Month: December 2020

How safe is your cash post Brexit?

The impact of Brexit on Financial Services and the FS Compensation Scheme

As we stand right now (December 2020) The UK is leaving the European Union (EU) on 31 December 2020. EU law will continue to apply to the UK financial services regulations through the existing agreement for UK firms to do business throughout the EU without obtaining further financial services authorisation (something known as Passporting) until then. 

Passporting has allowed firms authorised in the European Economic Area (EEA) to conduct business within the EEA based upon member state authorisation. The FCA has given guidance to firms that we should NOT expect these current arrangements to remain in place once the transition period ends on 31 December 2020. As current negotiations regarding a trade deal never included any discussions regarding financial services, you should assume that any financial interests you may have abroad, will no longer be protected by the FSCS once passporting arrangements between the UK and the EU end.

You may need to take action, in order to be ready and protected following Brexit. Which is why I have outlined a number of likely scenarios that UK customer with funds invested in EU jurisdictions may be facing. Obviously this also applies to EU citizens with funds invested in the UK.

Either way, there are things you may wish to consider to ensure that you and your money remain protected from 1 January 2021 onwards. 

Financial Services Compensation Scheme post Brexit

The FSCS is there to provide protection and compensation to customers or investors of authorised financial services companies that fail or go out of business.

For UK based customers of firms authorised in the UK, the FSCS will not change post Brexit. However, for customers and/or firms based in the EEA (including Liechtenstein, Norway and Iceland) there maybe changes to the protection and compensation available. 

Deposit Protection with the FSCS

Protection via the FSCS will depend upon where the firm in question is authorised and which jurisdiction the firm uses to hold your deposits. My advice is to check with the firm for more information. In order to find where a financial services provider is based or authorised, the Financial Services Register is a good place to start,

Any deposits held in a UK branch of an EEA bank will be covered by the FSCS and your funds will be protected up to £85,000 post Brexit.
Deposits held in UK branches of firms based in Gibraltar are seen differently and are not covered by the FSCS; and will continue to be the responsibility of the Gibraltar Deposit Guarantee Scheme.  

Deposit Protection outside of the FSCS

At 11pm GMT on 31 December 2020, any FSCS deposit protection for funds held in EEA branches of UK firms will cease.

Although there should be an automatic transition to protection provided by an EEA deposit guarantee scheme. However this will be dependent upon the specific rules that apply to each EEA jurisdiction. Any change in, or loss of, protection should be notified to customers by firms prior to this date, but it’s always worth being proactive and checking things out yourself. 

Post Brexit, anyone with funds in EEA-authorised firms within the EEA will see no changes in their current deposit protection, as laid out in the EEA deposit guarantee scheme. 

Further information is available by contacting the firms in question, or visiting www.efdi.eu/full-members for a full list of EEA deposit protection schemes. 

Investment protections covered by the FSCS

If you are currently a UK based customer of an EEA authorised investment firm that operates within the UK, then you are currently protected by EEA compensation schemes.  Following Brexit, the protection that the FSCS provides will be extended to customers of EEA firms with UK branches; in the same way that cover is currently provided to customers of UK firms.  

However, it’s important to note that all customers of EEA authorised firms without a UK branch will no longer have access to the FSCS. The only exception is where there is already established FSCS cover for the operations and activities of certain fund managers. If you are in any doubt, my advice would be to contact your provider and find out for sure if your investments are covered by a relevant compensatory scheme.

Whether you live in the UK or the EEA,customers of a UK branch or of a UK authorised investment firm, will continue to benefit from the protection provided by the FSCS pre and post Brexit. This is because the FSCS has no residency requirements in order for investors to qualify for cover.

Investments no longer covered by the FSCS

If you are a customer of a local EEA branch of an existing UK authorised investment firm then you may not be protected by the FSCS post Brexit.

It is probable that the FSCS will not protect customers of defaulting (insolvent) EEA branches of UK authorised firms after 31 December 2020.

However, you may be protected by the local jurisdiction’s investor compensation scheme, but it may not provide the same protections as the existing FSCS scheme (up to £85,000 of cover). If you are in any doubt, please contact the provider and seek clarification prior to the Brexit deadline.

