SUGGESTIONS FOR THE NEW YEAR

Review your mortgage interest rate. If you find that you are on the Standard Variable Rate with your lender (4.25% to 5.0%), contact us for quotes as you should be able to save 1% to 2% and that can mean quite a bit of savings each month. Lenders are having to compete more for business now and that means a better deal for the borrower. 3 and 5 year fixed rates are looking very competitive. As independent mortgage brokers we can help you find the best deal.


Review your pension. By survey almost half of the working population have never reviewed their pension plans, even though the majority of those contacted did say that they considered it important to know how their pension funds were invested. A failure to review your pension can leave you exposed to inappropriate investments and also prevent effective planning for your retirement income when you reach your 60s and 70s. It is also valuable to get a State Pension Forecast. We are available to help with this.

Get rid of any credit card debts that are hanging around. The temptation to pay just the minimum payment is intense and the credit card balances then do not go away. It is much better to organise a loan over a few years with fixed payments and pay off the credit cards. That is not to say that a credit card cannot be a useful tool, but you need to be disciplined and pay the full balance off each month.

If you are a 40% taxpayer. Do take the maximum advantage of your pension contributions to reduce how much you pay in tax.

Take advantage of your Individual Savings Account Allowance – Particularly the Cash ISA, so that you build up a cash cushion (and generally get a better rate of interest on your savings).

If you have an interest-only mortgage - Review it carefully to ensure that it will not become a problem when you reach the end of the mortgage term. It is wise to act early rather than ignore the problem until it is close upon you.

Review your insurances. If your circumstances have changed since you last took out life assurance, you may need more, or less, life assurance to meet your needs. One immediate benefit, however, is that the minimum technical requirement for those advising on investment, pensions and annuity has been increased. While examinations are not necessarily a true measure of understanding and ability, they can have value. Another change is that investment, pensions and annuity advice will now be charged for on a fee basis, rather than being paid by commission, as was generally the case before.

The intention is to bring the profession in line with other professions such as solicitors and accountants. We will need to see how the public responds to this major change. Advisers in 2013 will also be split into two groups –those who provide independent advice from across the market and those who provide advice restricted to certain parts of the market. Sovereign will continue to provide independent advice.

For speedy, impartial advice, contact us on 01342 313302.

Gender equality in retirement

From 21 December 2012, the practice of using gender to calculate insurance contracts and annuity rates will be outlawed. In future, women who opt to receive drawdown pension income will find that their maximum amount of available income is determined using the same calculations as those used for men.


In March 2011, the European Court of Justice ruled that the practice of considering gender when calculating insurance contracts and annuities contravened discrimination laws. More recently, HM Revenue & Customs issued new guidance for pension providers, ordering them to use the same rates for women as men when calculating their maximum drawdown pension from 21 December 2012. Income drawdown allows the individual to withdraw income from their pension fund while leaving the fund invested, thereby allowing it to benefit from any further growth. The amount of income that can be withdrawn from the fund is capped in order to ensure the pension pot cannot be drained. Traditionally, income drawdown rates for men and women have been calculated using two different tables – one for women and one for men. Because the life expectancy of the average British man is shorter than that of the average British woman, the amount of income a man has been able to withdraw from his pension fund has been higher than for a woman. However, the new rules will ban this practice, allowing women who opt for income drawdown to draw an increased level of income, while men’s entitlement will remain unchanged.

A shake-up for UK pensions

2012 could well come to be seen as a watershed year for UK pensions thanks to the introduction of auto-enrolment. The scheme, which is intended to provide wider access to pension savings, has been described as "the biggest shake-up" in UK pensions for more than a century. According to the Department of Work & Pensions (DWP), approximately 13.5 million workers did not contribute to a pension during 2011 – the vast majority of them in the private sector. Pension saving has declined across all age groups, but the drop among 20-somethings has been particularly marked. People working in industries such as construction, distribution, hotels and agriculture are the least likely to have a workplace pension. Even pension saving in financial sectors has declined sharply. The DWP estimates up to 11 million people will qualify for auto-enrolment. From 1 October 2012, those between 22 and state-pensionable age, who earn more than £8,105 a year and who are not already enrolled in a qualifying pension scheme, will be enrolled in their workplace pension scheme. The worker and the employer will contribute to the scheme unless the worker decides to opt out. Eventually, workers will contribute 4% of earnings and the employer will contribute 3%, with a further 1% in the form of tax relief. The largest companies will start auto-enrolment first, with the whole process having to be completed by April 2017. Around 600,000 people are expected to be enrolled by the end of 2012 and as many as 4.3 million by May 2015.

Taking with one hand

When it came to personal investments in his Autumn Statement on 5 December, Chancellor George Osborne gave with one hand and took away with the other. He extended the Isa allowance for the 2013/14 tax year to £11,520 – up from £11,280 in 2012/13 – and the government is consulting on whether to allow Aim shares to form part of an Isa. The Chancellor also raised the child trust fund and junior Isa limits – from £3,600 to £3,720 a year. Equally, he made a small extension to the capital gains tax allowance – from £11,000 in 2014/15 to £11,100 in 2015/16. However, pensions were subjected to a raid. The annual contribution limit was reduced from £50,000 to £40,000 for the 2014/15 tax year. This was mitigated to some extent by some changes in the carry forward rules, which mean that investors are now able to carry forward any unused allowance from the previous three years to the current tax year. Meanwhile the lifetime allowance is to be reduced from £1.5m to £1.25m from 2014/15. That said, the Chancellor was more generous with drawdown limits, which are to be increased from 100% of the value of an equivalent annuity to 120%. Some commentators suggested the basis for the calculation should move away from the 15-year gilt yield and, until this happens, income levels were likely to remain low and fluctuate over time. Osborne also made some changes to business tax rates, including extending the temporary doubling of the Small Business Rate Relief scheme until April 2014.

