When should you start to worry about your debts?

Imagine a world in which no one could borrow money: no house, no car, no building that extension, and possibly no Christmas presents either.

The ability to borrow is vital. Shylock, you might argue, gave money-lending a bad name.

Indeed much of what we borrow is “good debt” – when the repayments are affordable, and they help us to pay for something over a period of time, like a mortgage for example.

The trouble only arises when those debts get out of hand, and you cannot pay back what you owe. That becomes so-called “bad” debt.

So how can you tell whether your debt is a problem?

First, you need to know more about the nature of the debt you have.

Secured Debt

Some debts are secured against collateral – meaning that if you stop your repayments, you face losing the goods themselves.

So in the case of a mortgage, a bank can force you to sell your house.

In the case of a car loan, the lender can take your car.

So-called logbook loans are also secured debt, as they provide cash against the value of a vehicle.

Because secured debts are linked to big items, it can be important to repay these ones first.

Unsecured Debt

Unsecured debts are riskier for lenders, as they have no certain way of getting their money back.

Interest rates are therefore higher.

Unsecured debt includes credit cards, store cards, payday loans, most bank loans and peer-to-peer lending.

For most people credit card debt isn’t a problem, as 80% pay off the full balance at the end of each month.

However for those who don’t, interest rates are high – typically up to 20% a year.

So, especially on top of other debts, or loss of income, unsecured debt can easily get out of control.

Payday loans are less of an issue than they once were, as the repayments are now capped.

Priority Debt

Different debts carry different sanctions, so some should be prioritised. The consequences for not paying council tax, for example, can be severe.

“Local Authorities can deduct money from earnings, they can send enforcement officers to your property to remove goods, or ultimately they can look at things like imprisonment,” says Jonathan Chesterman, from the debt charity StepChange.

If the worst comes to the worst, utility providers – although not water companies – can cut off your energy supply, so such bills are also a priority.

energy bill

On the other hand banks can take little action against you if you don’t make credit card or loan payments, other than downgrading your credit record.

Student Debt

The level of individual student debt can sound excessive, but it isn’t debt in the normal sense of the word.

No one who earns less than £21,000 – soon to be £25,000 – has to pay back a penny.

And since the outstanding debt is written off after 30 years, most student debt will never be fully repaid.

For that reason some experts think student loans should be re-designated as a “graduate tax”.

At what point should you worry?

Jonathan Chesterman says there are three clear warning signs that your debt is a problem:

  • You have to cut back on food
  • You have no money to put aside at the end of the month
  • You only make the minimum payment on your credit cards

Another way of measuring the seriousness of your debt is to look at its size relative to your income.

Debt charities measure “over-indebtedness” by estimating the number of people who are likely to find meeting monthly bills a “heavy burden” or who miss more than two bill payments within a six-month period.

Under this measure, there are 8.2m adults in the UK who are over-indebted, amounting to 15.9% of the population.

Insolvency

Anyone worried about their debts should seek professional advice. The following organisations provide free help:

If you live in England and Wales, and it looks like you will not be able to repay your debts, you may be offered one of three insolvency options: bankruptcy; individual voluntary arrangement; and debt relief order.

Bankruptcy

This is the most serious option, which involves an official receiver being appointed to sell off your assets to pay your debts. If you own a house or a car you may lose them.

The bankruptcy will affect your credit record for at least 6 years. But after one year all your debts will be written off. The procedure currently costs £680, but you can pay in instalments.

Individual Voluntary Arrangement (IVA)

Under an IVA, an insolvency practitioner will help you strike a deal with your creditors, which allows you to pay off your debts over a fixed period – say five years. Once approved, all interest on unsecured debt is frozen.

money plus receipt

There is less stigma with an IVA, and a greater chance of you keeping your home.

Debt Relief Order (DRO)

This form of insolvency, introduced in 2009, is the easiest of all. Your debts must not exceed £20,000. If your application is accepted, your debts will be frozen for one year, then written off.

A DRO costs £90.

Scotland

If you live in Scotland, bankruptcy is known legally as sequestration. However there are three alternatives: A Debt Arrangement Scheme, A Debt Management Plan, or a Trust Deed. Further details can be found here.

