Wednesday 28 December 2011

WHEN THERE ISN’T ENOUGH PENSION

Equity Release is a term referring to a set of options for taking a lump sum or an income from your property if the pension income needs to be supplemented. Options are available as early as age 55 but these options are really only available for those with little or no mortgage commitment on their property. We can quickly advise you on what your options are.

Monday 19 December 2011

TAKING PENSION BENEFITS

Pension rules are changing regularly as regards how and when you can take your pension benefits. Currently the earliest you can take pension benefits is age 55. Because we are now living longer, we need to consider how best to take the benefits to service us for a long retirement. Living longer and the current economic conditions are combining to give us less pension income than in the past. Here too it is important to take advice.

In the past there used to be only one choice – to take the income offered by the pension provider you had saved with. Now there are many more choices:
1. You can shop around for the best income (annuity).
2. You can take your Tax Free Cash and leave the rest invested until later with the option to take an income from the pension fund.
3. And, most recently, there are Fixed Term Annuities. These allow you to take one’s Tax Free Cash and take a guaranteed income for a specified term, with the certainty of a cash sum waiting at the end of the fixed term which you can then use to set up another Fixed Term Annuity or a Lifetime Guaranteed Income. Since the rates on offer for pensions (annuity rates) have been poor and have continued to fall, this approach keeps your options open.

It is important to make the right choices when you take your benefits, as they will affect your income for the rest of your life. We will be pleased to help advise on all the retirement options open to you.

Monday 12 December 2011

PENSIONS - THE END OF CONTRACTING OUT

For many years people who were employed had the option to take an annual payment into their pension instead of notching up qualifying years in what was called SERPS (State Earning Related Pension Scheme) and is now called the State Second Pension. This payment represented a return of some of their National Insurance contributions for the year in question, so it was not a gift from the Government. From the 6th of April 2012 the Government is ending this option. From that date forward the only option for the employed will be to build up entitlement year by year for the State Second Pension. The self-employed never had this option. The self-employed and employer alike are entitled to the full Basic State Pension if they pay the required number of years of National Contributions. The Basic State Pension has nothing to do with Contracting Out.

Friday 2 December 2011

PENSIONS – NOT TO BE IGNORED

We are in a time of change as regards pensions. Those retiring in the next 5 or 10 years will benefit from something of a Golden Age of works pensions and State benefits. Those who are younger face an uphill battle to acquire sufficient monies to give them a meaningful income when they hit retirement age. Pensions require forward thinking now, as for most of us they are not automatically part of our jobs, as they used to be. Factually those in their 20s and 30s should already be putting at least 15% of their earnings into long range savings like pensions. Even that is only really a very basic level of savings. It is particularly hard with the extra pressures of rising costs and the goal of buying a property. Take advice and ensure you are looking ahead as well as coping with present situations.

Tuesday 29 November 2011

BUY-TO-LET – A USEFUL ALTERNATIVE FORM OF INVESTMENT

Interest rates on Buy-to-Let mortgages are going down and even the high completion fees, which most lenders have been charging, have started to reduce. Here, too, the higher your deposit, the better the interest rate. For those with the necessary funds the purchase of an investment property can provide a useful alternative to a pension, or a top-up. Do give us ring and we can make enquiries for you.

Monday 21 November 2011

MORTGAGES – CONSIDER YOUR OPTIONS

The Bank of England’s holding down of interest rates has been a saving grace for many people with a mortgage, particularly for those whose mortgage is directly linked to the Bank of England’s Base Rate – still currently 0.5%.

Actions to take:
1. Find out what your interest rate is. If it is 3.0% or less, you are likely to be best off by staying as you are. However, if you find that you are paying 4.5% or more, then you are likely to be on the lender’s Standard Variable Rate (SVR). If this is the case, you should contact us to make enquiries on your behalf. Mortgage rates are particularly low at this time, and it is possible to move over to a better rate and also fix it – against the time when interest rates do go up. Such changes can often be done for very little cost and produce a significant saving in monthly payments.

2. Check if your mortgage is on an interest-only or a repayment (capital and interest) basis. If you have an interest-only mortgage, you should look at your options as regards moving on to a repayment basis. This can be done with your present lender. The mortgage will have to be repaid at some time and unless you have another strategy, you should make these enquiries.
We will be happy to assist.

Tip: Interest rates currently are tiered, i.e. the interest rate is lower when the deposit is higher. For example, if you have only a 10% deposit, the interest rates are high. With a 15% deposit they are lower. With a 20% deposit still lower, and so on until the very best rates are for those having to borrow less than 50% of the property value. The same tiers also apply when you are remortgaging. In some cases you can save money by taking out a personal loan to bring you down to the next interest rate level. It can work out as a lower cost even when having to pay both the mortgage and the loan.

Monday 14 November 2011

HOUSING – A VITAL ELEMENT

Regardless of the recent state of the market, purchasing property to live in remains a sensible financial investment for most people.

The property market is generally flat despite the low interest rates. Any significant increases have largely been down to investors buying properties to let out. With a shortage of properties to let, the level of rental income has been rising.

While investors are benefiting, it does not help First-Time Buyers and those who are looking to move. Most First-Time Buyers are having to either borrow deposits from their parents or look to take advantage of the assistance being provided by several schemes for purchasing newly built properties.

Friday 28 October 2011

Investment Tip of the Week

Diversify - Don't put all your eggs in one basket.

Tuesday 25 October 2011

Monday 17 October 2011

Junior ISAs – New kid on the block

The Coalition Government has now confirmed details of the long awaited savings plan analysts had been expecting since the withdrawal of Child Trust Funds (CTF) last year. The Junior ISA will be launched in November and will extend to under 18s the same tax benefits which parents (and all adults) already enjoy.
The Junior ISA will allow parents to open up a specific account in their child’s name, into which they, their family and friends can contribute a total of up to £3,600 a year. These contributions will then be invested in a chosen mixture of cash and/or stocks and shares and the benefits locked up until that child reaches 18. Anyone under 18 born before September 2002 or after January 2011 (i.e.: those who do not have a CTF) will be eligible for a Junior ISA (and for those with CTFs, the annual limits are expected to be brought in line).
The Junior ISA could provide a significant step up for children whose family and friends get together for their benefit. Final values will always be subject to the funds you choose and the environment, both of which can have an impact on how much - or little - the investment returns. However, as an idea of what 18 years of saving might offer, assuming an average of 5% pa (net of charges), that £3,600 pa could leave the lucky beneficiaries with a contribution of over £100,000 towards their world trip, first house or hotly debated tuition fees.