As always, if you have any questions regarding current FSCS protections, or if you have any questions regarding any aspect of your finances, then please don’t hesitate to contact one of our team at Bridgewater Financial Services; where one of our independent experts will be on hand to help in any way.

Stay safe

 

 

 

Annuities and the importance of advice

I wonder how many of them Google a medical cure too!

Now I’m all for us being self-empowered and sorting things out ourselves when and where we can, but I recently read a report by Aegon, who have found that a startling 10% of people do not consult an adviser when converting retirement savings into an income.

As an independent financial adviser with a pensions specialism, I find that statistic to be quite alarming. Firstly I can’t imagine why people wouldn’t seek professional independent advice on something as critical as their future financial wellbeing. Secondly, I am reminded of the phrase “You don’t know what you don’t know”. So how on earth are they sure that they are doing the right thing and that they have really been through ALL of the available options? It’s a little like me assuming that my soar throat can only be tonsillitis and setting about watching YouTube footage of a DIY tonsillectomy. When seeking professional medical advice would be the only sensible course of action I should take. 

You can’t put the genie back in the bottle

The choices you face when considering your retirement options are vast. Decumulation, or the drawing down of investments, requires a considered approach. Especially, as in the case of annuities, once the choice is made it cannot be reversed or repealed at a later date. It really does demand a serious and in-depth understanding of what is and isn’t available to you, as well as advice on the best course of action to meet your existing and future requirements.

A DIY approach to something this critically important is nothing short of foolhardiness.

History is playing a part

According to Aegon’s global retirement study, there are some worrying factors at play. It’s unfortunate that a traditional annuity currently offers lower levels of guaranteed income than it may once have done. This in turn has fed an increasing demand for drawing down the investment as a lump sum, without seeking professional financial advice. Now even if you don’t come to Bridgewater, can I please ask that you DO go somewhere to seek professional advice? As this needs to be carefully planned with a full understanding of the wide range of investments decisions, choices and potential pitfalls that clients face.

In short, you need expert guidance.

It seems to be a British problem

The global report found that UK savers view annuities as far less appealing than our European counterparts. With just 28% of UK workers wanting to convert their savings into an Annuity, compared to 47% of Netherland’s workers, 44% of German workers and 42% of Spanish workers who all favour this route.

All of which, according to the report, puts UK workers at a much higher risk of suffering from a poor outcome during retirement.

With age comes some wisdom

One upside of the report is that it suggests that those closest to retirement age (60-69 years), seemed to be far more financially literate than their younger contemporaries.

Having said that, only 43% (significantly less than half), were able to properly answer all of the questions asked in the survey. So there is still some worrying lack of knowledge amongst those just about to retire.

Just to put this into some sort of context, the report was compiled from research carried out online between 28 January and 24 February 2020 amongst 14,400 workers and 1,600 retired people across 15 countries: Australia, Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Turkey, the United Kingdom, and the United States. The survey was conducted online between January 28 and February 24, 2020.

There is an acknowledgement that the Covid-19 pandemic has presented financial challenges for everyone, particularly for those facing retirement. Not the least because interest rates have remained at rock bottom, with the prospect of an annuity delivering
all-time low returns understandably unappealing. However, decisions are being driven by these factors and outcomes are now being reached that will have a direct impact upon the quality of people’s retirements, without them seeking any expert advice.

The report itself concludes: “People often assume that taking a DIY approach and managing financial decisions themselves will be fine, but the findings of our financial literacy test suggests there are huge risks in taking complex decisions alone. While advice has to be paid for, the cost of not taking it ahead of some of life’s greatest financial decisions could be far higher.”

My advice is.. to get some!

If you are unsure about what to do about your annuity, or even if you are 100% positive what you are going to do, my advice is to seek professional expert financial input. 

As always, if you have any questions regarding your annuity, or any other aspects of your retirement planning or your finances in general, then please don’t hesitate to contact one of our team at Bridgewater Financial Services; where one of our independent experts will be on hand to help in any way.