MARKET UPDATE: ASIAN LEADERS PREPARE FOR ECONOMIC TESTS

LAST WEEK – KEY TAKEAWAYS

European stocks shrug off Catalonia vote
European stock markets remained on the whole resilient, despite the furore over Catalonia’s bid for independence from
Spain. That country’s IBEX 25 has been understandably volatile, though rallied towards the end of the week after
reports that the Spanish government was to issue a decree to make it easier for companies to move their legal base
outside of Catalonia. The region’s president, Carles Puigdemont, is considering declaring independence from Spain,
after 90% of participants in last week’s referendum voted to break away.
Hurricanes hit US leisure sector jobs
The number of people in employment in the US fell for the first time since 2010, impacted largely by hurricanes Harvey
and Irma. Between the 10th and 16th of September, the Labor Department reported that 33,000 jobs were lost with a
drop in the leisure and hospitality sector. However, the overall unemployment rate was at 4.2%, its lowest since
February 2001. The strongest job gains were in healthcare and transportation and warehousing. Average hourly
earnings data also comfortably beat expectations, coming in at 2.9% year-on-year.
UK worker productivity dips
The Office for National Statistics calculated the productivity of UK workers has fallen for the second quarter in a row.
Hourly output fell 0.1% in the April to June period, following a 0.5% decline in the first three months of the year. On an
annual basis, from June 2016 to June 2017, which covers the 12 months after the EU referendum, hourly output fell by
0.3%. Long-term data shows UK productivity has stagnated since the financial crisis first struck in 2008.
Under fire May to “prove wrong” Brexit doomsayers
After her calamitous speech at last week’s Conservative party conference, prime minister Theresa May told the House
of Commons that the UK can “prove the doomsayers wrong” when it comes to Brexit in seeking the best possible deal
for the UK with the EU. The fifth round of Brexit negotiations begins this week in Brussels, the last before an EU summit
on 19
th October. At home, May is facing what some are calling a “make or break” week as commentators talk up the
possibility of a leadership challenge.

LOOKING AHEAD – TALKING POINTS

Forget Japan’s ‘Abenomics’, time for ‘Yurinomics’?

With the Japanese general election just weeks away (22 October), Tokyo governor Yuriko Koike last week challenged
prime minister Shinzo Abe’s famous ‘Abenomics’ with her own platform of financial reform, ‘Yurinomics’. Koike’s new
Party of Hope has pledged to tax corporate cash reserves, and introduce a basic income guarantee. However, it now
seems unlikely that Koike herself will stand, with opinion polls suggesting that voters do not want her to quit her job in
Japan’s capital.
Having called the snap election in September, Abe is expected to remain in power with his Liberal Democratic Party-led
coalition. He has been boosted by latest data from the closely watched Tankan survey of Japanese companies, which
found business conditions are at their strongest for a decade. Since he came in to power in 2012, Abenomics has led
the Bank of Japan to slash interest rates and purchase trillions of yen in government bonds in an effort to ward off
deflation.
The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis
Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address: Washington House, Lydiard Fields, Swindon, SN5 8UB) which is
authorised and regulated by the Financial Conduct Authority, 25 North Colonnade, London E14 5HS. Omnis Investments Limited does not offer investment advice nor make recommendations
regarding investments. Potential investors are particularly advised to read the specific risks and charges applicable to the Funds which are contained in the Prospectus and Key Investor
Information Documents (KIIDs).
Omnis Investments Limited is registered in England and Wales under registration number 06582314 (Registered Office: Washington House, Lydiard Fields, Swindon SN5 8UB).
Japan business confidence – Tankan index
Source: TradingEconomics.com, Bank of Japan

Chinese gears up for leadership change
China celebrated its Mid-Autumn holiday last week but now its fully refreshed leaders are preparing for the 19th Party
Congress beginning on 18th October. The event will see changes to the makeup of the leadership of the Communist
Party of China with the country’s soaring debt likely to be among the big topics under discussion (see Market Update,
25th September).
Stock markets were closed last week for the break but opened higher on Monday, despite private survey data showing
that business activity in the Chinese service sector has slowed. The Caixin/Markit services purchasing managers’ index
(PMI) fell to 50.6 in September (a reading above 50 indicates growth). This was the lowest reading since December
2015 and one of the weakest since the survey began in 2005. Official PMI data shows a more positive picture, meaning
investors must read between the lines to draw their own conclusions. Emerging markets, of which China is the largest,
have remained remarkably resilient this year and the Omnis Managed Portfolio Service remains overweight this asset
class due to cheaper stock prices and encouraging earnings figures.
China PMI surveys
Source: National Bureau of Statistics, Caixin

