E Smart Money January february 2013

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E Smart Money January february 2013

  1. 1. Taxing times for theaverage 50-year oldKEEPING AWATCHFULEYE ON YOURMONEYAUTUMNSTATEMENT2012WHATCHALLENGESLIE AHEADFOR INVESTORSIN 2013?DO YOU NEEDGROWTH,INCOMEOR BOTH?TAX-SAVING IDEASTO BEAT THE ENDOF TAX YEARPreparing forwhatever economicups and downsmight be aheadNow is the time you should bereviewing your financial affairsNavigating your way arounda wide range of investmentproducts and strategiesKey announcements from theChancellor at a glanceMyLocalAdviser.co.ukNew London House, 172 Drury Lane, London, WC2B 5QRwww.mylocaladviser.co.ukFor more information please contact us, through the website, via email info@mylocaladviser.co.uk or by telephone on 020 7074 1200.The New Magazine for people who want to make their money work harderJANUARY/FEBRUARY 2013
  2. 2. Financialplanningisourbusiness.We’re passionate about making sureyour finances are in good shape.Our range of personal financial planning services isextensive, covering areas from pensions to inheritancematters and tax-efficient investments.Contact us to discuss your current situation, and we’llprovide you with a complete financial wealth check.
  3. 3. Happy ISA tax yearDon’t get bitten - talk to usInheritance tax, one oflife’s unpleasant factsHelping you to protect andpreserve your estateAutumn Statement 2012Key announcements from theChancellor at a glanceOutlook for theNew CentenariansFinancial pressures to snowball forfuture generationWould you be vulnerablein the event of afinancial catastrophe?New figures reveal families aren’t preparedfinancially for when the worst happensFLEXIBLE RETIREMENTPLANNING SOLUTIONSTake the legwork out of yourretirement planningWhat challenges lie aheadfor investors in 2013?Navigating your way around a wide range ofinvestment products and strategiesBad news can impact on anyone of us at any timeSafeguarding and protecting your family’sstandard of livingKEEPING A WATCHFUL EYEON YOUR MONEYTaxing times for the average 50-year oldCould you beshort-changed from yourfuture pension income?Reaching retirement is the catalyst forseeking professional financial advice050506060809101213131416192022252628Tax-saving ideas to beatthe end of tax yearNow is the time you should bereviewing your financial affairsDeveloping aninvestment strategyWhat do you want to achievefrom your investments?Avoid facing financialuncertainty in old ageNearly half of women rely on jointsavings to fund retirementProtection when you may needit more than anything elseThe right peace of mind when faced with thedifficulty of dealing with a critical illnessTaxation mattersDifferent investments havedifferent tax treatmentCould your pension income riseby as much as 33 per cent?Women need to be aware of their options toensure they benefit from this opportunityWill you be able toenjoy your retirement?More over-55s are increasingly working pastretirement age as living costs hit savingsDo you need growth,income or both?Preparing for whatever economicups and downs might be aheadInthisissueIN THIS ISSUETo discussyour financialplanningrequirementsor to obtainfurtherinformation,pleasecontact us15091213280703
  4. 4. Editorial04Although making resolutions to improveyour financial situation is good whateverthe time of year, many people find it easierat the beginning of a New Year. Regardlessof when you begin, the basics remain thesame. So it’s with this in mind that wehave provided a number of ideas insidethis issue to get you ahead financially.Inaperiodofslowglobalgrowth,aggressivecentralbankactionsandnearparalysisonthepartofmanyfiscalpolicymakers,investorsenter2013facingaplethoraofchallenges.Onpage10welookatthethreemainhottopicsthatarelikelytoimpactonmakinginvestmentdecisionsoverthenext12months:China,theUSandtheEurozone.With the end of the tax year rapidlyapproaching on 5 April, now is the time tofocus on ways to mitigate any tax liability.To make the most of the opportunitiesavailable, if you’ve not already done so,you should start putting plans in placenow. On page 14 we consider some of theareas you may need to review to minimisea potential tax liability.This tax year 2012/13, you can shelterup to £11,280 from tax by investing in anIndividual Savings Account (ISA), andthe good news is that the Chancellor,George Osborne, announced during hisAutumn Statement last December plansto increase the ISA limit to £11,520 from6 April this year. To make the most of thecurrent tax year’s allowance, you need toact before the fast-approaching deadline.Read the full article on the opposite page.A full list of all the articles featured inthis edition appears on page 3. nThe content of the articles featured in thispublication is for your general informationand use only and is not intended to addressyour particular requirements. Articlesshould not be relied upon in their entiretyand shall not be deemed to be, or constitute,advice. Although endeavours have beenmade to provide accurate and timelyinformation, there can be no guaranteethat such information is accurate as of thedate it is received or that it will continue tobe accurate in the future. No individual orcompany should act upon such informationwithout receiving appropriate professionaladvice after a thorough examination oftheir particular situation. We cannot acceptresponsibility for any loss as a result ofacts or omissions taken in respect of anyarticles. Thresholds, percentage rates andtax legislation may change in subsequentFinance Acts. Levels and bases of, andreliefs from taxation are subject to changeand their value depends on the individualcircumstances of the investor. The value ofyour investments can go down as well as upand you may get back less than you invested.CONTENTS08282216252610
  5. 5. Wealth creation05This tax year you can shelter up to £11,280 from tax by investing inan Individual Savings Account (ISA). During his Autumn Statementlast December, the Chancellor, George Osborne, announced plans toincrease the ISA limit to £11,520 from 6 April this year.Happy ISAtax yearDon’t get bitten - talk to usISA allowanceEach tax year you have an ISA allowance. Forthe tax year 2012/2013 (6 April 2012 until 5 April2013) you can save up to £5,640 in a Cash ISA withthe remainder in a Stocks & Shares ISA, or you caninvest your full allowance in a Stocks & Shares ISA.You’re only permitted to invest with one Cash ISAprovider in each tax year and the same, or another,Stocks & Shares ISA provider.Make up any unused shortfallIf you haven’t already used up your full ISA allowanceyou can’t retrospectively make up any unused shortfalllater – it’s lost forever. UK residents aged 16 and overcan choose to save in a Cash ISA or, if they are 18 orover, a Stocks & Shares ISA or a combination of both.Parents or guardians can also open a Junior ISA forchildren under 18.The interest on a Cash ISA isn’t taxed, so all theinterest you earn you keep. With a Stocks & Shares ISA,all gains are free from Capital Gains Tax and you don’tneed to declare your ISA investments to the taxman. nThe value of investments andthe income from them can godown as well as up, and youmay not get back the fullamount invested. The taxbenefits and liabilities willdepend on individualcircumstances and maychange in the future. Pastperformance is not a guideto the future.Discuss yourISA options - don’t delayWhether you’re new to investing or lookingto grow your portfolio, we can help – pleasecontact us to find out more.Inheritance tax, one of life’s unpleasant factsReducing the size of your estate through increased spending or giftingInheritance tax (IHT) is generally payable upondeath and during the life of someone where they giveaway assets. IHT can be reduced significantly by taxplanning in advance.Everyone is entitled to an IHT-free allowance of£325,000 in the current 2012/13 tax year. A marriedcouple or registered civil partnership wouldtherefore generally have no IHT to pay if theirestate on second death is less than £650,000. TheIHT allowance threshold which has been frozen at£325,000 since 2009 is set to increase to£329,000 in 2015/16.While net estate values might be less than£650,000 now because of a mortgage or someother liability or loan, it is possible that at thetime of death the estate will be worth much moreas debt is being paid off. Over the IHT tax-freeallowance band, IHT is paid at 40 per cent and soit is a significant tax charge levied on your assets.Reducing a potential IHT billIHT needs to be considered by everyone. Theseare some areas you may wish to discuss with us tomitigate a potential IHT bill:n Giving allowable amounts of moneyregularly to your children or others eachyear out of incomen Passing wealth down to the next generationseven years before deathn Using family trusts to hold capitaln Making sure your business qualifies for fullIHT reliefn Swapping certain assets that attract IHT to assetsthat can be free of IHT after two yearsn Giving to charityn Making sure your wills are drafted properlyn Making sure your holiday letting meets thetrading testsDon’t leave your familywith a tax billIf you have significant wealth you need toconsider IHT at an early stage. To discuss theoptions available to you, please contact us nThe Financial Services Authority does not regulateestate planning, wills or trusts.
