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Views on the News

19 October 2020

4 minute read

A weekly round-up of the leading business, personal finance, investment, savings and pensions stories in the press from the past week, including analysis and opinion from our experts.

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • England adapts to new coronavirus three-tier system
  • Will China be the only G20 economy to grow this year?
  • Is there a pension saving crisis among the self-employed?

England adapts to new coronavirus three-tier system

A new three-tier system sees every area of England classed as being on medium, high or very high alert – also known as Tiers 1 to 3, respectively. Under the new ‘high’ alert level, there is a ban on households mixing indoors, including in pubs and restaurants. More than half of England's population will now be living under high or very high-alert restrictions. Meanwhile, Wales is poised for a decision on a circuit-breaker – a tight set of restrictions imposed for a fixed period of time. The Welsh Government has said that its ‘fire-break’ version would mean restrictions lasting for weeks not months. Elsewhere, talks between the UK and EU over a post-Brexit trade agreement may be over, according to Downing Street. No 10 said there was no point in discussions continuing unless the EU was prepared to discuss the detailed legal text of a partnership. The prime minister, Boris Johnson, has said that the UK had to get ready to trade with the EU next year without an agreement while the EU has said it is willing to intensify discussions but it will not do a deal at any price1,2.

Our view: The UK is not alone in imposing tighter restrictions as a result of resurging coronavirus cases. The economic recovery so far has been swift, but a number of risks lie ahead. For one, the rise in coronavirus cases (and tighter restrictions) threatens to dampen activity. In particular, those parts of the UK economy which rely on face-to-face interaction will feel the effects of a full national lockdown. At the same time, the fiscal support provided so far is beginning to come to an end, most notably the furlough scheme. Although the government has announced further support schemes, we could see some impact in labour markets where eligible businesses and employees will receive a lower level of support come the end of October (once the initial furlough scheme ends). Meanwhile, progress in Brexit negotiations seems to have stalled following the EU Council Summit last week, with Prime Minister Johnson stating that the UK must be prepared to walk away with a no deal unless there is a “fundamental” change of position from the EU3. That being said, the UK remains at the negotiating table and discussions are still ongoing. Globally diversified investors with sufficiently long time horizons can take some solace knowing that the UK economy isn’t a major driver of overall portfolio returns. (Luke Pearce, Investment Strategist)

Will China be the only G20 economy to grow this year?

The Chinese economy grew 4.9% between July and September, according to government data, as China becomes the first major economy to recover from the coronavirus pandemic. The year-on-year expansion, while slightly lower than analyst expectations, represents a dramatic reversal from the first quarter of this year when the economy shrunk by 6.8%. China’s central bank governor, Yi Gang, has said that officials predict annual growth of about 2.0%. Meanwhile, the global economy is expected to contract by 4.4%, according to the International Monetary Fund, the steepest downturn since the Great Depression. Latest Chinese data shows that industrial production in September rose 6.9% compared to the same period last year while retail sales were up 3.3%. Auto sales for the month also increased 12.8% while domestic air travel exceeded pre-pandemic levels. Consumer spending has also begun to pick up again, illustrated by a resurgence in tourism during a week-long public holiday in October known as Golden Week4.

Our view: China’s growth story continues to stand out this year, thanks in large part to its ability to prevent a second wave of coronavirus infections. In contrast, a resurgence in caseloads in the US and Europe risks reversing the economic recovery seen over the summer. China’s recovery has already been priced in to some degree by investors. The stock market is up by more than 20% year-to-date, making it one of the best performing major stock markets this year. Looking forward, a continued divergence in economic data between China and the developed world can lead to Chinese stock markets outperforming the latter’s. This ultimately depends on how well the US and Europe can stem the rising tide of infections over the coming months. (Hao Ran Wee, Senior Investment Strategist)

Is there a pension saving crisis among the self-employed?

Britain's self-employed workers face a pensions crisis in retirement as the numbers saving into a fund has fallen significantly. Fewer than one in five of the UK's self-employed are now saving into a pension compared to 48% two decades ago. Thanks to the shock decline, more than 3.5million self-employed people of working age are currently not putting money aside into a private pension, according to the Institute for Fiscal Studies. The financial pressures of coronavirus are set to make pension saving even more challenging for these workers in the future. Affordability was the top reason cited by self-employed people for not saving into a pension fund. Lack of trust in pension firms and understanding of how pensions work were other common reasons – although many said they had alternative ways of saving. By contrast, the launch of automatic enrolment in 2012 has boosted the number of employees saving into a pension, and by 2018 nearly 80% of working-age employees were contributing to a scheme5.

Our view: Whilst property has been a ‘go-to’ investment for many self-employed individuals, the changes in stamp duty surcharges and interest rate tax reliefs has made this a less attractive proposition. The perceived lack of affordability and clarity of pensions is seen as some of the main factors that have led to the significant fall in the number of pension savers. However, for many, pensions still offer an attractive and tax-efficient savings vehicle as they offer the ability to claim income tax relief and invest tax-efficiently. Pensions Wise, a government website, has alleviated some distrust of pensions by providing a central resource that is jargon-free and provides better clarity on the benefits and drawbacks of pensions and their use as a retirement planning vehicle.

Whilst affordability is a common factor for many, any delays to saving and planning for retirement will leave many with an uphill task to achieve their retirement objectives. With the state pension age for men and women expected to rise in the coming years, the need to save and plan for retirement has never been greater. In order to better understand your potential retirement shortfall, a good idea is to first consider what a good retirement looks like. Once this is clear, you can then begin to work backwards from this and better understand how realistic your objectives are and the level of funding that may be required. This should help focus the mind to then budget appropriately or re-adjust any retirement expectations to ensure that a sensible plan is put in place. (Omar Iqbal, Wealth Planner)

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

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