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May 2021

“Life was given to us a billion years ago when one cell divided into 2, now what are you going to do with it.” (Film: LUCY, Morgan Freeman).
As we look forward to the rest of 2021 I think the main focus will be on furlough ending and returning to work. This will help grow the economy but potentially also put some pressure on inflation and interest rates.
The country, and much of the world, has built up debts over the last year caused by supporting individuals and companies, and it is important that interest rates remain low for the various economies to be able to start making repayments. Unemployment is likely to rise and investment by Governments and companies will need to commence to provide job creation.
Way back in the 18th century, wealth was kept close to hand, and it was the Georgians who chose to invest in Banks and Government Gilts. It was Jane Austin who wrote about people living off interest, which were the 5% Government Gilts. As the Bank of England grew in importance and realised it could control inflation using low interest rates, individuals looked for alternatives for their money and started to invest in Industry, which was a major influence on the Industrial Revolution. Cheap money also led to the housing revolution and the clearing of Victorian slums.
When I started as a financial adviser in 1991 investment growth rates were in double figures, and all sorts of expectations of huge funds were envisaged. I remember arranging a pension for a young hairdresser for £20 per month and fund projection of over £1m. Fortunately Insurance companies can no longer give such bold predictions, and growth rates are now higher than the existing projections they are allowed to show.
That said a Pension for a High Rate Tax Payer (HRTP) still means over 100% growth almost immediately without any investment growth. HRTP could double their money without risk or investment, so let’s look at an example for someone aged 55 earning £60,000 who puts £10,000 into a pension:
£10,000 less 40% tax relief means the cost is actually only £6,000. From this they are allowed to take £2,500 back as tax free cash without it effecting future contributions. The net effect is they are £3,500 out of pocket. But they have a fund valued at £7,500. That is a return of over 100% with ZERO RISK, and Pensions are also outside the estate for Inheritance Tax.
With proper early planning you too could live like the people Jane Austen wrote about.

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