esm46 by steve wright

A Eureka moment! Discovering the right investment decisions to grow your wealth

The changing face of retirement A chance to explore new opportunities or carry on working on your terms

Passing on your wealth

Make sure your loved ones get your hardearned money and not the taxman

Time is running out Should you be taking advantage of current retirement planning rules?

y t i u Annllenged chapping aroudneal

Sho he best y off a for t really p ld cou

Controlling investment risk over time Achieving some peace of mind through market highs and lows

Financial planning is our business. Weâ&#x20AC;&#x2122;re passionate about making sure your finances are in good shape. Our range of personal financial planning services is extensive, covering areas from pensions to inheritance matters and tax-efficient investments. Contact us to discuss your current situation, and weâ&#x20AC;&#x2122;ll provide you with a complete financial wealth check.

IN THIS ISSUE

In this issue 05

The changing face of retirement A chance to explore new opportunities or carry on working on your terms

Maximising your retirement income What you need to consider with less than five years to retirement

Controlling investment risk over time

Improve your chances of achieving the retirement you want

NOT PUTTING ALL YOUR EGGS IN ONE BASKET

Passing on your wealth

CREATING A WIDER SPREAD OF INVESTMENT IN YOUR PORTFOLIO

We can make sure that your plan is on track to meeting your retirement goals

A Eureka moment!

Time is running out

The burden of tax in retirement

Discovering the right investment decisions to grow your wealth

Should you be taking advantage of current retirement planning rules?

Savers need to consider all retirement income solutions in order to achieve a degree of certainty

Annuity challenge

Are you utilising your pension savings efficiently?

Shopping around for the best deal could really pay off

A lack of planning could lead to an unexpected 55 per cent death tax on pension savings

Make sure your loved ones get your hardearned money and not the taxman

DO YOU HAVE PROTECTION FOR WHEN YOU NEED IT MOST

GENERATING A BIGGER RETIREMENT INCOME

Making the right decision to protect your personal and financial situation

Females could see a jump in pension income from 21 Decmber

INVESTING FOR INCOME

A GUIDE TO THE JARGON OF PROTECTION

The principal tenets of spreading risk

A broad spread of investments in which to invest, depending on your investment remit

Achieving some peace of mind through market highs and lows

Spreading capital costs across different shares and different asset classes

10 13 To your discuss fi pl nancia requanning l or toirements obta in fu inforrther matio n, pl contease act u s

A Glossary of terms

Build you own made-to-measure retirement solution We can help you measure up what type of portfolio best suits your circumstances

14 28 03

CONTENTS

Editorial Whatever your financial goals might be, we can help you grow your wealth so that you can enjoy it and pass it on. As your life changes over time, it’s important to ensure that your financial objectives continue to meet your requirements. There are many different tax-efficient ways to grow your wealth. On page 10, find out how we can help you understand the choices and make the investment decisions that are right for you. A generation ago, retirement meant stopping work completely and winding down. By contrast, the present generation – the baby-boomers – are much more likely to see it as a fresh start with a chance to explore new opportunities or carry on working on their terms. Read the full article on page 05. Estate preservation doesn’t only affect the very wealthy. Rising property prices have meant that it’s now an issue for an increasing number of people. So what are the areas you need to consider to protect your wealth? Turn to page 18. A full list of all the articles featured in this edition appears on page 03. Need more information? Simply complete and return the ‘Information Request’ on page 03. The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.

09 13 21

Retirement

The changing face of retirement

A chance to explore new opportunities or carry on working on your terms

A generation ago, retirement meant stopping work completely and winding down. By contrast, the present generation – the baby-boomers – are much more likely to see it as a fresh start with a chance to explore new opportunities or carry on working on their terms. More affluent lives We’re living longer, healthier and often more affluent lives. Today some retirees can expect to spend 20 or more years in retirement. The state pension age is rising, so many of us may have to work for longer before we can claim our pension benefits. It’s unlikely that the state will become more generous in the future, and fewer companies are offering final salary pension schemes.

Of course, retirement doesn’t have to mean a full stop to your working life. You might ease yourself in, cutting back the number of days a week that you work, or take on contract work. You might even decide to become an ‘olderpreneur’ and start your own business. n

Regardless of the life stage you have arrived at, it’s important to receive the right advice in preparation for your retirement. We can help you make the most of the different and somewhat complex planning opportunities. To find out more, please contact us to discuss your requirements.

Taking greater responsibility All of which means that we will need to take greater responsibility for our pension plans. On a positive note, the pension system has become more flexible, so now you don’t have to purchase an annuity with your pension pot if this option is not appropriate for your particular situation. In addition, if you have a Self-Invested Personal Pension (SIPP) you have the option of leaving your pension pot invested and drawing an income from it, subject to certain limitations.

Create your own vision These days there is no blueprint for retirement – you have to create your own vision of what you want from life after work. You might want to sell up and start a new life abroad. Popular destinations include Spain, France, USA, Canada and Ireland. Or you might prefer to stay in the UK but move closer to family and friends. At some point you might choose to downsize, perhaps to release some capital, cut your outgoings or help your children financially.

Retirement

MAXIMISING YOUR

retirement income What you need to consider with less than five years to retirement

The closer you get to taking your pension, the greater the need to preserve your savings and ensure they will last all through your retirement. In addition, you’ll need to consider whether you need to make changes to your investments as you approach retirement. With less than five years to go before retirement, there is still a lot you could do to maximise your eventual pension income. Take a look at our checklist to see how we could help you make the most of your pension pot.

In the run up to your retirement n R equest up-to-date statements for your personal and company pensions n G et an up-to-date state pension forecast at direct.gov.uk n T race any lost pensions through the Pension Tracing Service at direct.gov.uk

n If you want to take an annuity, decide which type. An annuity can, for example, increase by a set percentage or be linked to the rate of inflation n Look at impaired life annuities if you have any serious health issues

n I nclude any investments and savings when assessing your retirement income

n I f appropriate, consider consolidating your pension or pensions to a Self-Invested Personal Pension (SIPP) if you want to take income drawdown

n S eek professional financial advice if there’s a significant shortfall, as delaying or phasing retirement could be an option

n C onsider whether you want to take 25 per cent of your pension pot as a tax-free lump sum and think about how you might use this money

n R educe any potential investment risk to protect your pension from any downturns in the stock market as you approach retirement

n Write a will or review any existing will you have in place

n I f possible, augment your pension by increasing your contributions and/or adding lump sum payments n T ake advantage of any unused pension tax allowance. Current rules allow you to carry unused allowances forward for three years n T hink about whether you want to take your pension as an annuity or through income drawdown

What should you be doing in the run-up to retirement? To discuss your options, please contact us for more information. Don’t leave it to chance.

n Check what will happen to your pension if you die

If you want to take an annuity, decide which type. An annuity can, for example, increase by a set percentage or be linked to the rate of inflation.

n A ssess the value of your estate for inheritance tax (IHT) purposes and consider ways to reduce a potential liability n S eek professional advice if the value of your estate is significantly higher than the nil rate IHT band (currently £325,000) or your financial affairs are complicated All figures relate to the 2012/13 tax year. A pension is a long-term investment, and the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. The Financial Services Authority does not regulate estate planning, wills or trusts.