WORKPLACE PENSION

The Government is trying to force us to make more pension savings. Starting in 2012 and coming in over the next several years is the Workplace Pension. With few exceptions everyone who is employed on PAYE will be automatically enrolled into a pension scheme his employer must provide. The employee and employer will be required to both make payments into a pension for the employee. It will phase in over several years starting with both employee and employer contributing 1% of their pay and building up until finally from October 2017 the employer must contribute 3% while the employee must put in 5% of his pay. Where an employer already has a pension scheme in place that provides benefits at least as good as the Workplace Pension, no changes will be required. The employee does have the right to Opt Out of the pension arrangements simply by notifying his employer. While we understand the Government’s wish to try to help people increase their savings for retirement, we do not believe that an effort to force people into saving will succeed in the long term. But we would encourage anyone who is not yet contributing into a pension to take advantage of any employee contributions on offer!

Advance Warning

Some significant changes in financial services are to come into effect at the end of 2012. The Financial Services Authority will be replaced by two(!) new regulators – the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). Along with this change are requirements for higher standards for financial advisers and a move away from commission being paid for investment advice to advisers charging fees. Firms of advisers also need to decide whether they will provide advice from the whole market and qualify thereby as "independent" or will work with a specified set of suppliers and then be termed as providing "restricted advice". We will continue to provide independent advice. Contact us on 01342 313302.

Life Assurance Likely To Get More Expensive!

Life assurance has been around for a few hundred years, dating back to times when groups first worked out that they could buy some piece of mind for themselves and their families by each making a contribution to a pooled fund which would be available to help other members of that group or their families in the case the wage earner died early.


While it has become more popular, and thus cheaper, it still remains primarily a way to buy peace of mind for those with commitments such as family or business. The cost of life assurance is based on risk. To help in assessing this risk the life assurance companies have all of the records of people dying and from what cause (the Mortality Tables) and also details of a person’s medical history. If one is young and in good health, life assurance is very cheap indeed. As one grows older, and where there are medical problems (past or present), the risk, and thus the cost, goes up.

At the end of December 2012 a European Court decision will come into force affecting all insurance companies. It basically dictates that all premiums for insurances must be the same for men and women who are otherwise of equal risk. Historically, as per the records, women live longer than men and life assurance for women has usually been cheaper for a man of the same age. Despite these facts the European Court has decided that equates to sex discrimination! Frankly we think that is nuts, but it will not be the first piece of nutty European legislation. The result will be more expensive life assurance for women. One would think it would also mean somewhat cheaper life assurance for men, but at the same time the life assurance companies are being required to hold more reserves, which will make it more expensive for them to trade. This will almost certainly drive life assurance costs up for both men and women. In short then, it is probably a good time to review your life assurance and make any changes needed. We are likely to look back and see this as having been a particularly cheap time to take out life assurance. And remember the research indicates the cost of taking on people to do the work of a Mum works out at about £30,000 and a Dad at about £21,000! We can quickly provide you with any life assurance quotes you may need. Contact us on 01342 313302 or info@sovereignfinance.org

Pensions – Looking For A Better Income

INCOME PLEASE – (after you have taken your tax-free cash)


Option 1: Take a guaranteed income for life (Annuity).

Option 2: Receive a higher guaranteed income for life due to an adverse medical condition or medical history or history of smoking (Enhanced Annuity).

Option 3: Take a fixed income for a period of time (usually 5 years) and have a guaranteed amount left at the end so you can then review your options (Temporary Annuity).

Option 4: Get an income which can possibly increase depending on the underlying investments (Investment Based Annuity).

Option 5: Leave your monies invested with the option to draw an income from the fund itself (Drawdown). There are two possibilities here. The first is called Capped Drawdown. With this one the maximum you can take is based on your age and the value of the pension fund. The second is called Flexible Drawdown. This allows you to take out as much as you want from your pension fund – but only if you already have a guaranteed pension income of at least £20,000 per annum (this can be made up of the State Pension and Private Pension income, but cannot be made up of other earned income or investment income.)

Pensions – Looking For A Better Income

ALL AS CASH PLEASE!


If you are aged 60 or older and the total value of all your pensions is less than £18,000, you can take it all as cash. 25% is tax-free and the balance is taxed as if it were income you had earned in that tax year. If you cannot take advantage of that option, but have a couple of very small pension pots (£2,000 or less), you can do the same with them – up to two such small pots per person.

Pensions – Looking For A Better Income

CASH PLEASE


You can have a maximum of 25% of the value of your pension funds (This refers to personal pension; the rules are different for a Final Salary Scheme where the benefit is based on the salary and years of service.). So, if your pension funds total up to £20,000, you can get £5,000 as tax-free cash. If they are worth £100,000, you can have £25,000 tax free.