Monday 10 October 2011

Update on NEST

UK individuals who do not belong to a pension scheme could face an uncomfortable and penurious retirement. At present, not every employer provides a workplace pension scheme for workers and, even if such a scheme were available, employees are not obliged to join it. According to consumer group Which?, only 50% of UK employees were enrolled in an employer-sponsored pension scheme during 2009, and membership of pension schemes varies widely from one industry to the next. Membership of pension schemes is relatively high in sectors such as energy, financial services, manufacturing and the public sector, but is lower in areas such as construction, retail and administration.

However, from 2012, firms have to provide a qualifying pension scheme. Every employee earning more than £7,475 per year will be automatically enrolled in a scheme from October 2012 if they work for a large company and by 2016 if they work for a smaller company. Companies can set up a qualifying pension scheme of their own, or they can enrol their employees in the National Employment Savings Trust (NEST).

NEST is a major component in the government’s reform of occupational pensions. Aimed at employees with low-to-moderate salaries, it is intended to provide a simple, inexpensive, accessible pension scheme that will increase individuals’ savings for their retirement. NEST members will use their accumulated pension pot to buy an annuity that will provide their retirement income. NEST has selected a panel of five providers – Canada Life, Just Retirement, Legal & General, Partnership and Reliance Mutual – but members are also able to look elsewhere, although they will need to seek professional advice. A Which? pensions expert commented, “The NEST panel... offers less choice than a whole-of-market search but should deliver good outcomes to most members.”

Looking ahead, a House of Commons Work & Pensions Committee has been set up to examine how automatic enrolment into NEST will work, and how it will affect smaller firms. It will also review the current ban on transfers in and out of NEST, and examine the possible effect on NEST of lower-than-expected membership. Approximately four million individuals are expected to join NEST, although they will be able to opt out after enrolment. Meanwhile, pensions consultant Hymans Robertson has warned that many employers are not preparing adequately for the cost or the implementation of the process.

Monday 3 October 2011

ANOTHER GOVERNMENT WHITE ELEPHANT?

A COMPULSORY WORKPLACE PENSION

Regardless of political party, you can almost guarantee that each Government will change the pension rules when they come into office. This has been the case consistently for the last 40 years or so. New ideas are introduced, then changed, and then dropped completely. A good example is what was originally called the State Earnings Related Pension Scheme (SERPS) started in 1978. Its purpose was to augment the Basic State Pension for those who were employed. After some years it was found to be too expensive, and the Government sought to lure people out of it by making it possible for them to contract out of SERPS. This proved to be of little use in cutting costs and is now being wound up in the current tax year. By 2002 SERPS had been replaced by what is called the State 2nd Pension.

Confused? We do not blame you. So are the legislators.

So now what is around the corner? Now in their wisdom we have a compulsory pension scheme being introduced from 2012 which requires all employed persons to join it, and requires all employers to make it available to all of their staff AND CONTRIBUTE TO IT! This is called NEST (The National Employment Savings Trust).

Why? Certainly the average worker in the UK is not now making adequate pension provision, and the Government is seeking to do something about it because, otherwise, it knows that the costs of providing income assistance to the elderly is going to increase hugely. One of the main reasons that we have reached this point is that successive Government actions have made it too expensive for companies to continue to offer the good pension schemes they were able to provide in the 60s, 70s and 80s. The other factor is that people move jobs much more often now than they did in the past.

How will this affect you?

Self-employed? – It does not affect you. You can pay into a pension for yourself, or not, as you choose.

Employed? – If you are aged 22 or older and under age 75 earning approximately £6000 or more per annum, you will be automatically enrolled into the pension scheme of your employer (unless your employer is already providing a scheme at least as good). Both you and your employer will be required to contribute into the scheme. It will take a few years to phase in, but eventually it is intended that the employee contribute 4% of his wages and the employer adding the equivalent of another 3%.

Employer? – You will have no choice. Unless you have an alternative scheme in place providing benefits at least as good as the NEST scheme, you will need to set up a pension plan and deal with collecting the payments and automatically enrolling all of your eligible employees into it. You will be responsible for it being done correctly and there will be penalties for failure to do so.

To find out more you can go to www.nest.pensions.org.uk or www.thepensionsregular.gov.uk

We will be automatically assisting those companies whose pension schemes we look after and those individual clients whose pensions we look after. Those employers who will want assistance are welcome to contact us to explore how we may be able to assist.

Monday 26 September 2011

COMING UP TO RETIREMENT/AGE 55?

Whether you are just coming up to age 55 and want to start taking your pension benefits, or approaching 65 and State Pension Age, it is worth learning how to get the most from your pensions. There are some important decisions to make which can significantly affect how much money you can get in retirement. For example, if you have your pension with one company, you are not restricted to taking your benefit from them. You may find you can get more by taking advantage of the Open Market Option, which allows you to compare what other companies would offer you. Also remember that you do not have to stop working if you start taking your pension benefits.

Monday 19 September 2011

UPS AND DOWNS

The world’s Stock Markets are moving rather wildly up and down as investors worry about the problems that many countries face in meeting their debt obligations. They include Spain, Portugal and Italy, as well as the United States. In these circumstances it is worth reviewing the following Investment Tips that have proven their worth in the past.

 Buy what’s right for you.
 Diversify (don’t put all of your eggs in one basket).
 Invest for the long term.
 If an investment has risen substantially, consider selling it (don’t be ashamed to take a profit).
 Never buy what you don’t understand.
 Know when to say goodbye to a bad investment.
 Be your own person – don’t follow the herd.
 Review your investments regularly.
 Don’t believe everything you read!

Monday 12 September 2011

MAXIMISE YOUR INCOME

1) Maximise the income on your savings. Keep in touch with how much interest you are receiving from your cash savings. One poor soul received 0.1% interest for over two years before he finally wised up. There are various websites you can use to search out the best savings rates such as: www.moneyfacts.co.uk and www.moneysupermarket.com

2) If appropriate, find out if you are eligible for any benefits such as Pension Credit or Working Family Credit.