Investment

Controlling investment

risk over time

Achieving some peace of mind through market highs and lows In the light of recent market volatility, it’s perhaps natural to be looking for ways to smooth out your portfolio’s returns going forward. In a fluctuating market, investing regularly – a strategy known as ‘pound-cost averaging’ – can help smooth out the effect of market changes on the value of your investment and is one way to achieve some peace of mind. Increasing the long-term value This simple, time-tested method for controlling risk over time enables you, as an investor, to take advantage of stock market corrections. By using pound-cost averaging, you could increase the longterm value of your investments. There are, however, no guarantees that the return will be greater than a lump sum investment and it requires discipline not to cancel or suspend regular Direct Debit payments if markets continue to head downwards.

Investing money in equal amounts The basic idea behind pound-cost averaging is straightforward – the term simply refers to investing money in equal amounts at regular intervals. One way to do this is with a lump sum that you’d prefer to invest gradually – for example, by taking £50,000 and investing £5,000 each month for ten months. Alternatively, you could pound-cost average on an open-ended basis by investing, say, £1,000 every month. This principle means that you invest no matter what the market is doing. Pound-cost averaging can help investors limit losses, while also instilling a sense of investment discipline and ensuring that you’re buying at ever-lower prices in down markets.

Taking advantage of market down days

Averaging out the price you pay for market volatility

Investment professionals often say that the secret of good portfolio management is a simple one: market timing. Namely, to buy more on the days when the market goes down and to sell on the days when the market rises. As an individual investor, you may find it more difficult to make money through market timing. But you could take advantage of market down days if you save regularly, by using pound-cost averaging.

The same strategy can be used by lump sum investors too. Most fund management companies will give you the option of dripfeeding your lump sum investment into funds in regular amounts. By effectively ‘spreading’ your investment by making smaller contributions on a regular basis, you could help to average out the price you pay for market volatility.

Committing to making regular contributions

Any costs involved in making the regular investments will reduce the benefits of poundcost averaging (depending on the size of the charge relative to the size of the investment and the frequency of investing). As the years go by, it is likely that you will be able to increase the amount you invest each month, which would give your savings a valuable boost. n

Regular savings and investment schemes can be an effective way to benefit from poundcost averaging and they instil a savings habit by committing you to making regular monthly contributions. They are especially useful for small investors who want to put away a little each month. Investors with an established portfolio might also use this type of savings vehicle to build exposure a little at a time to higher-risk areas of a particular market.

Giving your savings a valuable boost

Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.

No matter how small the investment, committing to regular saving over the long term can build to a sizeable sum. The key to success is giving your investment time to grow. Regular investing may be ideal for people starting out or who want to take their first steps towards building a portfolio of funds for their long-term future. To find out more about the different options available to you, please contact us. 07

Wealth creation

Improve your chanceS

OF Achieving the retirement you want We can make sure that your plan is on track for meeting your retirement goals

Understanding how much you need to contribute towards a pension in order to produce the income you need or desire in retirement should be a key part of your financial plan. To arrive at this figure, the calculation needs to take into account any other assets you have earmarked for the long term, inflation, potential future fund growth and any state pension you are entitled to.

Wealth creation

Maximise your tax relief Pensions remain especially attractive to higher rate taxpayers. Although recent Budgets have been preceded by talk of ending higher rate relief, it’s still currently the case that up to 50 per cent of the cost of pension contributions can be picked up by HM Revenue & Customs but, if applicable to you, time is running out as this will reduce to 45 per cent from 6 April 2013.

Every pound counts Many employers operate a scheme that promises to match your contributions on a one-for-one basis. In other words, if you commit to paying, say, 5 per cent into your pension, your employer will do likewise. If you only pay 3 per cent, your employer may only pay 3 per cent. Such incentives provided by the employer are extremely attractive, especially when combined with tax relief.

Pension investment focus There will typically be a wide range of investment funds in which to invest your pension contributions. If you are ten years or more away from retirement, investing the bulk of the fund in equities could enable you to produce a bigger pension than a more cautious approach. Although many investors are cautious of the stock market during this economic

climate, it is important to focus on the long term. In reality, in the short term it matters little what your pension fund is worth in a year or two if you have 20 years or more before you retire.

Consolidating your pot With today’s mobile workforce, most people may accumulate several pension plans. Understand what these are worth, whether they are performing well and what you are being charged. In some cases, making the most of these assets can bring the financial choice of retirement closer by several years. It could make sense to consolidate your various pots by moving old money-purchase pensions to your current employer’s scheme if the charges are lower.

Reducing your exposure As retirement approaches, gradually reduce your exposure to shares by switching to lowerrisk funds during the six or seven years before retirement. Many defined contribution schemes offer ‘lifestyle’ funds that do this automatically, thereby largely mitigating the effect of any lastminute stock market downturns.

An income for life It is vital to understand your options at retirement. You will have the choice of taking

the pension offered by your own scheme or shopping around for a better annuity rate. If you are not in perfect health, you might qualify for an enhanced annuity from one of a number of specialist providers. Irrespective of your state of health, if you have a larger pension fund, consider income drawdown. This allows you to draw an income, while staying in control by maintaining the pension pot in your own name. n

You should review your pension on a regular basis to make sure that it’s on track to meeting your retirement goals. As you move through different phases of your life, you may also be able to increase your monthly contributions, which could improve your chance of achieving the retirement you want. If you’d like to find out more, please contact us. Don’t leave it to chance. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Pension drawdown can leave your funds open to investment risk and is not suitable for everyone.

Wealth creation

£10,600

Annual capital gains tax - free allowance for each individual

10%

The percentage of income tax payable on the dividends of shares for basic rate tax payers

£11,280 Annual Individual Savings Account (ISA) limit

A Eureka moment! Discovering the right investment decisions to grow your wealth

Whatever your financial goals might be, the ultimate aim is to grow your wealth so that you can enjoy it and pass it on. As your life changes over time, it’s important to ensure that your financial objectives continue to meet your requirements.

Retirement

The type and amount of tax payable will depend on the nature of your INVESTMENTS AND ON YOUR INCOME LEVEL. For higherrate and additional-rate taxpayers, returns from investments can be subject to significant taxes.

There are many different tax-efficient ways to grow your wealth. We can help you understand the choices and make the investment decisions that are right for you. This will depend on your life priorities, your goals and your attitude to risk.

a Stocks & Shares ISA. Alternatively, you could use your full £11,280 ISA allowance to invest in a Stocks & Shares ISA with one provider.