Pensions – Looking For A Better Income

Pensions are always changing. Each Government seems to feel the need to make changes – with the result that there are several different types of pension legislation we have to work with. The biggest change recently, however, is not one caused directly by this or the previous Government. Inflation and people living longer have combined with the result that people with personal pensions will get considerably less income than they had hoped for from their private pensions. Call us to find out your options on 01342 313302.

Other Age Issues

Parents are increasingly being asked to help their children get a start on the property market. For some it is helping out with the deposit. For others it may mean acting as a guarantor – either though their income or the value in their properties. As we get older, we do begin to see the necessity of having a will to ensure everything is dealt with smoothly should we go under the Number 9 bus. Other matters that also arise as one gets older include issues such as possible Care Home fees, Powers of Attorney and Living Wills. It is probably never a right time to discuss such matters, but we are available to assist on these matters as well. There are arrangements that can be made in advance which can assist with important matters such as preserving money in the face of potentially large Care Home fees. Call us on 01342 313302.

Equity Release – A Useful Tool

With a greater number of older homeowners, Equity Release has increased in popularity. Traditionally it was just a way for those who were cash-poor but property-rich to enhance their lifestyle. This is still the way it is used by most, but others have found it a tool to handle other situations. One property owner used Equity Release as a bridging loan for a property purchase. Another used it as capital raising for a business venture. Most recently we completed a case where the mother in her 80s wanted her only son to have some of his inheritance now to help out his family, rather than having to wait until she was gone. With the increasing use of Equity Release, more options are becoming available and interest rates have edged downwards. Call us on 01342 313302.

Mortgages – You Are Not Too Old!

In the past people generally were expected to have paid off their mortgage by the time they reached the usual retirement ages then of 65 for men and 60 for women. Needs and expectations have changed with many men and women wanting or needing to have a mortgage extending beyond these ages. Generally lenders have grown more cautious about lending into “retirement”. However, there are lenders who will take a more enlightened view based on the borrowers ability to repay the mortgage. Recently we assisted a couple who were both aged 75 to raise a mortgage to purchase a property they wanted. If you have run into a problem with borrowing because of your age, do contact us and let us see if we can find a solution for you. Call us on 01342 313302.

Mortgages – Beware the Rate Increase

Santander (Abbey) has joined the Halifax and others in increasing their Standard Variable Rate – even though the Bank of England Base Rate remains unmoved. This will raise the level of mortgage payments for many. It provides a good excuse to review your mortgage and see if there is not something better out there for you. We would be happy to look at the options for you. Just give us a ring on 01342 313302.

Pension changes

There is no doubting that the pension system has been in need of change for a while. The current retirement age was set before the dramatic increase in life expectancy we have experienced. Medical advances mean retirement, which previously lasted only a few years, can now last nearer 20. Indeed, it is widely reported that the state system is overwhelmed but few people have made an effort to obtain alternative cover. As a result, the UK pension system is undergoing various reforms aimed at addressing these issues and building a retirement system suitable for the future.

Most recently, we have seen plans to increase the retirement age . Women are already being brought in line with men through an increase in retirement age to 65, after which both will be raised from 65 to 66, then to 67 and, ultimately to 68. Personal Accounts - to which employers, employees and the Government will all contribute – are being launched from 2012 to address the alternative provision issues. Pension benefits are once again linked to average earnings and a new approach to the second state pension system (SP2) ended ‘contracting out’ from 6 April 2012 .

Personal Accounts will probably be the most wide-ranging reform, and are scheduled to start towards the end of 2012. Employees will be enrolled automatically in the scheme (unless their employer runs an exempt alternative) and minimum contributions have been set. It is at least a start in the process of bringing our pension system up to date.

Funding a decent income

Whenever you start thinking about retirement planning, it is worth beginning by working out how much income you think you will need. Generally, few people need as much income in retirement as they did when they were working – the mortgage might be paid off, children will have left home, and day-to-day expenses should have fallen. However, anticipating increased leisure time might spur you to make ambitious plans for travel or family, and all these expectations need to be considered so you can set some realistic targets.


Once you have worked out how much money you need, you can begin to work out where it will come from. For example, the state pension is £107.45 per week (for 2012/13) , plus there may be money coming in from ISA investments, rent from property, or even some continued paid employment. Moving to a smaller main residence could also release some capital – although house prices can go down, as we have seen recently, so it is risky to rely on the value of your house to fund your retirement.

Once completed, you should have a much better idea of the income you need to generate from pension savings. You might already have started to save through a workplace or personal pension and, although this should be taken into account, it is likely you will still need to supplement it and build it further over the years you have left. To give you an idea, at the best current annuity rates (June 2012) – given interest rates are so low – £10,000 of annual income could cost a male aged 65 almost £200,000 , with no guarantees. If you are female or would like some inflation protection - or simply wish to retire earlier than that - the cost is even higher. The amount you need to save could therefore be considerable.

Thanks to changes in 2006, you can now invest up to £3,600 or 100% of your annual earnings (whichever is the higher) in your pension savings, subject to a maximum of £50,000 (for 2012/13) , and tax relief is available on the contributions. There is also a maximum limit on the overall size of the pension portfolio you can generate – although at £1.5m for the current tax year, there are only a few who are affected.