THE OMNIS VIEW

Through a well-diversified approach to asset allocation, the Omnis investment team aims to defend and grow the value
of your portfolio through market cycles. The Japanese prime minister’s Abenomics programme of monetary easing,
fiscal stimulus and structural reform has had its critics over the years, but it has inarguably been good for investors with
both the Topix and the Nikkei 225 having returned over 100% over the past five years. The Omnis Managed Portfolio
Service team remains comfortable with our positioning in the country, and Asia as a whole, which has been a strong
contributor to growth in our equity holdings.

MARKET UPDATE: TORY PARTY CONFERENCE PUTS PRESSURE ON PM

LAST WEEK – KEY TAKEAWAYS

US economic growth revised upwards
The US economy grew faster than was previously estimated in the second quarter of the year, meaning it registered the
quickest rise since the first three months of 2015. Official data showed the main measure of economic growth, gross
domestic product (GDP), increased 3.1%, an upward revision from 3%. However, the figures came with a warning that
the momentum likely slowed in the third-quarter due to the impact of hurricanes Harvey and Irma.

Statehood for Catalonia?
Catalan leader Carles Puigdemont says the region has won its vote on independence, claiming that 90% of those who
voted backed independence in Sunday’s referendum. However, the referendum was banned by Spain’s constitutional
court, causing mass unrest with hundreds of people having been injured as police used force to block locals from
voting. The turnout was only 42.3% due to the police crackdown. The direct exposure of Omnis European Equity Fund
is less than 3%, but the vote is likely to cause on-going unrest within Spain.
Eurozone inflation fails to pick up

Year-on-year annual inflation in the eurozone was unchanged in September at 1.5%, failing to meet expectations of a
rise. With slowing unemployment and encouraging signs on business confidence, the European Central Bank is looking
for price rises closer to 2%. Inflation in the eurozone’s largest economy, Germany, also remained flat at 1.8% despite
rising food and energy prices.

China orders shut down of North Korean companies

China has ordered the closing of North Korean businesses operating within its borders, as the United Nations puts
more pressure on Pyongyang through sanctions. The vast majority of North Korean trade is with China, but it appears
even its usually supportive neighbour is now losing patience with the constant warmongering. North Korean foreign
minister Ri Young-ho claimed that US president Donald Trump’s recent assertion that the regime “won’t be around
much longer” amounted to a declaration of war.

First London house price drop since 2009

London property prices declined in the third quarter of the year, the first time this has happened since the financial crisis
of 2008-09. While the UK’s house price growth has been slowing for some time, this is the first time that the capital –
usually buoyed by exceptional demand – has suffered a drop-off. Average prices in London fell 0.63% year-on-year to
September, according to the Nationwide House Price Indices, blamed on economic uncertainty around Brexit and
higher inflation.

LOOKING AHEAD – TALKING POINTS

US unemployment data due as markets digest Trump’s tax plan
US president Donald Trump finally unveiled his ambitious new tax plans last week, with cuts both for individuals and
corporations. This could have a long-term positive impact on investment markets, and boost spending, but what about
the country’s deficit? A notable dissenter was leading Republican Senator Bob Corker who was quoted as saying he
would not vote for any federal tax package financed with borrowed money.
If tax cuts put more money into people’s pockets, this could in turn boost demand and create more jobs. The US jobs
market is currently very close to full employment, with the latest unemployment data due this week. In August the figure
was 4.4%. Who could benefit from new jobs? It could be the US immigrant population, though Pew Research Centre
last week said the unemployment rate for Hispanics in the US has returned to a historic low not seen since more than
10 years ago.