Potential for higher returns

The type and amount of tax payable will depend on the nature of your investments and on your income level. For higher rate and additional rate taxpayers, returns from investments can be subject to significant taxes in the form of income tax, capital gains tax (CGT) or both. CGT is a tax on the gain or profit you make when you sell something that you own, such as shares or property. This tax year there is a tax-free allowance worth £10,600 for each individual, so you’ll only be charged CGT for gains on assets above this level. CGT rates are 18 per cent for basic rate taxpayers and 28 per cent for higher and additional rate taxpayers.

A Stocks & Shares ISA can include individual shares or bonds, or pooled investments such as investment trusts. The main advantage of investing in a Stocks & Shares ISA is the potential for higher returns than with a Cash ISA, which pays interest at regular periods. Of course, like any investment, the value of a Stocks & Shares ISA can fall as well as rise, which means you might not get back the money you invest. For higher (40 per cent) and additional (50 per cent) rate tax payers, dividends received inside an ISA suffer no further tax. This means investors retain 25 per cent and 36.1 per cent more of the dividend respectively than if the same investment were held outside an ISA.

Tax on dividends

Junior ISAs

Dividends on shares are subject to income tax, with 10 per cent being deducted at source before each payment. There are three different income tax rates on UK dividends, depending on your income level: 10 per cent (basic rate taxpayers); 32.5 per cent (higher rate taxpayers); and 42.5 per cent (additional rate taxpayers). Non-taxpayers cannot reclaim the 10 per cent deducted at source. When you invest in UK shares you’re taxed on the transaction. This is known as Stamp Duty Reserve Tax (SDRT) for electronic transactions and Stamp Duty for transactions.

Junior ISAs are long-term tax-efficient savings accounts especially for children. They are available to any child under 18, living in the UK, who does not have a Child Trust Fund (CTF) account. Like ISAs, you can use them to save cash or invest in stocks and shares. In the current tax year you can save up to £3,600 in a Junior ISA with no tax payable on the interest or dividends. Children aged 16 can also choose to open an adult Cash ISA as well as a Junior ISA. n

Tax on investments

Protecting your wealth from tax If appropriate, you may wish to consider reducing your tax bill by structuring your savings so that they are owned by the lowest rate taxpayer in your family or household. Another way to prevent tax eroding your money is to put your cash into tax-efficient savings and investment wrappers, such as an Individual Savings Account (ISA). Because of their tax efficiency, there is an annual limit on how much money you can put into ISAs. The annual limit for the current 2012/13 tax year is £11,280 and this limit is set to increase each year in line with inflation. Up to £5,640 of your annual limit can be saved in a Cash ISA. The remainder can be invested in

We work with our clients to build tailored financial plans based on their specific financial goals and needs and help them put that plan into action. If you would like to discuss the range of services we offer, please contact us for further information. All figures relate to the 2012/13 tax year. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested.

Time is running out Should you be taking advantage of current retirement planning rules? Pensions have long been a highly tax-efficient way to save for retirement. If applicable to your particular situation, here are two opportunities you may wish to consider before the rules change next April.

50 per cent tax relief While the 50 per cent additional tax rate is in place, it is still possible to receive up to 50 per cent tax relief on contributions to pensions during this current tax year. The 50 per cent rate will be reduced to 45 per cent from 6 April 2013, and this is therefore the last tax year to receive tax relief at up to 50 per cent on pension contributions.

Carry forward of unused reliefs You may be able to contribute in excess of the annual allowance of £50,000 and receive tax relief using Carry Forward relief if you have contributed less than £50,000 in any of the previous three tax years. If you pay 50 per cent tax, you need to do this in the current tax year to maximise tax relief before it drops to 45 per cent. As this is a complex area, professional advice should be sought. n

Weighing up all the options when you are thinking about retirement planning can seem daunting. To find out how we can help you, please contact us to discuss your requirements. All figures relate to the 2012/13 tax year. A pension is a long-term investment, and the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

You’ve protected your most valuable assets. But how financially secure are your dependents? Timely decisions on how jointly owned assets are held, the mitigation of inheritance tax, the preparation of a will and the creation of trusts, can all help ensure your dependents are financially secure. Contact us to discuss how to safeguard your dependents, wealth and assets, don’t leave it until it’s too late.

RETIREMENT

Annuity challenge Shopping around for the best deal could really pay off

7.15m

The burden of

The number of UK retired households

tax in retirement Savers need to consider all retirement income solutions in order to achieve a degree of certainty The average UK pensioner household pays out 29 per cent of its income in retirement to the taxman through a combination of direct and indirect taxation, which adds up to an annual tax bill of nearly £42bn, new analysis [1] from MetLife shows (25/07/12). Pensioner household income

Planning for retirement

On an average gross pensioner household income of £20,130, that equates to £5,864 paid out in tax, with income tax accounting for nearly £1,501 of the bill and indirect taxes including VAT totalling £1,937. Council tax is the third-largest tax burden, accounting for 5.8 per cent of gross income. With an average tax liability of £5,864 for the UK’s 7.15 million retired households, the bill from direct and indirect taxation equates to around £41.9bn. In total, direct taxes, including income tax and council tax, account for 12.2 per cent out of the 29 per cent tax burden with indirect taxes, including VAT, duty on tobacco, alcohol and petrol, vehicle excise duty and TV licences, accounting for 16.8 per cent.

Pensioners need to think about the effects of direct and indirect tax on their retirement income and plan accordingly. With 29 per cent of gross retirement income being swallowed up by tax, it is clearly a major factor to consider when planning for retirement. When you add in the potential effects of inflation in a retirement lasting up to 20 or even 30 years, it is clear that savers need to consider all retirement income solutions in order to achieve a degree of certainty.

Direct and indirect tax However, less well-off households proportionally pay out the most in direct and indirect tax with 42 per cent of their gross household income being paid out in tax. The bottom tenth of pensioner households, in receipt of gross income estimated at £8,259 a year, pay £3,599 in taxes. The top 10 per cent of pensioner households, with gross income of £47,992, see 29 per cent of their income going in direct and indirect tax.

Investments and savings MetLife’s analysis shows that the average retired household receives 40 per cent of its gross income from private and occupational pensions, with 39 per cent coming from the State Pension and the rest coming from investments and savings plus other benefits. The average private pension pays £8,134 per household before taxes. n Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. [1] MetLife analysis of the ONS Wealth and Assets Survey. ONS estimates that there are 7.151 million retired households.

An annuity provides you with a guaranteed income for life when you retire. You buy an annuity using a lump sum from your pension or, perhaps, from some savings. Annuities remove the worry about having to budget for an unknown period of time. We can help you understand the retirement process and find the right annuity for you.

