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January February


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January February

  1. 1. MoneyMatters January/February 2012 JuniorCritical illnessCoveR iSAs how to combineinvesting in PenSion PotSemerging marketswhen will you YoURRetire G Lifestyle Protection G Creating Wealth Financial resolutions G Tax Rules G Copperfields Financial Management Ltd Basepoint Business Centre, Oakfield Close, Tewkesbury, Gloucestershire GL20 8SD. T: 01684 851224 26 Kings Hill Avenue, Kings Hill, West Malling, Maidstone, Kent ME19 4AE. T: 01732 424035 Copperfields Financial Management Limited is an appointed representative of Financial Ltd which is authorised and regulated by the Financial Services Authority.
  2. 2. inside When will you retire? Protecting your business Online transparency New state pension age Page 2 2012 survival plan Internet tax access Page 10 As the economy continues Financial New Year resolutions Page 7 Flexible drawdown to falter, our guide offers 2012 financial check points Page 3 NEST Pension delay notice Appealing tax planning Page 10 you ways to resolving The Autumn Statement 2011 Page 7 Junior ISAs your financial issues in Key announcements Page 4 How to combine pension pots Tax free savings for children Page 11 the New Year Maximise your pension Ensuring peace of mind performance Page 8 Active and passive funds Critical illness cover Page 5 Where to use them Page 12 Investing in emerging markets Structured products BRICs and more Reader reply section Good or bad? Page 6 Page 9 Personalised reply section Page 12 Need more information? Simply complete and return the information request on page 12 when will you retire? your financial resolutions For many years the age at which you can claim your state pension The rise to 67 now scheduled for 2026 benefits was 65 for men and 60 for women. George Osborne’s Autumn Statement on the economy in Maximise your savings Investing in the stock market Knowing their child will be cared and But the previous Labour Government set out plans, based on November 2011 announced that the state pension age will start As from April 2012, the amount of money Paying down debt and saving in many provided for will be a huge weight off their recommendations from Lord Turner, to steadily increase the state rising to 67 for both men and women in 2026. Gradually, all you can put into a cash ISA increases to cases has been the number one priority for mind. £5,640, so ensure you make full use of this UK households during this recession. But if pension age to 68 for both men and women over the next four Britons will be forced to wait an extra year with everyone Energy efficiency boosted tax-free allowance. you are already in good shape financially, decades. qualifying at age 67 by April 2028. It will affect millions of people Consider your fuel bills and energy 2012 could be the perfect time to invest In May 2010, the new coalition Government initially signalled in their early fifties. Start a pension consumption. Swapping an old G-rated some longer term cash into the stock its intent to speed up the process, bringing forward the first rise According to the Pensions Advisory Service, boiler for a new condensing one could cut Reprieve over dramatic rise for women market. you should pay a percentage equal to half your bills by as much as £235 a year, to 66 for men from 2026 to 2016. For women, the new rules mean more dramatic rises than first your age of your salary to afford a Switch to a better current account according to the Energy Saving Trust. Finally, the Comprehensive Spending Review in October 2010 reasonable retirement. For example, 15 per If your current account has been a nagging Householders aged over 60 may also feared. It had been expected that the women’s state pension age settled on a less radical option, and confirmed the rise to 66 for cent of your salary if you are aged 30 or 20 issue for some time, use 2012 to shop qualify for a grant from the Government’s would rise to 65 by 2020. It will now move to 65 by 2018 and both men and women would be introduced by 2020. per cent if you are aged 40. So the earlier around. Customers should realise that they existing Warm Front Scheme. The scheme then be raised again to 66 (same as men) by 2020. It has provoked outrage among around 500,000 women in you start the better. do not have to stick with the same bank, provides a package of insulation and there are a range of highly competitive heating improvements up to the value of their fifties who would have had to work up to two years longer. Invest in your children current accounts on the market and the £3,500. To find out if you would qualify go Of the total, around 500,000 will have to wait more than a The Junior ISA, or JISA, allows the under switching process is easy, with most of the to www. year, and the worst hit 33,000 would have to wait two years. 