years longer than their predecessors for their retirement, according to new research from HSBC.

The report, Generations and journeys, the latest in HSBC’s long-running ‘The Future of Retirement’ series, reveals that working people feel under more pressure than ever to save for their retirement.

According to the research, based on the views of over 18,000 people in 17 countries, the current generation of retirees started saving for their retirement at 35 and retired at 58, saving for an average period of 23 years.

However, the report shows that working age people around the world now begin to save five years earlier, at age 30, and expect to retire two years later, at 60, meaning they face on average 30 years of retirement saving – seven years more than current retirees.

The gap is most marked in China (14 years), the UAE, (12) Australia (11) and France (11), where working people now expect to save for more than a decade longer than current retirees did. Indonesia is the only country surveyed where working age people expect to save for the same length of time as current retirees saved for.

Years saving for retirement (average)
  Years current retirees have saved Years pre-retirees expect to save Additional years pre-retirees expect to save
Average 23 30 7
China 9 23 14
UAE 13 25 12
Australia 26 37 11
France 24 35 11
Hong Kong 18 28 10
Argentina 24 33 9
Egypt 18 27 9
Singapore 20 29 9
Canada 26 34 8
Taiwan 16 24 8
UK 30 37 7
USA 28 35 7
India 20 26 6
Mexico 28 33 5
Malaysia 23 27 4
Indonesia 23 23 0

Despite beginning to save for retirement earlier, many working age people still don’t think they are saving enough. More than one in three (38%) wish they had started to save earlier, and 28% say they should have saved more by putting aside a larger share of income.

HSBC’s report also uncovers that nearly a quarter (24%) of working age people have still not started saving for their retirement, including 12% of those aged 60 or over.

Funding retirement

Pre-retirees around the world have different approaches towards how they will fund their retirement. Diminishing state support in most countries may be a contributing factor towards this, with just 30% of pre-retirees expecting to help fund their retirement through a state pension or social security, versus 45% of retirees who are currently doing so.

Findings from a previous Future of Retirement report[1] show that this loss of faith in state pensions has been going on for some time. In 2011, 45% of all respondents thought that their generation would be worse off in retirement because state pensions were not as generous as they used to be.

Some of the other common ways pre-retirees are likely to help fund their retirement include drawing on cash savings/deposits (42%), income from continuing to work to some extent (29%) and personal pension schemes (23%).

Aside from these more traditional ways of saving for retirement, working age people are also looking at alternative sources of funding, and the research reveals differences in their methods between countries.

Many pre-retirees are looking at using property for additional retirement income. Over one in ten working age people (12%) say that downsizing and/or selling a property will help them to fund their retirement, and this is particularly prevalent in Australia (26%) and the UK (22%).

This compares to just 6% of existing retirees globally who are using income from downsizing or selling a property to help fund their retirement.

In contrast, in Asia and the Middle East, support from family is expected to be a common way for pre-retirees to help fund their retirement –  particularly in India (15%), Singapore (15%), Hong Kong (14%) and the UAE (14%). Globally, nearly one in ten (9%) working age people believe that financial support from their children will help fund their retirement.

Charlie Nunn, Group Head of Wealth Management comments:

“People recognise that they are living longer and may not be able to rely solely on more traditional forms of funding for their retirement, including state provision. As a result, they are realising they need to start saving for retirement earlier than previous generations and to consider alternative methods to help fund their retirement. Even small amounts set aside today can go a long way to helping fund a comfortable retirement in the future.”

Practical steps

HSBC’s research identified four actions that people can take to improve their financial well-being in retirement:

  1. Consider all your retirement expenses

When planning for retirement, make sure to list all your possible retirement outgoings

  1. Start saving earlier for retirement

Plan to start saving for retirement earlier, to help build a bigger fund and allow it to grow for longer

  1. Make sure your advice is professional

Seek information from many sources, but make sure the advice you get is professional

  1. Be prepared for financial ups and downs

When saving for retirement gets difficult, make sure to review all your finances and seek alternative ways to help you continue towards a comfortable retirement

[1] The Future of Retirement: The power of planning report 2011, page 18

Investing

COVID-19 and PCL property – a market on the rise?

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COVID-19 and PCL property – a market on the rise? 1

By Alpa Bhakta, CEO of Butterfield Mortgages Limited

Over the last five years, demand for prime central London (PCL) property has been fairly inconsistent. Sudden peaks in interest from buyers could be followed by periods of stagnate price growth. Nonetheless, the advantages of PCL property investment, particularly by international investors, has remained well known.

Well-funded development and neighbourhood re-generation schemes, alongside an influx of overseas investment, has resulted in a vibrant market with a diverse range of opportunities for prospective buyers.

Nonetheless, the PCL market has not been immune to the impact of the COVID-19 pandemic. During the first half of the year, the lockdown meant physical valuations and onsite inspections could not take place. People in the UK were also discouraged from moving properties unless they found themselves in extreme circumstances.