There’s no going back Once you’ve bought an annuity there’s no going back, so you’ve got to get it right first time. Depending on the provider you go to, you could increase your income considerably by shopping around. If you’re not in the best of health, you may also be eligible for an annuity called an ‘enhanced’ or ‘impaired’ annuity. These products pay higher rates because the annuity providers expect to pay the annuity over a shorter time period.

Shop around for the best deal With most pensions, you automatically have what’s called an ‘open-market option’ (OMO). This means you don’t have to take the pension offered to you by your pension provider, but have the right to take your built-up fund to another provider to obtain a higher annuity rate. Pension providers are obliged to remind you of your right to take the OMO. The amount of income you will receive from your annuity will vary between different insurance companies, so it’s essential to make comparisons before making your decision. n

Ready to turn your pension fund into an income for life?

It’s essential that you take professional advice to help you decide what type of annuity will work best for you. To get the most out of your pension savings fund you should be confident that you are making the right decisions about your retirement income. To discuss how we could help you, please contact us for further information. A pension is a long-term investment, and the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. The value of level annuities will be eroded by inflation over time. Once taken, an annuity cannot be changed.

RETIREMENT

Are you utilising your

pension savings efficiently? A lack of planning could lead to an unexpected 55 per cent death tax on pension savings

A worrying number of people in retirement are not utilising their pension savings efficiently, according to statistics revealed by Skandia (30/07/12). This could result in their pension funds being subject to an unexpected 55 per cent tax charge on death. This tax charge could be avoided or reduced in many cases. Not taking an income The data provided by Skandia shows that 59 per cent of customers in ‘capped drawdown’ are not taking an income. These are individuals who have taken their maximum tax-free cash lump sum and left the rest of their pension fund invested. The remaining pension fund is technically in ‘drawdown’, even though they are not taking an income, which means that the remaining pension fund is subject to a 55 per cent tax charge if paid as a lump sum to a beneficiary on the member’s death.

Substantial tax charge For those who die below age 75, this tax charge was increased from 35 per cent to 55 per cent in April 2011, so many people may still be unaware of it. The 55 per cent tax charge is a substantial figure, and if applicable to you, it is essential that you obtain professional advice to see how best to mitigate this tax liability. Some key areas to look at include:

Untouched pension funds can be left to beneficiaries without any tax charge. You could consider phasing the amount you move into drawdown, using tax-free cash to provide part of your immediate income needs. You could consider taking an income from the remaining money in drawdown. If you do not need the income, you may reinvest it back into a pension as a contribution. Contributions will benefit from tax relief, and the pension fund built from those contributions will not be deemed in drawdown, so will not be subject to a 55 per cent tax charge on the member’s death before age 75. ‘Flexible’ drawdown can be used to enable money to be moved out of the 55 per cent taxed environment at a much quicker rate than ‘capped’ drawdown. To qualify for flexible drawdown you must be receiving at least £20,000 guaranteed pension income a year and have unrestricted access to the remaining pension fund.

Age 75 onwards Under age 75 It is only money held in drawdown that is potentially subject to a 55 per cent tax charge on death under age 75.

All money left in a pension is subject to a 55 per cent tax charge on death, regardless of whether the funds are in drawdown or not.

RETIREMENT

If appropriate, consider accessing as much of your pension fund as possible to move money outside of this 55 per cent tax charged environment. Flexible drawdown can again be used to move money out of the 55 per cent taxed environment at a quicker speed than capped drawdown allows.

Unnecessarily high exposure Leaving money inside the 55 per cent taxed environment may not always be a bad thing, especially when taking into account income tax and inheritance tax implications if it is moved to within your estate. It only becomes a concern if a lack of planning gives you an unnecessarily high exposure to this 55 per cent death tax, when action could be taken to reduce your exposure.

until gilt yields and stock markets improve as this could help secure a higher income level. Delaying income could be part of your long-term financial plan; however, if you are unaware of the implications your actions could have, your beneficiaries may, on your death, face an unexpected 55 per cent tax charge on part of those savings. n All figures relate to the 2012/13 tax year. A pension is a long-term investment, and the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Exacerbating the situation The current economic climate is probably exacerbating the situation, because people may be delaying taking an income

Whether you are thinking of starting a pension, reviewing your existing pension provision or are about to take benefits from a scheme, find out how we could help you plan for the most important time of your life.

59%

Percentage of customers in ‘capped drawdown’ that are not taking an income

Isnâ&#x20AC;&#x2122;t it time you had a financial review? Weâ&#x20AC;&#x2122;ll make sure you get the right advice for your individual needs. We provide professional financial advice covering most areas of financial planning, including, tax-efficient savings, investment advice, retirement planning, estate & inheritance tax planning, life protection, critical illness cover and income protection. To discuss your options, please contact us.

Investment

NOT PUTTING ALL

YOUR EGGS IN ONE BASKET The principal tenets of spreading risk

One of the principal tenets of spreading risk in your portfolio is to diversify your investments whatever the time of year. Diversification is the process of investing in areas that have little or no relation to each other. This is called a ‘low correlation’. Diversification helps lessen what’s known as ‘unsystematic risk’, such as reductions in the value of certain investment sectors, regions or asset types in general. But there are some events and risks that diversification cannot help with – these are referred to as ‘systemic risks’. These include interest rates, inflation, wars and recession. This is important to remember when building your portfolio.

The main ways you can diversify your portfolio

that aren’t related to each other. For example, if the healthcare sector takes a downturn, this will not necessarily have an impact on the precious metals sector. This helps to make sure your portfolio is protected from falls in certain industries.

Geography Investing in different regions and countries can reduce the impact of stock market movements. This means you’re not just affected by the economic conditions of one country and one government’s fiscal policies.

Many markets are not correlated with each other – if the Asian Pacific stock markets perform poorly, it doesn’t necessarily mean that the UK’s market will be negatively affected. By investing in different regions and areas, you’re spreading the risk that comes from the markets. Developed markets such as the UK and US are not as volatile as some of those in the Far East, Middle East or Africa. Investing abroad can help you diversify, but you need to be comfortable with the levels of risk that come with them.

Company It’s important not to invest in just one company. Spread your investments across a range of different companies. The same can be said for bonds and property. One of the best ways to do this is via a collective investment scheme. This type of scheme invests in a portfolio of different shares, bonds, properties or currencies to spread risk around.

Beware of over-diversification Holding too many assets might be more detrimental to your portfolio than good. If you over-diversify, you may be holding back your capacity for growth as you’ll have such small proportions of your money in different investments that you won’t see much in the way of positive results. n Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor.

Assets Having a mix of different asset types will spread risk because their movements are either unrelated or inversely related to each other. It’s the old adage of not putting all your eggs in one basket. Probably the best example of this is shares, or equities, and bonds. Equities are riskier than bonds, and can provide growth in your portfolio, but, traditionally, when the value of shares begins to fall bonds begin to rise, and vice versa. Therefore, if you mix your portfolio between equities and bonds, you’re spreading the risk because when one drops the other should rise to cushion your losses. Other asset types, such as property and commodities, move independently of each other and investment in these areas can spread risk further.