18s to have up to £3,600 a tax year saved When Some were in line to lose up to £15,000. on their behalf, perhaps building up to help major banks now having dedicated switching services to do most of the hard Switch to a cheaper mortgage deal The upcoming with school fees or a house deposit. If your mortgage is coming to an end in rule changes to will you be But now the Government has changed its stance to the 33,000. Get life insurance work. the New Year, consider switching to a In October 2011, it said the maximum wait would be eighteen Make a Will variable rate deal. While you will be the state pension able to months rather than two years. It will achieve this by moving back If you have dependants, having life cover It is believed that over half of adults in the exposed to fluctuations in the interest you in place should feature pretty high on the age that will see the date at which the pension age hits 66 from April to people work retire? October 2020. financial priority list. If your employer doesn’t offer this kind of cover then UK do not have an up to date Will. Getting your last wishes drawn up in an official contract should be at the top of your pay, there is growing consensus among experts that interest rates are going to stay low for some time. When considering longer contact a professional financial adviser. financial resolutions, especially if you have choosing a mortgage it is always advisable If you already have life insurance, you dependants. to speak to your professional financial can still investigate if you are getting the The articles featured in this publication are for your general information and use only and are not intended to address your particular requirements. They should not be relied The majority of parents have writing a adviser. upon in their entirety. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the best deal available, especially if you have date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional Will on their ‘to do’ list but we are urging advice after a thorough examination of their particular situation. Will writing, buy-to-let mortgages, some forms of tax and estate planning are not regulated by the Financial given up smoking over 12 months ago. Services Authority. Levels, bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. them to actually make it happen in 2012.2 3
  3. 3. the 2011 Autumn Statement Critical illness cover Will you be able to manage financially if you have very long periods off work due to illness? Rising levels of obesity coupled with high a guaranteed premium that will not change Advances in medicine have led insurers to cancer rates mean many people are being as long as a policyholder has it, and tighten criteria and experts warn against diagnosed with life threatening illnesses and renewable policies which are generally snapping up a new contract without reading this is becoming the reality for Britons. cheaper at the start but have a temporary the conditions. New policies tend to be less Latest figures from Cancer Research are guaranteed rate that is subject to change attractive than old ones. If people need more alarming. Around 298,000 new cases of after a review at a future date. cover then they should top up, rather than cancer are diagnosed every year in the UK The important factor is not however the cost get rid of their existing policy. Here are the key announcements from Chancellor George with more than one third of people but the healthcare cover return. As the cases of life-threatening illnesses developing some form of cancer during their continue to rise and employers become What Illnesses are covered? Osborne on the nation’s finances, cutting the deficit and the lifetimes. Another major consideration when deciding tougher on sick-pay rules, considering a Many people equate disease with death critical illness insurance policy could be the Government’s plans to boost flagging growth. but, more often than not, serious illnesses on the best policy should be the range of best option for ensuring a stress free future. protection offered. Most products will cover result in long periods of incapacity, with a range of conditions, the range and exact medical costs rising and time off work definition of illnesses can vary enormously Growth The pension age Small business placing a pressure on household finances from provider to provider. Cancer coverage The Chancellor said the Office for The state retirement age will rise The Government will cut health and and jeopardising mortgage repayments. can be a defining feature, with many Budget Responsibility (OBR) now faster than planned. The retirement safety rules for small firms. There will Financial planners are warning that it is providers only covering later stage or more essential for individuals to consider how to forecasts lower growth than previously age will rise to 67 for men and women also be ‘credit easing’, with the advanced forms, while others exclude some protect themselves. forecasted in gross domestic product by 2026, which is ten years earlier Government guaranteeing loans to types completely. People need to watch More than ever people need to be covered (GDP) in 2011 of 0.9 and 0.7 in 2012. than planned. firms with turnovers below £50m at out for all the exclusions and study the against critical illness. The impact of having This is down from 1.7 per