3) If you are aged 55 or over, look at possibly taking some of your pension benefits such as the Tax Free Cash immediately to augment your income. Note: some people may have lost track of pension benefits they have had, but there is a tracing system to allow you to hunt those down. Contact us for more information on this.

4) If you are really struggling with making ends meet, but have a house with little or no mortgage, look into Equity Release options. Here again it costs nothing to find out what is possible and we are happy to research your options for you without charge.

Monday 5 September 2011

CUTTING COSTS

The cost of living is increasing. That includes food, heating, travel and electricity. It is time to check to make sure that you remain in the Happiness Zone. To qualify for the Happiness Zone you need to have more money coming in than going out. If you are already there, pat yourself on your back. For those not there, it is worth looking at some ways to make some savings.

1) Reduce the cost of your credit. If you have ongoing, ‘never-ending’ credit card balances, you will be paying a very high interest rate. Check out possible personal loans to see if you can save on the costs. Changing it into a loan will also mean that the debt will eventually be gone! If your debts are too high to deal with by means of a personal loan, find out about remortgage possibilities. You may be able to score twice – once by lowering the costs of your credit, and secondly by lowering your mortgage payments by getting a better mortgage interest rate from another lender. It will cost you nothing to find out what your options are. Just give us a ring.

2) Really face up to your financial situation. Take the last 3 months and see what your spending has actually been. List out everything. Then compare it to your average income. You will soon see how much you need to cut back. Or, if you are already in the Happiness Zone, you can look at savings for the future.

3) Make sure you are not paying more tax than you have to. If you are employed, you should check your Tax Coding to see if it is correct. The Tax Man has certainly been known to make mistakes. If you are over 65, check to see that you are making the most of the extra personal allowance to which you are entitled. That can save almost £500 a year in tax. If you have investments, do not forget to take advantage of your Capital Gains Tax Allowance. It allows you to take profits out of your investments of up to £10,600 without having to pay any tax at all.

Tuesday 30 August 2011

A TIME TO CHANGE?

Mortgage lenders have been reducing rates generally and fixed rates for 3 and 4 years are now under 3.0% and 5-year rates at 3.5%. While the economy is probably going to mean that the Bank of England interest rate will remain low for some time still to come, those who want some future security should consider moving to one of the new fixed rates for 3 years or more.

However, these best rates are really only available to those whose borrowing is 70% or less of their property value and who can prove adequate income and have no credit problems. For those not in this category, rates are not going to be as competitive and it may be best to stay with your present lender. But feel free to give us a ring to check it out for you. We make no charge to investigate what might be available for you.

Wednesday 24 August 2011

Inflation eases

Inflationary pressures eased slightly during June, curbed by weak consumer spending. The Consumer Price Index rose at an annualised rate of 4.2% in the year to June, compared with 4.5% in the year to May. According to the Office for National Statistics, the decline was caused by lower prices for recreational goods such as computer games, toys, televisions, and digital cameras.

Nevertheless, the rate of inflation remains significantly higher than the Bank of England’s (BoE’s) government-set target of 2%, although policymakers expect inflation to fall more in line with the target after 2012. In the meantime, the BoE’s Monetary Policy Committee (MPC) continues to grapple with the conundrum of how best to cool inflationary pressures without derailing the UK’s sluggish economic recovery.

Interest rates have remained at a record low of 0.5% since March 2009; this is good news for borrowers, many of whom are enjoying an improvement in the availability and terms of mortgage deals. However, low interest rates spell bad news for savers, who continue to struggle with low interest payments. There is some dissent within the MPC – two members of the Committee voted for an increase in interest rates at the MPC’s June meeting, while seven members voted in favour of maintaining rates at 0.5%, believing that higher tax rates and cuts in public spending will have a naturally depressing effect on prices.

The British Chambers of Commerce (BCC) has pointed out that many of the factors fuelling inflation are beyond the control of the MPC: domestic inflationary pressures are being exacerbated by external factors, such as natural disasters in key commodity-producing countries. Producer price inflation accelerated between May and June; meanwhile, energy prices continue to rise and British Gas recently announced an increase in its tariffs. The BCC has urged policymakers to postpone any increases in interest rates until the fourth quarter of 2011 at the earliest.

According to a study undertaken by the British Retail Consortium (BRC) and Nielsen, prices in shops posted their strongest increase for two and a half years during June, rising by 2.9% year on year. The increase was fuelled by rising prices for food and commodities. Nevertheless, shop prices are rising more slowly than the broader measure of inflation: 39% of spending on groceries is on promoted goods, and the BRC believes that retailers are using discounts to generate sales at the expense of margins.

Tuesday 16 August 2011

Equity release myths

For many retirees – as well as those considering their retirement plans – their home is likely to be their largest asset. In an environment of high inflation and low savings rates, money can be tight for pensioners, but misconceptions about equity release plans might prevent retirees from releasing the value tied up in their home. Research by Safe Home Income Plans (SHIP), the trade body for equity release providers, has found a number of myths that persist about equity release plans.

1 – 69% of UK consumers believe you risk losing your home. However, you can remain in your property for life as long as it remains your main residence. In cases in which a couple is involved, this rule will apply to the last surviving member of the couple.

2 – 67% of UK consumers believe you will not be able to leave an inheritance. In fact, when you die, your home will be sold and the money used to pay off the loan. Although an equity release plan will reduce the value of your estate, any money left over will go to your beneficiaries. Taking out an equity release plan could also help by reducing inheritance tax liability.

3 – 52% of UK consumers believe you will not be able to move house. In practice, you have the right to move your equity release plan to another suitable property without suffering any financial penalty.

4 – 47% of UK consumers believe equity release plans are unsafe and unregulated. However, all members of SHIP have to abide by a rigorous complaints procedure to satisfy the Financial Services Authority.

5 – 43% of UK consumers believe your children will have to repay the loan themselves. In fact, you will never owe more than the value of your home and no debt is ever left to the estate. Importantly, SHIP providers also offer a no-negative-equity guarantee.

It is important not to confuse equity release plans with sale-and-rent-back arrangements, in which the house is sold – often at a discount – to a third party and then rented back to the vendor for a specified period. These arrangements tend to be an action of last resort, involving those in serious financial difficulties.
Equity release refers to Home reversion plans and Lifetime mortgages. To understand the features and risks ask for a personalised illustration.