  6. 6. 06AUTUMN STATEMENT 2012A generation of ‘New Centenarians’ will be forced to work well into their 70s to stay afloat, according tonew research from Scottish Widows. In addition to working longer, they will face a hat-trick of financialpressures as early as their mid-twenties, with the stresses of saving for their first home, paying back theirstudent loans and starting a retirement fund impacting on them much earlier than other generations.OutlookfortheNewCentenariansAUTUMNSTATEMENT2012Financial pressures to snowball for future generationKey announcements from theChancellor at a glanceEconomic Growthn Forecasts for the next few years are:1.2% in 2013, 2% in 2014, 2.3% in2015, 2.7% in 2016 and 2.8% in 2017.Pensions and Benefitsn Most working-age benefits to rise by1% for each of the next three years.n From 2014/15 lifetime pension reliefallowance to fall from £1.5m to£1.25m – annual allowance cutfrom £50,000 to £40,000.n Capped drawdown limit increasedfor pensioners of all ages with thesearrangements from 100% to 120% ofthe value of an equivalent annuity.n Basic state pension to rise by2.5% to £110.15 a week.n Child benefit to rise by 1% for twoyears from April 2014.Taxes and Allowancesn Personal basic income tax allowance forthose aged under 65 increasing by£1,335 in cash terms to £9,440 in 2013/14.n Higher rate threshold to rise to£41,450 in 2013/14, to £41,865 in 2014/15,and in 2015/16 it will be £42,285.n Main rate of corporation tax to be cutby extra 1% to 21% from April 2014.n Capital gains annual exempt willincrease to £11,000 in 2014/15 and£11,100 in 2015/16.n Temporary doubling of small businessrate relief scheme to be extended byfurther year to April 2014.n Inheritance tax threshold to beincreased to £329,000 in 2015/16.n Bank levy rate to be increasedto 0.130%.n £5bn over six years expected fromtreaty with Switzerland to deal withundisclosed bank accounts.n ISA contribution limit to be raised to£11,520 from 6 April.n Prosecutions for tax evasions up80%, with anti-abuse rule to come in.The Office for National Statistics believesthat one in three babies born in 2012in the United Kingdom will live tobe 100. This unsurpassed average lifeexpectancy, combined with the rising costs of living,education and housing, means that our children andgrandchildren will need to plan much earlier for theirfuture and work for longerthan ever before.The Scottish Widowssurvey of 1,000 parents withchildren under the age offive reveals that nearly78 per cent are concernedthat their children may needto work well into their 70s.Leading economist andtrend forecaster Steve Lucasof Development Economicsanalysed the financial and lifemilestones that babies bornin 2012 will reach beforethey turn 100. Lookingbackwards from 2112, theresearch paints a picture ofwhat life might look like forthese babies and examinesthe steps an averageNew Centenarian will have taken throughout life incomparison to his or her parents and grandparents.The personal financial landscape100 years in the futureChanges to ways that student loans (and, for manypeople, high tuition fees) are provided mean that thoseNew Centenarians who complete higher educationcould be paying off their student debts of £73,000 untilthey are 52 years old.Couples will increasingly delay having their first childuntil they are in their early 30s, compared to their late20s now. An increasing proportion of people will eitherhave no children or just one child. After the purchaseof their home, consideringthe financial burden of havingchildren is probably the mostimportant financial decision theywill face in their lives.Financial products are likelyto change to allow for mortgagesto be paid over a longer periodof time due to people workinglonger and increased lifeexpectancy. New Centenariansare likely to be paying off theirmortgage until they are at least61, four years later than theirparents and seven years laterthan their grandparents.In order for NewCentenarians to provide anacceptable standard of living forthemselves in old age, a pensionpot of £2.4m in retirementsavings will need to start sooner.The cost of social care is likely to be anothermajor concern for this future generation. Many NewCentenarians will need to contribute financially to thecare costs of their parents’ generation, as well as try toput some funds aside for their own care costs in theirfinal years.The Office for NationalStatistics believes that one inthree babies born in 2012 inthe United Kingdom will liveto be 100. This unsurpassedaverage life expectancy,combined with rising costs ofliving, education and housing,means that our children andgrandchildren will need toplan much earlier for theirfuture and work for longerthan ever before.
  7. 7. 07Financial planningNature of work is likely to changeThe state retirement age will be at least 70 bythe turn of the next century and an increasingproportion of people will continue working wellinto their 70s, either because they can’t afford toretire or because they feel it is in their best interestto continue working.However, the nature of their work is likely tochange. According to Lucas, ‘In the future, olderworkers – especially in the professional and businessservices sector – are likely to stay working longerinto their 70s, but the nature of this work willbecome more flexible and probably more part-time. Workers in manual or vocational careers arealso likely to look to extend their working lives byundertaking a less strenuous, more part-time role.’However, this means that New Centenarians could besupporting themselves with a potentially limited incomefor up to 30 years of retirement. In order to properlyprepare for prolonged retirement and counter the effectsof the collision of financial pressures, Lucas explains thatNew Centenarians will need to begin saving for theirretirement from at least age 25 and that parents shouldencourage their children to start understanding financesand the importance of saving from a young age.It isn’t all doom andgloom for this generationAlmost 45 per cent are concerned that theirchildren will not be able to save enough moneyfor a longer retirement. Yet almost 40 per cent ofparents are not considering their child’s long-termfuture as part of their financial planning and halfof all parents would not consider starting a pensionfor their child on their first birthday.However, it isn’t all doom and gloom forthis generation, as 41 per cent of parents areexcited about the potential for long-lastingfamily relationships and a further 37 percent are pleased to think their children willaccomplish more in life because they will behealthier longer. nThis research was undertaken based on pastand expected future demographic trends usingpublished research and data from the Office forNational Statistics (ONS); this included trenddata on life expectancy, healthy life expectancy,fertility, marriage, divorce, having children,commencement of working lives and ages ofretirement. ONS data was also used to estimateexpected future trends for financial mattersincluding earnings, rents, house prices, mortgagecosts and retirement incomes. A range of otherinformation sources – published and unpublished– were utilised to obtain insights into recent andexpected future social trends.Estimates of future financial costs – includingearnings, housing costs, student debt and retirementsavings – were calculated using bespoke economicand financial models developed by the authors of theresearch. These figures were estimated by projected-forward underlying trends evident in existingdatasets, coupled as appropriate with trend-basedinflation assumptions.The main exception is in the area of futurestudent debt, where a new system is currentlybeing introduced and for which current datacannot be used to construct forward estimates.In this case future estimates were based on aliterature review of estimated future student debtliabilities, using sources including the Departmentfor Education, the National Union of Students andstudent loan companies.Saving enoughfor a retirementof 30 years or moreThe dramatic speed at which life expectancyis increasing means we need to radicallyrethink our perceptions of life, especially forour children. Most workers today expect theirpension to fund a retirement of up to 20 yearsbut increased life expectancy means NewCentenarians may have to save enough for aretirement of 30 years or more. To discuss howwe could help you plan for your children’s andgrandchildren’s future, please contact us forfurther information. Don’t leave it to chance.2.4mThe pension pot NewCentenarians will needto provide an acceptablestandard of living forthemselves in old age.
  8. 8. Cutting backon saving andbuying insurance may savesome money in the shortterm. However, if the worsthappens, the situation formany families could well beextremely worrying.08Would you be vulnerable in theevent of a financial catastrophe?New figures reveal families aren’t prepared financially for when the worst happensFamilies aren’t prepared financiallyThe aim of Legal Generals Deadline to theBreadline Report is to shed a light on the financialhealth of the average British household and tostimulate debate in the industry about what wecan do to help consumers better understand thedangers of failing to protect themselves againstfinancial disaster. It’s concerning to see that theaverage UK family has a ‘deadline to the breadline’of just 19 days. Clearly, families aren’t preparedfinancially for when the worst happens - loss ofincome, critical illness or death- and the sad realityis that they need to be ready.Legal Generals Deadline to the BreadlineReport is the first of a series of publications thatwill track the financial health of the nationshouseholds and provide a means of tracking that“health” as the economy changes over the nextfew years.Key findings of this first report include:Families in the South East of England have thelongest Deadline to the Breadline, but would stillon average last just over a month - 37 days - beforetheir savings would be used up;This is two weeks more than the next tworegions with the North West at 22 days and theSouth West at 21 days;Households in the West Midlands came out asthe least prepared with a deadline to the breadlineof just seven days.‘Muddling through’ approachWe all know how tough it is for families atthe moment. For many, simply making endsmeet and staying in regular employmentis a daily challenge. But the loss of regularincome would render the ‘muddling through’approach that many households are takingright now impossible. Cutting back on savingand buying insurance may save some money inthe short term. However, if the worst happens,the situation for many families could well beextremely worrying. At times like this it is evenmore important that people consider how bestthey can plan for a financial catastrophe.Please note this does not includeNorthern Ireland. nLegal General’s first ‘Deadline to the Breadline Report’ published in December last year has revealed that the averageBritish family has just 19 days before its savings would run out if the main breadwinner is unable to work for anyreason. This ‘’deadline to the breadline’ - the length of time the average household could last on savings following asudden loss of income due to long term sickness, injury, critical illness or death.ProtectionProtect yourstandard of livingThere are a range of insurance productsdesigned to help protect your standard ofliving. To discuss affordable ways that wecan help you make sure your family’s lifegoes on even if you’re not around, don’tdelay – please contact us today.