cent and 2.5 better rates than offered by the banks. small print in detail. Benefit increases to take time off work to recover from, or be per cent. Both the state pension and other Investing in small and start-up firms treated for a serious long term illness, is Old is best The OBR predicts growth of 2.1 per benefits will rise in line with will be helped with tax reliefs. The new likely to make a far bigger dent in people’s It can be better to hold on to an old cent in 2013, 2.7 per cent in 2014, 3.0 September CPI inflation (5.2 per cent), Seed Enterprise Investment Scheme pockets than the premium of Critical Illness critical illness insurance policy per cent in 2015 and 3.0 per cent in (SEIS) will from April 2012, offer 50 per Cover. than take out a new one. rather than a lower amount as had 2016. been feared. cent income tax relief on investments, The shocking facts are that the number of This is the third downgrade to OBR and will offer a capital gains tax people protected against critical illnesses The pension credit will go up, paid growth estimates. A November 2010 exemption on gains realised in with insurance policies has shrunk for by a rise in the threshold for the forecast of 2.1 per cent growth in 2012-13 and then invested through substantially in recent years. The latest savings credit. The child element in the figures from the Association of British gross domestic product (GDP) for tax credit will be increased but other SEIS in the same year. Insurers reveal that policyholders have fallen 2011, and 2.6 in 2012, proved far elements in the working tax credit will The business rate tax relief holiday by 20 per cent over the past decade from above target and that was lowered to be frozen. will be extended until April 2013. 536,000 in 1999 to 430,000 last year. 1.7 per cent and 2.5 per cent Bank Levy It may not be the cheapest type of respectively at the time of the Budget The public sector Public sector pay will rise by 1 per cent Mr Osborne said the bank levy will protection on the market, but overall in March 2011. increase to ensure the Government maximum amounts of cover assured per year for two years following the end of the Deficit reduction maintains the annual £2.5billion take have risen steadily, meaning a policy can current two-year pay freeze. The Chancellor said the Government from the City. become a godsend in times of difficulty. will miss its original target. The OBR Housing With many products plans on the market it The Chancellor said people in social Vehicle Fuel Duty is as important to select the right policy expects the UK to be running a A 3p rise in fuel duty planned in housing will be given a 50 per cent as it is to have one. structural deficit of £53billion in January 2012 has been cancelled. 2015/16, compared to an original discount to buy their home. A scheme Fixed or renewable estimate of £6bn. Mr Osborne stated where the Government helps to fund There are two main types of critical- that debt will peak at 78 per cent of first-time buyer mortgages will also illness insurance policy available on GDP in 2014/15. run alongside this proposal. the market: fixed policies, which offer4 5
  4. 4. Protecting your neSt Business pension delay Structured products The state-backed National Employment Savings Trust It is generally recognised that small to medium people. These key people are the engine of a pension scheme is examining sized enterprises (SMEs) are the life blood of business and as such, a business cannot the financial impact of the the UK’s economy. The latest figures from the survive without them. Federation of Small Businesses suggest that Key people are the biggest commodity in a Government’s surprise Good or bad? there are over 4.8 million SME’s that employ business, yet we find companies tend to insure decision to delay auto- over 13.7 million people. company cars, computers, stock but not key enrolment and employer Each SME will be different to the next; they people, who generally have the largest impact contributions by may be a sole trader, partnership or a limited on a business. approximately one year. company. Each business will have owners with So what could happen should this tragic The Government’s recent different views, business aspirations and skill event occur? decision to delay pension sets and capabilities. Banks may call in any loan that the key saving for small and medium Each business owner, director or partner will person was the guarantor for. They may also want the very best for their company. They will withdraw or reduce credit or overdrafts. company employees on Structured products are often quite complex and risky. These products have be focused on the day to day challenges of The deceased family may decide to sell the supplier contracts worth historically been sold as ‘very safe bets’ by advisers who often do not fully understand running a business successfully. This takes key person’s share or become involved in the hundreds of millions of hours of effort and determination, leaving business themselves. pounds is being examined. them. Credit Suisse is the latest company to have issues as it was fined around £6m business owners with little or no time to look A “share grab” may ensue; however, you NEST, the state backed for failings in the way these products were sold. But are structured products really after their own financial objectives or to may not have the working capital available. pension scheme, had signed a bad? What should you look out for if you are considering investing? protect the very business they have created. Work load increases on the remaining £600m contract with Tata Recent Legal & General research, with the owners, directors or partners. Productivity and Consultancy Services to What are structured • They generally take the form of Benefits swap spread. The higher the help of the British Chamber of Commerce, enthusiasm by the staff may fall. products? some sort of preferred security There are real benefits to spread, the higher the potential found that there is an insurance protection gap Competitor’s activity could increase adding administer its scheme based ‘Structured products’ is a term with an investment bank. This structured products as long as risk. in the UK that is now estimated at over £1.1 to pressure. on a volume of contributions used for differing products with a has credit risk and if the bank they are carefully researched. You need to lock up your money trillion. 50 per cent of the businesses surveyed Your suppliers may reduce your line of credit and employer enrolments common theme: goes bust, investors could lose Investment banks have created for the full length of the term? If have corporate debt, but only 46 per cent of as they find out you are having or could have that will not now materialise • They have fixed terms, usually their capital. special products to appeal to you need your money back early, those businesses have life insurance policies in funding issues. as planned. place to protect that debt. 44 per cent of The worst position could be that the The Government confirmed three to six years. clients. how often is the product traded? Common structured businesses owners expected their business to business cannot afford to trade any longer. • Returns are usually linked to an For example: If the FTSE 100 Some trade monthly or not at all. in November 2011 that it will product misconceptions fold inside of 12 months should a key person The banks call in any personal guarantees and index. A product may provide rises to above the starting level If you surrender early, will you get delay pensions “auto- There are two areas where die, however only 4 per cent of these the surviving owners, directors or partners may growth in line with the FTSE after one year, the investor gets your money back? businesses have any insurance policy in place lose any securities held as well as their enrolment” for firms investors have had problems. 100 index. These returns are money back plus X per cent. If not, Charges are taken from these to mitigate this. business. employing 49 or fewer staff First, ‘capital protected’ does not only paid at the end of the it rolls on another year. If it is products and some are as high as Such facts are hard to ignore. Businesses are Insurance need not be expensive, and it is a by just over a year. mean ‘guaranteed’. When Lehman term. If sold early, the returns Brothers went out of business, above the starting level at this 7 per cent, meaning that if you driven and thrive due to the skills of the key genuine business expense. A business has the Under this revised timetable, can be quite different. point, the investor gets their need your money back early on, value and worth of its directors, partners and small businesses would begin their ‘capital protected’ products • There is often some sort of money back plus X per cent times you will not get back anything like key staff. Protecting your business automatically enrolling their returned zero capital. with Key person insurance is capital protection. Should the two. If not it rolls on another year you invested. staff in May 2015, instead of The second misconception is possibly the best business index fall during the term, and so on. April 2014. that because something has never The risk and reward decision you will ever make. products with ‘hard protection’ If, after six years, the FTSE has This delay will also help in happened in the past, it will not These products can be complex will return investors capital in never been above its start level, the short term, large and mid happen in the future. For example, and it is vital that the risks are full. Products with ‘soft the investor gets their money back sized companies, because where a product had ‘soft understood. The banks can afford protection’ will return investors’ unless the index has fallen by 50 they will benefit as the protection’ subject to a barrier, if to provide such returns because capital provided a specific per cent or more, at which point proposed minimum employer that sort of fall had never the markets are so volatile. The ‘barrier’ is not breached. For they lose money on a one-for-one happened before, it never would. banks write options for use in contribution will remain at example, many products will basis. This blind thinking was part of hedging strategies, and can 1 per cent for a further year. protect capital only if the index what led to the credit crunch; sub- What to look out for demand huge premiums. Instead of rising in 2016, it is has fallen by less than 50 per prime mortgage holders would Find out what the market thinks of now likely to ratchet up to cent. never default because they had the bank credit risk right now, you 2 per cent in 2017 and not done so in the past. can check their credit default 3 per cent in 2018. The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a guide to future performance. Please contact us for further information or if you are in any doubt as to the suitability of an investment.6 7