SORTING OUT PENSION BENEFITS

The number of options open to people taking retirement now has never been so great. The amount of confusion as to what to do has also never been so huge! Over the past decades there have been many different types of pensions and many different types of pension rules. We have the experience and know-how to assist you to get the most out of your pension benefits. Ring us now for an initial discussion at no cost – 01342 313302.

WORKPLACE PENSION

The Government is trying to force us to make more pension savings. Starting in 2012 and coming in over the next several years is the Workplace Pension. With few exceptions everyone who is employed on PAYE will be automatically enrolled into a pension scheme his employer must provide. The employee and employer will be required to both make payments into a pension for the employee. It will phase in over several years starting with both employee and employer contributing 1% of their pay and building up until finally from October 2017 the employer must contribute 3% while the employee must put in 5% of his pay. Where an employer already has a pension scheme in place that provides benefits at least as good as the Workplace Pension, no changes will be required. The employee does have the right to Opt Out of the pension arrangements simply by notifying his employer. While we understand the Government’s wish to try to help people increase their savings for retirement, we do not believe that an effort to force people into saving will succeed in the long term. But we would encourage anyone who is not yet contributing into a pension to take advantage of any employee contributions on offer!

LOST TRACK OF A COMPANY PENSION?

If you think you built up some pension benefit in a previous employment but have lost track of it, help may be available. The Pension Tracing Service, provided by the Government at no charge, may be able to help put you in contact with the scheme so you establish any entitlement you have. The Pension Tracing Service is part of The Pension Service. They will try and help you trace a pension even if you are not sure of the contact details. They have access to information on over 200,000 pension schemes and they will use this database, free of charge, to search for your pension. They may be able to provide you with current contact details for a pension scheme. They will need as much information as possible including your National Insurance Number, the name of the employer and when you worked there. You can complete an online pension tracing form or you can telephone the Pension Tracing Service on 0845 6002537 (8:00 am to 6:00 pm). You can also write to them at Pension Tracing Service, Tyneview Park, Whitley Road, Newcastle Upon Tyne NE98 1BA.

WHAT HAPPENS TO THE STATE PENSION WHEN I DIE?

If you are single, the income stops on your death. However, if you are married or in a Civil Partnership, your surviving partner may be able to benefit. For example, if a spouse is only entitled to a lower State Pension because they did not have enough qualifying years, they may be able to have their pension increased up to the maximum State Pension. They may also be able to claim Bereavement Benefits including a one-off payment and an allowance for one year. And if your State Pension includes some State Second Pension, some of it may be able to be inherited by your spouse/partner. For information or advice on this, or other pension matters, contact The Pension Service – telephone 0800 7317898 or 08456 060265 Monday to Friday 8 am to 8 pm.

STATE PENSION – I DON’T NEED IT YET

You can choose not to take your State Pension when you arrive at your State Pension Age. You may not need it as you are continuing to work or for other reasons. You can put off taking it. This is called State Pension Deferral. You will benefit by putting it off. If you put off claiming your State Pension for at least 5 weeks, you can earn an increase to your State Pension (a one- percent increase for every five weeks you put off claiming). You can also choose to take a lump sum instead. If you delay claiming your State Pension for at least 12 consecutive months, you can choose to receive a one-off lump sum payment instead of an increase in your pension.

CAN I GET MORE THAN THE BASIC STATE PENSION?

In addition to the Basic State Pension, people who are, or have been, employed on a PAYE basis and earning above a set level, may be entitled to additional State Pension Benefits. This does not apply to the Self-Employed. Your Pension Forecast will also give you an idea of how much additional State Pension you may qualify for based on your employment history. This additional State Pension has been called by different names over the years, including the State Earnings Related Pension Scheme (SERPS) and most recently the State 2^nd Pension.

STATE PENSION – COMING UP SHORT?

For various reasons you may not be on target to get the full Basic State Pension. That can be due to periods of living abroad or not working. In many cases it may be possible to remedy that by making voluntary National Insurance Contributions so you can top up your benefit to the maximum. Your State Pension Forecast will help you to establish what you may need to do in this regard. If you are not going to get the maximum Basic State Pension, you could still qualify for a reduced one.

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STATE PENSION – HOW MUCH WILL I GET?

There is also help in answering the "How much?" question. You can go on-line or telephone the State Pension Forecast team and obtain a forecast which will give you an estimate of the State Pension that you may get at State Pension age. If you live in the UK you can get a forecast online by visiting the website www.direct.gov.uk/pensionforecast and following the links, or by calling the Future Pension Centre who will take your application over the phone. Their telephone number is 0845 3000168.

STATE PENSION – WILL I GET IT?

How do you qualify for it? The amount of basic State Pension you are entitled to is based on your National Insurance contributions record over your working life from age 16 until State Pension age. A minimum amount of contributions and/or credits is required to make a year count as a “qualifying year” towards your overall contributions record. The rules are a bit complex but the new rules basically require that a man or woman needs to have built up 30 qualifying years or more before their State Retirement Age to qualify for the full basic State Pension. Normally a qualifying year is one in which you have paid the full required National Insurance payments for your employment or self-employment. In some cases, however, you can build up qualifying year “credits” without having to have paid National Insurance payments, e.g. those getting Child Benefit or caring for someone who is sick or disabled, or those who are ill or unemployed.


