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Smart Money Nov & Dec 2011


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Smart Money Nov & Dec 2011

  1. 1. SmartMoney Independent Financial Services NOVEMBER/DECEMBER 2011Smoothing out yourportfolio’s returnsHow to increase the long-term value of your investments SIPPing into retirement Are you in control of G OFFN your investments? VINEREIG STA OV LT A S DEFAUg to ettin the Emerging G with of s is grip nt cris ess e curr ebtedn views ind The lure of greater growth and younger economiesDo your retirement Fine-tuningnumbers add up? your portfolioSaving to secure the kind of pension Reduce risk, hedge inflation andyou would like to live on diversify your overall investment strategyIndependent Financial Services (UK) Ltd404 The Waterfront, Stonehouse Park, Sperry Way, Stonehouse, Glos, GL10 3UTTel: 01453 797500 Fax: 01453 797559 Email: Web: www.theifsgroup.comRegistered in England No. 2937166.Registered Office: 404 The Waterfront, Stonehouse Park, Sperry Way, Stonehouse, Glos., GL10 3UTIndependent Financial Services (UK) Ltd is an appointed representative of Lighthouse Advisory Services Limited which is authorised and regulated by the Financial Services Authority.
  2. 2. Welcome retirement Editorial Do your retirement W elcome to the latest issue of our personal finance and investment magazine. Inside this issue numbers add up? we provide you with quality analysis and information on a wide range of topics to Saving to secure the kind of help you make your financial planning pension you would like to live on decisions with confidence. Before you can start planning for your How much money do you need to save to secure the kind of pension retirement, you need to understand how you would like to live on when you retire? It’s a question that concerns the money you’ve built up in your pension everyone saving for their retirement. fund will be used to provide you with an income when you retire. On page 05 we So it’s essential to make sure your Much will depend on when you plan look at annuities – one of the options you numbers add up, especially as older to retire. Some people expect to have to could choose to invest most of your pension people have seen their cost of living rise work until they are 65, some with a good in, and one that will pay you a regular by almost a fifth in four years, according pension may aim for 60 and others plan income throughout your retirement years. to calculations from Saga. Working with for an early retirement during their 50s. In the UK more than £10bn is invested in the Centre for Economics and Business annuities every year. Research, Saga estimated that the neW-found freedom There are numerous ways of saving cumulative inflation rate on the RPI gauge Many of us may dream of long, easy days for retirement, including various types of has been 13.9 per cent for the general in retirement, enjoying our new-found pensions. The government views retirement population over the past four years. But freedom. But the illusion can too easily savings as being so important that it offers people aged between 65 and 74 have be shattered if we do not have enough generous tax benefits to encourage us suffered a rise of 19.1 per cent. income to live on. Few of us may realise just to make our own pension provision. It is how much we could need in retirement to usually also the case that you may be able daunting proSpect achieve a comfortable standard of living to contribute to more than one pension Add to this the daunting prospect that and how long it will have to last. – for example, if appropriate, you could one in three workers in the UK does As more people are living longer today, contribute to a Self-Invested Personal not currently have a private or company so our pensions have to last longer Pension (SIPP) as well as to your company pension, it means that around 15 million during our retirement years. Realistically pension scheme. Read the full article on people will have to rely on the State a pension may have to provide us with page 04 . pension or personal savings when they an income for over two decades, if not In the light of recent market volatility it’s retire, according to research of 1,600 longer, after our salary stops. perhaps natural to be looking for ways to adults by Prudential. smooth out your portfolio’s returns going This makes the question ‘How much factorS to conSider forward. One way for investors to achieve money do I need to save to secure the There are several factors to consider, such some peace of mind is through ‘pound-cost kind of pension I would like to live on as your current age, how many years left averaging’, a simple, time-tested method for when I retire?’ even more important. before your retirement, how you plan on controlling risk over time. On page 06 we look spending your retirement years and how at how pound-cost averaging enables investors much you can afford to save. to take advantage of stock market corrections When you retire, the chances are that and how, in this way, you could increase the you may not need as much to live on long-term value of your investments. as you do when you are working. As A full list of all the articles featured in this an estimate, a figure of between two- edition appears on page 03. n thirds and a half of your present income may be sufficient to maintain a good Content of the articles featured in this publication is for your general information and use only and is not intended standard of living. n to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to The key To saving for be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can your laTer life is