  5. 5. how to combine pension pots It is very rare these days for any of us to stay in Charges If your pension is performing relatively poorly the same job from leaving school to when we and you are considering changing, you could lose out by switching because of charges, retire. The result being that many people have lots especially if you are close to retirement. Many of the old-style pension contracts of different pension pots. However, combining set up in the 1980s and early 1990s have heavy penalties on exit, which can be on them could make real financial sense. average 15-20 per cent of your fund if you switch before your stated retirement age. If you took out a pension policy after 2001 Move or not? If you are contributing to a final-salary investing you will not normally have to pay an exit We all want the best performance from a scheme, check if your employer allows past penalty. But if your pension is invested in a pension, with the lowest charges to boost contributions from other pensions to be with-profits fund, then the firm may apply a your retirement income. But moving your deposited into it. withdrawal penalty, called a market value in the emerging markets pension could lead to exit penalties on your If you have a money purchase occupational reduction (MVR). If you are particularly existing fund, paying more for advice or scheme or a personal pension, you should unlucky you may be hit with a double being lured into a higher charging product. consider combining all your past pensions whammy of an exit penalty on your old Which pension have you got? into one pot. Often the charges reduce pension and an MVR. You might well have several different types when you combine them and they could see improvement in performance as well. These Choosing a new pension of pension. Top of the tree being the final- pensions rely on contributions and If you are combining all of your pensions into salary scheme, which pays a pension based investment growth to build up a fund. When one pot, you should look at the pension you on your final salary when you leave your job. you retire, this money can be used to pay an are currently contributing to. What are the The ‘emerging markets’ is an area of growth According to recent research from Neptune What to be aware of If you have any past or current contributions annual income. With these schemes you take annual charges? Will it make an initial that has excited investors recently. Typically Investment Management, it is thought that Emerging markets at present do not suffer in a final-salary scheme, keep it invested. the risk, so if the stock market tumbles then charge on money you transfer in? Is the used to describe parts of Asia, South America the world’s emerging economies will from the debt problems that have been Experts believe that in the vast majority of so does your pension fund. investment performance good? If your and Eastern Europe, investment in such contribute more than 60 per cent of the plaguing the Western countries, but typically, cases it is not worth consolidating your final- Some providers allow you to track the review is negative you may want to consider regions have returned more than 200 per world’s growth by 2014. Asian economies, developing economies have a poorer level of salary benefits. performance of your investments online to using a completely new pension provider. cent on average in the past seven years, unlike the UK or the US, are continuing to corporate governance and unstable political Your past employer might try to encourage see if you are on course to reach your target Most providers charge an annual fee, according to Money Observer data. grow at high levels and personal debt is not situations. As a result, emerging market you to move your pension away from final for retirement. Consolidating your money which is a percentage of the value of your With weak UK and European markets, as large as levels in the West. There is a funds are usually more volatile than UK salary scheme by boosting your fund with an into one pot like this means you funds. If you want to take a fairly basic investors are turning towards Asia and the growing middle class, and they are enjoying funds, and there is an additional exchange ‘enhanced’ transfer value and even a cash can monitor performance more option, consider stakeholder products, other developing economies to look for improving