Wednesday 3 August 2011

Living to 100 – Centenarians on the increase

It has long been accepted that improvements in medicine, lifestyle and an understanding of the effects which habits such as smoking can have on our health means life expectancy is increasing. Future generations are likely to enjoy much longer and healthier lives on average than their predecessors.

However, figures released in April 2011 by the Department of Work & Pensions (DWP) illustrate more accurately exactly what that means. These figures suggest, of the under 16s already alive today, over a quarter are going to reach the age of 100 – and already, the average new-born female is going to live to over 90.

As Steve Webb, Minister for Pensions, commented at the time, this means that millions of people will spend over a third of their life in retirement. However, as the DWP were quick to point out, this news also coincides with a period during which pension savings are in serious decline.

An ageing population is putting our welfare system under significant pressure as more people need not only pension income but also healthcare, incapacity support and help within the home. You can therefore have little expectation that a State Pension will provide anything other than a safety cushion when the time comes. If your retirement plans include holidays, visiting relatives and treating yourself on occasion, then its time to take control of your savings and start building up a retirement fund of your own.

Tuesday 26 July 2011

Equity release myths

For many retirees – as well as those considering their retirement plans – their home is likely to be their largest asset. In an environment of high inflation and low savings rates, money can be tight for pensioners, but misconceptions about equity release plans might prevent retirees from unlocking the value tied up in their home. Research by Safe Home Income Plans (SHIP), the trade body for equity release providers, has found a number of myths that persist about equity release plans.

1 – 69% of UK consumers believe you risk losing your home. However, you can remain in your property for life as long as it remains your main residence. In cases in which a couple is involved, this rule will apply to the last surviving member of the couple.

2 – 67% of UK consumers believe you will not be able to leave an inheritance. In fact, when you die, your home will be sold and the money used to pay off the loan. Although an equity release plan will reduce the value of your estate, any money left over will go to your beneficiaries. Taking out an equity release plan could also help by reducing inheritance tax liability.

3 – 52% of UK consumers believe you will not be able to move house. In practice, you have the right to move your equity release plan to another suitable property without suffering any financial penalty.

4 – 47% of UK consumers believe equity release plans are unsafe and unregulated. However, all members of SHIP have to abide by a rigorous complaints procedure to satisfy the Financial Services Authority.

5 – 43% of UK consumers believe your children will have to repay the loan themselves. In fact, you will never owe more than the value of your home and no debt is ever left to the estate. Importantly, SHIP providers also offer a no-negative-equity guarantee.

It is important not to confuse equity release plans with sale-and-rent-back arrangements, in which the house is sold – often at a discount – to a third party and then rented back to the vendor for a specified period. These arrangements tend to be an action of last resort, involving those in serious financial difficulties. In contrast, an equity release plan does not involve the sale of the house and the individual has the right to remain in their home until they die or go into care.

Monday 18 July 2011

LIFE ASSURANCE – SPECIAL OFFER!

According to survey, 61% of families in the UK do not have a life assurance policy in place, and 93% of families do not feel they have adequate financial protection. Simple life assurance generally can be very inexpensive. To help encourage those who should have life assurance (or more life assurance) we are running a special offer for August. All new life assurance policies that are taken out in August and go into force by September will receive at least £25.00 in Marks and Spencer gift vouchers when the policy starts. Depending on the response we get, we may also refund the first monthly payment to help make it just that little bit easier to put in place.

Monday 11 July 2011

SOME IMPORTANT DATA ON PENSIONS

If you are employed or a company director, the maximum your company can put into your pension in the current year is £50,000, although you may be able to take advantage of earlier years if you had made a contribution smaller than that in those years. If you are making contributions on your own, the maximum you can contribute is up to 100% of your earnings for that year – subject to the £50,000 maximum. Note: The maximum total you are allowed to have in pensions is £1,500,000 – admittedly not something that most of us have to worry about!

Contracting out of SERPS (now the State Second Pension Scheme) will stop on 6 April 2012 for everyone. You then automatically go back into the State Second Pension Scheme. You do not have an option.

Compulsory pensions! From October next year all employees will be required to join a pension scheme provided by their employer and both employee and employer will be required to make contributions.

Monday 4 July 2011

MORE ON ANNUITIES

When you are dealing with pensions, it is important that you understand the concept of an annuity. An annuity refers to the income you are paid from your pension – as opposed to the Tax Free Cash. You buy an annuity like any other commodity. There is an open market where you can seek out the best deal. The older you are, the more you will get for your money. This is simple to understand. If you are aged 55 and want an annuity, the pension providers will look at the statistics and see that you are probably going to live another 30 years or more. If you come to the provider with the same amount of money and you are 65, you will get a higher income because they can see statistically they are only likely to have to pay it out for 20 years. So £50,000 would buy a man aged 55 an income of £2960 per annum, and a man age 65 £3400 per annum. Once you purchase the annuity, you cannot change it in the future. If this does not suit your circumstances, investigate the other pension options available.

There are a few bells and whistles to know about when considering annuities. First, you can opt to have an income that would still be paid to your wife if you go before she does. Secondly, you can opt to have an income that starts lower but increases each year to counter the effects of inflation. And thirdly, if you are in poor health or have a difficult medical history, you should look at Enhanced Annuities. Basically these give people with medical problems more for their money – on the basis that they are not going to live as long as someone who is of the same age but in good health.

Thursday 23 June 2011

Junior ISAs - New kid on the block

The Coalition Government has now confirmed details of the long awaited savings plan analysts had been expecting since the withdrawal of Child Trust Funds (CTF) last year. The Junior ISA will be launched in November and will extend to under 18s the same tax benefits which parents (and all adults) already enjoy. Their exact structure is subject to final legislation that may change, but this is the plan so far.

The Junior ISA will allow parents to open up a specific account in their child’s name, into which they, their family and friends can contribute a total of up to £3,000 a year. These contributions will then be invested in a chosen mixture of cash and/or stocks and shares and the benefits locked up until that child reaches 18. Anyone under 18 born before September 2002 or after January 2011 (i.e.: those who do not have a CTF) will be eligible for a Junior ISA (and for those with CTFs, the annual limits are expected to be brought in line).

The Junior ISA could provide a significant step up for children whose family and friends get together for their benefit. Final values are subject to growth rates but just to give you an idea, assuming an average of 5% pa (net of charges), that £3,000 pa could leave the lucky beneficiaries with a contribution of over £80,000 towards their world trip, first house or those hotly debated university tuition fees.