To be no guarantee that such information is accurate as of the sTarT early. Making date it is received or that it will continue to be accurate in pension conTribuTions is the future. No individual or company should act upon such information without receiving appropriate professional a viTal parT of securing a advice after a thorough examination of their particular coMforTable reTireMenT. situation. We cannot accept responsibility for any loss as a To review your currenT result of acts or omissions taken in respect of any articles. reTireMenT provision and Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of and reliefs To assess wheTher your from taxation are subject to change and their value depends nuMbers add up, please on the individual circumstances of the investor. The value of conTacT us. your investments can go down as well as up and you may get back less than you invested.02
  3. 3. in thiS iSSue to fin g uSS l diScancia our anninentS y pl m 04 uire tain req to ober or furth tion,In this issue rma e infopleaSt uS tac con02 do your retirement numberS add up? Saving to secure the kind of pension you would like to live on 07 emerging vieWS The lure of greater growth and younger economies 05 08 10 booSting your income04 Sipping into retirement Are you in control of your investments? How to access a broad range of income-producing funds05 time to go annuity Shopping? 10 fine-tuning your portfolio Don’t make your final decision until Reduce risk, hedge inflation and you’ve received different comparisons diversify your overall investment strategy06 Smoothing out your portfolio’S returnS 11 tax matterS How much of your hard-earned money 12 How to increase the long-term value of will the taxman get his hands on? your investments making the moSt of your06 Staving off a Sovereign default 11 penSion contributionS Are you claiming higher rate pension The need to get to grips with the tax relief? current crisis of indebtedness 12 a neW flexible friend07 perSonal protection Could you cope with the unexpected? Withdrawing as little or as much income from your pension fund as you wish wanT To Make More of your money? FOR MORE INFORMATION PlEASE TICK THE APPROPRIATE BOx OR BOxES BElOW, INClUDE yOUR PERSONAl DETAIlS AND RETURN THIS INFORMATION DIRECTly TO US. n Arranging a financial wealth check Name n Building an investment portfolio Address n Generating a bigger retirement income n Off-shore investments n Tax-efficient investments n Family protection in the event of premature death n Protection against the loss of regular income n Providing a capital sum if I’m diagnosed with serious illness Postcode n Provision for long-term health care Tel. (home) n School fees/further education funding n Protecting my estate from inheritance tax Tel. (work) n Capital gains tax planning Mobile n Corporation tax/income tax planning Email n Director and employee benefit schemes n Other (please specify) you voluntarily choose to provide your personal details. Personal information will be treated as confidential by us and held in accordance with the Data Protection Act. you agree that such personal information may be used to provide you with details and products or services in writing or by telephone or email. 03
  4. 4. retirementSIPPing into retirementAre you in control of your investments?There are numerous ways of saving for retirement, including various types of pensions. The government views retirementsavings as being so important that it offers generous tax benefits to encourage us to make our own pension provision. It isusually also the case that you may be able to contribute to more than one pension – for example, if appropriate, you couldcontribute to a Self-Invested Personal Pension (SIPP) as well as to your company pension scheme.penSion Wrapper tax advantageS If you are an experienced investor, thenA SIPP is essentially a pension wrapper, This is a long-term savings vehicle with certain managing your own pension investmentscapable of holding investments and tax advantages, but you should be prepared may be for you. However, you need to beproviding the same tax advantages as to commit to having your money tied up until comfortable that you have the skill andother personal pension plans, that allows at least age 55. There are various options experience to make your own investmentyou to take a more active involvement in for taking benefits from your SIPP that you decisions and have sufficient time to monitoryour retirement planning. SIPPs are not should be aware of. you can receive up to investment performance. So you can eitherappropriate for small investment sums. 25 per cent of the pension fund value as a take control of your investments or pay you can generally choose from a number tax-free lump sum (subject to certain limits); someone to do it for you. If you pay, yourof different investments, unlike some other the remaining benefits can be taken gradually costs will increase for this facility.traditional pension schemes that can be as an income or as additional lump sums,more restrictive, and this can give you greater both of which are subject to your tax rate at managing your inveStmentSchoice over where your money is invested. that time, although this is potentially a lower There are a number of considerations you It may also be possible to transfer-in tax rate than the one that you currently pay, need to be aware of, for example, you cannotother pensions into your SIPP, which depending on your circumstances at the time. draw on a SIPP pension before age 55 andcould allow you to consolidate and bring there are usually additional costs involvedtogether your retirement savings. This may compound groWth when