However, as we now enter the final weeks of 2020, I believe there’re plenty of reasons to be optimistic about the future prospects of the PCL property market. Buyer demand has resulted in a new wave of activity, and this is resulting in significant house price growth. Indeed, it was recently revealed by Halifax that the average rate of house price growth in November was at a four-year high.

Obviously, there are multiple factors that have helped sustain this strong level of house price growth. Most notably, the Stamp Duty Land Tax (SDLT) holiday has succeeded in coaxing buyers back to the property market––be they seasoned buy-to-let (BTL) investors or first-time buyers––by offering up to £15,000 in tax savings on any given property purchase.

However, it’s worth considering the other factors underway in London’s property market. With the UK in a second national lockdown, many investors will be keen on hedging against future COVID-imbued market uncertainty through acquiring safe-haven assets like British property. As you’ll read below, this is having a positive impact on the PCL market.

Investors are flocking to PCL opportunities

The PCL property market has managed to be one of the most active areas of the UK’s real estate market during the whole of 2020. When discussing why this is so, we must first begin by understanding the behaviours of overseas buyers.

Given that international investors represented over half (55%) of all the PCL property purchases recorded in the second half of 2019, anything to further incentivise or dissuade such foreign actors would hugely impact PCL property transaction figures.

Earlier in the year, alongside the announcement of the aforementioned SDLT holiday, UK Chancellor Rishi Sunak indeed announced that he would be implementing 2% SDLT surcharge for non-UK based buyers of British property from April 2021 onwards.

So, for those seeking properties worth over £5 million in the UK capital, a 2% additional cost may represent a substantial amount of wealth. To avoid this, many overseas buyers who may have been contemplating a PCL property acquisition have rushed to buy such properties before this surcharge is applicable. This trend will undoubtedly continue until 1 April, 2021.

Remote working and PCL

On the topic of the PCL market’s future, many property speculators were concerned earlier this year that London’s property market would potentially collapse entirely as a result of remote working. With homeworking set to remain the norm for the foreseeable future, commentators predicted that professionals would escape the capital en-masse in favour of roomier, cheaper properties farther from their London employer’s offices.

While there have been some signs of shifting demand from urban London neighbourhoods to suburban ones, according to Rightmove statistics, there has been no recordable effect on the UK’s property market as a result.

Conversely, property specialists Savills have actually discovered that over half of all transactions including properties worth more than £5 million in the UK this year were all located in just five central London postcodes.

A busy few months

Given the performance of the PCL property sector in 2020, I only foresee this market growing stronger and stronger in the years ahead. Recent developments in the production of COVID-19 vaccine have many hoping that we may return to normality by Spring 2021, which would represent fantastic news for those involved in bricks and mortar, should it transpire.

In the coming months, I anticipate a surge in activity across the PCL market as buyers look to take advantage of the tax breaks on offer. As such, it will be important that these buyers have access to the financing needed to complete these transactions quickly. If not, there is a risk any purchase they attempt might be concluded in April 2021 when the current tax breaks in place are removed.

Overall, I cannot help but be impressed by the performance of the property market more generally during the pandemic. Having experienced slow growth in the years following the EU referendum in June 2016, it is clear that buyers are eager to take advantage of the opportunities on offer. This is particularly true when it comes to PCL property.

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Investing

An outlook on equities and bonds

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An outlook on equities and bonds 2

By Rupert Thompson, Chief Investment Officer at Kingswood

The equity market rally paused last week with global equities little changed in local currency terms. Even so, this still leaves markets up a hefty 10% so far this month with UK equities gaining as much as 14%.

The November rally started with the US election results but gathered momentum with the recent very encouraging vaccine news. This continued today with the AstraZeneca/Oxford vaccine proving to be up to 90% effective in preventing Covid infections. This is slightly below the 95% efficacy of the Pfizer and Moderna vaccines already reported but this one has the advantage of not needing to be stored at ultra-cold temperatures. One or more of these vaccines now looks very likely to start being rolled out within a few weeks.

Of course, these vaccines will do little to halt the current surge in infections. Cases may now be starting to moderate in the UK and some countries in Europe but the trend remains sharply upwards in the US. The damage lockdowns are doing to the recovery was highlighted today with the news that business confidence in the UK and Europe fell back into recessionary territory in November.

Markets, however, are likely to continue to look through this weakness to the prospect of a strong global recovery next year. While equities may have little additional upside near term, they should see further significant gains next year. Their current high valuations should be supported by the very low level of interest rates, leaving a rebound in earnings to drive markets higher.

Prospective returns over the coming year look markedly higher for equities than for bonds, where return prospects are very limited. As for the downside risks for equities, they appear much reduced with the recent vaccine news and central banks making it clear they are still intent on doing all they can to support growth.

Both factors mean we have taken the decision to increase our equity exposure. While our portfolios already have significant allocations to equities and have benefited from the rally in recent months, we are now moving our allocations into line with the levels we would expect to hold over the long term.