Tuesday 14 June 2011

Reviewing Cash ISAs - Losing out to inflation

Low interest rates are great news for borrowers but for savers, they can have a devastating effect. With inflation currently running far in excess of base rates, even though the value of your capital may be safe, you need to keep a close eye on the interest rates you are earning to stop, or at least limit the rate at which the buying power of your money is being eroded. Nowhere is this more apparent than with Cash ISAs. In a recent survey for watchdog, Consumer Focus, over 80% of Cash ISA holders were found to be earning less than just 0.5% a year on their savings. In most cases, the attractive introductory rates which lured savers in had come to and end and been replaced by very low "standard" rates. In some cases this change had even gone unnoticed. Whilst it is true that, whatever the conditions in the market, most people should hold at least some money in an easy access, readily available deposit account, simply to make sure they can cover unforeseen emergencies and short term needs, any saver with longer term plans should be alarmed by findings like this. At the very least, you should do a review of the market and see if you can find an account paying more. In response to the findings, Consumer Focus suggested that: "...customers who have not switched their [ISA] savings may be losing one to two per cent in interest. In total this could amount to as much as £1.5 billion to £3.0 billion per year…” With those potential gains at stake, it is certainly worth shopping around.

Monday 6 June 2011

What our clients say...

We would just like to say a big thank you for all your help in arranging our mortgage and sorting out our life insurance policy, we certainly know where to come for any future financial advice.
S.H., East Sussex

Sovereign Finance are fast, competent achievers, which is what I need and want. I will be in touch again next time I need any good, honest advice in regard to money related matters.
M. D., West Sussex

I thought you were brilliant at explaining everything and will recommend you and Sovereign to everyone I know!
C.B.

We have used them [Sovereign Finance] on several occasions for mortgages, pensions etc. and each time they have provided excellent services.
E.R., Middlesex

Tuesday 31 May 2011

MORTGAGES – DON’T PAY MORE THAN YOU HAVE TO!

The residential property market is still relatively quiet. Lenders are being forced to bring out new offers to tempt borrowers to move or remortgage. Our general advice for those on their lenders’ standard variable rate is to remortgage to a fixed rate for between 3 and 5 years. There is generally money to be saved and peace of mind to be gained. We will be happy to review your options for you. Note: those who still have interest-only mortgages should take immediate advice to ensure that they either move over to a repayment type of mortgage or have sufficient resources to pay the mortgage when it falls due.

Monday 23 May 2011

PENSION RULES – A SUMMARY

Current pension options and regulations in 2011/2012:

1. You can contribute into a pension an amount equivalent to 100% of your earnings up to a maximum of £50,000 in any one year. If you want to contribute more, then you are allowed to bring forward any unused amounts of potential contribution from the previous 2 years. For each £1.00 you contribute, the Government adds 25p if you are a Basic Rate Taxpayer. If you are earning over £42,575, you end up getting 50p benefit for each £1.00 you contribute. Those earning over £150,000 get still more tax relief.
2. From 2012 the maximum total pension you are allowed to have had tax relief on in your working life is being reduced from £1.8 million this year to £1.5 million from 2012 onwards.
3. You no longer have to purchase an annuity (an income for life) by age 75. There is now no age limit.
4. From age 55 onwards you can take up to 25% of your pension savings as Tax-Free Cash and take your other pension benefits. You have a number of options for taking the other benefits such as the following:
a) You can take your Tax Free Cash and use the remainder to buy a guaranteed lifetime annuity (an income guaranteed for life).
b) You can take your Tax Free Cash and leave the remainder invested and draw an income from the invested funds – up to a maximum set by the Government. This is called a Capped Income Drawdown.
c) You can take your Tax Free Cash and leave the remainder invested and take out as much as you want as long as you have a guaranteed pension income of at least £20,000. This is called a Flexible Drawdown.
d) You can take your Tax Free Cash and use the remainder to buy a Temporary Annuity which gives you an income usually for 5 years and then you have the option to choose again how to use the remaining pension fund.
5. If you die and have not taken any pension benefits from your pensions, the value of the pension becomes part of your estate and is shared out according to your Will.
6. If you die and have started taking pension benefits, your estate will receive 45% of what is left in the fund with the Government taking 55%.
7. From 2012 people who contracted out of SERPS (State Earnings Related Pension Scheme now called the State Second Pension) many years ago will no longer receive an annual amount paid into their pension by the Government. Instead they will be credited with a year of contribution to the State Second Pension (this will increase the total State Pension one receives at State Retirement Age).

Monday 16 May 2011

WHAT CAN WE DO ABOUT OUR OWN PENSIONS?

1. Those lucky enough to be in Final Salary schemes from either past or present employers should preserve these.
2. We should take responsibility for our own futures by getting to know enough about pensions and alternative sources of income so as to be able to sensibly plan for tomorrow as well as today. An immediate action you can do is to work out how much income you would need to survive if you were retiring today. You can then get help to work out how much you need to save in order to achieve that level of income, while preserving a good standard of living in the present.
3. Get independent financial advice on all your options when the time comes to take some or all of your pension benefits.

Monday 9 May 2011

AN IDEAL PENSION SCENE

1. People with adequate income in their later years able to choose whether or not to work.
2. People knowing enough about pensions to be able to make sensible decisions about their long range planning, or have a source of advice they can rely on.
3. A substantial State Pension for those who pay their National Insurance Contributions over a normal working life.

Tuesday 3 May 2011

THE EXISTING PENSION SCENE

1. The better pension schemes based on years of employment and salary (called Final Salary schemes) are disappearing.
2. The State Pension Age is being increased for both men and women (Note: If you want to know how long you will have to wait for your State Pension, go on to the State Pension Age Calculator at www.direct.gov.uk.)
3. Existing Money Purchase pensions (These represent the majority of private pensions and consist of a pool of money that is built up through contribution and investment growth. The resulting fund is eventually used to purchase an income – hence Money Purchase.) rely on people putting a significant contribution into their pensions – which most people are unwilling to do.
4. The State Pension is insufficient on its own to provide an adequate income in retirement.