The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis

Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address: Washington House, Lydiard Fields, Swindon, SN5 8UB) which is authorised and regulated by the Financial Conduct Authority, 25 North Colonnade, London E14 5HS. Omnis Investments Limited does not offer investment advice nor make recommendations
regarding investments. Potential investors are particularly advised to read the specific risks and charges applicable to the Funds which are contained in the Prospectus and

Key Investor
Information Documents (KIIDs).
Omnis Investments Limited is registered in England and Wales under registration number 06582314 (Registered Office: Washington House, Lydiard Fields, Swindon SN5 8UB).
US unemployment rate
Source: TradingEconomics.com, US Bureau of Labour Statistics

May under pressure at Tory party conference

The UK conservative party conference takes place this week. Ms May will speak on Wednesday, while much of the
press coverage is honing in on the political “posturing” of foreign secretary Boris Johnson who has set out his four “red
lines” for Brexit negotiations. These state that the post-Brexit transition period must be a maximum of two years; that
the UK must refuse to accept new EU or European Court of Justice (ECJ) rulings during transition; there will be no
payments for single market access after the transition; and the UK must not agree to shadow EU rules to gain access
to the market. The Conservatives have ground to make up domestically – a YouGov poll carried out last month found
they are now trailing Labour in popularity should an election be held tomorrow.
UK voting intentions
Source: YouGov, September 22-24

THE OMNIS VIEW

Through a well-diversified approach to asset allocation, the Omnis investment team aims to defend and grow the value
of your portfolio through market cycles.
While the popularity of the leading politicians and their parties will ebb and flow, it is important for investors not to get
carried away with polls on popularity until a general election is on the horizon. Still, with no solid agreements in place as
yet for Brexit, and given the latest news on the house prices and consumer spending under pressure, the Omnis
Managed Portfolio Service remains underweight the UK for the time being, with a preference instead for Europe and
emerging markets.

Are you retiring soon?

If you are planning on retiring soon there are a few things you may like to consider before you make any important decisions.

Gather all the information
You need to gather information on all your assets, including pensions as well as savings and investments. Don’t forget to include your State Pension. There are ways to boost your State Pension; such as buying top ups – which apply for women born before April 6, 1953 and men before April 6, 1951. These can increase your state pension by up to £25 a week – so is well worth investigating. You can also get a higher monthly pension by delaying when you take the first payments.

Once you have the paperwork together you will need to consider what you expect to live off. Work out your current living expenses and what you expect to spend more or less on as you leave work as well as your long-term plans for the future.

The Bank of England Base Rate has been below 1% for over eight years causing interest rates to be low which in turn makes retirement saving more difficult. If you find the numbers don’t add up, you could consider increasing the amount you pay in to your pension and/or staying in full-time or part-time work longer than you originally planned until you close the gap.

Consider tax
Usually 25% of your pension can be taken tax free and the other 75% is taxed as earned income.

Getting the right tax advice could help you withdraw your cash in the most tax efficient way. For example, you may be able to take a smaller amount of money from your pension and more from your ISA (which can be tax free).

Get advice
With many different types of options available for your retirement it can be an overwhelming decision to make the right choice for your needs. We can help you understand all the options open to you and help you avoid risks such as the impact of poor investment market performance both in the run-up and early in retirement or potentially running out of money in retirement.

Financial advice during a divorce

At Christmas, strangely, divorce matters come to a head.

Going through a divorce, dissolution or separation is one of life’s most stressful events, so it’s important to have people around you to help with the practicalities. This is particularly true when it comes to financial matters, which can be complex and emotionally straining in these situations.

Achieving a fair financial settlement

As well as identifying any potential problem areas, a financial adviser can advise on how best to split any assets between you and your partner without attracting an unnecessary tax bill, and help value your pension benefits. An adviser will also assist you and your partner to complete the paperwork – such as the financial review known as a form E. This can speed up the process of your divorce or separation, keeping stress levels down as low as possible and helping to reduce any legal fees.

Extra protection

As well as splitting the finances, there are also new arrangements that come into play when people with children divorce. You may need to review your life insurance, critical illness protection and income protection insurance so you don’t leave yourself exposed.

Mistakes you can avoid by getting advice

Who keeps the family home? It’s easy for couples to fight for the home without considering the costs of maintaining the upkeep (mortgage, utilities and council tax bills etc). If you decide to take on the family home, make sure you have the financial capabilities to keep it running.

Sharing the pension pot – When deciding on how to split the funds within a pension, you need to consider the level of income you will receive in retirement compared to your partner. This will depend on age, health and lifestyle.

Asset valuations – It is a legal requirement to declare the true value of your assets (this can be a business, pension or any belongings etc), but it’s difficult to value an asset like a pension.

Identifying all debts – Any debts in your partner’s name means you’re also accountable. Make sure you know the full extent of any debts and try to close off any joint accounts and split the money evenly.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

If you’re going through a divorce or separation, let the experts take the strain. Talk to us for professional financial advice.