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Investment options – what’s available


The next instalment of our A-Z Guide to Financial Planning focuses on the letter I – Investments.

Investing is a broad topic that can seem intimidating to people. Whilst having multiple options is usually a good thing, too many options can sometimes be overwhelming, causing people to make the wrong decision or avoid making any decision at all.

A surprise windfall, an inheritance or even a divorce settlement can provide a boost to your finances, but it also demands some difficult decision-making. You might have immediate plans for the money, a much needed holiday or home improvements, but if you want to secure your finances for the future, a lump sum provides a great opportunity to start an investment plan.

There are dozens of options available and there isn’t a single investment product that will work for everyone, so it is important to consider your personal situation in order to find the best investment or package for your needs.

With this in mind, we have outlined below a range of investment ideas that you can consider when reviewing your investment plan.


  • Investment Isa:

The Investment ISA is a Stocks and Shares ISA. It enables you to invest your money in a choice of funds with different investment objectives. An investment ISA is a tax-efficient way of investing, whether you're looking for regular income or capital growth.

 As of 6 April 2012, the Government increased the annual ISA investment allowance to £11,280. Up to £5,640 of that allowance can be saved in a Cash ISA.

You can keep your Investment ISA for as long as you like, but it should be regarded as a medium to long-term investment.  The value of your investment and the income from it can fluctuate, you may get back less than the value of your original investment and tax rules may change in the future.


  • Stocks and shares:

Also known as equities, a share represents a share of ownership in a company. You become a joint-owner of the company along with all the other shareholders.  When you invest in shares, the aim is for the shares to grow in value over time; and also to benefit from a share in the profits of the company in the form of regular dividend payments. Shares give investors the opportunity for a steady income and capital growth. It is important to remember that neither of these is guaranteed.

Share prices can change suddenly, which means they are considered a higher-risk investment than cash, bonds and property. If you invest over a longer period you’re in a better position to ride out any fluctuations in the market.

You can buy shares directly from a stockbroker or trader, or you can invest through an investment fund.


  • Bonds:

A bond is a form of debt issued by companies (corporate bonds) or the government (gilts) to raise money.  When you purchase a bond you are lending money to the issuer. In return, the issuer promises to pay you a set rate of interest each year and to repay your capital at a set date in the future, known as the redemption date.

Bonds are suitable for short to medium term investment and tend to be lower risk than property or shares, but higher risk than investing cash in a savings account. You can usually sell your bond at any time with minimal impact to the capital invested.

If a company collapses, bond holders will be paid before shareholders, but ultimately repayment will depend on there being funds available. The return from bonds is not guaranteed, therefore, it is important to select an issuer who matches your risk profile.  


  • Property:

You may also want to consider diversifying your portfolio to include property. This can be a good investment and can accumulate wealth overtime. If you own rental properties, it can also add another good income source to your salary. When purchasing property for investment purposes, it is important to consider the responsibility and future costs that come with owning property.

Property investment needs to be viewed as a medium to long-term investment. A minimum 7-year investment period is usually recommended.

When considering any type of investment, it is important to think about your personal circumstances, ensuring that the investment works for you and your needs. Review Retirement and Investment Solutions tried and tested ‘10 Golden Rules’, to ensure your investment options meet your objectives.


Top tips to boosting your retirement income

Retirement might be just around the corner, but that doesn’t mean it’s too late to boost your retirement income. Retirement and Investment Solutions share some top tips to help you make more from your money, whether it’s working part time, downsizing to a smaller property,  or registering for discounts and offers, these steps can help you save that little bit extra.


  • Explore your property options:

For many people facing retirement, property is the biggest asset they own. Don’t ignore this when considering ways to boost your retirement income. Moving to a smaller, less expensive property, is a great way to free up the capital in your home to buy an annuity.

Selling up isn’t your only option, if you are comfortable about sharing your home with someone, for example a lodger, you can add a little extra to your savings. The rent a room scheme allows you to earn £4,250 a year from it, tax free.


  • Continue working and delay your retirement:

Reaching state retirement age doesn’t necessarily mean giving up work altogether. Many people find that stopping work at retirement can be a shock to the system, resulting in many pensioners opting to work part time or even set up their own business.