Tuesday 26 April 2011

A NEW TAX YEAR FULL OF CHANGES

The Tax Year 2010/2011 is bringing many more changes to our finances than is immediately obvious. The changes, and promised changes, leave one feeling like the Matrix has shifted or that one has walked through Alice’s Looking Glass (depending on your preference of books and films). There are substantial changes in pension legislation yet again and talk of major changes to the State Pension. There are some boosts in personal tax allowances, but higher VAT and rising costs of petrol and basics leave many living a bit on the knife edge and dreading the moment when the Bank of England finally increases the Bank Base Rate.

So what has changed and how do we need to respond? Pensions deserve the closest look because they are likely to impinge on our lives most in the long term. In the previous decades those working many years for major companies could rely on a worthwhile pension when they reached State Retirement Age - which for many, many years had been age 65 for men and age 60 for women. The quality pension schemes have been subjected to harsher and harsher regulations over recent years, and the great majority of companies can no longer afford to keep them going. Even the Blue Ribbon public service schemes, such as the Civil Servant Pension Scheme, can no longer be afforded by the Government and will have to change. The Government’s talk of a higher State Pension to help handle this problem is so far in the future that it really is little more than an effort to raise hopes and avoid a backlash from the other changes. The Government cannot even afford the current level of State Pension, which is why they are having to extend the State Retirement Age.

Monday 18 April 2011

Junior ISAs - New kid on the block

The Coalition Government has now confirmed details of the long awaited savings plan analysts had been expecting since the withdrawal of Child Trust Funds (CTF) last year. The Junior ISA will be launched in November and will extend to under 18s the same tax benefits which parents (and all adults) already enjoy. Their exact structure is subject to final legislation which may change, but this is the plan so far. The Junior ISA will allow parents to open up a specific account in their child’s name, into which they, their family and friends can contribute a total of up to £3,000 a year. These contributions will then be invested in a chosen mixture of cash and/or stocks and shares and the benefits locked up until that child reaches 18. Anyone under 18 born before September 02 or after January 11 (i.e.: those who do not have a CTF) will be eligible for a Junior ISA (and for those with CTFs, the annual limits are expected to be brought in line). The Junior ISA could provide a significant step up for children whose family and friends get together for their benefit. Final values are subject to growth rates but just to give you an idea, assuming an average of 5% pa (net of charges), that £3,000 pa could leave the lucky beneficiaries with a contribution of over £80,000 towards their world trip, first house or those hotly debated university tuition fees.

Monday 11 April 2011

Budget 2011 - Tax

Chancellor George Osborne had already decided to raise the personal allowance to £7,475 from 6 April this year. He used this latest Budget to extend that allowance by another £630 to £8,105 from April 2012. He has also brought down the rate at which people start to pay higher rate tax from £43,875 to £42,475. As a legacy from the last Labour budget, the personal allowance will still be withdrawn completely at an income of £115,000. The Chancellor has also announced that, in future, tax allowances will be increased in line with the Consumer Prices Index rather than the Retail Price Index. Historically, the Retail Price Index has been higher, so this could have a long-term impact on the value of such increases for all taxpayers. The rules on inheritance tax and capital gains tax (CGT) remained largely unchanged. However, anyone leaving more than 10% of their estate to charity will see their inheritance tax bill fall by 10% while the amount qualifying for Entrepreneur’s Relief on CGT - where tax is charged at 10% rather than 18% or 28% - has doubled from £5m to £10m. There were some changes at the top end of the investment scale. Upfront tax relief on Enterprise Investment Schemes will rise from 20% to 30% while the amount that can be invested annually will rise from £500,000 to £1m. The Chancellor is also relaxing some of the rules around eligible companies for these and venture capital trusts to expand the potential for attracting this type of investment.

Tax year start - Get in early

You only receive one ISA allowance every tax year. Since you cannot carry your allowance over to next year, if you do not use it, come the end of the tax year, you will lose it. The annual allowance has been raised for everyone this tax year, to £10,680 (2011/12), up to £5,340 can be placed in cash - and this is available to be used any time up until 5 April 2012. However, you don't have to wait. You can invest any time from now and, particularly with cash ISAs, you might benefit more from doing so. The earlier you get your money into a deposit account, the more interest you will earn. For stocks and shares ISAs, there are those who try to 'time' their investment - that is, buy when prices appear cheaper (and thereby benefit more as they recover). However, even experts seldom manage to time the market on a consistent basis, and individuals can find it even more difficult. If you are concerned about market volatility, a better idea than 'timing' might be to drip feed your money in on perhaps a monthly basis - in other words, invest smaller regular amounts - to smooth out the risk of a price fall by buying your investment at a range of different price levels. This system is called 'pound cost averaging' and can offer long-term benefits, particularly for nervous, first-time investors. Regardless of how you invest your money, however, remember you only receive one allowance a year. It is therefore best to start your research early and speak to your adviser about all the options. This will help ensure you make the right decision.

Monday 28 March 2011

Interest rate update

Uncertainty appears to be the watchword among policymakers at the Bank of England (BoE). Recent events have provided few hints on the possible direction of interest rates and the timing of any potential movements, and the Monetary Policy Committee (MPC) remains divided on future strategy.

Rates were kept on hold for the 24th month in a row in March. However, minutes of both the February and March meetings show a split has begun in the Committee. Three members have twice voted for an increase of at least 0.25 percentage points, while another continues to vote for an expansion to the currently dormant quantitative easing programme.

Despite that, external speculation about further quantitative easing measures appears to have abated, at least for the time being. Current inflationary pressures reduce the scope for injecting more money into the economy, as this would likely fuel prices. The Consumer Price Index remains stubbornly high, well above the BoE’s target of 2%, and registered a further rise during February, to over double that target, ie: 4.4%.

Nevertheless, the MPC is limited in how much it cool inflation by raising interest rates; although they remain at their lowest level since records began more than 300 years ago, it is difficult to increase them without impacting the UK’s fragile economic position. The economy shrank by 0.6% in the final quarter of 2010 and government spending cuts, coupled with the increase in VAT from January, are likely to further impact any prospects for economic expansion, particularly in the construction sector, and the full effects of these are yet to be seen.

Although inflation remains significantly above target, the MPC’s expectations for inflation in the medium term remain "anchored". It is not until 2013 that they expect it to fall back below 2%. With the lack of any other clear signal, the path of interest rates is therefore likely to be influenced by other events in the world economy albeit with one eye on what happens once the government spending cuts properly take hold.

