It's important
by Doug Brodie
/1. Just one thing – grow your income before you need it.
Not quite everyone, but almost… When we commence pension income planning for most people we do so with using non-taxable cash reserves where possible, whilst buying the income producing assets right now. Why, is simple. The core of our research is not looking for income but looking for income that grows.
To quote from our white paper, we have analysed 1,239 balance sheets of investment trusts over 38 years from 1986 and filtered out preferred trusts where the income payment was the same or higher than the prior year in 95.9% of all cases; when put together in a suitable portfolio that success rate hits 100%.
Simply put, if you want a reliable 6% income that will last you for life then buy a 4% income now that will grow. The example we most frequently quote is Lowland, the Janus Henderson trust run by Laura Foll and James Henderson. Lowland’s dividend in the last year was 6.4p. Today’s share price is 131.5p so the income is 4.86%.
The investor who bought a year ago paid 112p, so their yield now is 5.71%
The investor who bought 5 years ago paid 124p so their yield now 5.16%
The investor who bought 15 years ago paid 60p so their yield is now 10.7%
The examples we use are always based on one trust as every client has a different mix / allocation within their own portfolios. Blended together the annual increases we see hit the spot. Clients reading this know we generally use an annual increase rate for dividend income as 3.5% for projections – and we always, deliberately lowball our projections.
/2. If you think it’s just you?
Investors often think that things only happen to them – we have one client who’s sure he pays more tax than anyone else, and often have comments from folk who believe everyone else is materially wealthier than them, or that all their chums’ investments only ever climb at 15% per year, every year.
We know that is not true, and that is the fringe of paranoia (you do know that don’t you?).
Much as Mr Starmer would have us believe that we have the worst health system in the world thanks to the previous team in charge, I noticed this interesting excerpt on the current position with French hospitals (with thanks to connexionfrance.com):
Around fifty hospital and clinic establishments across France are experiencing difficulties, including long wait times, partially-closed services, closed beds, and a lack of staff, the health minister has said.
Emergency department at Sarlat hospital, Dordogne: Has been closed since August 13, and will not reopen until 08:30 on August 15, due to the lack of an emergency doctor (both are ill)
Saint-Brieuc hospital, Côtes-d'Armor: Temporary restriction of access to adult emergency departments from August 14 to 26
Emergency department in Bailleul, Sarthe: Closed on weekends in August, on bank holidays (jours fériés) and every night from 23:00 to 08:30
Emergency department in Ancenis: Closed every day from 16:00 to 08:30
Emergency clinic in Anjou: Closed overnight for 15 nights in August
Emergency services in Montaigu, Vendée: Closed from July 13 to August 19.
It’s clearly not just the UK that’s having problems delivering the national health service though you might feel so because of the singular focus you have on UK NHS reporting. That same singular focus applies to everyone’s personal financial position. We have been analysing and collating data behind the retirements of UK residents for thirty-five years – outliers are just that, most people (you and I) have finite capital, we have curbed expenditure that we have defined over our adult lives and that means we have to pay attention to our personal Profit and Loss statements through retirement.
We all pay the same relative amounts of tax – if an investor doesn’t want to pay any tax then they need to decide whether the tax-paid public services in the UK are needed. Otherwise, income tax-free states are available, but you’ll have to move to Monaco, Qatar, Cayman Islands, UAE, Western Sahara, Pitcairn Islands et al.
/3. And if you think it’s just Ms Reeves…
The media loves labour – inches and inches and inches of rumour and ‘What if?’ headlines about what could be done. The UK is not a low-tax country, however, neither is it a low social benefit country and we do not have valuable natural resources like fuels and ores to feed the country’s coffers. With an ageing population, our health and care systems need to expand, and as elder care costs increase in a national health system, so the tax burden must also increase.
Of the world’s major economies, the amount of tax collected in the UK is in the top 20% - however shouldn’t we also look at what that money is spent on?
Source: visualcapitalist.com
/4. Retire Well
The 2024 edition of our industry-leading white paper has now been published. It is available in hard copy before the PDF version is uploaded to the website. All clients will have a copy posted out to them.
The basis of the study is the continuously evolving data – the objective of the research is to compile and compare the data on different pension income solutions over time – annuity, drawdown using cheap index trackers, drawdown using a 60% equity / 40% bond portfolio and drawdown using natural income from trusts.
Chancery Lane Research is our wholly owned subsidiary and is funded entirely by Chancery Lane Income Planners – both companies are independent, our recommendations are always based on data, not opinions on the future of world GDP and macro-economic forecasting.