If you work past the State Pension age, you don’t pay National Insurance and your personal allowance (the amount you can earn tax free) increases at age 65. For this tax year, personal allowance rises from £7,475 to £9,490 for those aged 65-74.

If you can afford to delay drawing your state pension, it could leave you better off in the long run. For every five weeks you put off claiming, you will receive an extra 1 per cent. This equates to an extra 10.4 per cent for every full year you put off claiming.  To find out more about delaying retirement, click here.


  • Choose your annuity wisely:

On reaching retirement, most people choose to buy an annuity with their retirement fund, guaranteeing them an income for life. If you read our newsletter in September, you would have noticed our update on the upcoming annuity changes. As of December 2012, it will be illegal to price insurance products based on gender, affecting future annuity rates.

Anyone looking to retire in the near future should carefully consider the options available to them. Exploring the Open Market Option (OMO) can be a great way for anyone looking to utilise their pension fund most effectively.  You  have the opportunity to browse the whole retirement market, not just your current provider, for the right product and most competitive rates for you. Don’t assume that going with your current provider is the only option open to you.

For more details on how the new EU gender regulations will affect you and the options available, click here.

  • Take advantage of the discounts and offers available:

Companies are finally waking up to the reality that the over 60s make up a fifth of the population. On top of your free NHS eye tests and prescriptions, more and more organisations are providing discounts and offers targeted at this age group. These include deals like:

  1. Senior Railcard - This is available to over 60s at a cost of £26, saving you up to a third off your travel expenses.
  2. Coach travel - Over 60s qualify for "Route 60 fares" in England and Wales which gives half price travel on National Express services
  3. B&Q - free B&Q Diamond Card for over 60s, which lets you have 10% off purchases on Wednesdays.
  4. Boots – ‘more treats for over 60s’. Simply fill in the form in store and enjoy 10 points per £1 on Boots-branded products and enjoy 25% off complete glasses at Boots Opticians.
  5. English Heritage and The National Trust - over 60s are eligible for discounts on both annual and life membership.

This is just a small sample of the offers available, so keep an eye out.

  • Review your retirement fund regularly

Nationwide Building Society recently revealed that fewer than one in ten of us know exactly how much is in our retirement fund. If you want to make the most of your money, it is important to review your investments regularly, to ensure your funds are performing as they should.



Financial Product Best Buys – October 2012

To help you make more from your money, each month Retirement and Investment Solutions will provide you with best buys for your savings.


  • Best instant access

Allied Irish Bank (GB) 2.80% AER

Minimum investment £1. Post or telephone.


  • Best 1 year fixed rate

Marks & Spencer 3.1% AER

Minimum investment £500. Apply online, by post or telephone.

  • Best 3 year fixed rate

Marks & Spencer 3.5% AER

Minimum investment £500. Apply online, by post or telephone.


  • Best 5 year fixed rate

Principality 3.75% AER

Minimum investment £500. Apply online, by post, telephone or in branch.

  • Best 1 year fixed rate Cash ISA

Marks & Spencer 3.1% AER

Minimum deposit £500. Apply by post or online


  • Best 3 year fixed rate Cash ISA

Virgin Money 3.50% AER

Minimum deposit £1. Apply online


  • Best 5 year fixed rate Cash ISA

Wesleyan Bank 4% AER

Minimum investment deposit £5,640. Apply online.

  • Instant Access ISA         

Virgin Money 2.85% AER

Minimum deposit £1. Apply online


4 things high-earners should know about pension contributions

1. Personal allowance for high earners

Currently, the personal allowance is reduced by £1 for every £2 of taxable income over £100,000. The current individual allowance of £8,105 would be completely eroded once taxable income reaches £116,210.

By making a pension contribution, an individual can reduce their taxable income and reclaim their allowance. This is particularly valuable for individuals with a taxable income of between £100,000 and £116,210.

As well as receiving 40% tax relief on their pension contribution, reclaiming their personal allowance will give them an effective tax relief rate of up to 60%. If they earn over £116,210, they can still reclaim some personal allowance if their taxable income after the contribution falls below £116,210.

2. Erosion of child benefit

From 7 January 2013, if a parent earns in excess of £50,000, child benefit reduces and is completely eroded once earnings hit £60,000.