investing. you’ll also need to be mindfulmake it simpler for you to manage your UK pension fund investments grow free of the fact that you may need to spendinvestment portfolio and perhaps make of income tax and capital gains tax, which time managing your investments. Where anregular investment reviews easier. allows funds to accumulate faster than investment is made in commercial property, taxed alternatives and benefit considerably there could be periods without any rentaltax relief over the longer term due to the effects of income and in some cases the pension fundSIPP investors also receive tax relief on their compounding of growth. may need to sell on the property when thecontributions. So you could potentially benefit Where tax has been deducted at source market is not at its strongest. SIPPs also chargefrom between 20 per cent to 50 per cent tax on income within a pension fund – such higher costs than a stakeholder and you mayrelief depending upon your own circumstances. as rents, coupons and interest – this is pay two sets of management fees for the like some investments in other pensions, reclaimed by the pension provider and the wrapper and the underlying investments. nany returns from investments within a SIPP are tax credited back into the pension of income and capital gains tax. However, if you are an invesTor wiThunlike dividend payments received outside a not Subject to The experTise To Make yourSIPP, there is no 10 per cent tax credit applied tax declaration own invesTMenT decisions, a sipp May provide youto dividend payments within a SIPP. Assets held within the pension fund that wiTh The invesTMenT choice carry no tax at source, such as offshore To enable you To Take investments and government gilts, are not greaTer conTrol over your subject to tax declaration or payments. reTireMenT planning. if you are unsure, iT’s essenTial To seek professional financial advice. To discuss your reTireMenT planning needs, 25% The maximum please conTacT us. A pension is a long-term investment. The fund value may fluctuate and can go down percentage of your as well as up. You may not get back your pension fund value original investment. Past performance is not you can receive an indication of future performance. Tax tax free benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.04
  5. 5. retirementTime to goannuity shopping?Don’t make your final decision until you’ve received different comparisons Before you can start planning your retirement, you need to understand how the money you’ve built up in your pension will be used to provide you with an income when you retire. £10bn One of the options you could choose is to invest most of your pension in an annuity, which pays you a The amount invested in annuities every regular income throughout year in the UK your retirement purchase an annuity using the lump impaired life annuity. These usually beSt courSe of actionsum from your pension or, perhaps, pay a higher income amount if your At times of falling annuity rates it mightsome savings, which provides you with a health problems (such as high blood be tempting to hold off buying an annuity,guaranteed income for the rest of your pressure, kidney problems or diabetes) perhaps while you wait for rates to The size of the income you receive, could potentially reduce your lifespan. But this may not necessarily be the best coursehowever, usually depends on the size of you might also be able to receive an of action. If you decide to delay your purchase,your pension fund, your age, your gender ‘enhanced annuity’ if you are a smoker rates could fall even further. In addition, everyand your health. In the UK more than or diagnosed as obese. month an annuity is deferred is a month£10bn is invested in annuities every year. without income and this lost income may not Shopping around be recouped in the future. nannuity quotation you can purchase your annuity from anyWhen you retire, your pension fund provider and it certainly doesn’t have iT’s iMporTanT To reMeMber ThaTprovider will inform you of your pension to be with the company you had your once you have agreed To purchasefund total and offer you an annuity pension plan with. The amount of income your annuiTy in exchange for aquotation based on the size of your fund. you receive from your annuity can vary pension suM, you cannoT change The annuiTy aT a laTer daTe or TryIn general, most people purchase an between different insurance companies, To surrender iT for cash. Therefore,annuity by the time they reach age 75. so it’s essential to receive comparisons you should seek professional your choice of annuity will depend before making your final decision. advice To ensure you find The besT possible annuiTy available.largely on your financial circumstances, the This is likely To be one of The MosTvalue of your pension(s), your retirement ‘open market’ option iMporTanT financial decisionsexpectations and, possibly, on your health or Remember that you do not have to accept you’ll ever Make. we can help you work ouT which annuiTy opTionthe health of your dependants. your pension fund provider’s annuity is besT for your own personal you can choose whether you would prefer offer and could find much better value circuMsTances – please conTacT usa level annuity or an escalating annuity. level elsewhere. Pension fund providers are also To discuss your requireMenTs.annuities pay you a fixed level of income now legally obliged to inform you of youreach year, while an escalating annuity rights to choose an annuity. you can decide A pension is a long-term investment. Theincreases each year in line with inflation. to take the ‘open market’ option providing fund value may