  9. 9. 09Deciding how to planThere is a bewildering choice when deciding howto plan for your retirement, and it is importantto weigh up the cost and complexity against thepotential returns. If appropriate, one option toconsider is a Self-Invested Personal Pension(SIPP). Originally designed for people withhigher-value pension funds, they’ve become moreprevalent since the UK pension simplificationlegislation of 2006.SIPPs are tax-efficient wrappers within which youcan select your own pension investments from a widevariety of sources and choose how to spread yourmoney among a whole range of different investmenttypes subject to both HM Revenue Customs rulesand any limits set by the SIPP provider.Tax-efficiencyA SIPP offers the same tax benefits as otherpersonal pension plans, with personalcontributions eligible for Income Tax relief andinvestments within the SIPP able to grow free ofCapital Gains Tax.Investment choiceYou can invest in a wide range of investments andthis includes any number of approved funds. MostSIPP providers allow you to select from a range ofassets, including:n stocks and shares quoted on a recognised UK oroverseas stock exchangen government securitiesn unit trustsn investment companiesn insurance company fundsn traded endowment policiesn deposit accounts with banks and building societiesn National Savings productsn commercial property (such as offices, shops orfactory premises)Retirement FLEXIBILITYA SIPP allows you to choose from the full rangeof options at retirement, from purchasing anannuity to taking a managed income withdrawalfrom your fund.The SIPP wrapper is separate from the contentsand, as such, has distinct, often fixed charges.Because you can now accumulate a number ofpensions over your working life, consolidatingthem all into a SIPP means that you have onecompany carrying out your pension administration.This could reduce your reporting and paperwork;however, you should ensure that the additionalinvestment options a SIPP provides are required,as it can cost more to administer than a normalpersonal pension plan.SIPPs are appropriate for people comfortablewith making their own investment decisions andare not a risk-free product. The capital may beat risk due to the investments held within thispension arrangement; the value of investmentscan go down as well as up and you could getback less than you invested. Tax reliefs will alsodepend on your personal circumstances and thepension and tax rules are subject to change bythe government. nInformation is based on our current understandingof taxation legislation and regulations. A SIPP isa long-term investment, and the fund value mayfluctuate and can go down. Your eventual incomemay depend upon the size of the fund at retirement,future interest rates and tax legislation.BUILDING A BIGGER PENSIONBefore applying for a SIPP, you should seekprofessional financial advice. To find outhow much you should be saving to helpachieve your desired retirement income,contact us for further information.People are living longer and the number of retirees is growing. Longevity shouldbe a blessing but many investors are worried they will outlive their savings. So it isessential to consider saving for retirement as early as possible and to decide wherebest to invest for your requirements.FLEXIBLE retirementPLANNING SOLUTIONSRetirementTake the legwork out of your retirement planningSIPPs are tax-efficient wrapperswithin which you can selectyour own pension investmentsfrom a wide variety of sourcesand choose how to spread yourmoney among a whole range ofdifferent investment types .
  10. 10. 10Wealth creationWhat challengeslie ahead forinvestors in 2013?There are three main hot topics that arelikely to impact on making investmentdecisions over the next 12 months:China, the US and the Eurozone.Chinese monetary policy-making bythe new leadership needs to tread a fine line betweenslowing economic growth, which could cause socialunrest, and creating asset bubbles. A US debt ceilingbreach around March 2013 could lead to draconianconsequences if an agreement is not reached. Finally,the on-going Eurozone sovereign debt crisis – althoughsteps have been taken in the right direction, Europe isstill not fixed.Good financial planningNavigating your way around the plethora ofinvestment options out there can be very dauntingand requires professional financial advice. Beforeinvesting, you need to ask yourself a basic question.What are you investing for? Good investmentrequires good financial planning first of all. You mustdecide what your objectives are, what return you needto achieve that objective and what risk you are willingto take to achieve that return.Deciding how much to invest in equities, fixedinterest (gilts and corporate bonds), property andcash is the first step in constructing a portfolio. Manyinvestors are understandably nervous about takingrisks with their hard-earned capital during thiscurrent period but not taking enough risk can be justas damaging as taking too much.Taking a long-term viewAll asset classes carry risk – including cash, whichcan lose its spending power over time because ofinflation. Most investors see risk as the risk of short-term price falls but fail to consider the risk that theirinvestments will not grow fast enough to meet theirobjectives. Those who can afford to take a long-termview and see their capital fluctuate in value couldconsider taking more risk to try and achieve aninflation-beating return.Shares are different from most goods in thatdemand often increases as prices rise. If aninvestment area is fashionable, it could be a sign thatit is overvalued. Traditional areas, such as blue chipcompanies, often generate the best long-term returns,so it makes sense for most investors to avoid the latestfad. However, it is important to remember that all stockmarket investments will fluctuate in value, so you couldget back less than you invest.Maximum use of tax sheltersInvestors also need to make the maximum use of taxshelters as tax can eat away at your returns. These caninclude pensions and Individual Savings Accounts(ISAs) at one end of the spectrum to EnterpriseInvestment Schemes and Venture Capital Trusts atthe other, higher-risk end.Even following the proposals announced by theChancellor, George Osborne, concerning pension taxrelief in his Autumn Statement, pensions still offervery attractive tax benefits through the income taxrelief you receive on the contributions.In the current 2012/13 tax year, there is no taxto pay within an ISA on any capital gains and nofurther tax to pay on any income and you can shelterup to £11,280, which is set to rise to £11,520 from 6April this year.Having said this, making an investmentdecision based on a tax saving alone should notbe the main consideration at the expense of theother rules of investing.Different areas performwell at different timesAn undiversified portfolio will only perform wellsome of the time. Good examples of this are thebanking crisis of 2008 and the technology crash of2000 – many investors who were over-exposed tothese areas suffered heavy losses. Diversificationmitigates risk, as different areas perform well atdifferent times. Paradoxically, though, it’s alsoimportant not to be too diversified.One of the biggest dilemmas investors face ismarket timing. Jumping in and out of markets on aregular basis not only requires constant monitoringof daily events but also requires the skill to act onsuch events. The return from a lump sum investmentcan depend heavily on the entry point. One way toachieve this is to spread or drip-feed a lump suminto the market as opposed to investing it all in onego. In fact, during volatile times this strategy allowsyou to benefit from what is known as ‘pound costaveraging’. Regular investing provides an alternativemethod of building positions over time. nInformation is based on our current understandingof taxation legislation and regulations. Levels andbases of and reliefs from taxation are subject tolegislative change and their value depends on theindividual circumstances of the investor. The value ofyour investments can go down as well as up and youmay get back less than you invested.Improved returnswithin yourinvestment strategyOur services cover a wide range ofinvestment products and strategies. Ourdedication to flexibility and innovationensures we are able to secure new andtactical opportunities for improvedreturns within your investment strategy.To discuss what you need to do next,please contact us for further information.In a period of slow global growth, aggressive central bank actions and near paralysis on the partof many fiscal policy makers, investors enter 2013 facing a plethora of challenges.Navigating your way around a wide range of investment products and strategies
  11. 11. You’veprotectedyour mostvaluable assets.But how financially secure areyour dependents?Timely decisions on how jointly owned assets are held,the mitigation of inheritance tax, the preparation of awill and the creation of trusts, can all help ensure yourdependents are financially secure.Contact us to discuss how to safeguard yourdependents, wealth and assets, don’t leave it untilit’s too late.