A pension contribution can help reduce earnings and allow child benefit to be reclaimed as an added bonus.


3. Maximising tax relief on contributions but minimising tax on pension income

Through efficient planning, some clients may be able to receive tax relief at a higher rate than the income tax rate they would pay when it came to taking their retirement income.

Assuming a client retires with effectively 60%-70% of their working income, they may have been receiving tax relief on their pension contributions at a rate of 40% or 50% but pay a lower rate of income tax in retirement.

Many advisers may recommend the use of income drawdown as an effective way of controlling pension income in retirement.

4. Paying in excess of the £50,000 annual allowance but avoiding tax charges

In certain circumstances clients can pay in excess of the annual allowance without penal tax charges applying.

A client can carry forward three years’ worth of unused annual allowance, meaning, subject to earnings, they could contribute up to £200,000 gross in a tax year and claim valuable tax relief at their marginal rate of income tax.

Take a look at the following example:


As the annual allowance for these tax years is £50,000, there is £60,000 unused annual allowance available.

When added to the current year’s annual allowance, a contribution of up to £110,000 gross can be made in the 2012/13 tax year without incurring any tax charges.

New withdrawal penalties for NS&I savers now in place


The Government-backed NS&I announced that they will be making changes to some of their terms and conditions so that its investment range becomes more consistent and easy to understand. The popular Index-Linked Certificates, along with Fixed Interest Certificates and Children’s Bonus Bonds, will now come with exit penalties if customers wish to withdraw their money before maturity.

Children's Bonus Bonds are no longer available from the Post Office and will be re-named Children's Bonds. Children’s Bonds are now only available directly from NS&I, by post, telephone and online.

Before September 2012, parents missed interest on these bonds if they cashed it in during the first year. NS&I will now deduct 90 days' interest from the amount being cashed in if the bond has not reached maturity.

Customers with index-linked savings, who roll their money over into new certificates, now stand to lose 3.2% in returns from early withdrawals. NS&I savings certificates pay 0.25% above the retail prices index measure of inflation, which currently stands at 3.2%.

In the past, savers could cash in early after a year and it would only cost them the extra interest on top of the index-linked amount. This was a popular option for savers, because they could withdraw money from fixed accounts if they thought inflation would fall, or they needed the money early.

Now, customers removing their money early will leave with just 0.19% interest on the amount they withdraw for the year. The amount they withdraw will be stripped of 90 days' interest and index-linked returns.

John Prout, spokesperson for NS&I, said: “None of these changes impact customers until the end of an investment term. Even then we believe the changes will be of limited impact for most people and they need to take absolutely no action before they receive a maturity letter.”

Patrick Connolly, of AWD Chase de Vere, said: “While increasing exit penalties is never good news, the encashment terms previously offered were significantly better than their competitors and if anything were too generous, to the extent that it could encourage large numbers of investors to exit if their interest rates became uncompetitive. The exit penalty changes don’t apply to existing investors unless they roll over into a new product and they will be fully aware of all the facts before making any decision to do so.”

Why and When to use an IFA?


The next instalment of our A-Z Guide to Financial Planning focuses on the letter W - Why and When to use an IFA?

According to a report by Money Advice Service (MAS), 52% of the UK population has never sought financial advice. So why are people so reluctant to ask for help?  Knowing who to trust and when it's time to call in the experts is particularly pertinent where money is concerned, with many hesitant to ask for guidance, often sticking their head in the sand and avoiding financial situations.  

Over the years we face many hurdles, often unaware that these can be eased simply by turning to an IFA for support. So how can an IFA help? What life events should we be prepared for? When is it a good time to call in the experts?  We explore a number of situations where valuable knowledge and experience from a trusted IFA could be key.

  • Retirement:

It’s not surprising that personal retirement planning remains the main driver for people seeking independent financial advice, but there are fears that individuals are leaving financial planning too late. As people get older their expectation of when they will be able to retire changes, many believing that they cannot afford to retire early. In order to maximise your retirement options, a plan is essential and that’s where an IFA can assist.  An IFA can help you make retirement plans that fit in with your lifestyle, whether that includes working part time, spending more time with family or travelling  abroad.