fluctuate and can go down The income generated from an that you haven’t already taken any benefits as well as up. You may not get back yourescalating annuity is usually significantly from your pension or agreed an existing original investment. Past performance is notlower in the first few years than you would annuity with your pension provider. an indication of future performance. Taxexpect to receive from a level annuity. Before you take out your annuity, you benefits may vary as a result of statutory could also opt to withdraw a tax-free change and their value will depend onpoor health lump sum – up to 25 per cent of the individual circumstances. Thresholds,If you suffer from poor health, you may total value of your pension – known as a percentage rates and tax legislation mayqualify for an enhanced annuity or an Pension Commencement lump Sum. change in subsequent Finance Acts. 05
  6. 6. neWS in brief Wealth creation Smoothing out your portfolio’s returns staving off a How to increase the long-term value of your investments sovereign default In the light of recent market volatility, it’s perhaps natural to be looking for ways to smooth out The need to get to grips your portfolio’s returns going forward. One way for investors to achieve some peace of mind is with the current crisis of through ‘pound-cost averaging’, a simple, time-tested method for controlling risk over time. indebtedness P ound-cost averaging enables investors SavingS habit The turbulence that has gripped financial to take advantage of stock market Regular savings and investment schemes can be an markets is a response to the perception that corrections and, by using the theory, you effective way to benefit from pound-cost averaging politicians in the Eurozone and the US have could increase the long-term value of your and they instil a savings habit by committing you been slow to face up to issues of indebtedness. investments. There are, however, no guarantees to making regular monthly contributions. They are If Interest rates in the UK and the Eurozone that the return will be greater than a lump sum especially useful for small investors who want to remain low for years to come, the pound and investment and it requires discipline not to cancel put away a little each month. euro currencies would then be an unattractive or suspend regular Direct Debit payments if Investors with an established portfolio might place for investors to deposit their cash. markets continue to head downwards. also use this type of savings scheme to build exposure a little at a time to higher-risk areas of a contingency planS regular intervalS particular market. The direct exposure of UK banks to Greece is The basic idea behind pound-cost averaging The same strategy can be used by lump fairly limited, but Bank of England Governor, is straightforward; the term simply refers to sum investors too. Most fund management Mervyn King, revealed in his response to MPs’ investing money in equal amounts at regular companies will give you the option of drip- questions in June that the Bank was working intervals. One way to do this is with a lump feeding your lump sum investment into funds in with the Treasury to draw up contingency plans sum that you’d prefer to invest gradually – for regular amounts. By effectively ‘spreading’ your for a Greek default. example, by taking £50,000 and investing investment by making smaller contributions on a The European Central Bank together £5,000 each month for 10 months. regular basis, you could help to average out the with the ‘eurosystem’ of 17 national central Alternatively, you could pound-cost average price you pay for market volatility. banks can create money that is used to buy on an open-ended basis by investing, say, Any costs involved in making the regular government debts to stave off a sovereign £5,000 every month. This principle means that investments will reduce the benefits of pound- default. There is therefore no theoretical limit you invest no matter what the market is doing. cost averaging (depending on the size of the to how much can be bought up. Pound-cost averaging can also help investors charge relative to the size of the investment, and The sooner Europe’s political and financial limit losses, while also instilling a sense of the frequency of investing). n leaders get to grips with the current crisis, the investment discipline and ensuring that you’re sooner the markets can try and return to some buying at ever-lower prices in down markets. investing regular amounts could have sort of normality. the advantage of averaging out the cost market timing of your total investment over time and uS Sovereign debt Investment professionals often say that the secret may take away the worry of timing your purchases correctly. regular investing Across the pond, the recent downgrading of of good portfolio management is a simple one – may be ideal for people starting out US sovereign debt by Standard and Poor’s (S&P) market timing. Namely, to buy more on the days or who want to take their first steps is an important symbolic moment in the shift when the market goes down, and to sell on the towards building a portfolio of funds of economic power from mature industrialised days when the market rises. for their long-term future. To find nations to emerging economies. As an individual investor, you may find it more out more about the different options The US will only regain its AAA status difficult to make money through market timing. available to you, please contact us. once politicians have demonstrated that they But you could take advantage of market down can implement the necessary tax increases days if you save regularly, by taking advantage of and/or spending cuts that will eventually get pound-cost averaging. the ratio of outstanding debt to GDP onto a downward trajectory. Private investors are likely to keep their investments as simple as possible via direct investment and collective vehicles such as funds and investment companies, while those with direct exposure to higher risk assets, which may fall in value in the short to medium term, at least have the capacity to grow again in the future. n06