incomes. Emerging countries, rate risk when investing in a fund, not to lump sum. This still may not compensate for easily. which will only offer you a limited range growth. particularly those in Asia, are becoming mention that transaction costs can be higher. the benefits you are giving up and you may of funds, but have no penalties on exit spending consumers, rather than just Investors should consider these long-term need an exceptionally high rate of investment What are they? and a low minimum for regular exporting goods around the world. investments for 10 years or more. Investors return on the funds you are given to match The ‘emerging markets’ are countries with contributions. These can charge a often find these markets exciting and what you would get if you stayed in the developing economies. They include most How to invest maximum of 1.5 per cent per annum in attractive because of their fast growing final-salary scheme. Asia regions, as well as Eastern Europe, the In the past emerging markets funds were the first ten years, reducing to economies and better opportunities for Middle East and Latin America. The MSCI thought of as too risky for many investors, 1 per cent per annum companies to access a bigger populace. The Emerging Market Index consists of 21 but this is no longer the case. There is a case thereafter, but some risks of investing in emerging markets can be countries, and is a good indicator of which for most investors, including new investors, providers will charge less. substantial, so restricting any holding to a countries are considered as ‘emerging’. They to broaden their portfolios. level of no more than 10 per cent of your are: Brazil, Chile, China, Colombia, Czech A sensible introduction is via a diversified To discuss how you portfolio would reduce risk and looking long Republic, Egypt, Hungary, India, Indonesia, fund or trust of which there are many to can get the most out term the investment opportunity looks very Korea, Malaysia, Mexico, Morocco, Peru, choose from. Some investment managers of your pension attractive. Philippines, Poland, Russia, South Africa, offer single-country funds, which are aimed planning, please Taiwan, Thailand and Turkey. at investors who would like very specific contact us for further The value of your investment and the information Over past years there has been a big focus exposure to a certain country. on four countries in particular known as the Other investment managers offer income from it can go down as well BRICs, Brazil, Russia, India and China. These generalist global, emerging market funds. As as up and you may not get back the original amount invested. Past economies often make up a large part of it is impossible to foresee what will happen performance is not a guide to future. emerging market equity funds, with some in the market, or which emerging economy funds consisting entirely of investments in will perform best going forward, a diversified companies from these countries. fund investing across a diversified selection of countries is a safer bet.8 9
  6. 6. Online Tax Junior isAs The Government wants to give A good tax free home for your children’s savings could be the new Junior ISA. We set out everyone internet access to their own tax affairs and this will allow all you need to know so you can take full advantage of Junior ISAs. all of us to go online and see just how much tax is being paid. The closure of the Government backed Child Who can open a Junior ISA? Switching Junior ISAs between Many taxpayers currently have Trust Funds to new applicants in January Any child under the age of 18 who did not providers little idea how much they pay in 2011, left little choice if you wanted to save qualify for a Child Trust Fund account is Each child can hold one cash Junior ISA and tax, and rarely look at their pay Many wealthy investors are opting for about these payments being considered by “flexible drawdown” from their pensions as the taxman for IHT purposes. But gifts of for your child’s future, but then in November eligible for a Junior ISA. one investment Junior ISA. However, the slips to find out. a way of efficient tax planning and passing greater value can also be made, and 2011 the new Junior ISA was launched If your child was born on or after the £3,600 limit will need to be shared between Every time an employer updates wealth down the generations. potentially escape the IHT net, as long as the across the UK and once again parents had a 3rd January, 2011, or before 1st September the two accounts. its payroll it will automatically send New flexible drawdown facilities were donor lives for seven years after making the tax free haven for their children’s savings. 