  • Divorce:


Unfortunately, 1 in 2 marriages ends in divorce. Should this happen to you, it is vital that as well as speaking to your solicitor, you also obtain the advice of an IFA. An IFA will be able to assist you in completing certain paperwork, thereby speeding up the divorce process and reducing your legal fees.  In addition, they can assess the valuations of both parties’ pension benefits and help you and your ex-spouse achieve a fair settlement of these valuable benefits.


  • Inheritance:


It’s likely that you’ll have assets and money to leave to your loved ones.  With a little planning and support from an IFA, you can make sure that they get the full benefit of your life’s hard work.

An IFA can help you work out the best way to plan things to make sure you eventually leave your estate as tax efficient as you can. The sooner you can get started on planning the better,  so that your loved ones can make the most of the assets and other benefits you want to pass on to them.

Likewise, if you are a beneficiary in a will, you may receive a substantial sum of money or asset. If this should happen, having a trusted IFA on hand to explore the multitude of options available to you is invaluable.


  • Care:


Recent research by Partnership, a later-life funding specialist, shows that only seven per cent of consumers aged over 45 would turn to a professional adviser for help on planning how they would pay for care home fees. This is despite the average care home fee in England being nearly £38,000 a year. The cost of long-term care can quickly drain your nest egg. How can you plan ahead to make sure you don't run out of money? Whether you are a retiree who has yet to confront the challenge of paying for long-term care or a family member concerned with the rising costs of care that you may be responsible for. Seeking advice from an IFA could open the doors to a number of funding options available to help ease the financial burden of future care. To find out more, click here.


  • Family:


Naturally people over 50 often want to help secure the future finances of their family, such as providing a solid financial start for grandchildren.  Like any financial decision, there are many different factors to consider, for example the tax implications for you and the individual and how the money should be invested. An IFA can help you explore the wide variety of options available.

Paying for your future care – funding options available part 2

The proportion of elderly people requiring residential care and support in the home is increasing. The number is already significant and set to increase dramatically, as people continue to live longer and the quality of healthcare improves.  With this in mind, last month we introduced you to a series of care funding options available. This month, we present the final three: ‘Guarantee the capital value’, ‘Invest the proceeds’ and ‘Buy the necessary income’.


  • Option 4:  Guarantee the capital value

If you decide to sell your property, or the money for paying care fees exists already as a lump sum, one option for funding is to put that money on deposit and withdraw the fees as and when required.

The benefit of this approach is that the risk to capital is zero and the money is always readily available. Even if the bank or building society goes out of business, the Financial Services Compensation Scheme steps in and repays up to £85,000 per person per institution.

However, interest rates are currently at an all time low and deposit accounts have suffered from the effects of inflation, which can erode the real value of such savings over time. In addition, if the fees need to be paid for longer than expected, the savings could be used up, which may mean falling back on the state for support.


  • Option 5: Invest the proceeds

The second option for funding care fees from a lump sum would be to invest it. Over the longer term, stock market investments have traditionally outperformed cash deposits and also been more effective in maintaing the real purchasing power of that money, i.e. protecting against the effects of inflation.

If the income yield required is quite low, then this can be an option for individuals, as it may be possible to produce such a yield without taking too much investment risk. However, for someone who is going into a care home, the long term may not be an option.

The value of an investment can go down as well as up, particularly in the short term. This could cause capital to be eroded more quickly than expected. If the individual is dependent wholly on the lump sum being considered for investment and the yield required is significant, or the risk they are required to take needs a long term view, it might not be a suitable solution. 


  • Option 6: Buy the necessary income

One way where you can secure a fixed and agreed income for life is via an Immediate Needs Annuity.

The primary benefit of this option is that it secures that income for life, regardless of how long that is.  The usual method of purchase is a single lump sum payment in exchange for an income to cover all or part of the costs of long term care for the life of the individual. It is also possible to have different options depending on the circumstances and assets where the immediate needs annuity can be deferred.

Other features that can be added to the annuity are escalation rates and capital protection. Escalation attached to an annuity means the income paid to the care home rises by a fixed percentage each year and protects the income against inflation.

The exact costs of an annuity varies depending on the individual's age and current health. Life expectancy is fully accounted for in the cost, which will therefore be higher for a younger, more able person and lower for someone older and suffering from greater health impairment.