  7. 7. protection InvestmentPersonal protection EmergingCould you cope with the unexpected? ViewsPersonal protection is an important part of most people’s financial planning requirements. The lure of greater growthThe financial effects on your family in the event of death or illness could be profound. and younger economiesThere are many protection options available and we can help you identify the mostsuitable for your specific requirements. ‘Emerging markets’ is a broad term that encompasses the giants of Brazil, Russia,Personal protection is an important part of most critical illness: this provides you with a India and China (BRIC), as well as somepeople’s financial planning requirements. The financial tax-free lump sum or regular income if you other nations. Emerging markets haveeffects on your family in the event of death or illness are diagnosed with a serious specified illness continued to outperform developedcould be profound. covered by the policy markets, even during the difficult If you were to die, at the very least you’d want Certain policies should also be written under economic climate we have experiencedyour mortgage, debts and funeral costs to be an appropriate trust to ensure that monies pass throughout 2011. The lure for investors ispaid for. you’d probably also want the security to the right people at the right time and in the greater growth and younger economiesof knowing that your family would be able to most tax-efficient manner. n than typically found in the developedmaintain their current standard of living. West, but the trade-off for this growth is If you became seriously ill or were injured and if you already have soMe higher volatility and greater risk.had to give up work, you’d also want to be sure proTecTion soluTions in place The population and economic growththat your family could continue to be supported iT is beneficial To review These in these markets has created a potentially regularly To ensure ThaT Theyfinancially. you may decide to use your existing massive high-consuming middle class – conTinue To MeeT your currenTsavings and investments, but how long would needs. financial planning estimated to be more than one billionthese last for before they ran out? should begin wiTh ensuring people by 2030, according to the World Considering protection solutions is a good ThaT you have a secure and Bank, April 2010.way to safeguard against unforeseen events or appropriaTe proTecTion Emerging markets have largeexpenses and can provide your dependants with foundaTion in place To cope wiTh reserves of natural resources and thesethe financial security you desire. dealing wiTh The unexpecTed reserves should also aid their future – please conTacT us To review prosperity as commodities continue tothese are the basic protection foundations your currenT requireMenTs. be in high should set up: In addition, many emerging markets have lower government debt burdens thanlife insurance: this provides financial security developed nations and may have largefor your dependants in the event of your holdings of foreign exchange. This meansdeath and helps them to pay some or all of the that spending in most emerging marketsoutstanding debts/financial commitments such has not been dramatically curbed by theas your mortgage and other liabilities recession, as has been the case in manyincome protection: this replaces part of your income developed nations, which has allowedif you are unable to work because of an illness or further stimulation of their economies anddisability for a short or a long period of time infrastructures to continue while some domestic markets have waned. n Investments in emerging markets are by their nature generally considered truSt to be higher risk. The value of these investments and the income from them Certain policies can go down as well as up and you may should also be not get back your original investment. written under an Past performance is not an indication of appropriate trust critical future performance. Tax benefits may vary as a result of statutory change and illneSS their value will depend on individual Provides you with a circumstances. Thresholds, percentage tax-free lump sum or rates and tax legislation may change in regular income subsequent Finance Acts. 07
  8. 8. inveStmentBoosting your incomeHow to access a broad range of income-producing fundsGenerating an income from investments is usually an important requirement dividendS from ShareS andfor many people who are retired or approaching retirement, those who equity income fundSneed to supplement their salary or even those with a relatively short Many companies distribute part of their profits each year to their shareholders ininvestment timeframe. the form of dividends. Companies usuallyT here are thousands of income- fixed intereSt from bondS seek to keep their dividend distributions at a producing funds to choose from Bonds are issued by governments similar level to the previous year, or increase and they are divided into different (known as gilts in the UK) and companies them if profit levels are high enough to types, or sectors. The four main (corporate bonds) to investors as a way warrant it. If companies do not