So the obvious questions are “When will I get it?” and “How much will I get?” To find out when you will get it, you can go on-line to www.direct.gov.uk/en/pensionsandretirementplanning and go to “Calculating Your State Pension Age”. You input your date of birth and you will find out what your State Retirement Age will be. Unfortunately the previous retirement ages of 60 for women and 65 for men are changing – for the worse.

STATE PENSION – WORTH KNOWING ABOUT!

There is much discussion in the media about people having to work longer because they will not have built up an adequate pension. We do see this failure to make adequate provision on virtually a daily basis. Sometimes it is because the person’s income will just not stretch to it and in other cases, people simply prefer not to worry about saving for the long term. In any case there is at least one area where virtually everyone who works can rely on as regards a pension income – the State Pension. It may not be huge but it is still worth having! Many people lack information about the State Pension and how it might affect them, so we decided to cover the basic points here.

In 2012/2013 the Basic State Pension payment for those who qualify is up to £107.45 per week. This payment goes up annually in line with inflation. This may not sound a great deal, but to get a similar pension income from a personal pension you would need to have saved up over £100,000. It is worth having! You might be interested to know that the concept of a UK State Pension did not come about until 1908. At that time you needed to be 70 or over and you would receive £31.50 per year!

THE PROPERTY MARKET

The property market generally does not look to be rising or falling to any great degree. It has largely been Landlords buying and selling buy-to-let properties that have kept some life in the market. In the first quarter of 2012 there was an increase in mortgages completing due to the March deadline for the Stamp Duty reduction for First Time Buyers. The Government and builders are seeking to continue to encourage First Time Buyers with a number of options for buying new-build properties. There are also still some part-buy/part-let solutions. However, the real problem with the property market is that segment who are locked into their present mortgage arrangements due to the changes in the mortgage market over the past several years. We have seen various options virtually disappear, including 95% and 100% mortgage, self-certification mortgages for the self-employed, and mortgage options for those with past credit problems. However, the mortgage market is starting to become a bit more flexible and it is worth staying in touch in case options open up.

INVESTMENT – BE GUIDED BY THE RISK YOU ARE WILLING TO TAKE!

The various Stock Markets are providing something of a roller-coaster ride with their ups and downs. While generally there has been a recovery over the last 6 months or so, the main problems of creating growth and repaying large national debts are likely to be with us for some time to come. Those investing in the Stock Markets should make sure they are comfortable with the risks and also understand that they should be investing for the medium to long term. Those approaching retirement in the next year or two, and who still have investments in managed funds through their pension funds, should consider moving to lower risk options, even Deposit Funds, to avoid being caught out by a sudden drop in the market just at the time when they want to take their pension benefits. If you are still interested in seeking a better return on your money even after considering the risks, and with 10 years plus until your expected retirement, then you should consider investing, or staying invested, in the Markets. There are a variety of Managed Funds that allow you to spread your investments both as regards types of businesses and geographical sectors. The Markets generally tend to take their lead from the United States but it remains our view that any meaningful growth is still likely to come from what are called Emerging Economies. In the past this has included China and India as well as other countries like Brazil and Russia and some Asian countries. Because of currency exchange rates and questions about political stability, such investments have to be considered higher risk. So do make sure the risk is one you are willing to take. Contact us if you would like to discuss your options – 01342 313302.

PENSION NOTES!

1. The usual minimum age to take pension benefits is 55 – male or female.


2. Normally you can take up to 25% of your pension fund as Tax Free Cash.

3. You do not have to retire in order to be able to take your pension benefits.

4. If the total of your pension funds is less than £18,000, from age 60 you can take it all as cash (25% Tax Free and the balance taxed as earned income).

5. If you have a couple of very small pension pots (less than £2000 in each pot), from age 60 you can take those as cash (25% Tax Free and the rest taxed as income).

6. You have various options when you take your pension benefits including:

a) An enhanced annuity if you have serious medical issues;

b) Taking your Tax Free Cash and leaving the balance invested until later with the option to draw income each year;

c) Taking an annuity that guarantees an income for as long as you live – level or increasing.

We can help advise on all of your choices so as to customise your pension benefits to meet your circumstances. Give us a ring on 01342 313302.

DON’T BE CAUGHT OUT BY MORTGAGE RATE INCREASES

A number of lenders including the Halifax and the Bank of Scotland are taking the opportunity to raise their Standard Variable Rates. They can make these changes even though the Bank of England Base Rate has not changed. This will mean an extra 0.25% to 0.5% added to the mortgage rate. The solution for the borrowers affected is either to switch to a Tracker Rate which can only move when the Bank of England rate changes, or a Fixed Rate which cannot move at all during the period over which the rate is fixed. We are of the view that a 3 to 5 year fix is a good strategy, with 5 year fixed rates below 4.0% for those with a low loan to value mortgage. For a review of your options, do contact us now on 01342 313302!

HOW MUCH IS A MUM OR DAD WORTH?

While on the subject of life assurance, it is interesting to look at some research done last year on the value of a Mum or Dad – just on the cost of replacing their work at home and in looking after the children, should one parent die or be ill and unable to work. The value of a Mum works out at £30,032 and a Dad at £21,306! The same research showed that only 53% of parents in the UK had life assurance and only 24% had Critical Illness cover. Both of these have gone down by 4% in the last two years. We would like to assist you to ensure you have the cover that you need and want. Just give us a ring on 01342 313302 now!

