Other Financial News

Equitable Life compensation is due to start being paid out next year. Those who will benefit the most, and fastest, will be those who had “with profit” annuities with the company. Their income will be enhanced.

The Government is planning to launch a Children’s ISA. This sounds helpful but as the Government will not be putting anything into it, it sounds like it will be of very little real use.

The limit on pension contributions is to be set at £50,000 per year from next April. The Government also proposed to lower the Lifetime Limit on total pension contributions.

You Do Get Older – Long Term Savings and Pensions are Important

Yes, you might go under the Number 9 bus next week, but the odds are that you will not and that you will live longer than your parents did. And at some future point you will either not want to, or not be able to, work in the same way you do now. At that point you will need additional income. You should put some money aside now for that eventuality. Ideally you are one of the lucky ones who can still look forward to a substantial pension from their employers. The problem is that this will not be the case for most people. So you will need to set up your own pension, or some workable alternative investment.

A pension is a useful means of long term savings because it benefits from tax relief from the Government (a taxpayer’s £1.00 put into a pension gets 25p added immediately by the Government – and a higher rate taxpayer benefits even more). Since you cannot access the benefit until you are at least 55 years of age, it also means that you cannot go out and spend it before then.

Regularly review your financial arrangements

It is estimated that the UK public are losing £12 billion simply by failing to keep an eye on their cash savings and failing to switch them over to an account paying a better rate of interest. This does not have to be difficult as it may mean just changing the account over with your existing Building Society or Bank who may have “forgotten” to tell you there was a better interest rate available. You can go on line to various comparison websites to see what your savings should be earning you. We recommend www.moneyfacts.com .

Be willing to take a risk with some of your savings

Cash savings are very useful as a ready reserve. However, the interest earned, particularly in today’s financial environment, will not generally protect your money from the effects of inflation. Historically investment in the Stock Market has provided a good return on savings. Most people would be well advised to put at least a percentage of their savings into stocks and shares.

Save for a “rainy day”

This is probably an unworkable motto for England given the number of rainy days we have, but the underlying principle is sound. It is wise to have accessible cash set-aside for an emergency. A rule of thumb target would be at least 3 times your monthly net earnings. An instant access ISA is a good way to achieve this level of savings. The good news is that from April 2011 the amount you can put into an ISA is expected to go up to £10,700, of which you can put 50% into a Cash ISA.

Virtually everyone should make a will

Some 30 million UK adults have not made a will. In worse case scenarios this can mean children or a partner receiving nothing, the State getting everything, or just a very unpleasant argument amongst those who feel all or some should be coming to them. If you are well organised, you can do the will yourself. A safer option would be to get it done professionally – something that is likely to cost about £120 for a single person and £200 for a couple. We can recommend professionals who can assist.

Those with children, a business or other responsibilities should arrange an appropriate amount of life assurance

Insurance is a fairly modern development but it allows one to avoid a disaster for a relatively small regular payment – whether the disaster is a car wreck, the house burning down, or the death of the sole income-earner in a family with young children. Usually it is easy to work out how much insurance is required. In the case of life assurance it is usually approached as to what amount would be needed to replace the income of the deceased person, or, in the event of a house-person, what it would cost to cover all of the work that person does. This can be surprisingly large, with some research putting the equivalent cost for a house-person with children at as much as £25,000 to £30,000 a year, not including love and affection!

Life assurance is now available to many people who might have been turned down in the past because of some medical situation. It may cost more but it is worth checking it out. For example, we were surprised to learn recently that life and travel cover is available for those who have had breast cancer – on a case by case basis.

If you have a business, you do need to have a plan “just in case”. The loss of the business owner or a key person could be disastrous. Life cover could keep the business afloat while it is sorted out. A common calculation for this type of cover is five times the owner’s or the keyman’s earnings.

You need to arrange your income and expenditure to ensure you have more coming in than going out.

This is what the Government has been trying to do for decades and failing. You simply need to list out all your expenditures on a monthly basis and then compare it to the monthly take-home income you have received in the recent past – not what you are hoping you will make in the future. This will tell you whether you need to have your own “Spending Review”. Dickens had his character, Mister Micawber define the money “happiness” zone as having a few pennies more coming in than are going out. This is quite true.

This same exercise can be done if you have your own business. This will also help you review the charges you make for your service or product to ensure you are making sufficient profit.