2002 they are eligible to open a Junior ISA Unlike adult ISAs, children will only be the information to the taxman, in introduced in April 2011, being part of wider gift. So what do you need to know about the account. able to hold one cash Junior ISA account and what has been called “real time reforms centred on the scrapping of the Such reductions of income from a pension new tax free Junior ISA savings accounts? If you have a Child Trust Fund already for one investment Junior ISA account in total, “age 75” rule, which forced investors to buy fund can be tax-efficient for those who will tax”. your child then they are not eligible for a meaning they will not be able to open and an annuity with their pensions funds by the not use all their pension funds before death, What is a Junior ISA? The Government now wants to time they reached 75. and become liable to a “death benefits” tax Junior ISA, nor can they transfer any savings contribute to new accounts each tax year. A Junior ISA is a specific type of children’s use this new ‘real-time’ tax Under flexible drawdown, retirees who charge of 55 per cent. they have in an existing Child Trust Fund to a Transfers between Junior ISA providers to saving account designed to replace Child information so everybody will be can prove they have a minimum of £20,000 If the retiree is a 40 per cent taxpayer, Junior ISA. ensure that their future savings are getting of secure annual income from other sources there is an advantage of passing on this Trust Funds and encourage parents to invest able to log on to the internet and the best returns will be allowed. can withdraw unrestricted amounts from income now, and paying income tax at the for their children’s future. They became Can anyone invest in Junior ISAs? see how much income tax and It will also be possible to switch savings their pension funds. They can also, if they lower marginal rate, rather than at some available from 1st November 2011. Anyone can deposit money into a Junior ISA national insurance contributions from a cash Junior ISA to an investment wish, take their entire pension in one lump point in the future after death, when the The Government confirmed that a on a child’s behalf, however it is only the (NICs) they pay each month. Many sum, subject to income tax. remaining lump sum will be subject to death Junior ISA should you wish to do so. Children’s Junior ISA will work in a very parent or legal guardian of the child that can will be amazed at how much they It therefore has advantages over capped benefits at 55 per cent. pay each month in tax to the drawdown, which only allows withdrawals Unlike any other pension arrangement, similar way to existing adult ISA savings open an account or transfer it to a different Can I transfer a Child Trust Fund Treasury. up to an annual cash limit, set by the flexible drawdown has the advantage that accounts, and the main benefit of Junior ISAs provider on their behalf. to a Junior ISA? Government, in line with the income that the entire fund can be withdrawn (taxed as is that any interest or profits earned from the At present you cannot transfer a Child Trust At present, people wait until after Is there a limit? could be achieved by buying an equivalent income) and passed to beneficiaries. But money is tax free. Fund into a Junior ISA or vice versa, but this the end of the tax year, which runs lifetime annuity. once you have opted for flexible drawdown, The Junior ISA allowance has been initially may change in the future. in the 12 months to April 5, to get a There is an added advantage however, any lump sum payable on death is taxed at set at £3,600 per tax year. Junior ISA limits complete overview of how much while the freedom offered by flexible 55 per cent. will be fixed at this level until April 2013 When can the money be tax they have paid in a year. drawdown is a major attraction for wealthy However, should HM Revenue & Customs after which they will start to increase each accessed? This can cause issues for clients, financial advisers suggest it will also take the view that the purpose of an year in line with the Consumer Price Index. Under Junior ISA regulations, neither pensioners, who have several appeal to those seeking to plan for untouched fund was tax avoidance then this So that those with Child children nor parents are allowed to withdraw inheritance tax (IHT). could be open to future scrutiny. sources of income and it has led to Evidence is suggesting that people are Investors need to be careful of rules Trust Funds do not money from a Junior ISA until the child turns chaos at HMRC offices as they looking to use flexible drawdown to pass relating to the gifting of income. miss out, 18. When the child reaches 16 they will be count tax receipts and cross check money through the generations. This was Taking flexible drawdown does count as the annual able to manage their Junior ISA savings them against what is owed. not the intention in regards to this type of income and if that income is ‘surplus’ to contribution themselves. However, they will not be able to From April 2012 a ‘real-time tax’ pension, but flexible drawdown has made it normal expenditure then it can be gifted and limit for Child access the cash until they turn 18. If they possible. treated as immediately exempt for IHT. trial will be launched, with the Trust Funds has decide to hold onto their Junior ISA account One of the ways investors can use flexible IHT gifts out of surplus income rules thinking that all taxpayers will be drawdown to pass on wealth is by making suggest that the intention