  12. 12. 12ProtectionBad news can impacton any one of us at any timeObtaining advice is essential tomaking an informed decisionabout the most suitable sumassured, premium, terms andpayment provisions. We workwith our clients to create tailored protectionstrategies that meet their financial goals and needsand we’re committed to ensuring that our clientsenjoy the best financial planning service available.Whether you’re wanting to provide a financialsafety net for your loved ones, moving house or afirst-time buyer looking to arrange your mortgagelife insurance – or simply wishing to add somecover to what you’ve already got – you’ll want tomake sure you choose the right type of cover. That’swhy obtaining the right advice and knowing whichproducts to choose is essential.Life assurance helps your dependants to copefinancially in the event of your prematuredeath. When you take out life assurance, youset the amount you want the policy to pay outshould you die – this is called the ‘sum assured’.Even if you consider that currently you havesufficient life assurance, you’ll probably needmore later on if your circumstances change.If you don’t update your policy as key eventshappen throughout your life, you may risk beingseriously under-insured.As you reach different stages in your life, theneed for protection will inevitably change. Theseare typical events when you should review your lifeassurance requirements:n Buying your first home with a partnern Having other debts and dependantsn Getting married or entering into a registeredcivil partnershipn Starting a familyn Becoming a stay-at-home parentn Having more childrenn Moving to a bigger propertyn Salary increasesn Changing your jobn Reaching retirementn Relying on someone else to support youn Personal guarantee for business loansYour life assurance premiums will vary according to anumber of different factors, including the sum assuredand the length of your policy (its ‘term’), plus individuallifestyle factors such as your age, occupation, gender,state of health and whether or not you smoke.If you have a spouse, partner or children, youshould have sufficient protection to pay off yourmortgage and any other liabilities. After that, youmay need life assurance to replace at least some ofyour income. How much money a family needs willvary from household to household so, ultimately, it’sup to you to decide how much money you wouldlike to leave your family that would enable them tomaintain their current standard of living.There are two basic types of life assurance, ‘term’and ‘whole-of-life’, but within those categories thereare different variations.The cheapest, simplest form of life assurance isterm assurance. It is straightforward protection,there is no investment element and it pays out alump sum if you die within a specified period. Thereare several types of term assurance.The other type of protection available is awhole-of-life assurance policy designed toprovide you with cover throughout your entirelifetime. The policy only pays out once thepolicyholder dies, providing the policyholder’sdependants with a lump sum, usually tax-free. Depending on the individual policy,policyholders may have to continue contributingright up until they die, or they may be able tostop paying in once they reach a stated age, eventhough the cover continues until they die. nADDED PEACE OF MINDWe can help make sure you and yourfamily is financially protected, whichmeans added peace of mind for youand protection for them. Contact ustoday to discuss your requirements.Bad news can impact on any one of us at any time, in the form of an illness or sudden death. We don’t like to think aboutit but we do have to plan for it. So having the correct protection strategy in place will enable you to protect your family’slifestyle if your income suddenly changes due to premature death or illness. However, choosing the right options can bedifficult without obtaining professional advice to ensure you protect your family from financial hardship.Safeguarding and protecting your family’s standard of living
  13. 13. 13TaxationThis study of the finances of 50-year-oldsshows they have an average of£54,300 saved in pension funds but havepaid out more than three-and-a-half timesthat in tax and National Insurance.People on median earnings starting work at 21 willhave paid out £114,148 in income tax with the other£76,000 going on National Insurance during the course oftheir working lives, figures show. For men the total directtax bill by 50 comes in at £205,000, while women pay anaverage £167,370 in income tax and National Insurance.The amount paid in tax is another illustration ofthe financial pressures on the group born between1961 and 1981. While the tax bill appears high, thegood news is that pension saving continues to attractsignificant tax relief and is a good way to maximise taxefficiency while planning for retirement.According to the analysis, people working on to66 from age 50 on median earnings will find their totaltax bill rising to £290,560 – another £100,000 in thelast 16 years of their working lives when their focuswill be on retirement planning.Men working from 21 to 66 will pay a total of£316,950 in tax and National Insurance during theirworking lives, while women will pay £247,350, thefigures show. n[1] MetLife analysis of HMRC and ASHE datapublished 07/11/12.The average 50-year-old has paid £190,400 in direct taxes by the time theycelebrate their 50th birthday – equivalent to around three-and-a-half times morethan they’ve invested in their pension, new analysis from MetLife [1] shows.Taxing times for the average 50-year-oldConcerned about yourretirement provision?If you are concerned about your retirementprovision, please contact us to review yourcurrent situation – it’s always better to dosomething rather than nothing. The problem willnot go away and over time will only get worse.KEEPING A WATCHFULEYE ON YOUR MONEYRetirementCouldyoubeshort-changedfromyourfuturepensionincome?Reaching retirement is thecatalyst for seeking professionalfinancial adviceThere is a world of choices and decisionsto be made when reaching retirement, andthat’s before you even look at whether youshould take an enhanced annuity.For many individuals, reachingretirement is the catalyst for seekingprofessional financial advice. Suddenlyyou can be faced with a pension pot – beit large with myriad options, or small andneeding to be stretched as far as possible.According to the National Associationof Pension Funds (NAPF), nearly two-thirds of us could be eligible for higherpensions when we retire. Thousands ofpeople are missing out because they donot realise that having certain medicalor lifestyle conditions could significantlyboost their retirement incomes whenbuying an annuity or annual pension.The NAPF estimates that about half amillion people retiring each year are beingshort-changed by up to £1bn from theirtotal future pension income.If you or your partner suffers frommedical and/or lifestyle conditions, youmay qualify for enhanced terms on yourannuity option, which could increase yourretirement income. Enhanced annuities takeinto consideration detailed informationabout your health and lifestyle to provideyou with a more personal annuity.Typically, when an annuityprovider quotes for an enhanced annuity,they will pay close attention to all the factorsthat will affect your life expectancy. Thisincludes where you live, whether you smokeand drink, your lifestyle and your medicalhistory. They can then build a more accuratepicture of your life expectancy, on whichthey base their calculations. nSecuring a biggerretirement incomeYou need to bear in mind that onceyou commit to an annuity, youwill be stuck with it for life, so itis essential to obtain professionalfinancial advice. Contact us todayto discuss how you could secure abigger retirement income.
  14. 14. 14Tax-saving ideas tobeat the end of tax yearNow is the time you should be reviewing your financial affairsWealth protectionIf your partner pays a lower rate of tax thanyou, you could consider transferring assetsinto their name. This makes particularsense if one of you is a non-taxpayer, asyour taxable income will be lower than your taxallowances, which means you won’t have to pay anytax on savings interest. Interest on savings accountsis usually paid after 20 per cent has been deductedby the provider. Higher rate tax payers pay 40 percent interest.To receive your interest paid tax free, you will needto complete form R85. This is available from banks,building societies or the HM Revenue and Customs(HMRC) website. If you are a non-taxpayer, but havepaid tax on your savings, make sure you claim it back.You need form R40 from HMRC.Income from jointly owned assets is generallyshared equally for tax purposes. This applieseven where the asset is owned in unequal sharesunless an election is made to split the incomein proportion to the ownership of the asset.The exception is dividend income from jointlyowned shares in ‘close’ companies, which is splitaccording to the actual ownership of the shares.Close companies are broadly those owned by thedirectors or five or fewer people.ChildrenChildren have their own allowances and tax bands.Therefore it may be possible for tax savings to beachieved by the transfer of income-producingassets to a child. Generally this is ineffective ifthe source of the asset is a parent and the child isunder 18. In this case the income remains taxableon the parent unless the income arising amounts tono more than £100 gross per annum.You could consider transferring assets fromother relatives, for example, grandparents and/oremploying teenage children in the family business touse personal allowances and the basic rate tax band.Children also have their own Capital Gains Tax(CGT) annual exemption of £10,600 (2012/13). Ifappropriate, it may be more effective for parents toinvest for capital growth rather than income.The government introduced the Child TrustFund (CTF) for children born on or after1 September 2002. The idea was to promote tax-efficient savings by family and friends and includedgovernment contributions as an incentive. Allgovernment contributions have now ceased andchildren born on or after 3 January 2011 no longerqualify for a CTF account.Existing CTF accounts continue alongside a newJunior Individual Savings Account (Junior ISA) whichhas been introduced for those children who are noteligible for a CTF account. This includes childrenborn before 1 September 2002 as well as childrenborn from 3 January 2011. Both CTF and Junior ISAaccounts allow parents, other family members orfriends to invest up to £3,600 (2012/13) annually in atax-efficient fund for a child. There are no governmentcontributions and no access to the funds until thechild reaches 18.TaxpayersThe 50 per cent additional rate of income tax ontaxable incomes above £150,000 reduces to 45 percent on 6 April this year. This means that thosewho are able to defer income from 2012/13 to2013/14 could benefit from a 5 per cent or morereduction in the tax charged on the amount deferred.Non-taxpayersChildren or any other person whose personalallowances exceed their income are not liable totax. Where income has suffered a tax deductionat source a repayment claim should be made.In the case of bank or building society interest,a declaration can be made by non-taxpayers toenable interest to be paid gross (form R85).Tax credits on dividends are not repayable so non-taxpayers should ensure that they have other sourcesof income to utilise their personal allowances.Pension contributionsThere are many opportunities for pension planningbut the rules can be complicated.The rules include a single lifetime limit, currently£1.5m in 2012/13 but reducing to £1.25m in 2014/15,on the amount of pension saving that can benefitfrom tax relief. There is also an annual limit on themaximum level of pension contributions, currently£50,000 for 2012/13 reducing to £40,000 in 2014/15.The annual limit includes employer pensioncontributions as well as contributions by the individual.Any contributions in excess of the annual limit aretaxable on the individual.This year and in the next tax year, carry-forward provision allows investors to contributeup to a maximum of £200,000. You can carryforward any unused annual allowance from theprevious three years, which will give peoplesome scope to catch up on contributions theyhave missed. You could potentially invest up to£200,000 (assuming a £50,000 allowance from thecurrent year and an assumed £50,000 allowancefrom the previous three). If these are personalcontributions they cannot exceed your earningsin the current tax year.Directors of family companies could, as analternative, consider the advantages of setting upa company pension scheme or arrange for thecompany to make employer pension contributions.If a spouse is employed by the company, considerincluding them in the scheme or arranging forthe company to make reasonable contributions ontheir behalf.Employer-provided cars and fuelIf applicable, you should also check that anemployer-provided car is still a worthwhile benefit.It may be better to receive a tax-free mileageallowance of 45p per mile (up to 10,000 miles)for business travel in your own vehicle. If anemployer-provided car is still preferred, considerthe acquisition of a lower CO2emission vehicle onreplacement to minimise the tax cost.With the end of the tax year rapidly approaching on 5 April, now is thetime to focus on ways to mitigate any tax liability. To make the most ofthe opportunities available, if you’ve not already done so, you should startputting plans in place now. Here we look at some of the areas you may needto consider to minimise a potential tax liability.
