News Archive - November 2011
Tips for retirees - annuity advice
01/11/2011
If you have a money purchase pension, then you really need to keep track of its value and start to take action several years before you plan to retire. Here are a few helpful hints.
Plan ahead
You should start to plan at least 5 years before retirement. Ideally you should be switching gradually into lower risk funds (like a gilt fund or a fixed interest fund, which does not invest in shares) over the few years before you buy your annuity. This reduces the risk of a large fall in your fund value shortly before you retire.
Most pensions have a variety of investment funds to choose from, and switches are generally free.
The cost of delay
If you have retired, and have a pension that you have delayed, then there are lots of reasons why you might be best advised to draw it now rather than later. Annuity rates are on a long term downward trend due to increased longevity. Delaying your retirement waiting for annuity rates to improve has generally been a bad move for the last 10 to 15 years. All the while you delay, you are missing out on income that you could have had.
Be realistic
Older pension projections were based on high estimated growth rates and high historical annuity rates. They represented a fair estimate based on rates at that time, but in hindsight they were very optimistic. If you get an up to date projection from your pension provider it will use lower growth rates and should give you a much more realistic idea of what you are likely to get back from your pension. Use the lowest growth rate on the projection to err on the side of caution.
Shop around
You should compare the figures provided by your pension company with other annuity providers on a like-for- like basis. In most cases you will get a better rate elsewhere. If you take any medication or have had medical treatment in the past, then you are likely to qualify for an enhanced annuity rate from a specialist provider. It might only be a few percent better, but it can be much more if your health problems are more serious.
Look at other options
Look at a range of annuity options (increases, guarantee periods, spouse’s pension) to show you how much each of them cost. For example, inflation proofing an annuity has a huge effect on the initial level of income. Providing a spouse’s pension might be quite expensive if there is a large difference in your ages.
There are also investment- linked annuities which provide some potential for future growth in your income, depending on the performance of an underlying fund. If you are prepared to take the risk that your future income might fall, then this option might be for you.
Take advice
You do not get a better annuity rate by dealing direct rather than using an adviser. Rates offered direct to the public are the same as those you get via an IFA. Why do all the legwork yourself? Buying an annuity is a massively important decision and cannot be changed once it is set up.
If you want retirement advice, please call Mulberry Financial and we will be able to explain the options for you.
Junior ISAs - summary
01/11/2011
From 1 November 2011, a new savings product for children has been introduced.
The Junior ISA is a tax-free savings vehicle which replaces the ill-thought out and underused Child Trust Fund (CTF).
Junior ISAs can be taken out for any UK resident child under 18 who does not already have a Child Trust Fund.
As with adult ISAs, you can chose between a cash JISA (effectively a tax-free cash savings account) and a Stocks and Shares JISA (which can invest in stockmarket-linked investments, as well as other areas like gilts and corporate bonds). The maximum that can be invested is £3,600 per child per tax year. No withdrawals are permitted until the child turns 18.
Children do have their own tax allowances so in the main they are non-taxpayers, as any taxable income would usually be within the £7,475 personal allowance. However, any bank interest over £100 per year is taxable on the parent rather than the child (this is to prevent parents putting all their investments in the child’s name for tax reasons). Using a cash JISA would remove this problem.
If parents are using Stocks and Shares ISAs as a savings vehicle for future school or university fees, then the JISA increases the total amount that they could put away each tax year. There is one potential problem in that the child becomes the legal owner of the JISA proceeds from age 18. If the parents are not already using up their ISA allowances then they should certainly do so before starting a JISA for a child. Adult ISAs are more flexible, as they allow withdrawals.
One useful feature is the ability to transfer the JISA proceeds into an adult ISA at age 18. This would mean that the tax-free ISA status was not lost.
Unfortunately, those with an existing CTF will not be able to start a Junior ISA. However, the contribution limits for existing CTFs are increasing from 1/11/2011 so that they are in line with Junior ISAs.
If you would like your family's savings to be reviewed, call and speak to a Mulberry adviser.
The material here is for general information only and is not intended to be relied upon for individual investment decisions. Appropriate independent advice should be obtained before making any such decisions. Mulberry Financial Ltd does not accept any liability for any loss suffered by any user as a result of any such decision.
The information is based on our understanding of current HMRC rules and practices (as at the news article date) which are always subject to change. Taxation and trust advice and Cash ISAs are not regulated by the Financial Conduct Authority. This site is aimed at UK residents only.
Please remember that the prices of shares and other investments can fall sharply. You may not get back the money you originally invested. Past performance is not necessarily a guide to the future.
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