Sector Once you’ve decided on the assets you want in your portfolio, you can diversify further by investing in different sectors, preferably those

We can help you maximise your wealth creation potential and develop an investment strategy based on your requirements. Please contact us to look at the options available to you.

Financial protection

PASSING ON YOUR WEALTH

Make sure your loved ones get your hard-earned money and not the taxman

Estate preservation doesn’t only affect the very wealthy. Rising property prices have meant that it’s now an issue for an increasing number of people. So what are the areas you need to consider to protect your wealth? Write a will A will is an essential part of your financial planning. Not only does it set out your wishes but if you die without a will your estate will generally be divided according to the rules of intestacy, which may not reflect your wishes. This can be particularly problematic for unmarried couples, as the surviving partner doesn’t have any automatic rights to inherit, but it can also create problems for married couples and civil partners. Married couples or civil partners inherit under the rules of intestacy only if they are actually married or in a registered civil partnership at the time of death. So if you are divorced or if your civil partnership has been legally ended, you can’t inherit under the rules of intestacy. But partners who separated informally can still inherit under the rules of intestacy.

Inheritance tax While a will helps to ensure that your estate is distributed according to your wishes, the inheritance tax (IHT) rules mean that one of your beneficiaries could be the taxman. Your estate is made up of everything you own minus any debts such as mortgages, loans and your funeral expenses. If the value of your estate exceeds the IHT nil rate band (currently £325,000), the surplus will be taxed at 40 per cent. An extra rule applies to married couples and registered civil partners. The transferable nil rate band means that the surviving spouse or partner can use any of their partner’s unused nil rate band (NRB).

We can provide effective solutions to meet your insurance and protection needs, whether you require life cover or advice on IHT. To find out how we can offer the right advice to suit you and your family, please contact us for more information.

Minimising your inheritance tax liability Having paid tax throughout our lives, few of us want to leave the taxman more when we die and there are a number of ways to reduce the potential amount that will need to be handed over.

Gifts Giving away your estate can be an effective way to reduce a future IHT liability. Exempt Transfers: these are gifts where IHT will never be payable. Potentially Exempt Transfers: these can become exempt from IHT if you survive for seven years from when you make the gift.

In these situations, a trust can be a good option. Trusts may allow you to reduce the value of your estate but retain some control over who receives the gift and when. This is a very complex area, so it is important to seek professional advice when considering this option.

Insurance If it is likely that IHT will be payable on your estate, a whole-of-life policy written under an appropriate trust can be used to ensure that funds are available to pay all or some of any future IHT bill. Provided you pay the premiums, the proceeds of the policy will be paid to your estate when you die. It is vital to have the policy written under an appropriate trust to ensure that the money paid out by the policy is outside your estate. This ensures that the money can be used to settle the IHT tax bill rather than add to it.

Pensions Chargeable Lifetime Transfers: these may incur an immediate IHT charge of 20 per cent. Further IHT may be payable if you die within seven years of making the gift. To avoid making a Gift with Reservation, which will not reduce your estate for IHT, you must give away the asset you are gifting completely.

Trusts Sometimes giving money outright might not be the best solution. For instance, you might want to give money to a child but be worried about how they might spend it, or you might want to leave some money for grandchildren but do not yet know how many you’ll have.

In certain situations, a lump sum may be payable from a pension plan when the member dies. Depending on the scheme rules, it may be possible for the member to nominate an individual or a trust to receive this lump sum and to make this payment tax-efficient. n All figures relate to the 2012/13 tax year. The Financial Services Authority does not regulate estate planning, wills or trusts.

Achieving a comfortable retirement. Do you need a professional assessment of your situation to make this a reality? If you are unsure whether your pension is performing in line with your expectations, and that you’ve made the right pension choices – don’t leave it to chance. Contact us to discuss these and other important questions, and we’ll help guide you to a comfortable retirement.

Investment

CREATING A WIDER

spread of investments in your portfolio A broad spread of instruments in which to invest, depending on your investment remit

If you require your money to provide the potential for capital growth or income, or a combination of both, provided you are willing to accept an element of risk pooled investments could just be the solution you are looking for. A pooled investment allows you to invest in a large, professionally managed portfolio of assets with many other investors. As a result of this, the risk is reduced due to the wider spread of investments in the portfolio. A broad spread of instruments Pooled investments are also sometimes called ‘collective investments’. The fund manager will choose a broad spread of instruments in which to invest, depending on their investment remit. The main asset classes available to invest in are shares, bonds, gilts, property and other specialist areas such as hedge funds or ‘guaranteed funds’. Most pooled investment funds are actively managed. The fund manager researches the market and buys and sells assets with the aim of providing a good return for investors.

Keeping track Trackers, on the other hand, are passively managed, aiming to track the market in which they are invested. For example, a FTSE100 tracker would aim to replicate the movement of the FTSE100 (the index of the largest 100 UK companies). They might do this by buying the equivalent proportion of all the shares in the index. For technical reasons the return is rarely identical to the index, in particular because charges need to be deducted. Trackers tend to have lower charges than actively managed funds. This is because a fund manager running an actively managed fund is paid to invest so as to do better than the index (beat the market) or to generate a steadier

return for investors than tracking the index would achieve. However, active management does not guarantee that the fund will outperform the market or a tracker fund.

Unit trusts Unit trusts are a collective investment that allows you to participate in a wider range of investments than can normally be achieved on your own with smaller sums of money. Pooling your money with others also reduces the risk. The unit trust fund is divided into units, each of which represents a tiny share of the overall portfolio. Each day the portfolio is valued, which determines the value of the units. When the portfolio value rises, the price of the units increases. When the portfolio value goes down, the price of the units falls.

and natural resources, as well as many putting their money into bonds. Some offer a blend of equities, bonds, property and cash and are known as balanced funds. If you wish to marry your profits with your principles you can also invest in an ethical fund.

A number of other funds Some funds invest not in shares directly but in a number of other funds. These are known as multi-manager funds. Most fund managers use their own judgment to assemble a portfolio of shares for their funds. These are known as actively managed funds. However, a sizeable minority of funds simply aim to replicate a particular index, such as the FTSE all-share index. These are known as passive funds, or trackers.