  15. 15. 15Where private fuel is provided, the benefitcharge is also based on CO2emissions. You shouldreview any such arrangements to ensure nounnecessary tax charges arise.Capital Gains Tax (CGT)With 5 April fast approaching, it is a good idea to bethinking about using up your CGT exempt amount tomake the best use of tax advantages. For2012/13 every individual has a CGT exempt amount of£10,600 where no CGT is payable. Any capital gainson disposal of assets or investments are added toincome and taxed at 18 per cent over this exemptamount to the basic rate limit of £34,370 for2012/13 and then at 28 per cent for any gains over this.Depending on your income from capitalgains, timing can become an important issue.If appropriate, you should aim to use up yourpersonal exemption before 5 April but if yourincome from capital gains is high enough then youcould wait until the 2013/14 tax year to possiblyavoid paying tax at 28 per cent unnecessarily.CGT liabilities are calculated with your Self-Assessment Tax Return and tax payable is due by31 January 2013 for the tax year ending 5 April2012. Therefore part of your planning may be toleave disposals until after the year end to give youanother 12 months to pay the tax liability.If you have two homes you could considermaking an election, so that future gains on your‘main residence’ are exempt from CGT.A capital gain can also be deferred if thegain is reinvested in the shares of a qualifyingunquoted trading company through the EnterpriseInvestment Scheme.No CGT planning should be undertaken inisolation. Other tax and non-tax factors may berelevant, particularly Inheritance Tax, in relation tocapital assets.InvestmentsThere is a wide range of investments with varyingtax treatments. When choosing investments,always consider the differing levels of risk and yourrequirements for income and capital in both thelong and short term. An investment strategy basedpurely on saving tax is not advisable.Individual Savings AccountsIndividual Savings Accounts (ISAs) provide anIncome Tax and Capital Gains Tax investmentwrapper. The maximum investment limits are setfor each tax year. Therefore to take advantage ofthe limits available for 2012/13 the investment(s)must be made by 5 April 2013 (this tax year youcan shelter up to £11,280).An individual aged 18 or over may invest in oneCash ISA and one Stocks Shares ISA per tax yearbut limits apply. A Cash ISA allows you to investup to £5,640 (2012/13) with one provider only, inany one tax year.A Stocks Shares ISA allows you the option toinvest up to £11,280 in the current tax year withone provider.If you want to invest in both a Cash ISA and aStocks Shares ISA, the overall amount is cappedand you cannot exceed the £11,280 limit (2012/13).16 to 17-year-olds are able to open an adultCash ISA in 2012/13 and can also have a newJunior ISA account. This means that a combinedmaximum investment of £9,240 (£5,640 Cash ISA+ £3,600 Junior ISA) is possible for 2012/13.Other investmentsNational Savings Investment bank (NSI)products are taxed in a variety of ways. Some, suchas National Savings Certificates, are tax-free.Single premium life assurance bonds and ‘rollup’ funds can provide a useful means of deferringincome into a subsequent period when it may betaxed at a lower rate.The Enterprise Investment Scheme (EIS) allowsincome tax relief at 30 per cent on new equityinvestment (in qualifying unquoted tradingcompanies) of up to £1m in 2012/13. As long asshares held for at least three years, the sale of theshares at a profit will be CGT-free (a reduction ofthe current rate of 28 per cent to 0 per cent).Any size of capital gain made on the disposalof any kind of asset can be ‘deferred’ by re-investment into EIS-compliant companies. Thedeferred gain is then due on the sale of the EISshares unless the sale is to a spouse or on thedeath of the shareholder.Investments in EIS-compliant shares can attractInheritance Tax business property relief (BPR)equal to 100 per cent of the investment value ongifting or on death.A Venture Capital Trust (VCT) invests in theshares of unquoted trading companies. An investorin the shares of a VCT will be exempt from taxon dividends (although the tax credits are notrepayable) and on any capital gains arising fromdisposal of shares in the VCT.Income Tax relief, currently at 30 per cent, isavailable on subscriptions for VCT shares up to£200,000 per tax year so long as the shares are heldfor at least five years.Finally, review your borrowings. Full tax relief isgiven on funds borrowed for business purposes. nThe value of investments can go down as wellas up and you may not get back your originalinvestment. Past performance is not an indicationof future performance. Tax benefits may vary asa result of statutory change and their value willdepend on individual circumstances. Thresholds,percentage rates and tax legislation may change insubsequent Finance Acts.Isn’t it time youtook advantage ofany tax breaks?It’s important to take advantage oftimely tax breaks. To investigate theopportunities available to you, pleasecontact us today.Wealth protection
  16. 16. 16DevelopinganinvestmentstrategyWhat do you want to achieve from your investments?InvestmentWhatever your needs, we can help. You may wish to entrust the entirewealth management process to us, or make the investment decisionsyourself and still leverage our extensive services and expertise.