For the moment then, low interest rates continue. Such a strategy will continue to be welcomed by borrowers; however, it will prolong the headache for savers, particularly those who are looking for a low-risk home for their money. Whilst the rest benefit from lower repayments on borrowing, those who focus on deposit accounts are getting little return on their money and inflation continues to eat away at its real value.

Start saving: Time to take action

Total UK personal debt had reached £1,452bn by January 2011, according to figures from Credit Action – more money than the whole country produces in a year and a sum that equates to nearly £8,500 per household (excluding mortgages).

Contrast that with the nation’s current savings levels, which have seen the average household save just £996 over the last 12 months – or £2.73 a day. However, in an environment where it has become the norm – and, until recently, all too easy – for individuals to make purchases with debt, changing this ‘enjoy now, pay later’ mentality is going to be difficult.

You may be sure, however, that the coalition government is keen to encourage such a change. Work & Pensions Secretary Iain Duncan Smith has been quoted as saying: “We do not save enough in this country…it is appalling, and changing the culture is critical.” Right now, the main incentives to encourage such saving involve limiting the amount of tax you pay on certain savings products. Certainly, the Government needs to do more if they are going to generate the kind of interest that will push more people to act.

Yet, if there was ever a good reason to start changing our behaviour, it is surely the fact it costs the average household £2,500 a year in net income just to meet its interest payments. That is approximately 15% of the average net wage going to lenders that could otherwise be heading into our pockets. That fact really should be an incentive to start saving.

Friday 18 March 2011

Preparing for 2012 - Corporate Pensions

In the UK, we are now living longer and having fewer children. As a result, workplace pension schemes have come under increasing pressure as they have to cover the income of retirees for longer with less investment. At the same time, people are not saving enough for their retirement off their own back. The government is therefore becoming concerned about its ability to cope with the future demands for state payouts. Consequently, the Government has decided it is time to try and persuade more individuals to start saving towards a private pension. Their latest measure is the National Employment Savings Trust (NEST) and is set for implementation from 2012.
NEST is designed to encourage both a greater level of saving for old age and open up access to saving for individuals who do not currently have a decent workplace pension scheme. Therefore, from 2012, all eligible employees will start to be automatically enrolled into NEST unless a suitable workplace scheme exists to take its place.

For employers, this creates a lot of issues. First, and perhaps most importantly, NEST or its workplace alternative MUST be part funded by the employer – with a contribution of 3% of eligible earnings. This will be added to a 4% contribution from the employee and another 1% from the Government (via tax relief), making a total of 8%*. The aim, primarily, is to promote a savings culture, particularly amongst low-to-moderate income earners, and will affect those from age from just 22 right up to state-pensionable age. These are earners who in the past have either not had easy access to independent savings or have simply opted not to take part. Consequently, the cost of having to fund such workers is likely to increase costs for virtually all businesses. There is also the question of whether to continue with – or set up – a workplace pension scheme instead. For employers whose workforce is made up of the higher paid, or who consider the incentive of an in-house arrangement key to their benefits package, the rigidity of NEST may not provide the flexibility they are looking for. Some may therefore consider that either opening, extending or simply increasing the funding for an existing workplace scheme is something they should sort out in advance. There may even be contractual issues to sort out with existing staff. Whatever your current situation, it is a good idea to start considering how you can meet the needs of your own workforce. Whether you employ 2, 200 or even 2,000 employees, the earlier you beginning to consider your options, the better prepared for the changes your business will be.
* Eligible earnings are those between £5,035 and £33,540, indexed with average earnings from 2007

Rising limits for ISAs

ISA allowances are set to rise in the new tax year, providing an additional incentive for savers. During the current tax year (2010-2011), investors can save up to £10,200 in an ISA. However, from 6 April 2011, ISAs will be linked to inflation. Increases will be based on the Retail Prices Index (RPI) for the September preceding the beginning of each tax year on 6 April. The index-linking plan was originally announced in the Labour government’s March 2010 Budget, and was later confirmed in June by the incoming coalition government. Subsequent speculation over the coalition’s plans to cut public spending had led to fears the annual amount available to save in ISAs would be frozen. However, despite taking the decision to cut tax relief on pension contributions, the government still appears keen to encourage individuals to save. The calculation for ISA limits is therefore now linked to inflation, specifically the Retail Price Index (RPI) as measured in September each year. For September 2010, the Office for National Statistics confirmed that RPI was 4.6%, so, once applied to the current limit and rounded up to the nearest £120, this equates to a rise of £480. The maximum annual contribution into an ISA in the new tax year will therefore be £10,680.

This can be invested in a stocks-and-shares ISA, or up to half the amount – £5,340 – can be saved in a cash-only ISA, with any remaining allowance available for investment in a stock-and-shares ISA. According to the Investment Management Association (IMA), net ISA inflows have averaged more than £400 million since October 2009 and 47% of investors would invest more if the allowance was increased further. Meanwhile, according to HM Revenue & Customs, more than 14.9 million individuals subscribed to ISAs in the last tax year, although this was slightly lower than the previous year, when almost 15.2 million individuals subscribed. ISAs are tax-efficient vehicles that allow individuals to save and invest without having to pay income tax or capital gains tax. ISAs can be a good way for people to start saving, or to add to their existing savings and investments. If you cannot afford to take advantage of the full annual allowance, it is still worth putting away what you can via a monthly savings plan, which can start from £50 a month. Looking ahead at the annual allowance, it is worth remembering one of the golden rules of ISA investing - use it or lose it.

Tuesday 1 March 2011

INHERITANCE TAX

If you are single, if you had an accident and died, any value of your home and possessions over £325,000 would be taxed at 40%. For a married couple they each receive this £325,000 so there is a total of £650,000 protected from the 40% Inheritance Tax. If you have a lot more than you need, you may wish to look at gifting some of your money away year by year in order to reduce the eventual Inheritance Tax. If you are in that category, we would be happy to discuss the various strategies that are open to you.

PENSIONS

For many people even the mention of the word “pension” starts them yawning or moving on to some other subject. Part of the problem is that the laws on pensions have been continually changing over the years. We are here to assist you to know what you have and what that will provide you. With the experts forecasting that we will all start living to our 90s or even longer, the importance of have a worthwhile source of income in retirement is obviously vital.