UNISEX INSURANCES!?

A European Court Directive (the EU Gender Directive!) is coming into effect later this year which will require all insurance companies to treat men and women equally as regards what they are charged for insurances. This goes against common sense when life assurance has always been cheaper for women because statistically they live longer than men. On the other side of the coin, men taking their pension benefits have always benefited from a higher income from their annuity because men will not live as long and the pension provider therefore does not have to pay out the income for as long as for a woman of the same age. Common sense, however, has not been much of a feature of European Court Decisions. This does open a window of opportunity for men to take their annuities before the end of the year and for ladies to secure their life assurance now before the costs go up. There is a further matter that is likely to drive up the cost of life assurance in the coming year. A new tax arrangement being imposed on insurers will require them to keep more in reserves to safeguard their financial position. This will translate for the average person into higher costs for their insurances. We may never again see life assurance costs as low as they are now. Do contact us to discuss how this could affect you and what you might or might not be able to do to take advantage of this "Buy Now" – 01342 313302.

FIDDLING WITH THE ODDS

Please note that 2012 may be a good time for men in their 60s to take their annuities as some European legislation is changing the odds come the end of the year. The statistics have always shown that women, on average, live longer then men and annuity rates have reflected this. In December of this year, however, the European Court of Justice in its wisdom has dictated that both sexes must be treated equally in the matter of insurances. As regards annuities, this is likely to mean that men will get slightly worse annuities and women slightly better ones. So for those men who are in their mid to late 60s or older, it is probably a good time to get their annuity.

ANNUITY OPTIONS

The above is the simple concept. However, there are many different annuity options that are available to choose from. Husbands and wives can decide to take out an annuity that will pay as long as they both live. You can decide to take an annuity where the money paid starts lower and increases each year, or you can take a higher payment, which stays the same. Those who have been heavy smokers or have serious medical issues can get Enhanced Annuities. Those are simply higher payments taking into account the odds that such a person is not going to live as long as the average person. We will be happy to cover all of the options for you but we wanted to help you understand the basic principle that underlies what you are likely to be involved with when you cash in your Pension Box.

THE MARKET FOR ‘ANNUITIES’

When the time comes and you start looking for an ‘Annuity’, you will find that there is a marketplace for ‘Annuities’ just as there is for apples or pears. You can go out into the marketplace and look for the best deal for the money left in your Pension Box. So “How much will I get for my money?” you may well ask. The answer is, of course, it depends on what is available in the marketplace. Here it is worth looking at just how a company works out what they can offer as an ‘Annuity’. In fact, the company is taking a gamble. They know that they can invest the money you give them and it is from that investment that they will need to cover their payments to you as well as their costs and profit. The company uses its actuaries (professional gamblers basically!) to calculate the odds of how long you are going to live. That will tell them how long, on average, they are going to have to make payments to you. The actuaries use the information available which essentially gives the life expectation for a person of a given sex and age. These are the odds that they work with, along with what investment return they can be sure of over a longish period of time. So what affects the market price of ‘Annuities’? The longer we live, the longer the companies have to pay out so the less they are likely to offer. The lower the investment return they can get over the long term, once again, the less they can offer.

New “Buy Now” for your ISAs

With the beginning of the new Tax Year (2012/2013), there is the immediate opportunity for doing your new ISA savings/investment. You do not need to wait until the end of the Tax Year. In the case of a Cash ISA this gives you an extra 12 months of tax-free growth if you do it now. With a Stocks and Shares ISA you would be buying at what looks to be a low point in the Market and avoiding the end of Tax Year rush, which tends to drive up investment fund costs.

THE ‘ANNUITY’

Basically an ‘Annuity’ is a guaranteed income. When you buy an ‘Annuity’, you basically are swapping the 75% cash remaining in your pension box for an income guaranteed for life (Note: we will deal only with the guaranteed annuity for life here, but there are other varieties as well which we will be happy to discuss with you.) So the money in the Pension Box goes to the annuity company who provides you with the guarantee of an income for as long as you live. Many of you will immediately ask: “Can I trust them to pay me as they promise?” It is a good question and the answer is that Government provides a guarantee that ensures the annuity will continue to be paid even if the company concerned goes under.

SOME PENSION BASICS – THE ‘ANNUITY’

While pensions can be complex and difficult to deal with because of all of the past pension legislation and changes, it is important for everyone to have some grasp of the basic concepts. In this section we are only discussing personal pensions, i.e. not company pensions where the benefit is assessed based on years of service and salary. A personal pension can be viewed very simply as a box into which you are putting money to save until you are aged 55 plus. This box has some advantages, as the Government can also add money to the money that you put in.

Inside the box your savings are looked after for you by a pension company. The pension company finds out how you want to invest your money and will do its best to make extra value for you. If you want no risk, you can arrange to have your savings kept in a cash account. Otherwise there will be an investment risk with your savings and the value can go up and down. Over 10 years and longer the results show that generally people are better off if they take some risk with the money in their pension box.