  17. 17. 17InvestmentDeveloping an investment strategy requires thatyou clearly define the short, medium and long termrational for your portfolio.Questions that should be considered are:Q: What are the investment objectives ofyour portfolio?Q: What appropriate investment strategies willachieve these objectives?Q: What is your attitude to risk tolerance relativeto your objectives?Q: What is your time horizon for achieving yourobjectives?A clear road mapDefining your investment objectives will provide aclear road map for developing the proper investmentstrategy, with the correct balance of risk.There are different types of risk involved withinvesting, so it’s important to find out what theyare and think about how much risk you’re willingto take. It all depends on your attitude to risk (howmuch risk you are prepared to take) and what youare trying to achieve with your investments.Investment considerationsIt is important for you to establish the generalpurpose for creating the investment portfolio.Such analysis should be undertaken:n How much can you afford to invest?n How long can you afford to be without themoney you’ve invested (most investmentproducts should be held for at least five years)?n What do you want your investment to provide– capital growth (your original investment toincrease), income or both?n How much risk and what sort of risk are youprepared to take?n Do you want to share costs and risks withother investors (by using a pooled investment,for example)?n If you decide to invest using pooledinvestments, consider which type would bemost suitable for you. The main differencesbetween pooled investments are the way theypay tax and the risks they involve (especiallyinvestment trusts and with-profit funds).n What are the tax benefit implications, what taxwill you pay and can you reduce it?Investment objectivesYou may be looking for an investment to providemoney for a specific purpose in the future.Alternatively, you might want an investment toprovide extra income. So having decided that youare in a position to invest, the next thing to thinkabout is: ‘What am I investing for?’ Your answerwill help you to choose the most suitable type ofinvestment for you. If you have a particular goal,you will need to think about how much you canafford and how long it might take you to achieveyour goal.You may have a lump sum to invest that youwould like to see grow or from which you wish todraw an income. Equally, you may decide to investin instalments (for example, on a monthly basis)with a view to building up a lump sum.Risk return trade-offThrough a balancing process of the potential riskreturn trade-off, your portfolio objectives can beachieved. All investment strategies used to achievethe objectives must focus on these two importantportfolio elements, ‘risk and return’.The best investment strategy is the one thatachieves your objectives with the correct balanceof the risk return trade-off, viewed over theproper duration or time horizon. The asset class,which has historically provided higher returnsover the long term risk adjusted, is equities,followed by bonds. Equities contain the highestdegree of risk volatility. However, the longer theduration or time horizon for equities, the lowerthe potential for volatility.Investors typically hedge against volatilitythrough an asset allocation across a diverse rangeof asset classes and strategies. A combination ofthese different asset classes and strategies shouldachieve the investment returns for investorsrelative to their objectives.Delivering higher returnsYour investment goals should determine yourinvestment strategy and the time question ‘Howlong have I got before I need to spend the money?’is crucial.Generally, the longer it is before you needyour money, the greater the amount of risk youare able to take in the expectation of greaterreward. The value of shares goes up and downin the short term and this can be very difficultto predict, but long term they can be expectedto deliver higher returns. The same is true to alesser extent of bonds. Only cash offers certaintyin the short term.Broadly speaking, you can invest in shares forthe long term, fixed interest securities for themedium term and cash for the short term.‘Lifestyle’ your investmentsAs the length of time you have shortens, you canchange your total risk by adjusting the ‘asset mix’ ofyour investments – for example, by gradually movingfrom share investments into bonds and cash. It isoften possible to choose an option to ‘lifestyle’ yourinvestments, which is where your mix of assets is risk-adjusted to reflect your age and the time you havebefore you want to spend your money.Income can be in the form of interest or sharedividends. If you take and spend this income,your investments will grow more slowly than ifyou let it build up by reinvesting it. By not takingincome you will earn interest on interest and thereinvested dividends should increase the size ofyour investment, which may then generate furthergrowth. This is called ‘compounding’. nInformation is based on our current understandingof taxation legislation and regulations. Levels andbases of and reliefs from taxation are subject tolegislative change and their value depends on theindividual circumstances of the investor. The value ofyour investments can go down as well as up and youmay get back less than you invested.Professional financialadvice is essentialThe performance of your investmentscould make a critical difference toyour financial wellbeing in the future,so receiving reliable and professionalfinancial advice is essential. Please contactus to discuss your particular situation.
  18. 18. Isn’t it timeyou had afinancial review?We’ll make sure you get the rightadvice for your individual needs.We provide professional financial advice coveringmost areas of financial planning, including, tax-efficientsavings, investment advice, retirement planning, estate inheritance tax planning, life protection, critical illnesscover and income protection.To discuss your options, please contact us.
  19. 19. 19Avoid facing financialuncertainty in old ageNearly half of women rely on joint savings to fund retirementBased on a sample of 5,200 adults, the report foundthat less than one in five (17 per cent) of women trusttheir own savings to see them through retirement,compared to nearly a third (30 per cent) of men.Precarious plansDespite many women being dependent on theirpartners for their income in old age, the report findsthat these precarious plans are often left unsaid. Thevast majority (79 per cent) of married women saythat retirement was not discussed with their partnerbefore they walked down the aisle and 78 per centsaid they did not know what they would be entitledto from their partner’s pension if they divorced.Losing outFurthermore, out of the divorced women surveyed,just 15 per cent said pensions were discussed aspart of their settlement. This is in spite of it beinga legal requirement that pensions are taken intoaccount in divorce settlements, through methodssuch as offsetting, earmarking and sharing. Thisis especially significant, as women are more likelyto work part-time or have caring responsibilitiesfor family members, meaning that they are atgreater risk than men of losing out on importantretirement income.Exposed to hardshipThe impact of divorce on women’s retirement isespecially concerning considering that almost onein ten (8 per cent) of women over 50 are whollydependent on their partner’s savings to fund themin retirement. This report uncovered that thisgroup of older women are particularly vulnerablein terms of lack of retirement provision, with thenumber of women over 50 without a pensionnearly double that of men of the same age (28 percent versus 15 per cent). As the divorce rate in theUK continues to rise, this group of women couldbe exposed to hardship in retirement should theyseparate from their partners.Unforeseen eventsWe know that the pressure on household budgets andthe challenge of managing childcare and wider familyresponsibilities whilst balancing work, can all makeit more difficult for women to save for retirement.For many older or divorced women, this can meanrelying on a partner or other family members toprovide support or additional income in later life.However, unforeseen events can have a stark impacton retirement plans, and it is important for womento make sure they know what they are entitled to andhow much they can expect to receive in retirement.For this group of women, it is important toact now. Making a commitment to save a setamount each month, could mean the differencebetween a comfortable retirement and one full offinancial difficulties. n[1] Office of NationalStatistic’s Divorces inEngland and Wales 2009/10.All figures, unless otherwisestated, are from YouGovPlc. Total sample size was5,200 adults. Fieldwork wasundertaken between 4th - 11thMarch 2012. The survey wascarried out online. The figures havebeen weighted and are representativeof all UK adults (aged18 years plus).Nearly half (43 per cent) of women are relying on joint savings with theirpartners to fund their retirement, according to the eighth annual ScottishWidows Women and Pensions Report. However, with one in three marriagesin the UK now ending in divorce by the fifteenth anniversary [1], expertsare urging women to make extra provisions for retirement, to avoid facingfinancial uncertainty in old age.RetirementAchieving yourretirement goalsThe earlier you start saving for apension, the better chance you’ll have ofachieving your retirement goals. To findout how putting off the decision to starta pension could affect your potentialretirement income, please contact us todiscuss your requirements.Enjoy yourretirement yearsWe can work with you to develop strategiesto accumulate wealth in order for you toenjoy your retirement years, by evaluatingyour goals, personal circumstances andprojected living costs - please contact us todiscuss your requirements.
  20. 20. 20Protection whenyou may need it morethan anything elseThe right peace of mind when faced with the difficulty of dealing with a critical illnessPredicting certain eventsIt’s almost impossible to predict certain events thatmay occur within our lives, so taking out criticalillness cover for you and your family, or if you runa business or company, offers protection when youmay need it more than anything else. But not allconditions are necessarily covered, which is why youshould always obtain professional advice.If you are single with no dependants, critical illnesscover can be used to pay off your mortgage, whichmeans that you would have fewer bills or a lump sumto use if you became very unwell. And if you are partof a couple, it can provide much-needed financialsupport at a time of emotional stress.Not a replacement for incomeThe illnesses covered are specified in the policy alongwith any exclusions and limitations, which may differbetween insurers. Critical illness policies usually onlypay out once, so are not a replacement for income.Some policies offer combined life and critical illnesscover. These pay out if you are diagnosed with acritical illness, or you die, whichever happens first.If you already have an existing critical illnesspolicy, you might find that by replacing a policyyou would lose some of the benefits if you havedeveloped any illnesses since you took out thefirst policy. It is important to seek professionaladvice before considering replacing or switchingyour policy, as pre-existing conditions may not becovered under a new policy.‘Top up’ your existing coverSome policies allow you to increase your cover,particularly after lifestyle changes such as marriage,moving home or having children. If you cannotincrease the cover under your existing policy, youcould consider taking out a new policy just to ‘top up’your existing cover.A policy will provide cover only for conditionsdefined in the policy document. For a conditionto be covered, your condition must meet thepolicy definition exactly. This can mean that someconditions, such as some forms of cancer, won’t becovered if deemed insufficiently severe.Conditions not coveredSimilarly, some conditions will not be covered if yousuffer from them after reaching a certain age, forexample, many policies will not cover Alzheimer’sdisease if diagnosed after the age of 60.Very few policies will pay out as soon as youreceive diagnosis of any of the conditions listed in thepolicy and most pay out only after a ‘survival period’,which is typically 28 days. This means that if you diewithin 28 days of meeting the definition of the criticalillness given in the policy, the cover would notpay out.A range of factorsHow much you pay for critical illness cover willdepend on a range of factors including what sortof policy you have chosen, your age, the amountyou want the policy to pay out and whether or notyou smoke.Permanent, total disability is usually included inthe policy. Some insurers define ‘permanent totaldisability’ as being unable to work as you normallywould as a result of sickness, while others see itas being unable to independently perform threeor more ‘Activities of Daily Living’ as a result ofsickness or accident.Activities of daily living include:n Bathingn Dressing and undressingn Eatingn Transferring from bed to chair and back againYou really need to find the right peace of mind when faced with the difficultyof dealing with a critical illness. Critical illness cover is a long-term insurancepolicy designed to pay you a tax-free lump sum on the diagnosis of certainspecified life-threatening or debilitating (but not necessarily fatal) conditions,such as a heart attack, stroke, certain types/stages of cancer and multiplesclerosis. A more comprehensive policy will cover many more seriousconditions, including loss of sight, permanent loss of hearing and a total andpermanent disability that stops you from working. Some policies also providecover against the loss of limbs.ProtectionPursue a lessstressful lifestyleThe good news is that medical advancesmean more people than ever are survivingconditions that might have killed earliergenerations. Critical illness cover canprovide cash to allow you to pursue a lessstressful lifestyle while you recover fromillness, or you can use it for any otherpurpose. Don’t leave it to chance – makesure you’re fully covered, please contact usto discuss your requirements.
