1 October 2023

This month we look at the huge benefits of saving regularly along with the rise of financial scams and how best to protect yourself…


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Retirement planning – the positive effect of compounding interest

New data has unveiled that the largest pension fund in the UK is valued at £11 million. Wealth manager RBC Brewin Dolphin obtained this information through a Freedom of Information request. It was discovered that a single UK saver had accumulated retirement savings of £11 million. Additionally, 929,000 savers have amassed pensions ranging from £1 million to £2 million. Another 128,000 individuals possess pension funds totalling between £2 million and £3 million, while 46,000 investors have built up pensions exceeding £3 million.

According to data from the Office for National Statistics, to be part of the top 10% of retirement savers, individuals need to have pension assets amounting to £374,500, with the median figure standing at £637,500. The specific circumstances of the person with an £11 million pension are unknown. However, RBC Brewin Dolphin estimated that such an individual could anticipate an annual income of £540,000 over a 30-year retirement period, without worrying about depleting their savings.
Rob Burgeman, an investment manager at RBC Brewin Dolphin, emphasised the impact of compounding in helping pension pots grow. Considering tax relief, a monthly contribution of £100 (effectively costing £80 per month) would amount to total contributions of £9,600 after ten years. With compounding and assuming 5% annualised returns after fees, this pension pot could potentially grow to £15,592. Burgeman explained that over 20 years, the same contribution plan could see the total contributions of £19,200 more than double to £41,274. An additional 10 years could result in contributions of £28,800 growing to as much as £83,572, while 40 years of contributions totalling £38,400 could potentially reach as high as £153,237.
He continued by noting that thanks to employer contributions and auto-enrolment, even individuals with modest incomes can aspire to accumulate substantial retirement savings. He highlighted that the government had recently announced support for a private members bill that would lower the auto-enrolment age from 22 to 18. If someone were to enter the workforce at age 18 and contribute £389 per month to their pension, they could reasonably expect to retire with a £1 million pension pot by age 68, assuming annualised returns of 5% after fees.
Burgeman further explained that in the first decade, the investor’s pension pot could grow to £60,181 based on contributions totalling £46,680. Ten years later, their retirement savings could more than double to £158,210, considering contributions of £93,360. After 30 years, they could potentially accumulate £317,889 based on investments totalling £140,040. By the time they complete 40 years in the workforce, they could have a retirement fund worth £577,990, all from contributions totalling just £186,720, according to RBC Brewin Dolphin’s calculations.
He concluded by emphasising that it’s in the last decade before retirement that the possibility of becoming a millionaire becomes a reality. After 50 years, the pension pot could exceed seven figures with contributions totalling just £233,400. These figures underscore the power of compounding in pension growth. Furthermore, unused pension funds can typically be passed onto the next generation without losing anything in inheritance.

Protect your money against financial scams

Unfortunately, financial scams are on the rise, targeting individuals, businesses, and even government agencies! These scams come in various forms, from phishing emails to investment fraud and doorstep scams. Falling victim to these fraudulent schemes can have devastating financial and emotional consequences. To protect yourself and your assets, it’s essential to stay informed and vigilant. In this article, we will shed light on common financial scams in the UK and offer tips on how to avoid them.
Investment Scams:

Investment scams are prevalent in the UK, often promising high returns with little to no risk. Scammers use enticing advertisements, cold calls, or fake websites to lure victims into investing their money. These fraudulent schemes can lead to substantial financial losses.How to protect yourself: Always research any investment opportunity thoroughly. Check if the firm is registered with the Financial Conduct Authority (FCA) and consult their warning list of known scams. Be sceptical of unsolicited investment offers and resist high-pressure sales tactics.

Banking and Phishing Scams:                                                                             Phishing scams involve scammers posing as legitimate institutions, such as banks or government agencies, to obtain sensitive financial information. Victims may receive fake emails, texts, or phone calls requesting personal data like bank account numbers or PINs.

How to protect yourself: Never share personal or financial information through unsolicited emails or phone calls. Verify the authenticity of the contact using official contact details provided by your bank or relevant organisation.

Pension Scams:                                                                                                                 Pension scams target retirees, offering false opportunities for early access to pension funds or promising unusually high returns on investments. These scams can result in the loss of life savings and retirement security.

How to protect yourself: Consult the government’s official website for information on pension scams. Be cautious of unsolicited offers related to your pension and seek advice from a trusted financial advisor before making any decisions.

Doorstep Scams:                                                                                                   

Doorstep scams occur when fraudsters visit homes, often posing as utility workers, tradespeople, or charity representatives. They may pressure victims into making payments for services or goods that are never delivered.

How to protect yourself: Always ask for identification from individuals visiting your home. If in doubt, contact the relevant company or organisation to verify their identity. Don’t make payments or sign contracts on the spot without doing your due diligence.

When the economic cycle slows, stock markets tend to struggle.
As people spend less, company profits fall, and share prices tend to follow. This generalisation isn’t always helpful though.
That’s because not every part of the stock market is the same. There are some sectors more defensive than others, where business models are built on necessities rather than luxuries.
Supermarkets tend to be ok during recessions as we all need to buy food, even when watching the pennies. But fashion retailers and restaurants have a tougher time – we don’t need to dress up or eat out.
The defensive nature of these businesses ultimately comes back to human psychology. What do we value most?
It turns out that health is right at the top of the list. Our own health (and that of our families) is one of the most tangible things in existence.
When you wake up in the morning, you don’t know anything about the state of the economy, but you absolutely know whether you’ve got a headache, or a fever, or a sprained ankle. Importantly, you’re prepared to do something about it, a visit to the GP or the medicine cabinet. So, healthcare companies are the best example of benefitting from necessary spending regardless of the economic environment. Also, many of these companies have governments as one of their big customers, and they would be very reluctant to take away health spending during difficult times.
It shows up in their earnings performance during recessions, as the chart below shows. While other businesses suffer from fickle consumers during recessions, healthcare company earnings don’t even flinch …

And that earnings growth usually results in pretty good returns …

In an uncertain world, human psychology remains pretty reliable; and so do businesses exposed to it.

Interesting Financial Fact
The top 1% wealthiest people in the world have 50% of the world’s wealth according to Oxfam.





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