make atypes of income fund are: to borrow money for a set period of time profit then no dividends will be paid and (perhaps five or ten years). During that there is no market funds – these pay interest time, the borrower pays investors a fixedand aim to protect the value of your money. interest income (also known as a coupon) rental income from propertybond (fixed income) funds – this type of each year and agrees to pay back the and property fundSfund pays a higher rate of interest than cash capital amount originally invested at an Some people invest in ‘buy-to-let’ propertiesdeposits but there is some risk that the value agreed future date (the redemption date). in order to seek rental income and potentialof your original investment will fall. If you sell before that date, you will get the increase in property values. Property fundsequity income funds – the income is market price, which may be more or less typically invest in commercial propertiesproduced from dividends paid to shareholders. than your original investment. for the same reasons, but there are risksIn return for some risk to your capital, you may attached. For example, the underlyingget a more regular income than you would credit ratingS affect properties might be difficult to let and rentalfrom cash, and the income, as well as your the market price yields could fall. This could affect both thecapital, may increase over time. Many factors can affect the market price income you receive and the capital funds – these funds pay income of bonds. The biggest fear is that thefrom rents but the value of your investment issuer/borrower will not be able to pay Selecting fundScan fall as well as rise. its lenders the interest and ultimately There are a number of key points you should In addition, there are mixed asset funds, be unable to pay back the loan. Every consider when selecting funds. Initially, youwhich invest your money in both bonds bond is given a credit rating. This gives need to balance your need for a regularand equities. investors an indication of how likely income with the risks. The income from a the borrower is to pay the interest and fund may be higher and more stable than theintereSt from caSh or money to repay the loan. Typically, the lower interest you receive from cash deposited in amarket fundS the credit rating, the higher the income bank or building society savings account but itThis income varies in line with the interest investors can expect to receive in return can still go up and down. There may be somerate set by the Bank of England. The fund’s for the additional risk. risk to the capital value of your investment.investment manager will aim to get the A more general concern is inflation, which If a regular income is important to youbest rate available, helped by that fact that, could considerably erode the real value of the and you do not need to cash in yourwith large sums to deposit, funds can often interest paid by bonds. Typically, bond prices investment for now, you may be preparedachieve better rates than individual investors. rise if interest rates are expected to fall, and to take this risk. The capital amount you originally invested fall if interest rates go up. Where funds are invested in real estate/in cash is unlikely to go down (subject to the If you invest in bonds via a fund, your commercial property, you may not belimits for each deposit under the Financial income is likely to be steady but it will not able to switch or cash in your investmentServices Compensation Scheme). If the be fixed, as is the case in a single bond. when you want because assets in theinterest rate is lower than the rate of inflation, This is because the mix of bonds held in fund may not always be readily saleable.however, the real spending value of your the fund varies as bonds mature and new If this is the case your request to switchinvestment is likely to fall. opportunities arise. or cash in your shares may be deferred08
  9. 9. inveStment 4 The number of main types of income fund annually All income funds must pay income at least annuallyor suspended. you should also bear in a percentage of the sum invested. yields on we are able To offer youmind that the valuation of real estate is bond funds can also be used to indicate the access To a broad range ofgenerally a matter of valuers’ opinion risks to your capital. incoMe-producing producTs.rather than fact. To discuss your requireMenTs, diStribution policy please conTacT us.SectorS for income inveStorS to Suit your income needSIncome funds of the same type are grouped All income funds must pay income at leastin ‘Investment Management Association annually, but some pay income distributions The value of these investments and the(IMA) sectors’. The main IMA sectors for twice a year, quarterly or monthly, so you can income from them can go down as well asincome investors are: Money Market; Fixed invest in a fund that has a distribution policy up and you may not get back your originalIncome (including UK Gilts, UK index-linked to suit your income needs. investment. Past performance is not anGilts, Corporate Bond, Strategic Bond, Global If you need cash regularly, you may indication of future performance. Tax benefitsBond and High yield); Equity Income; Mixed consider selecting income units/shares. The may vary as a result of statutory changeAsset (i.e.UK Equity and Bond) and Property. income generated in a fund is paid out in and their value will depend on individual you need to consider the fund yield, which cash to investors who own income units. If circumstances. Thresholds, percentage ratesallows you to assess how much income you you choose the alternative – accumulation and tax legislation may change in subsequentmay expect to get from a fund in one year. In units/shares – your share of the income is Finance Acts.the simplest form, it is the annual income as automatically reinvested back into the fund. n 09