There are some risks which do need consideration. If the person seeking care does not live as long as expected, they may have paid more for the annuity than they would otherwise have received to meet the cost of care fees. Also, if the fees for the Care Home increase by more than the income paid by the annuity, then the shortfall will have to be met from other sources.

To view the first three care funding options available, click here.

Delaying retirement


The next instalment of our A-Z Guide to Financial Planning focuses on the letter D - Delaying retirement.

In times of market volatility, pension funds can rise and fall in value. If you are close to retirement, these changes can be difficult to deal with. Any last minute fall in value could hit the level of income you receive in the future - but similarly, any uplift after you retire is additional income you could be losing out on.

Unfortunately, none of us has a crystal ball and many people’s natural reaction is to put off making a decision. What many people don’t appreciate is that there are real costs associated with deferring too.

To help you make a more informed decision about whether to defer or not, we have identified below what we believe the 3 pertinent areas for you to be mindful of are and highlighted how they might affect you.


1. Attitude to Investment risks

Equity based investments are of course the most likely funds to be affected by short term movements in the markets.  Within a short space of time, news flow and changes in sentiment can severely hit the value of shares and therefore pension funds.

To counteract this risk, as many people get closer to their final retirement date, they might start to transfer their money from equities into less volatile investments such as bonds or cash. This can help consolidate the gains made over the term of the pension and protects at least some of the fund against any last minute downturns.

However, even if they have taken this precaution, if they then decide to defer for a period of time, whilst the capital value in cash deposits is guaranteed, any long term holdings could suffer in real terms from the effect of inflation.


2. The risk of Annuity rate changes

Over the past ten years, the general trend in annuity rates has been downwards. This is basically the result of two factors:

  • Increased longevity, meaning that pensions need to be paid for longer, reducing the amount available for a given fund value; and
  • Lower interest rates, and bond yields, on which the pricing of annuities depends.

Whether this situation will change, particularly in the short-term, is as difficult to predict as it is for any market movement.


3. The value of income forgone

Finally, people need to be aware of the income they are giving up by deferring. The results can come as quite a shock. 

As you get older, you actually become more likely to live even longer. For example:

  • A male aged 65 today is expected to live to 86 
  • BUT a male aged 70 today is expected to live to 87

Based on Office of National Statistics Cohort Life expectancy tables, 2010

Hence, the amount of income you will be offered at various stages will not reflect a linear relationship. All other things remaining equal, therefore, there is a cost to deferral.

An example:

Mr Smith is aged 65 but does not need to retire yet. He is considering deferring until he is 68 as he wishes to work part time. He has £100,000 in his pension fund.


Assuming Mr Smith's fund grows at an average of 6% pa net of charges for 3 years while it remains invested, he will be £2,641 a year better off by deferring to age 68. That is 33% more income than the £7,847 he would be offered now.

However, over that same 3 year period, Mr Smith will NOT receive £7,847 a year. That amounts to a total of £23,541 in income forgone - not including any interest he might also have received if the money had been placed on deposit.

So, whilst Mr Smith may get a £2,641 uplift for waiting, he loses £23,541 (+ interest) that he would otherwise have been paid. He will therefore be 77 years old before he finally begins to actually make some of that money back.

Paying for your future care – funding options available

The good news is that we are all living longer and despite what you might see on the news, the overall quality of healthcare is improving. The bad news is that the cost of care is also on the rise. 

As a result, more and more people are facing uncertainty around the cost of their future care and how those expensive payments will be met.

Despite residential care and support being one of the most costly events in a person's life, the number of people who get financial advice about it is very small.  According to research by the Local Government Intelligence Unit, 1 in 4 people paying for their own care run out of money. A lack of professional financial advice means they are not using their assets and resources in the most efficient way.

To help ensure you don’t get caught out, below is a brief guide showcasing  the first three of six care funding options currently available to you:

Option 1: The Deferred Payment Scheme

The Local Authority's Deferred Payment Scheme was set up to help people who do not qualify for Local Authority help because their capital assets, including the equity in their home, exceeded the means tested limit of £23,250.

The reason why people struggle to qualify is because the equity they have in their home is higher than the qualifying limit but their savings and other readily available assets are far below the level.