  21. 21. 21ProtectionHow much you payfor critical illnesscover will dependon a range of factors includingwhat sort of policy you havechosen, your age, the amountyou want the policy to pay outand whether or notyou smoke.
  22. 22. 22TaxationmattersDifferent investments have different tax treatmentIf you or your partner is a non-taxpayer, make sure that you are not payingunnecessary tax on bank and savings accounts. Avoid the automatic 20 per centtax deduction on interest by completing form R85 from your bank or productprovider or reclaim it using form R40 from HM Revenue Customs.TAXATION
  23. 23. 23Individual Savings Accounts (ISAs)You pay no personal income tax or capital gains taxon any growth in an ISA, or when you take yourmoney out. You can save up to £11,280 per person inthe 2012/13 tax year in an ISA.If you invest in a Stocks and Shares ISA, anydividends you receive are paid net, with a 10 per centtax credit. There is no further tax liability.The impact of taxation (and any tax reliefs)depends on individual circumstances. Informationabout tax rules is based upon our currentunderstanding and is liable to change in the future.National Savings and InvestmentsYou can shelter money in a tax-efficient way withinthis government-backed savings institution.Unit Trusts and Open EndedInvestment Companies (OEICs)With a Unit Trust or OEIC your money is pooledwith other investor’s money and can be invested in arange of sectors and assets such as stocks and shares,bonds or property.Dividend income from OEICS andunit trusts invested in sharesIf your fund is invested in shares then any dividendincome that is paid to you (or accumulated within thefund if it is reinvested) carries a 10 per cent tax credit. Ifyou are a basic rate or non taxpayer, there is no furtherincome tax liability. Higher rate taxpayers have a totalliability of 32.5 per cent on dividend income and the taxcredit reduces this to 22.5 per cent, while the additionalrate taxpayers have a total liability of 42.5 per centreduced to 32.5 per cent after tax credit is applied.Capital gains taxNo capital gains tax is paid on the growth in yourmoney from the investments held within the fund, butwhen you sell, you may have to pay capital gains tax. Bear in mind that you have a personal capital gainstax allowance that can help you limit any potential taxliability. After 23 June 2010 the rate of tax that applieson any gain over your allowance is either 18 per centor 28 per cent depending on your taxable income.Accumulated incomeAccumulated income is interest or dividendpayments which are not taken but instead reinvestedinto your fund. Even though they are reinvested theystill count as income and are subject to the same taxrules as for dividend income and interest.Onshore investment bondsInvestment bonds have a different tax treatment fromother investments. This can lead to some valuabletax planning opportunities for individuals. There isno personal liability to capital gains tax or basic rateincome tax on proceeds from your bonds. This isbecause the fund itself is subject to tax, equivalent tobasic rate tax.You can withdraw up to 5 per cent each year of theamount you have paid into your bond without payingany immediate tax on it. This allowance is cumulativeso any unused part of this 5 per cent limit can be carriedforward to future years (although the total cannot begreater than 100 per cent of the amount paid in).If you are a higher or additional rate taxpayer nowbut know that you will become a basic rate taxpayerlater (perhaps when you retire for example) thenyou might consider deferring any withdrawal fromthe bond (in excess of the accumulated 5 per centallowances) until that time. If you do this, you willnot need to pay tax on any gains from your bond.Onshore investmentbond considerationsCertain events during the lifetime of your bond maytrigger a potential income tax liability:n Deathn Some transfers of legal ownership of partor all of the bondn On the maturity of the bond (except wholeof life policies)On full or finalcashing in of your bondIf you withdraw more than the cumulative 5 per centannual allowance, a tax liability is calculated on theamount withdrawn above the 5 per cent.If you are a higher or additional rate taxpayer or theprofit (gain) from your bond takes you into a higheror additional rate tax position as a result of any of theabove events then you may have an income tax liability.As you are presumed to have paid basic rate tax,the amount you would be liable for is the differencebetween the basic rate and higher or additional ratetax. The events may also affect your eligibility forcertain tax credits.Life assurance bonds held by UK corporate bondsfall under different legislation. Corporate investorscannot withdraw 5 per cent of their investment anddefer the tax on this until the bond ends.Offshore investment bondsOffshore investment bonds are similar to UK investmentbonds above but there is one main difference.With an onshore bond tax is payable on gainsmade by the underlying investment, whereas withan offshore bond no income or capital gains tax ispayable on the underlying investment. However,there may be an element of withholding tax thatcannot be recovered.The lack of tax on the underlying investmentmeans that potentially it can grow faster than onethat is taxed. Note that tax may be payable on achargeable event at a basic, higher or additionalrate tax as appropriate.Remember that the value of your fund for bothonshore and offshore bonds can fluctuate and youmay not get back your original investment.Offshore is a common term that is used to describe arange of locations where companies can offer customersgrowth on their funds that is largely free from tax. Thisincludes “true offshore” locations such as the ChannelIslands and Isle of Man, and other locations suchas Dublin. Tax treatment can vary from one type ofinvestment to another and from one market to another.UK shares and taxationIf you own shares directly in a company you may beliable to tax.DividendsAny income (dividends) you receive from your sharescarries a 10 per cent tax credit. Higher rate taxpayershave a total liability of 32.5 per cent on dividendincome and the tax credit reduces this to 22.5 percent, while the 50 per cent additional rate taxpayershave a total liability of 42.5 per cent reduced to32.5 per cent after tax credit is applied.Sales of sharesWhen you sell shares you may be liable to capitalgains tax on any gains you may make. You have ayearly allowance, above which any gains are liable to18 per cent tax. Special rules apply to working outyour gains or losses.Make the most of yourpersonal income allowancesIf you have a non-earning spouse, or civil partner, youcan switch income-earning investments to help your taxbill. Everyone up to age 65 has a personal allowance of£8,105 in the 2012/13 tax year, rising to £10,500 betweenthe ages of 65 and 74 and £10,660 at 75 and over. Thismeans you can earn this amount without paying tax.Use capital gainstax allowances wiselyEveryone can make up to a certain amount of profiteach year from selling an investment or propertywithout paying tax. Think about switching investmentsto a spouse’s or registered civil partner’s name to takeadvantage of both of your allowances. nThe value of investments and the income from themcan go down and up, and you may not get back asmuch as you paid in. Tax benefits and liabilitiesdepend on individual circumstances and may changein the future.Past performance is not a guide to the future.TAXATIONMake a big difference tothe value of your moneyA little planning and some meaningfuldecisions now can make a big difference tothe value of your savings and investmentslater. To discuss how we could help you saveand invest in the most tax-efficient way,please contact us for more information.
  24. 24. Achieving acomfortableretirement.Do you need a professionalassessment of your situation tomake this a reality?If you are unsure whether your pension isperforming in line with your expectations, and thatyou’ve made the right pension choices – don’t leaveit to chance.Contact us to discuss these and other importantquestions, and we’ll help guide you to acomfortable retirement.