must be for also increased to it will automatically turn into a standard included by October 2013. regular gifts to beneficiaries, such as family regular gifts. Therefore, someone who takes £3,600 to match adult ISA. This means each time an members, either as lump sums or as small, their pension fund in one go, or in two or the Junior ISA limits. employer updates its payroll it will regular payments from their drawdown three annual withdrawals, under flexible automatically send the information pensions. drawdown, would probably fall foul of the At present, individuals can gift up to need to have an intention to make regular’ to the taxman, rather than, as now, £3,000 per year without having to worry gifts. after the end of the financial year. The Financial Services Authority does not regulate IHT Planning10 11
  7. 7. Active and passive funds Making the decisions of whether to use active In less efficient markets, and in the mid-cap If a person’s risk profile points towards using a or passive investment strategies is possibly and small-cap sectors, the active approach is passive fund then it would be worth using it, more difficult today than ever. Many experts seen as having more value as there is less however, if the evidence suggests you would agree that the need for private investors to get information, so managers have more chance to be better off in an active fund, then follow this the balance right is more pressing now than influence the fund. approach. Remember though it is not ideal to before as market volatility, stagnant fund Fund managers can do their own research limit yourself either way because you could performance and charges impact greatly on on companies and sectors in areas which are restrict yourself from the best returns. returns. not so well covered. Managers also add real With investors struggling to restructure their value in new emerging areas of the markets, The value of your investment and the portfolios following the recent market turmoil, where there could be more economic risk. income from it can go down as well as deciding on a low-cost passive approach, with With such investing, a manager who can up and you may not get back the a conventional unit trust index tracker, or an recognise the pit falls earns the fee. original amount invested. Past exchange traded fund (ETF), has advantages. It would be wise to reflect however and be performance is not a guide to future Trackers and ETFs seek to shadow and offer reminded that passive trackers do not lag far the returns of an index, like the FTSE 100 for behind active funds in less developed or less instance, but given that they all incur some efficient markets. To monitor such results, form of management costs, they can never advisers suggest benchmarking active outperform the market. However, as they managers against the closest passive fund require no real active management, these performance. It is one thing to have a manager passive funds usually have less than half the who can outperform but more important to costs. have consistent outperformance. In markets In the past much of the new money has where managers struggle to have consistent gone into UK trackers, but now some is outperformance, the result is exposure to tracking shares in European, Global, Asia passives. Pacific and US equity indices. When deciding on a fund, market cycles Financial commentators question the should be evaluated as there is a widely held suitability of trackers in certain markets and the view that passive funds do better in an upward thinking is that passive strategies work best in market because they are just tracking an index very efficient or highly developed markets, like and it is generally accepted that actively the US, and in the large-cap sector. Research managed funds generally do not beat the index suggests fund managers in efficient markets in an upward market. It is thought that one in struggle to find the edge over each other and five actively managed funds will outperform therefore fund managers have less effect the index in an upward market. where the passive strategies are more popular. Ultimately any funds being selected have to In such markets paying the cost of a fund suit an investors’ risk profile. manager is not clear cut. The flip side to this is there are parts of the world where active strategies theoretically have an advantage.For more information on any subject that we have covered in this issue, or on any other subjects,please tick the appropriate box or boxes, include your personal details and return this section to us. I Financial wealth check Name I Tax efficient investments Address I Pensions Postcode I Tax planning Tel. (home) Tel. (work) I Critical Illness cover Mobile Email I Protection I Mortgage/Re-Mortgage Please return to: Copperfields Financial Management Ltd, Basepoint Business Centre, Oakfield Close, Tewkesbury, Gloucestershire GL20 8SD. I Healthcare 26 Kings Hill Avenue, Kings Hill, West Malling, Maidstone, Kent ME19 4AE. I Director and employee benefit schemesYou 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. 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