Making the investment decisions

Open-ended investment companies

The unit trust is run by a fund manager, or a team of managers, who will make the investment decisions. They invest in stock markets all round the world and for the more adventurous investor, there are funds investing in individual emerging markets, such as China, or in the so-called BRIC economies (Brazil, Russia, India and China). Alternatively some funds invest in metals

Open-ended investment companies (OEICs) are stock market-quoted collective investment schemes. Like unit trusts and investment trusts they invest in a variety of assets to generate a return for investors. An OEIC, pronounced ‘oik’, is a pooled collective investment vehicle in company form. They may have an umbrella fund structure allowing for many sub-funds with different

Investment

investment objectives. This means you can invest for income and growth in the same umbrella fund moving your money from one sub fund to another as your investment priorities or circumstances change. OEICs may also offer different share classes for the same fund.

Expanding and contracting in response to demand By being “open ended” OEICs can expand and contract in response to demand, just like unit trusts. The share price of an OEIC is the value of all the underlying investments divided by the number of shares in issue. As an open-ended fund the fund gets bigger and more shares are created as more people invest. The fund shrinks and shares are cancelled as people withdraw their money. You may invest into an OEIC through a stocks and shares Individual Savings Account ISA. Each time you invest in an OEIC fund you will be allocated a number of shares. You can choose either income or accumulation shares, depending on whether you are looking for your investment to grow or to provide you with income, providing they are available for the fund you want to invest in.

Investment trusts Investment trusts are based upon fixed amounts of capital divided into shares. This makes them closed ended, unlike the open-ended structure of unit trusts. They can be one of the easiest and most cost-effective ways to invest in the stock market. Once the capital has been divided into shares, you can purchase the shares. When

an investment trust sells shares, it is not taxed on any capital gains it has made. By contrast, private investors are subject to capital gains tax when they sell shares in their own portfolio. Another major difference between investment trusts and unit trusts is that investment trusts can borrow money for their investments, known as gearing up, whereas unit trusts cannot. Gearing up can work either to the advantage or disadvantage of investment trusts, depending on whether the stock market is rising or falling.

The ability to borrow money for investments Investment trusts can also invest in unquoted or unlisted companies, which may not be trading on the stock exchange either because they don’t wish to or because they don’t meet the given criteria. This facility, combined with the ability to borrow money for investments, can however make investment trusts more volatile. The net asset value (NAV) is the total market value of all the trust’s investments and assets minus any liabilities. The NAV per share is the net asset value of the trust divided by the number of shares in issue. The share price of an investment trust depends on the supply and demand for its shares in the stock market. This can result in the price being at a ‘discount’ or a ‘premium’ to the NAV per share.

is less than the NAV per share. This means that investors are able to buy shares in the investment trust at less than the underlying stock market value of the trust’s assets. A trust’s shares are said to be at a premium when the market price is more than the NAV per share. This means that investors are buying shares in the trust at a higher price than the underlying stock market value of the trust’s assets. The movement in discounts and premiums is a useful way to indicate the market’s perception of the potential performance of a particular trust or the market where it invests. Discounts and premiums are also one of the key differences between investment trusts and unit trusts or OEICs. n

We can help you maximise your investment potential and develop a strategy for the future. Please contact us to look at the options available to you. Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.

Less than the underlying stock market value A trust’s share price is said to be at a discount when the market price of the trust’s shares

Protection

DO YOU HAVE PROTECTION

for when you most need it?

Making the right decision to protect your personal and financial situation With so many different protection options available, making the right decision to protect your personal and financial situation can seem overwhelming. There is a plethora of protection solutions which could help ensure that a lump sum, or a replacement income, becomes available to you in the event that it is needed. We can make sure that you are able to take the right decisions to deliver peace of mind for you and your family in the event of death, if you are too ill to work or if you are diagnosed with a critical illness. You can choose protection-only insurance, which is called ‘term insurance’. In its simplest form, it pays out a specified amount if you die within a selected period of years. If you survive, it pays out nothing. It is one of the cheapest ways overall of buying the cover you may need. Alternatively, a whole-of-life policy provides cover for as long as you live.

Life Assurance Options Whole-of-life assurance plans can be used to ensure that a guaranteed lump sum is paid to your estate in the event of your premature death. To avoid inheritance tax and probate delays, policies should be set up under an appropriate trust. Level term plans provide a lump sum for your beneficiaries in the event of your death over a specified term. Family income benefit plans give a replacement income for beneficiaries on your premature death. Decreasing term protection plans pay out a lump sum in the event of your death to cover a reducing liability for a fixed period, such as a repayment mortgage. Simply having life assurance may not be sufficient. For instance, if you contracted a near-fatal disease or illness, how would you cope financially? You may not be able to work and so lose your income, but you are still alive so your life assurance does not pay out. And to compound the problem, you may also require

additional expensive nursing care, have to adapt your home or even move to another more suitable property. Income Protection Insurance (IPI) formerly known as permanent health insurance would make up a percentage of your lost income caused by an illness, accident or disability. Rates vary according to the dangers associated with your occupation, age, state of health and gender but IPI is particularly important if you are self employed or if you do not have an employer that would continue to pay your salary if you were unable to work. If you are diagnosed with suffering from one of a number of specified ‘critical’ illnesses, a critical illness insurance policy would pay out a tax-free lump sum if the event occurred during the term of your policy. Many life insurance companies offer policies that cover you for both death and critical illness and will pay out the guaranteed benefit on the first event to occur. Beyond taking the obvious step of ensuring that you have adequate insurance cover, you should also ensure that you have made a will. A living will makes clear your wishes in the event that, for example, you are pronounced clinically dead following an accident, and executes an enduring power of attorney, so that if you become incapable of managing your affairs as a result of an accident or illness, you can be reassured that responsibility will pass to someone you have chosen and trust. Of course, all these protection options also apply to your spouse and to those who are in civil partnerships. n The Financial Services Authority does not regulate estate planning, wills or trusts.

We can provide effective solutions to meet your insurance and protection needs, whether you require life cover or advice on ESTATE PROTECTION. To find out how we can offer the right advice to suit you and your family, please contact us for more information.

RETIREMENT

GENERATING A BIGGER

RETIREMENT INCOME Females could see a jump in pension income from 21 December

HM Revenue & Customs (HMRC) confirmed recently that gender neutral income factors will apply to capped income withdrawals. From 21 December 2012, the rates used to calculate the maximum amount of income a female can take from her pension each year in drawdown will be based on male life expectancy rates. This could result in a significant increase, of around 8 per cent, in the maximum income withdrawal limit available to females.

gender neutral rules, and life offices are responsible for adjusting their calculations accordingly. How this will play out in the market is yet to be seen, but the rates are

period. Females approaching retirement today, and considering capped income, should ensure they choose a provider with flexible review periods, or hold back some pension money to

Maximum capped income rates

likely to gravitate towards the female rates rather then towards the male rates, so females are unlikely to see any significant improvement in annuity terms. The fact that HMRC has taken this step is an interesting move, and one which could significantly benefit females taking the capped income withdrawal route. Maximum income levels have been adversely impacted recently due to the record low gilt yield and volatile market conditions, so this should be a welcome relief for many females.

top-up their drawdown fund after 21 December, so the entire income amount is recalculated to benefit from the rule change. n

Currently, maximum capped income rates are calculated using two different tables, one for males and one for females. As males tend to have a lower life expectancy than females, the amount of income males can withdraw from their pension has tended to be higher than for females. HMRC has decided to withdraw the female table, so all calculations, from 21 December, will be based on the male life expectancy rates.