  25. 25. 25Could your pension incomerise by as much as 33 per cent?Women need to be aware of their options to ensure they benefit from this opportunityBoosting incomeThere are two new factors which will potentiallyboost income for women taking capped incomefrom their pension savings, they are:1. From 21 December 2012, gender neutralitycame into effect. For women this means cappedincome withdrawal calculations are based on malerather than female income factors, which are higher.This means that from this date, when their pensionincome is next reviewed, women will be able to takemore income.2. Following the Chancellors Autumn Statement2012 in December last year, the formula used tocalculate maximum capped income withdrawal levelswill see a 20 per cent uplift. This could lead to a rise inthe maximum amount of income available to pensionsavers who went into income withdrawal, or had anincome review, on or after 6 April 2011. Pre 6 April2011 the 20 per cent uplift was available.Annual review facilityA combination of these two factors could resultin a rise of nearly 33 per cent to a woman’smaximum capped income. The important point tohighlight is that women may not benefit from thisenhancement unless they take action. The first keyissue to check if applicable to you is whether yourcurrent pension contract offers an annual reviewfacility. If it doesn’t (and the arrangement startedon or after 6 April 2006), rather than wait for thenext statutory review period which could be twoor more years away, you could consider one of thefollowing options (subject to the flexibility of yourcurrent arrangement):- If you have money held in your pension whichyou have not yet started to take income withdrawalsfrom, some of this money could be released andadded to the income withdrawal fund. The incomeformula used on the new money would apply to theentire amount in the income withdrawal fund - notjust the new money moved across.- If all of your pension savings are already in theincome withdrawal fund and you haven’t reachedyour 75th birthday, you could top-up your pensionby making a new contribution. This new money canthen be moved across to the income withdrawal fund,and as above, the entire income will be recalculatedon the enhanced basis.Capped income withdrawalThere is a real opportunity for women usingcapped income withdrawal to receive more incomefrom their savings next tax year. This could be ofbenefit for those who have seen the maximumannual income withdrawal from their pensiondecrease significantly in the last few years as aresult of falling gilt yields and previous policychange by this Government.It’s important that people are aware of theoptions available to them. One simple checkwomen could do now is to confirm whether theircurrent capped income contract offers an annualreview facility. nWomen taking capped income from their pension could benefit from a significant income uplift this tax year. They mayneed to take action to achieve this and it is important they are aware of the potential opportunity that could exist.RetirementDo you know what youshould be doing in therun up to retirement?When you retire, we can help you makethe most of your income. To compare theoptions and make the most of your money,please contact us for more information.There is a realopportunity forwomen usingcapped income withdrawalto receive more income fromtheir savings next tax year.This could be of benefit forthose who have seen themaximum annual incomewithdrawal from their pensiondecrease significantly inthe last few years as a resultof falling gilt yieldsand previouspolicy change bythis Government.
  26. 26. 26Willyoubeabletoenjoyyourretirement?More over-55s are increasingly working pastretirement age as living costs hit savingsThe UK’s over-55s are increasingly working past the traditional retirement ageas larger numbers fall back on their savings in later life to meet living costs,according to Aviva’s latest Real Retirement Report. The report examinesthe financial pressures faced by the UK’s three ages of retirement:55-64s (pre-retirees), 65-74s (the retiring) and over-75s (the long-term retired).Retirement
  27. 27. 27Prolonged working boosts incomeAverage monthly income for the over-55s hasincreased by just £109 in the last two years (from£1,335 – Q4 2010 to £1,444 – Q4 2012). The retiringhave driven this trend, gaining £166 overall, whilemonthly incomes have risen a mere £9 for pre-retirees and fallen by just £1 for the long-term retired(see table for details).All 55 – 64 65 – 74 Over 75sQ4 2010£1,335 £1,480 £1,318 £1,181Q4 2011£1,285 £1,271 £1,388 £1,125Q4 2012£1,444 £1,489 £1,484 £1,180Difference+ £109 +£9 +£166 -£1The income boost for the retiring has been driven bymore people working past the Default RetirementAge, which was phased out in 2011. Since the RealRetirement Report launched three years ago, thepercentage of this age group who list wages as part oftheir income has risen from 18 per cent to 23 per cent(Q4 2012).The report also shows the growing importance ofworkplace benefits in retirement. With the effects ofauto-enrolment yet to kick in for future generations,people aged 65-74 (47 per cent) are still more likely todraw income from an employer pension than thoseaged 75 and over (37 per cent).ExpenditureMonthly spending by the UK’s over-55s has actuallyfallen in the last year, despite annual inflation of2.74 per cent (Q4 2012), with average outgoings of£1,231 in Q4 2012 down from £1,269 in Q32012 and £1,300 in Q4 2011.The typical over-55 has cut back on non-essentialitems and prioritised debt repayment, travel, and fueland light. Spending on entertainment, recreation andholidays has fallen by 19 per cent in the last quarter,while clothing and footwear has dropped by 13 percent and leisure goods by 10 per cent. Meanwhile,spending on debt repayment has increased by 8 percent and almost matches monthly food bills(£177.58 compared with £189.45).SavingsThe average saving pot for over-55s has fallen byalmost £4,000 in the last quarter (£14,544 – Q42012 compared with £18,364 – Q3 2012). This remainslarger than a year ago (£11,153 – Q4 2011), but whilepre-retirees’ savings have reached their highest levelsince the report began, total savings have decreasedamong the two older age groups, both in the lastquarter and in the last two years (see table for details).All 55 – 64 65 – 74 Over 75sQ4 2010£15,262 £11,903 £21,427 £8,998Q4 2011£11,153 £6,665 £21,070 £8,498Q3 2012£18,364 £12,351 £30,624 £13,332Q4 2012£14,544 £13,873 £18,748 £8,748Dipping into savingsThe need for the long-term retired to dip into theirsavings to maintain their standard of living has seenthe percentage with less than £2,000 saved grow from23 per cent (Q3 2012) to 30 per cent (Q4 2012).In addition, the amount retirees save is actuallydown by 28 per cent from Q1 2012 although theyhave increased marginally year-on-year (up 7 percent in Q4 2012 compared to Q4 2011). The typicalover-55 puts away just £28.67 or 1.99 per cent of theirmonthly income: a mere £1.77 more than the sametime last year.Choice or necessityWhether it’s through choice or necessity, the fact thatpeople are working for longer shows how vital it isto work hard to achieve financial stability, so you canenjoy your retirement without the constant worryabout making ends meet.The growth of income among the retiringpopulation is a clear sign they are taking theopportunity to prepare for the future, and prioritisetheir outgoings to clear existing debts. And while thelong-term retired may find their savings dwindle inretirement, it’s important to remember that, with theright advice, there are often alternative ways to copewith rising living expenses and unforeseen costs. nThe Real Retirement Report was designed andproduced by Wriglesworth Research. As part of thismore than 14,600 UK consumers aged over 55 wereinterviewed between February 2010 and November2012. This data was used to form the basis of theAviva Real Retirement Report. Wherever possible, thesame data parameters have been used for analysisbut some additions or changes have been made asother tracking topics become apparent. Populationprojections from ONS.RetirementAchieve your desiredretirement incomeIf you have concerns about your retirementand want to find out how much you shouldbe saving to help achieve your desiredretirement income, please contact us forfurther information – we look forward tohearing from you.
  28. 28. Published by Goldmine Media Limited,Basepoint Innovation Centre, 110 Butterfield, Great Marlings, Luton, Bedfordshire LU2 8DLArticles are copyright protected by Goldmine Media Limited 2013.Unauthorised duplication or distribution is strictly forbidden.Wealth creationThe volatility in global markets over the past four years 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. The searchfor inflation-beating income is forcing many investors to move money out of cash accounts and into investment funds,with the aim of achieving a rising level of income. Do you needgrowth, incomeor both?Preparing for whatever economic ups and downs might be aheadHow should you decide betweengrowth and income investments?Much will depend on yourinvestment time frame and whatyou need the investment to provide for you.When considering the answer, it’s importantnot to ignore the concept of ‘total return’. Totalreturn looks to combine income with capitalgrowth to achieve the best overall return. Oneway of achieving this is with equity incomefunds, where investors saving for retirementcould reinvest the income until the day theyretire and then elect to have it paid to theminstead, producing an income without the costsof completely overhauling their portfolio.Index-linked investments, such as certain gilts andNational Savings certificates, can protect againstinflation eroding capital and income, but in today’slow-inflation world investors need to compare thetotal return to that available from an ordinary gilt orsavings account.Balance betweenthe different asset typesWealthier investors, who can cope with a littlefluctuation in their income and capital, could lookto include corporate bonds, property and dividend-paying shares. Bonds and property traditionally payhigher yields than equity income shares, but equitieshave provided the greatest opportunity for capitalgrowth and growth of income. A balance betweenthe different asset types should provide the bestchance for a reasonable and growing income.Income-paying equity, bond and property fundscan be a good investment for those investing forcapital growth too, as it’s simple to arrange forincome to be reinvested.Whatever your preference, if you hold a variety ofinvestments, both growth and income, you shouldbe better prepared for whatever economic ups anddowns might be ahead of you. As your financialsituation changes over time, you should also beprepared to make the necessary adjustments to yourinvestment portfolio and switch from growth assetsto income as your investment needs change. nLevels and bases of and reliefs from taxationare subject to legislative change and their valuedepends on the individual circumstances of theinvestor. The value of your investments and incomecan go down as well as up and you may get backless than you invested.What is yourfinancial personality?There are many facets to your financialpersonality and many ways to generateboth growth and income from yourinvestments. To discuss the optionsavailable to you or to review your currentprovision, please contact us.

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