Come age 55 the happy day arrives whereby you can dip into your pension box. That is the earliest age that you can be for the Government to let you get your hands into your pension box (with some exceptions including serious ill health). This pension box, however, generally does not let you take it all out (except for some exceptions for small pension pots for those aged 60 or over). You can get your hands on 25% of what is in the box. This is tax-free and can be used however you wish. The remaining 75% has to be used to provide an income and this is where we come up against “The Annuity!” While there are various options open to you as regards using the 75% (which we will be happy to discuss), most people will end up getting an “Annuity”. We will now seek to make the “Annuity” concept as simple as we can.

SMALL PENSION POTS

Many people have built up small pension pots from one employment or another or from one pension savings strategy to another. Up to now these were difficult to deal with at retirement because of their small size. The Government has seen some sense in this regard and now each individual aged 60 or over can take up to two small pension pots (each no more than
£2000) all as cash. 25% of the pot can be taken as tax-free cash and the remaining cash will be taxed as if it had been earned in the year that you take the money. Those of you who like solving problems will probably have immediately realised that if you had one pot worth £4,000, that you could split it in two to get the required £2000 size.

TIME FOR A FINANCIAL REVIEW

Review all of your cash deposit accounts
Find out what interest rate you are receiving. You may be shocked to find interest rates of 0.10% in monies held in a saving account with the glorified name of “Gold” or “Silver” savings account. Look for a better rate. You should be able to achieve at least 2.0% or better.

Use your Capital Gains Tax Allowance
If you have investments that have gone up in value you can realise tax-free profits of up to £10,600. As with your ISA allowance, you cannot carry this forward. So you use it or lose it!

Be aware of your Tax Allowances
Personal Tax Allowance: 2011/12 = £7,475; 2012/13 = £8,105
For those aged 65/74: 2011/12 = £9,940; 2012/13 = £10,500
For those 75 and over: 2011/12 = £10,090; 2012/13 = £10,660

Note: The Age Related Allowances above are only available to those whose total income is less than £24,000 (2011/12) and £25,400 in the new Tax Year.

Review Your Life Assurance Arrangements
Pull out the documents and see how much you are covered for, and for how long. You may find a policy is coming to its end, and you can also ask us to check the cost to ensure you are not overpaying for your life assurance or critical illness insurance.

Review Your Pensions
You may have pension pots in various places from previous employments or pension saving arrangements. Find out what the fund values are and what funds you are invested in. You can then look squarely at what you are likely to have available in your later years and act accordingly. We will be happy to help you work out what these might add up to eventually. Make sure that all of these pension providers have your current address so they do not lose track of you.

Review Your Mortgage Arrangements
If you on your lender’s Standard Variable Rate and paying more than 4.5%, find out what else your lender can offer and contact us to find out your other options.

Maximise Your Pension Contributions

You can put a maximum of £50,000 into your pension, and even more if you have not used up your pension payment allowance in the preceding three years. This is a case where allowances from previous years can be used. Note: talk to us if you are thinking of doing this and we can help advise you how to do this in the most efficient way possible. There are rules to be followed.

PENSION CHANGES COMING ON 6TH OF APRIL

The State Pension consists of two parts. There is the Basic State Pension which everyone is entitled to, whether they are employed or self-employed. The other part is only for those who are employed on a PAYE basis. It is now called the State 2nd Pension but used to be called SERPS (the State Earnings Related Pension Scheme). When you hit State Retirement Age, any entitlement you have built up with the State 2nd Pension is added to your Basic State Pension. In 1988 the Government gave people who were employed an option. Instead of building up an extra entitlement to the State 2nd Pension/SERPS, each year the Government would pay an amount annually into their personal pension plan. This was called “Contracting Out”- by which was meant that people chose to contract out of the State 2nd Pension year by year. Many people did “Contract Out”. The monies that the Government paid out to these people went into their personal pension and were called “Protected Rights” as some strings were attached to those monies. The Government has now changed their mind and, as of 6 April 2012, people no longer have the choice to “contract out”. The monies that have been paid into their pensions will remain there and all strings are being removed so that those monies are no longer referred to as “Protected Rights” and they will be treated like any other money in a pension. If you have any questions on this, please feel free to ring. Remember that this only ever affected those who were employed, as the self-employed were never part of this.

Use your Cash ISA allowance

Cash savings almost always will do better in a Cash ISA. Generally the interest rates are better and, of course, you get the interest free of tax. Since you can arrange to have immediate access to the cash in an ISA, it makes virtually no sense not to have as much of your cash in possible in Cash ISAs. In this tax year (2011/2012) each individual can put £5,340 into a Cash ISA. After the 6th of April this maximum rises to £5,640. This ISA allowance cannot be carried forward into another tax year. If you do not use your 2011/12 ISA allowance, you have lost it. Aim for an interest rate of between 2.5% and 3.0%. Note: You also have your Stocks and Shares ISA allowance, which is available for you to use if you are willing to take the risk.

Pensions implications

The Autumn Statement from the chancellor of the Exchequer George Osborne, contained only a few measures relating to pensions and retirement, with the UK’s projected £33bn overspend and the resulting extension of the government’s austerity measures offering little room for manoeuvre, particularly in terms of positive news.

On the plus side, the full basic state pension will rise to £107.45 a week in April 2012. However, the state pension age will increase to 67 between April 2026 and April 2028. Research by PWC suggests this increase in the state pension age will cost a 50-year-old £80 per month if they have to fill in these missing two years themselves while a 35-year-old would have to save an additional £35 a month to retire at the same time. This delay in the state pension age is expected to save around £60bn in today’s prices between 2026/27 and 2035/36.