Increase the appeal of capped income withdrawal This jump of around 8 per cent per annum may help increase the appeal of capped income withdrawal at retirement for females. Annuities are also caught by the

Choosing a provider with flexible review periods Females already taking a capped income can benefit from this rule change at their next review

FIND OUT MORE This is a complex area and you should seek professional advice. Please contact us for further information. All figures relate to the 2012/2013 tax year. A pension is a long term investment the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Investment

Investing fOR income

Spreading capital across different shares and different asset classes The recent volatility of global markets has tested the nerves of even the most experienced investors, making it a difficult time for individuals who rely on income from investments for some or all of their needs. To avoid concentrating risk, it is important not to ‘put all your eggs in one basket’ by investing in just one share or in one asset class. If appropriate to your particular situation spreading capital across different shares and different asset classes can reduce the overall level of risk.

Create a diversified portfolio There are opportunities to create a diversified portfolio through investing with fund managers who have the experience, talent and robust investment process that can withstand the ever-changing economic and financial climate and deliver a return above inflation over the medium to long term. Funds are typically seen as a way to build up a lump sum of money over time, perhaps for retirement, but they can also be used to provide you with a regular income.

Type of income funds There are four main types of income fund: Money Market Funds – pay interest and aim to protect the value of your money. Bond (Fixed Income) Funds – pay a higher rate of interest than cash deposits, but there is some risk that the value of your original investment will fall. Equity Income Funds – the income comes from

dividends paid to shareholders. In return for some risk to your capital, you may get a more regular income than you would from cash, and that income, as well as your capital, may increase over time. Property Funds – pay income from rents, but the value of your investment can fall as well as rise. There are also mixed asset funds, which invest your money in both bonds and equities.

Generating income Interest from cash or money market funds The income varies in line with the interest rate set by the Bank of England. The fund’s investment manager will aim to get the best rate available, helped by that fact that, with large sums to deposit, funds can often get better rates than individual investors. The capital amount you originally invested is unlikely to go down (subject to the limits for each deposit under the Financial Services Compensation Scheme). If the interest rate is lower than the rate of inflation, however, the real spending value of your investment is likely to fall.

Fixed interest from bonds Bonds are issued by governments (known as gilts in the UK) and companies (corporate bonds) to

investors as a way to borrow money for a set period of time (perhaps 5 or 10 years). During that time, the borrower pays investors a fixed interest income (also known as a coupon) each year, and agrees to pay back the capital amount originally invested at an agreed future date (the redemption date). If you sell before that date, you will get the market price, which may be more or less than your original investment. Many factors can affect the market price of bonds. The biggest fear is that the issuer/borrower will not be able to pay its lenders the interest and ultimately be unable to pay back the loan. Every bond is given a credit rating. This gives investors an indication of how likely the borrower is to pay the interest and to repay the loan. Typically, the lower the credit rating, the higher the income investors can expect to receive in return for the additional risk. A more general concern is inflation, which will erode the real value of the interest paid by bonds. Falling inflation, often associated with falling bank interest rates, is therefore, typically good news for bond investors. Typically, bond prices rise if interest rates are expected to fall, and fall if interest rates go up. If you invest in bonds via a fund, your income is likely to be steady, but it will not be fixed, as is the case in a single bond. This is because the mix of bonds held in the fund varies as bonds mature and new opportunities arise.

Investment

Dividends from shares and equity income funds Many companies distribute part of their profits each year to their shareholders in the form of dividends. Companies usually seek to keep their dividend distributions at a similar level to the previous year, or increase them if profit levels are high enough to warrant it.

Rental income from property and property funds Some people invest in “buy-to-let” properties in order to seek rental income and potential increase in property values. Property funds typically invest in commercial properties for the same reasons, but there are risks attached. For example, the underlying properties might be difficult to let and rental yields could fall. This could affect both the income you get and the capital value.

Balance your need for a regular income with the risks The income from a fund may be higher and more stable than the interest you get from cash deposited in a bank or building society savings account, but it can still go up and down. There

may be some risk to the capital value of your investment, but if a regular income is important to you and you do not need to cash-in your investment for now, you may be prepared to take this risk.

twice a year, quarterly or monthly, so you can invest in a fund which has a distribution policy to suit your income needs.

Income funds of the same type are grouped in sectors

The income generated in a fund is paid out in cash to investors who own income units. If you choose the alternative - accumulation units/shares - your share of the income will automatically be reinvested back into the fund. n

The main sectors for income investors are: Money Market; Fixed Income (including UK Gilts, UK index-linked Gilts, Corporate Bond, Strategic Bond, Global Bond and High Yield); Equity Income; Mixed Asset (ie.UK Equity and Bond) and Property.

Look at the fund yield This figure allows you to assess how much income you may expect to get from a fund in one year. In the simplest form, it is the annual income as a percentage of the sum invested. Yields on bond funds can also be used to indicate the risks to your capital.

Decide how frequently you wish to receive your income All income funds must pay income at least annually, but some will pay income distributions

Select income units/shares if you need cash regularly

Need help? There are many facets to your financial personality. There are many ways to generate income. To discuss the options available to you or to review your current provision, please contact us.

Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor.

GLOSSARY

A guide to THE

jargon of protection Assured

Family Income Benefit

Key Person (Key Man) Insurance

A person or persons who are insured under the terms of a protection policy.

A term assurance policy that pays regular benefits on death to the end of the plan term.

Insurance against the death or disability of a person who is vital to the profitability of a business.

Convertible Term Assurance

Guaranteed Premiums

Level Term Assurance

A term assurance plan that gives the owner the option to convert the policy to a whole-of-life contract or endowment, without the need for medical checks.

This means the premiums are guaranteed to remain the same for the duration of the plan, unless you increase the amount of cover via ‘indexation’.

A life assurance policy that pays out a fixed sum on the death of the life assured within the plan term. No surrender value is accumulated.

Critical Illness Cover

Income Protection

Critical Illness Cover is an insurance plan that pays out a guaranteed tax-free cash sum if you’re diagnosed as suffering from a specified critical illness covered by the plan. There is no payment if you die. You can take out the plan on your own or with someone else. For joint policies the cash sum is normally payable only once, on the first claim.

This insurance provides you with a regular taxfree income if, by reason of sickness or accident, you are unable to work, resulting in a loss of earnings. Income Protection is also known as Permanent Health Insurance (PHI). You can arrange for your insurance benefit and premiums to increase annually in line with inflation or at a fixed percentage. Premiums are normally increased in line with RPI (Retail Prices Index) or NAEI (National Average Earnings Index).

