Ch-ch-ch-changes, performance Starmen and why pensioners are dancing in the streets

Loads of news and change this week. Inflation (Under Pressure), higher pensions next year (as pensioners shout ‘Let’s Dance!’), a bumper inheritance tax haul for the government (Scary Monsters and Super Creeps 😜), cheaper pensions for people just starting out (thanks interactive investor), lower costs on the horizon for advised clients of St. James’s Place (merci), a new Stocks & Shares ISA from Monzo (simples) and our quarterly ‘ready-made’ investment portfolio comparison.

Who is the Starman of the ready-made performance charts?

We’ve crunched the most recent performance numbers for all major ready-made investment options – great for people who can’t be bothered or aren’t sure how. You can see the full performance results across leading providers. AJ Bell, Vanguard and HSBC continue to be some of the best performers over a 2-year period.

The three months to September were not that dramatic and we can see performance get steadier. Unusually, This Is Not America – the S&P 500 has fallen about 6% over the last three months as the shine slightly comes off this once most predictable contributor, and China Girl hits a new low for 2023 as the Shanghai Composite Index continues to fall. If we look over the last 2 years, the impact of Liz Truss’ mini Budget, market volatility and general interest rate chaos and bond weirdness remains clear. It has not been a great couple of years. And poor people who tried to play it safe and pick the ‘lowest risk’ stuff actually got the most burned.

However, things are reverting to more normal patterns. Over the last 12 months we can see that the average high risk option returned over 7%, the medium risk average was 4.8% and the low risk average 1.9%. After fees. Not blistering but not bad.

Under Pressure

The Bank of England remain under pressure - that nasty little inflation gremlin hung on for dear life, staying at 6.7% in September. Food inflation has come down - notably cheese and curd to my huge relief, washing machines cost less (who knew?!), but fuel has gone up, as have booze ‘n’ fags and frozen prawns. Ah, woe is me 🍤. Stubborn inflation could see a slower fall in interest rates in 2024.

Dancing in the Streets

Good news for pensioners 💃 as this confirmation of September’s inflation rate now locks in the State Pension for April next year. (Well, probably…) The biggest of the three things in the ‘Triple Lock’ (which determines the annual pension increase) was wage inflation at 8.5%, so in theory pensions should rise by this amount, taking the new full State Pension from £203.85 a week to £221.20 a week, or £11,542 a year. HOWEVER, watch all manner of wriggling from the Government about whether to remove one-off NHS bonuses from this wage inflation number, hence bringing it down. If they do, the new amount will be a little lower at £219.75 a week.

Changes to advice

Also good news for those who take financial advice. St. James’s Place is the biggest financial advice firm in the country, and lots of our reader will be clients. This week they announced a massive shake-up to their charging structure from 2025, reducing fees and bowing to the inevitable as the financial regulator rolls out its new Consumer Duty rules. I think this is important – they are so big that there will be a ripple effect and I think we’ll see a gradual slight reduction in the cost of advice.

Over the long run their charges were not typically more expensive than peers, but they were flipping complicated and had something which looked like an exit fee which they didn’t call an exit fee. Every time you tried to work what the costs were, you had to go and lie down in a dark room, foaming at the mouth and needing a gin.

From 2025 they will be simpler – and basically involve a single one-off upfront cost of 4.5%. And then an ongoing cost of about 1.67% a year, down from an average of about 1.92% now. It’s a positive change and importantly will make comparison easier across the sector. In general, it remains too hard to know with certainty what financial advice costs, particularly from larger firms.

An ISA for Absolute Beginners

Over in ISA land, Monzo launched its new ISA yesterday to its waitlist of some 270,000 customers. And I was invited to open up an account as a Biblical-sounding ‘Chosen One’. If you have a Monzo account and want a simple, no frills, easy to use ISA to get started in the stock market, it’s not a bad option.

And finally in Pensionsville, interactive investor launched a new pension plan for people with less than £50,000. Taking a leaf out of Netflix’s book, they offer a monthly plan with a £5.99 fee. And you pay a bit more every time you buy or sell something. But 6 quid a month for a pension isn’t bad and what I love about it is you don’t need a flipping calculator to work it out (or any gin).

A final note from Life on Mars

Over in Westminster, the Government’s tax take rose to £392.5 billion in the last 6 months, and the most hated Inheritance Tax receipts rose to £3.9bn. Although ‘fiscal drag’ and ‘tax thresholds’ both sound dull as dishwater, the vast majority of us are paying more tax as we are creeping into higher tax brackets and meeting frozen thresholds. We’ve some help on navigating IHT and as for income tax – pensions remain your friend, people. They bring down your income and lower the amount of tax we pay. And that is Hunky Dory.

Finally, this week’s featured article is for those who like Space Oddities and all things AI (tenuous link here, I accept) – check out the latest from Polar Capital’s tech team who discuss what’s driving returns in the sector.

Holly

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