  10. 10. inveStmentFine-tuningyour portfolioReduce risk, hedge inflation and diversify your overall investment strategyCommodities have received much media coverage over the past year, with prices rising as other asset classes falter.Investing in commodities within your portfolio may not only create exposure to different investment products, but canalso help reduce risk, hedge inflation and diversify your overall investing strategy.C ommodities, like much else, are They tend to behave differently They can either be physically backed by subject to the laws of supply and to conventional asset classes and the commodity itself or use swaps with other demand. When demand rises, as can therefore be very useful for the financial institutions to provide the exposure. has been the case with gold over purposes of diversification within an Should the price of the commoditythe past few years, the price rises. Stock investment portfolio. fall, so will the investment, as the ETF willmarket volatility and rising UK inflation simply track its performance. ETCs alsohave attracted a diverse mix of investors to viable Way to acceSS allow investors to ‘short’ or ‘leverage’ theirthis sector. commoditieS investment. Investors should be careful here, In October the Monetary Policy Committee An investment fund that enables investors as these strategies involve high risk. Although(MPC) announced £75bn of new quantitative to access the sector and spread risk, there are potential gains to be made, thereeasing (QE) measures to help boost the with investors investing in a variety of could be significant potential losses too.faltering economy and free up the money commodities, is a passive fund incorporating With the incredible rise of emergingmarkets. The stock market reacted positively Exchange Traded Funds (ETFs). economies forecast over the coming years,to this news with mining and commodity ETFs provide appropriate investors with the the commodity markets may providestocks benefiting from the QE which filtered chance of buying whole indices in the same appropriate investors with a range ofthrough to asset prices. way as buying a share on the london Stock investment opportunities to enable them to Exchange. In addition, they are eligible for grow their wealth over the longer term. nSafe havenS preServe Wealth inclusion within Individual Savings AccountsCommodities are physical assets. They and do not attract any stamp duty. Investments in commodities are by theirinclude oil and gas, metals such as gold and nature generally considered to be highersilver, and so-called ‘soft’ commodities such tracking the future price risk. The value of these investments andas wheat, sugar and cocoa beans. They are Equity-based commodity ETFs invest in shares the income from them can go down asoften called ‘safe havens’ as they preserve of commodity companies through an index well as up and you may not get back yourwealth in a physical way. such as the FTSE 100, whereas Exchange original investment. Past performance is not The sector has little correlation with stock Traded Commodities (ETCs) are instruments an indication of future performance. Taxmarkets and currencies, which means if that track the price of the commodity, or a benefits may vary as a result of statutoryequity markets fall, the price of commodities basket of commodities. change and their value will depend onwon’t necessarily fall. individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. ftSe100 One index through which ETFs invest in shares of commodity companies £75bn The amount of quantitative easing measures announced by the Monetary Policy Committee in October10
  11. 11. Wealth protection taxatIon Making the most of your pension contributions Are you claiming higher rate pensions tax relief? If you pay higher rate tax you will not receive tax relief automatically on your personal pension contributions unless you claim it. This meansTax matters that someone earning more than £42,475 in the current financial year could potentially be losing a fifth of the value of their pension if they are not actively claiming back higher rate tax relief on their contributions.How much of your hard-earned money claiming tax backwill the taxman get his hands on? If you pay income tax on your earnings beforeInheritance Tax (IHT) in the UK may be one of life’s unpleasant facts but IHT any personal pension contributions, your pension provider claims tax back from the governmentplanning and quality advice could help you pay less tax on your estate. at the basic rate of 20 per cent. In practice,For the 2011/12 tax year, no IHT is these circumstances and can reduce the this means that for every £80 you pay into yourcharged on the value of your estate up to amount of IHT due. n personal pension, you end up with £100 invested£325,000. This is known as the ‘nil rate in your pension’. Everything above this is taxed at There are a nuMber of If you are a higher rate tax payer paying40 per cent. opTions you could uTilise 40 per cent, you may able to claim an additional If an individual’s IHT nil rate band is To reduce your faMily’s ihT tax relief. Depending on how much you earnnot used up on their death, the unused bill. why noT invesTigaTe The over the higher rate tax band, any additional taxproportion can be transferred to their wealTh proTecTion services relief could range from between a further 1 per we offer? ihT is a highlysurviving spouse or civil