Life Assured

Decreasing Term Assurance A term assurance plan designed to reduce its cover each year, decreasing to nil at the end of term. Decreasing term assurance cover is most commonly used to cover a reducing debt or repayment mortgage.

Deferred Period A period of delay prior to payment of benefits under a protection policy. Periods are normally 4, 13, 26 or 52 weeks – the longer the period the cheaper the premium.

The person whose life is insured against death under the terms of a policy.

Life Insurance An insurance plan that pays out a guaranteed cash sum if you die during the term of the plan. Some term assurance plans also pay out if you are diagnosed as suffering from a terminal illness. You can take out the plan on your own or with someone else. For joint life insurance policies the cash sum is normally payable only once, on the first claim.

Long-term Care Insurable Interest A legally recognised interest enabling a person to insure another. The insured must be financially worse off on the death of the life assured.

Insurance to cover the cost of caring for an individual who cannot perform a number of activities of daily living, such as dressing or washing.

Mortgage Protection Joint Life Second Death A policy that will pay out only when the last survivor of a joint life policy dies.

‘Mortgage life assurance’ or ‘repayment mortgage protection’ is an insurance plan to cover your whole repayment mortgage, or

GLOSSARY

just part of it. The policy pays out a cash sum to meet the reducing liability of a repayment mortgage. You can take out the policy on your own or with someone else. For joint policies the cash sum is normally payable only once, on the first claim.

Surrender Value

Paid-up Plan

Term Assurance

A policy where contributions have ceased and any benefits accumulated are preserved.

A life assurance policy that pays out a lump sum on the death of the life assured within the term of the plan.

If you are unable to work through illness or accident for a number of months, this option ensures that your cover continues without you having to pay the policy premiums.

Permanent Health Insurance

Terminal Illness

Whole-Of-Life

Cover that provides a regular income until retirement should you be unable to work due to illness or disability. Also known as Income Protection.

Some life policies include this benefit free of charge and this means the life insurance benefit will be paid early if you suffer a terminal illness.

Unlike term assurance, whole-of-life policies provide life assurance protection for the life of the assured individual(s). Cover may either be provided for a fixed sum assured on premium terms established at the outset or flexible terms which permit increases in cover once the policy is in force, within certain pre-set limits, to reflect changing personal circumstances.

Renewable Term Assurance An ordinary term assurance policy with the option to renew the plan at expiry without the need for further medical evidence.

Reviewable Premiums Plans with reviewable premiums are usually cheaper initially; however, the premiums are reviewed regularly and can increase substantially.

The value of a life policy if it is encashed before a claim due to death or maturity.

your policy in an appropriate trust usually speeds up the payment of proceeds to your beneficiaries and may also assist with Inheritance Tax mitigation.

Sum Assured The benefit payable under a life assurance policy.

Total Permanent Disability Cover Also known as Permanent Health Insurance or Income Protection and sometimes available as part of a life assurance policy, this pays out the benefit of a policy if you are unable to work due to illness or disability.

Waiver of Premium

Trusts Many insurance companies supply trust documents when arranging your policy. Placing

Retirement

Build your own

Drawdown provides you with an income and still leaves you with access to your pension. The funds remain invested, so you’re still in control of your investments but there is a risk that if the income being taken is combined with poor investment performance, then the fund will decline and so will the income you can draw from it.

made-to-measure retirement solution

minimum income requirement

We can help you measure up what type of portfolio best suits your circumstances

The maximum income that can be taken is 100 per cent of the equivalent pension annuity; there is no minimum income requirement so it can be set at zero. On your death it can be used to fund an income for your dependants or be paid out as a lump sum (less a 55 per cent tax charge) to a nominated beneficiary. This level of choice can be expensive to offer and many people find that they do not need it, so lower-cost SIPPs have been developed that focus on investment funds only. These lower-cost SIPPs usually offer significantly more fund options than you would be offered in a traditional pension scheme.

A pension is one of the most tax-efficient ways of saving for retirement. A Self-Invested Personal Pension (SIPP) is essentially a pension wrapper that is capable of holding investments and providing you with the same tax advantages as other personal pension plans. Tax benefits will depend on your circumstances Like all pensions, a SIPP offers up to 50 per cent tax relief on contributions and there is no capital gains tax or further income tax to pay. The tax benefits will depend on your circumstances and tax rules are subject to change by the government. The maximum SIPP contribution is either £3,600 or 100 per cent of an individual’s income, up to a maximum of £50,000 per annum. It is possible to contribute more than the annual allowance if you have any unused allowances from the previous three tax years. However, whereas traditional pensions typically limit investment choice to a shorter list of funds, normally run by the pension company’s own fund managers, a SIPP lets you invest in a much wider range of investments.

n Real estate investment trusts (REITS) n Commercial property (including offices, shops or factory premises) and land n Traded endowment policies

Planning for your retirement This wide range of pension investment options means that planning for your retirement can be done more strategically, enabling the creation of a truly diversified pension investment portfolio and the spreading of risk across a range of asset classes. One of the major advantages of a SIPP is that you can consolidate other pensions, allowing you to bring together your retirement savings. This simplifies the management of your investment portfolio and makes regular investment reviews easier.

Monitoring your investments Some of the investments you choose will carry a certain amount of risk. You will be solely responsible for any investments and you will not receive additional help. The option is available to get some help, but this will incur additional costs. Being solely responsible for your investment will require you monitoring your investments, and possibly checking on them regularly. A SIPP investment, like any investment, is never guaranteed and you should obtain professional advice. n

Taking benefits from your SIPP Investment choices You can choose from a number of different investments, unlike other traditional pension schemes, giving you control over where your money is invested. Typically a SIPP will offer a wide range of investment options for those planning for retirement, including the following: n Cash n Equities (both UK and foreign) n Gilts and other fixed income instruments n Unit trusts and OEICS n Funds, including hedge funds n Investment trusts

When you reach the age of 55 you can take benefits from your SIPP. Traditionally, you would take 25 per cent of the value of the fund and use the remaining 75 per cent to purchase a pension annuity. The annuity provides an income for the rest of your life but, once you have purchased it, you lose access to your pension fund.

charlwoodifa Ltd 35 Seamoor Road, Westbourne, Bournemouth, BH4 9AE Tel: (01202) 768512 Fax: (01202) 763301 Email: enquiries@charlwoodifa.com

If you’d like to find out more about a SIPP, please contact us for more information. All figures relate to the 2012/13 tax year. A pension is a long-term investment, and the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

www.charlwoodifa.com

Charlwood IFA is a trading style of Charlwood IFA Ltd which is authorised and regulated by the Financial Services Authority. Charlwood IFA Ltd is Registered in England; Registered No: 04820268. Registered Address: As above