When it comes to personal finance 2011 has had its’ fair share of ups and downs; inflation has risen far higher than almost anyone predicted, Annuity rates have continued to fall, interest rates have stayed at all time lows and to stock market has been volatile to say the least.
Looking at the wider economy unemployment continues to rise, growth is stagnant at best, as are house prices, and of course we have the Eurozone crisis to contend with.
So, after such a turbulent last 12 months we thought we’d dust off our crystal ball and look at what 2012 might have in store.
We asked our team of Independent Financial Advisers to predict what 2012 might bring for six key areas which affect your finances on a day to day basis.
Where will the FTSE 100 be at the end of 2012?
Diversification is of course key when it comes to successful investing, but the FTSE 100 often grabs the headlines and to a large degree the direction of the world’s major stockmarkets mirror the direction of all equity investments.
So where do our advisers think the FTSE finish at the end of 2012?
We had a wide variety of answers, the most popular was that the FTSE would end pretty much where is starts the year, however the most bullish prediction was for the FTSE 100 to finish significantly higher at 6,100.
All our advisers were agreed though on one thing though; the FTSE 100, in common with all the world’s stockmarkets, would continue to be volatile and deliver a roller coaster ride for investors.
Where will Bank Base Rate be?
At the start of 2011 many people had predicted that Bank Base Rate would have started to rise by now. However, despite high inflation the generally poor state of the economy has led the Bank of England to keep base rate at 0.5% for the whole of 2011.
Savers have been hurt by the combination of low interest rates and high inflation, which has seen the real value of their savings eroded.
The consensus amongst our advisers is that Bank Base Rate will stay at 0.5% for the whole of 2012. Only one adviser disagreed, Shaun Brennan (left) believes that rates will be cut even further and end the year at just 0.25%.
Where will CPI be?
The rate of inflation has risen significantly during 2011 and despite falls over the last two months remains well above the Bank of England’s 2% target.
The Bank have predicted inflation will fall sharply in 2012 as the effects of the VAT increase early in 2011 are removed from the calculations and other factors push the rate of inflation down.
Our advisers believe that the rate of inflation will slow during 2012 but will remain above the Bank’s 2% target, causing continued hardship for savers who are struggling to get a real return and employees with below inflation pay rises.
As any pension Annuity calculator will show you Annuity rates have fallen considerably during 2011, increased life expectancy has been a factor for a number of years, but the main reason in 2011 has been falling gilt yields. As investors have turned to the UK as a safe haven, gilt prices have risen, pushing yields down and further reducing the returns from Annuities.
With Solvency II coming into effect in 2012, along with the abolition of gender discrimination by insurers, what will 2012 hold?
If our advisers are right 2012 won’t bring any relief to retirees looking to buy an Annuity. Almost all of our advisers believe that Annuity rates will continue to fall in 2012, with only Anna Timms and Sarah McCarthy (right) predicting that they will stay broadly static, none of our advisers are predicting that 2012 will bring a rise in Annuity rates.
Income Drawdown & GAD rates
The maximum income which can be taken from an Income Drawdown plan, the most popular alternative to an Annuity, has also been a victim of falling gilt yields.
The GAD (Government Actuarial Department) rate determines the maximum annual income which can be taken from an Income Drawdown plan and is linked to gilt yields. As yields have fallen during 2011 so has the maximum annual income available from Income Drawdown plans. As an aside the problem has been made worse by the government’s decision to reduce the maximum income available from 120% of the GAD figure to 100%.
So where do our advisers believe the GAD rate will finish at the end of 2012?
It should come as no surprise that as Annuity rates and the GAD rate are so closely tied to gilt yields the answers should be similar, the most popular answer was that the GAD rate will remain broadly unchanged, or possibly drop slightly during 2012.
Will the Euro still exist?
Looking further afield, but on a topic which has a significant effect on the UK’s economy we asked our advisers whether they would still be taking Euros on holiday with them or would they need some other type of currency after a breakup of the Euro.
Our team were unanimous that the Euro would still exist at the end of 2012, but as Shaun Brennan points out: “Preparations will be well underway for some countries to leave it – Greece, Portugal, maybe Spain.”
2012, a tough year ahead
If the predictions of our advisers are accurate, 2012 is likely to be a tough year.
Savers are still going to have to put up with all time low interest rates and will have continue to have to shop around for the best savings interest rates, although some relief from the levels of inflation we have seen in 2011 can be expected.
On the other hand investors are going to have to put up with continuing volatility as the world’s economic difficulties continue.
Retirees will continue to find life hard with predictions of lower Annuity rates reducing retirement incomes still further and Income Drawdown no longer offering the higher levels of income which once was the case.
On the upside none of our team expects the Euro to break up, thereby avoiding the economic catastrophe which would surely result.
We are interested to know your views, what do you think 2012 has in store for you and your finances, please leave your comments below.