The Government has therefore set up the scheme to help people in this situation avoid a hasty sale. The scheme works by the Local Authority taking a charge on the property and paying the care fees on the homeowner's behalf. The total amount paid is treated as an interest free loan, using the property as security. This loan is then usually repaid when the house is sold, whether that be in the short term or after the death of the person in care.

There are some limitations:

  • The maximum fee the Local Authority will pay is restricted to the level which social services in their area would normally require to reasonably meet their care needs. This might be below the level of fees for the individual's chosen care home. (The individual is able to top this up from personal funds or donations from a third party)
  • Acceptance onto the scheme is subject to Local Authority discretion. There are no recent figures on acceptance of applicants onto this scheme. However, in a survey by Channel 4 in 2008, they found that an average of 1 in every 15 applicants were successful in being accepted onto the scheme.


Option 2: Rent the property out

Renting your property out is an option for any homeowner who does not want to live in their property but wishes to use its value to generate an income.

Before considering whether this is a financially viable option for paying care fees, there are first some questions to ask.

  • Is the property in a suitable state for renting?
  • Is some investment required to upgrade the property?
  • Is the location desirable for tenants?
  • Is there a suitable emergency fund to meet ongoing maintenance requirements whilst tenants are in the home?
  • How good would the net return be - and would it be sufficient to routinely meet the income gap?

In order to take into account the average rental returns, the Association of Residential Letting Agents (ARLA) undertake a quarterly review of the buy to let market as a whole. This might also help provide some insight into how this asset class is currently performing. 

The decision to rent out a property is the same as any other investment decision, there are risks involved.  Would you have the safety net to cover you if things turned against you for any period of time?


Option 3: Use Equity Release

Homeowners can use this to access the equity built up in their home without having to sell it. This can provide you with a lump sum, which can then be used to fund the fees required for the period they are needed.

The attractiveness of this option depends on the individual circumstances of the person in need of care. For example:

  • Equity release normally requires that someone is living in the property, so it may not be available to those who have been living alone.
  • Interest rolls up on the lump sum provided for the period in which someone lives there - so if that person is relatively young and healthy, the amount available via this route could be relatively small compared with the property value.

There are also some products which may be suitable for those couples where only one needs care (domiciliary or otherwise) and they need to self fund.

To find out the remaining three funding options available to you, keep an eye out for next months newsletter.


EU gender discrimination ruling will affect your retirement income – find out how

Following a landmark ruling from the European Court of Justice, as of December 2012, it will be illegal to price insurance products based on gender. Under the new rules the whole insurance industry will have to revolutionise how products, including annuities, life insurance and health insurance, are priced


  • How this will affect you and your retirement:

On reaching retirement, most people choose to buy an annuity with their pension fund, guaranteeing them an income for life. Currently, the annual income they can buy with their retirement pot depends on how long they are statistically likely to live; taking into account age, gender and health.

According to the latest figures available from the Office of National Statistics, in 2010 the average life expectancy for women was 82.3 years, whilst for men it was 78.2 years.

A woman would typically be offered a lower annuity rate than a man would with the same sized pension fund. As of December, all rates will be equalised, somewhere between the higher male rates and lower female rates for annuity purchases. Joint annuities, which at present are more likely to be purchased by men, are also likely to become more expensive. That means that women who rely on their partner’s pension pots will also suffer a lower income in retirement.

The impending change in regulations could result in an annuities ‘closing down sale’, with large numbers of men rushing to purchase annuities to take advantage of the higher annuity rates on offer before December.

With this change in mind, anyone looking to retire in the near future should carefully consider the options available to them before December.


  • Options available:

Much of the downward pressure on annuity rates is out of your control, but there is something you can do to help achieve the highest income available to you.

A large majority of people facing retirement are not exploring the Open Market Option (OMO), largely because they are not aware of it or its benefits. The OMO option allows anyone looking to utilise their pension fund the opportunity to browse the whole retirement market, not just their current provider, for the right product and most competitive rates.

More often than not, this can lead to a significant increase in income potential. It is estimated that more than two in three retirees do not explore the open market. This failure could result in decreases to their income by 15% or more.

So, at a time when annuity rates are declining, exploring the OMO road may at least help to soften the blow.


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