Osborne also introduced a new scheme to help finance infrastructure investment in the UK that may indirectly affect a number of retirees. He is aiming to raise £20bn from UK pension funds to invest in infrastructure projects with a view to boosting the economy.

UK pensions funds have, to date, been reluctant investors in infrastructure, in spite of the long-term, index-linked income stream available on some of these projects. Principally this has been down to a lack of expertise in the asset class. A number of commentators have suggested that, if successful, this infrastructure-spending plan should provide an effective economic stimulus.

Transferring pensions – Transfer or not?

Most people switch jobs several times during their working life; however, when you change employers, it is worth thinking about the pension pot that you have accrued. You might wish to consider combining your pensions into one pot. It is easier to keep an eye on fund performance if your pensions are all under one umbrella; moreover, a single pension pot will incur less paperwork and administration, and could also generate lower costs and better overall performance. Sounds like a no-brainer? In theory yes, however, there are some important issues to consider before taking the plunge.

Most occupational pension schemes and private schemes can be transferred, but there are restrictions and potential pitfalls. It is not usually worth transferring final-salary or public-sector pension schemes; the benefits are too good to lose. You should only transfer if you have actually left a company: if your current employer contributes to your existing occupational pension scheme, you should not switch. Also it is worth noting that the money in your pension can only be transferred from one pension scheme to another (until you have retired), and not every new pension scheme accepts inward transfers. If your pension pot is very small, it may not be worthwhile switching: you will have to pay charges when you transfer, and some providers impose harsh penalties if you leave their scheme. And, if you are relatively close to retirement, you might not have sufficient time to recover the costs incurred by transferring.

According to the Pensions Advisory Service, the Department of Work & Pensions (DWP) is set to publish a consultation paper examining the consolidation of small pension pots. Possible approaches could see your pension pot moving with you when you change your employer; alternatively, when you change your job, your pension pot could be left behind and – unless you decide to opt out – the cash would automatically be transferred to a central aggregator fund. The DWP believes the changes would increase the visibility of pensions saving: instead of seeing several small figures, each individual would be able to view one larger, consolidated figure.

Transferring and aggregating your pension pots might generate significant long-term benefits; however, any decision to do so should be taken for the right reasons. Tread carefully and, above all, take expert advice before making an irreversible decision. We are well placed to help you with this.

Retirement Issues

We are able to utilise our experience and expertise to assist you in finding the best solutions for financial matters.

1. Sorting out retirement options. From age 55 it is possible to take your retirement benefits. There are quite a few options and we can help you to understand them and assist you in obtaining the solution that best suits your circumstances.
2. Dealing with mortgage/remortgage challenges. Experience and expertise and access to all of the market, enables us to seek out the best available deals. Your mortgage is likely to be your biggest monthly bill, so ensure you are paying the lowest rate possible.
3. ‘Insuring’ all is well. Protection in the form of life assurance, critical illness cover and income replacement are available to ensure you are covered in case of the unexpected. Research has shown that 6 out of 10 families in the UK have no life assurance arrangements. Insurance does not have to be expensive. As independent financial advisers, we can find the cheapest solutions for you.
4. Raising funds or reducing outgoings. There are quite a variety of ways to raise funds or reduce outgoings and we can look at all the options with you.
5. Equity Release Plans. Homeowners with small or no mortgages will have options to access funds via Equity Release Plans. Whether you use them or not, it is good to know what can be done.
6. A variety of other reasons including savings and investment and simply better understanding financial options.

Just give us a ring with whatever you would like to discuss on 01342 313302.

RETIREMENT OPTIONS AND RISKS

If you are over 55 and wish to take your pension benefits, you should consider the various choices and what the risks are. Annuity rates are continuing to fall as people live longer and there are also items of legislation which are affecting annuity rates such as the EU Gender Directive which requires annuity provides to offer the same rates to men and women, even though women statistically live longer than men. Some pension options include ongoing investment risks while others face risk of inflation.

We would be happy to assist you to understand more about these various options so you can make an educated decision. Do remember that past performance is no guarantee of future performance and the value of your investments can go down as well as up.

LIFE ASSURANCE – LOOKING AFTER THOSE WHO DEPEND ON YOU

Life assurance is generally an inexpensive way to cover your commitments – whether that be a young family or business associates. Like Buildings Insurance or Car Insurance, it is a vital way of protecting assets (what more important asset is there than you yourself!). We can search the market for you to find the most inexpensive options available. Just give us a ring.

SAVINGS – SOME BASICS

Saving and investing money is a very important part of personal finances. Here are some tips:

1. For money you hold on cash deposits, keep watch over the interest rate. Banks and Building Societies, unfortunately, will not necessarily remind you when that lovely introductory rate that attracted you in the first place, drops considerably.
2. Take advantage of tax efficient savings. Your cash savings generally should be in Cash ISAs (Individual Savings Accounts) for both a good rate and so you do not lose part of the interest to the Tax Man.
3. Don’t use credit cards for long term borrowing. Take out a personal loan instead.
4. If you are saving for your children (or grandchildren), find out about the Junior ISA, and also look at the selection for children at the National Savings and Investment website.