TAX ALLOWANCES

In this Tax Year you can earn £6,475.00 before you pay any tax. You can earn a further £37,400 and pay only 20% tax. So you would need to earn in excess of £43,875 before you start being charged the 40% tax. In the new tax year the £6,475.00 threshold is being increased to £7,475.00. However, the amount you can earn above that before you pay 40% tax is being reduced to £35,000. So in the new tax year, those earning over £42,475.00 will be paying 40% tax.

Grey issues – Those who are 65 and older are given a higher personal tax allowance. For those 65 and over in the current tax year it is £9,490. And for those 75 and over it is £9,640. Now that is good but there is a bit of a trap, which it is easy to fall into. If your taxable income is over £22,900 they start taking away this extra allowance on a 2 for 1 basis, so if your income is £28,930, you get none of that extra relief. Here, too, a husband and wife can often balance out their incomes so that they do not get caught in that trap. It is a very important feature of tax planning for those over 65, as these age allowances are likely to increase. In the next tax year they are expected to go up to £9,940 for those over 65 and £10,090 for those over 75.

High earners – Once you are in the higher rate tax bracket the importance of tax planning becomes greater and greater, the more you earn. The use of pension contributions, or “pension sacrifice” can often save you paying quite a bit less tax. Those earning £100,00 and more have the greatest challenges and opportunities. If you are in this category, do contact us for some advice about your options.

Savings

Most of us do some sort of savings. While the interest being offered on cash savings accounts is very low, it will be at least 20% more if your money is building up free of tax. Those who are earning £6000 or so can fill out a simple form to ensure tax is not deducted. For most of us, however, avoiding tax on our savings comes down to putting the money in a Cash ISA (Individual Savings Account). Cash ISAs are easy to arrange. Each individual can save up to £5,100.00 in a Cash ISA in this Tax Year (2010/2011). This is expected to increase in the new Tax Year to £5,340.00.

While looking at your cash savings to avoid having to pay tax, it is a good time to do an equally important action. Find out what interest you are being paid! Usually you will need to ask. Once you know you can then do a quick comparison (moneyfacts.co.uk or moneysupermarket.com) to see how much better you could do elsewhere. At the very least you can find out from your present bank or building society whether they have a higher interest rate they can offer you.

PROFITS!

The Stock Markets generally have gone up over the past 12 months. If you have money invested in stocks and shares, you may well be showing a profit on your investment. Each year you can realise a level of profits on such investments without paying any tax. In this Tax Year it is £10,100. So if you cash in your investments that have made a total profit of £10,100, you will come away with a useful tax-free return. And since it is true for all adults, a husband and wife could come away with £20,200 tax free! And a clever couple who have made substantial profits could get the £20,200 tax free before the 5th of April and then get the same on the 6th of April. That is a total tax-free income of £40,400.

If you have made profits on some investment higher than that, then you will still pay less than you would pay in income tax. A basic rate taxpayer would be charged at 18% and a higher rate taxpayer at 28%. It is important to get some advice on this in order to avoid paying more than you need to. You can also straddle the old and new tax years, to minimise the tax. If a husband and wife are in different tax brackets, e.g. one with a part-time job and the other a higher rate taxpayer, there are various strategies that you can use to reduce your tax. For example, if the lower earning spouse is earning less than the tax threshold (£6,475.00) in the current tax year, then any savings could be put in her sole name to avoid tax.

Thursday 27 January 2011

No more compulsory purchase

Britons are set to enjoy greater financial flexibility during retirement under draft legislation released by the UK Treasury ahead of the 2011 Finance Bill. From 6 April 2011, individuals will no longer be forced to buy an annuity by the age of 75 with the money that they have saved in their personal pension scheme. Instead, they will have the additional option of continuing to save or moving to a drawdown arrangement in which their pension pot is left invested and money is drawn out. Nevertheless, the measures include restrictions, notably the amount of money that can be withdrawn from a personal pension scheme at any one time. This will be limited to 100% of the equivalent single-person annuity that could have been bought with the funds in their pension pot. This restriction is intended to prevent individuals from withdrawing and spending all the money in their pension scheme and then calling on the state to support them. However, individuals can withdraw more than this amount if they can prove that they receive pension income of at least £20,000 per year. In this case, they can take out as much as they like. The increase in flexibility will end a rigid system in which individuals are forced to buy an annuity by the age of 75, even when annuity rates are particularly poor. An increase in life expectancy and an environment in which older people work for longer have made the 75-year cut-off appear progressively more unrealistic and draconian. Treasury figures show that 450,000 individuals bought an annuity in 2009, while 200,000 people are in income drawdown arrangements. According to Treasury figures based on data from the Financial Services Authority (FSA), approximately 50,000 people who are currently in drawdown arrangements could benefit from flexible drawdown, while an additional 12,000 people could access flexible drawdown. The National Association of Pension Funds (NAPF) has welcomed the additional flexibility, but also believes that the new rules are most likely to benefit those with large pension pots and multiple income streams. Many people are still likely to choose to purchase an annuity, which will provide a fixed income over their remaining lifetime. Moreover, NAPF warned that most people are simply not saving enough into their pension schemes, and urged the government to do more to encourage and support strong occupational pension schemes and “creative, flexible” ways for individuals to save for their retirement.

Time to take action

Total UK personal debt had reached £1,454 billion by November 2010, according to figures from Credit Action – more money than the whole country produces in a year and a sum that equates to around £8,500 per household. Contrast that with the nation’s current savings levels, which have seen the average household save just £996 over the last 12 months – or £2.73 a day. However, in an environment where it has become the norm and, until recently, all too easy for individuals to make purchases with debt, changing this ‘enjoy now, pay later’ mentality is going to be difficult. You may be sure, however, that the coalition government is keen to encourage such a change. Work & Pensions Secretary Iain Duncan Smith has been quoted as saying: “We do not save enough in this country…it is appalling, and changing the culture is critical”. Right now, the main incentives to encourage such saving involve limiting the amount of tax you pay on certain savings products. Certainly, the Government needs to do more if they are going to generate the kind of interest that will push more people to act. Yet, if there was ever a good reason to start changing our behaviour, it is surely the fact it costs the average household £2,500 a year in net income just to meet its interest payments. That is approximately 15% of the average net wage going to lenders that could otherwise be heading into our pockets. That fact really should be an incentive to start saving.