Our new equity allocations will be focused on the ‘value’ areas of the market. The last few weeks have seen a significant rotation out of expensive high ‘growth’ sectors such as technology into cheaper and more cyclical areas such as financials, materials and industrials. Similarly, countries and regions, such as the UK which look particularly cheap, have fared well just recently.

We think this rotation has further to run and will be adding to our UK exposure. This does not mean we have suddenly become converts to Boris’s rose-tinted post-Brexit view of the UK’s economic prospects. Instead, this more favourable backdrop for cheap markets is likely to favour the UK.

We will also be adding to US equities. Again, this does not represent a change in our longstanding caution on the US market overall due to its high valuation. Rather, we will be investing in the cheaper areas of the US which have significant catch-up potential.

We are also making a change to our Asia ex Japan equity holdings. We will be focusing some of this exposure on China which we believe deserves a specific allocation due to the strong performance of late of that economy and the sheer size of the Chinese equity market.

On the fixed income side, we will be reducing our allocation to short maturity high quality UK corporate bonds, where return prospects look particularly limited. We are also taking the opportunity to add an allocation to inflation-linked bonds in our lower risk, fixed income heavy, portfolios. These have little protection against a rise in inflation unlike our higher risk portfolios, which are protected through their equity holdings.

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Optimising tax reclaim through tech: What wealth managers need to know in trying times

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Optimising tax reclaim through tech: What wealth managers need to know in trying times 3

By Christophe Lapaire, Head Advanced Tax Services, Swiss Stock Exchange

This has been a year of trials: first, a global pandemic and, now, many countries facing the very real possibility of a recession. For investors, private banks, and wealth managers, these tumultuous times have manifested largely in asset price volatility, ultra-low interest rates and uncertainty about when things may level out, as well as questions about what can be done to safeguard portfolio performance.

The answer here lies within identifying and creating efficiencies to maximise performance and minimise cost, and while there is a slew of options as to how to do this, they are often siloed or have a single USP. Tax optimisation, on the other hand, provides benefits to all, not just in increasing returns for investors, but also in creating economies of scale across stakeholders, creating millions – if not billions – in savings for banks.

Evolving tax reclaim

The tax reclaim process used to be a tedious one banks had to manage themselves, and required detailed, industry and country-specific knowledge to stay on top of constantly shifting requirements and regulations. And when we consider that many countries – such as the UK – allow for capital gains exemptions, tax optimisation may not seem like an integral part of the process. However, this isn’t the case for all countries, and can lead to severe after-tax implications on global portfolios.

Furthermore, even if you’re able to avoid double taxation, getting the money back is not always as simple as it sounds. This, combined with the fact that countries often have contradictory taxation rules or requirements, makes navigating the tax reclaim space a challenge even for those with the right expertise and experience.

Ultimately, providing tax optimisation to investors ends up being a heavy lift for private banks and wealth managers, who often don’t have the right solutions, are relying on outdated technology and manual processes. While this is generally fine for business, it is no longer fit for the purpose when it comes to tax optimisation. To date, knowledge and expertise have been the key to protecting and maintaining profitable investments and avoiding tax leakage. However, through tax optimisation services starting to emerge, portfolio managers can now manage and reinvest easily.

Today, technology has evolved the process so that banks are able to access and submit tax reclaim – and the relevant documentation – online, leaving the tech provider to coordinate next steps with custodians and tax authorities behind the scenes. In essence, taking the legwork out of the process while assuring consistency and completeness in execution.

Simplifying tax through tech

While tax optimisation may seem like an easy choice in theory, it is not always the go-to for every private bank or wealth manager. Without the right supports and setup, including innovative technologies and automation, tax reporting must be done manually, leading to labour intensive processes and huge time wastage. Changing these processes can be overwhelming for those used to a certain way of operating.

By making tax reclaim digital, banks will be more able to optimise returns and gain efficiencies while reducing redundancies and unnecessary complexities. Cloud based solutions or platforms can offer a safe and secure solution for banks, wealth managers, and investors to access and submit any information required, processing the data automatically for conformity and completeness.

It is critical that providers who intend to offer tax services are able to do so efficiently with the right software and data processing capabilities. Not only does this drive continuity in service and efficiencies in process, but it is the only sustainable way to handle such a complex landscape sustainably without wasting time or money.

End-to-end, technologically driven tax services offer a huge number of advantages to private banks and wealth managers, the most important of which is the ability to provide continuity through tumultuous times. As we move through the end of 2020 into 2021 this will only be increasingly important as banks, managers and investors look to provide new services to clients and strengthen existing relationships in a difficult market.

As investors seek to find returns amid the global economic downturn, the demand for innovative solutions will only increase. Technology like cloud-based software, AI, and data optimisation can all serve to improve not just the tax reclaim processes, but the overall client experience within capital markets.  Private banks and wealth managers are suitably equipped to provide these innovative solutions, but those who do not prepare themselves effectively and keep ahead of trends will run the risk of losing current and new clients to someone who can offer more for less.

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