partner. cent up to a maximum of 20 per cent. coMplex area of financial Assets passed between spouses or planning and you shouldregistered civil partners are exempt from always obTain professional additional rate tax payerSIHT (assuming the spouse or partner is advice. we can assess your From 6 April, if you are an additional rate taxdomiciled in the UK), regardless of the individual circuMsTances payer and pay 50 per cent, you may also beworth of the assets and how soon you die and help you find The able to claim additional tax relief at your highestafter acquiring them. righT soluTion(s) To MeeT rate. Depending on how much you earn over your requireMenTs. the higher rate tax band and your level ofreducing your family’S tax bill contribution, any additional rate tax relief couldAny amount of money you give away Tax laws are subject to change, possibly range from between a further 1 per cent up to aoutright will not be counted for IHT if retrospectively. The rules for individuals maximum of 30 per survive for seven years after making who are not UK resident or not UK Claiming higher rate tax relief on personalthe gift. If you die within this period, the domiciled are different and therefore tax pension contributions is for many people theamount of the gift will be included within and local laws should be considered. single most important relief they can claim, yetyour estate. Taper relief may apply in hundreds of thousands could be missing out. To obtain your additional tax relief you must file hoW much of your eState could go to the a tax return or get HM Revenue & Customs to taxman in the 2011/12 tax year? change your tax code. To do this, you have to contact your local tax office. value of your estate your iht bill payable less than £325,000 £0 full tax relief Straight aWay £400,000 £30,000 If you are employed, usually your employer will £500,000 £70,000 take occupational pension contributions from your pay before deducting tax (but not National £600,000 £110,000 Insurance contributions). you only pay tax on £700,000 £150,000 what’s left. So whether you pay tax at basic, £800,000 £190,000 higher or additional rate you receive the full relief £900,000 £230,000 straight away. n £1,000,000 £270,000 11
  12. 12. Wealth creation 75 It is no longer compulsory to buy anA new annuity at this age £20,000flexible friend The amount you have to declare you are already receiving annually as a secure pensionWithdrawing as little or as much income incomefrom your pension fund as you wishGenerating a retirement income has now become even more flexible. From 6 April, new rules wereintroduced to replace the previous pension drawdown arrangement which have now providedinvestors with greater flexibility and control over their pension options when they retire.qualifying for thiS option annuity being paid to you (from a personal benefit those who do not want to buyFlexible drawdown is more flexible than pension or company pension) either from an annuity by age 75 or who want morethe previous income drawdown, and if you the UK or from overseas; or a State pension flexibility and control over their pension.qualify for this option it removes the cap being paid to you either from the UK or However, the majority of people may stillon the income you could take. This will from overseas. want to purchase an annuity in retirement,not be available to everyone and there are because it enables them to secure acertain criteria that must be met before you did you knoW? guaranteed income in retirement. ncan opt for it. n The effective compulsion to buy an Flexible drawdown gives some individuals annuity by age 75 has ended planning for yourthe opportunity to withdraw as little or as n you now have more flexibility to defer reTireMenT can Make amuch income from their pension fund, as taking a pension and tax-free cash world of difference. forand when they need it. To qualify, you have payments post age 75 More inforMaTion abouTto declare that you are already receiving n Capped drawdown – this option how we could help you,a secure pension income of at least enables you to draw an income for life, please conTacT us To discuss£20,000 a year and have finished saving with an annual limit, without having to your requireMenTs.into pensions. The same rules apply to purchase an annuitydependants who elect flexible drawdown. n Flexible drawdown – if you have a The fund value of a flexible drawdown secure income of over £20,000 per arrangement may fluctuate and canSecure penSion income annum you will not be subject to go down as well as up. You may notIf pension contributions have been made limits on the income you take from get back your original investment. Pastto any pension in the same tax year or your drawdown performance is not an indication of futureif you are still an active member of a n There has been an increase in the tax performance. Tax benefits may vary as afinal salary scheme, it isn’t possible to payable on lump sum death benefits result of statutory change and their valuestart flexible drawdown. Once in flexible from drawdown will depend on individual circumstances.drawdown, it isn’t possible to make Thresholds, percentage rates and taxfurther pension contributions. flexibility and control legislation may change in subsequent A secure pension income means a over your penSion Finance pension being paid to you either These new rules, with the exception offrom the UK or from overseas; or an the increased tax on death payouts, couldPublished by Goldmine media Limited,Prudence Place, Luton, Bedfordshire, LU2 9PEArticles are copyright protected by Goldmine Media Limited 2011.Unauthorised duplication or distribution is strictly forbidden.