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Time is
runningouT
Is 60 thenew 40?
Top 10
Tax TipsTax pla chcklt 2012/13f y, y faly ad y b
rt baby b
a tt t a wdl f lat lf
Hav y flly d y
2012/13 isA allwac?
MARCH/APRIL2013
emoney
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Financialplanning isour business.Were passionate about making sureyour finances are in good shape.
Our range of personal financial planning services is
extensive, covering areas from pensions to inheritance
matters and tax-efficient investments.
Contact us to discuss your current situation, and well
provide you with a complete financial wealth check.
one of the biggest purchases
youll ever make
Tis important one-o decision has long-
term consequences i you get it wrong
generating an income from
your investmentsAn important requirement especially i
youve retired or are approaching retirement
is your family
protected financially?
Te cost o bringing up a child until they
reach the age o 21 has hit an all-time high
top 10 tax tips for you, your
family and your business
ax planning checklist 2012/13
gender neutrality
An important requirement, especially i
youve retired or are approaching retirement
is 60 the new 40?
Retiring baby boomers are setting out a new
model or later lie
trust in your future
A renaissance period or
investment trusts
time is running out
Have you ully used your 2012/13
ISA allowance?
social care in old age
capped at 75,000
Measures introduced through the Care and
Support Bill come into eect in April 2017
05
06
08
09
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uk credit rating downgrade
Te UK has lost its AAA credit rating or the
rst time since the 1970s
the italian election
Uncertain election results rekindle euro-
crisis ears
warren buffett, one of the
most successful investors of
the 20th century
Te important tenets o his investment
philosophy and mythology
the child benefit tax charge
Te child benet tax charge, introduced on
7 January, aects over one million amilies
how to make the
most of your pension
ake a look at our checklist to see how we
could help you
a bleak picture of peoples
ability to cope with
financial shocks
Are you prepared or the nancial needs and
challenges that may lie ahead in the uture?
will your retirement strategy
minimise potential taxes and
duties on your death?
Immediate access to your pension unds,
allowing you to take out what you want,
when you want it
CONTENTS
TodiscussyourfinancialplanningrequiremenTsorToobTainfurTherinformaTion,pleaseconTacTus
06
12
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24
26
28
MARCH/APRIL2013
IN THIS ISSUE
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IN THIS
ISSUE
RETIREmENT
4 05
Welcome to the
latest issue. In
times like these,
every penny
ounts. Interest rates are at historic
ows and rising ination can erode
our buying power. One way to
mitigate these eects is to shield
avings rom tax by investing
hrough an Individual Savings
Account (ISA). On page 14 we
ook at why this exible wrapper,
under which a wide range o
nvestments can be made ree o
apital gains or income tax, is an
option worth considering.
When you approach retirementge, you will have to decide what
o do with the pension und you
have built up. I applicable to you,
on the right we consider one option
buying an annuity. Its important
o nd an annuity that suits you
nd one that provides the best deal.
Aer your property, an annuity is
probably the biggest purchase you
will ever make.
As your wealth grows, it is
nevitable that your estate becomes
more complex. With an increasing
number o people now expected to
each age 75 each year, more and more
people could be aced with a 55 per
ent tax charge on any money lef in
heir pension und when they die. Turn
o page 28 to read the ull article.
A ull list o all the articles eatured
n this edition appears on page 03.n
Te content o the articles eatured in thisublication is or your general inormation
nd use only and is not intended toddress your particular requirements.Articles should not be relied upon in theirntirety and shall not be deemed to be, oronstitute, advice. Although endeavoursave been made to provide accuratend timely inormation, there can be nouarantee that such inormation is accurates o the date it is received or that it willontinue to be accurate in the uture. Nondividual or company should act uponuch inormation without receivingppropriate proessional advice aer ahorough examination o their particularituation. We cannot accept responsibilityor any loss as a result o acts or omissionsaken in respect o any articles. Tresholds,ercentage rates and tax legislation mayhange in subsequent Finance Acts. Levelsnd bases o, and relies rom, taxation areubject to change and their value dependsn the individual circumstances o the
nvestor. Te value o your investmentsan go down as well as up and you may getack less than you invested.
if y av thh a pvat p, wh y appach tt a yll hav t dcd what
t d wth th p fd y hav blt p. if applcabl t y, pt t by a aty. it
ptat t fd a aty that t y ad pvd th bt dal bca, aft y ppty, a
aty pbably th bt pcha y wll v ak.
one of ThebiggesT purchases
youll ever makeTis important one-o decision has long-term consequences i you get it wrong
An annuity is the annual pension that many
people buy with their private pension pots
when they retire. Purchasing your annuity
is an important one-o decision that has long-term
consequences i you get it wrong. You may not receive
the best deal i you just take the annuity oered by
the insurer that has been investing your money.
LAck of AdvIce
mIght be costLy
You only have one opportunity to shop around
or your annuity. Once you have committed to an
annuity provider and started to receive an income,
the decision cant be reversed. So it is essential that
you shop around and obtain proessional inancial
advice to help you through the process.
Last year, the National Association o Pension
Funds (NAPF) announced that the lack o advice
in this area might be costing hal a million retirees
each year as much as 1bn in uture pension income.
fAILure to
shop Around
Te NAPF pointed out that the ailure o someone to
shop around or being unaware they were able to do so
might reduce their annual pension income by a third.
he insurance industry has now agreed to
reorm its annuity practices, and rom 1 March
this year insurers will have to conorm to new
guidelines set down by the Association o British
Insurers (ABI).
new guIdeLInes wILL requIre
Insurers to:
Provide clear and consistent inormation, including
details on how to shop around or an annuity
Highlight the details o enhanced annuities the higher
pension income available to those with shorter
lie expectancy
Signpost clients to external advice and support
that is available
Give a clear picture o how their products t into
the wider annuity market
the poInt of retIrement
Insurers have been obliged since 2002 to draw their
clients attention to the act that they can shop around
or an annuity at the point o retirement.
One o the ways in which people may end up with
too small an annuity is by not taking into account
their own medical circumstances. Having conditions
as seemingly manageable as high blood pressure or
diabetes could qualiy you or an enhanced annuity,
which could pay you more income because your
average lie expectancy may be less. n
I you are approaching yourretirement we can take youthrough the process step bystep to ind the best annuity oryou. Your retirement shouldbe a special time when you dothose things you never had theopportunity to do beore. Soits essential you think and plancareully, as the decisions youtake now cannot be undonelater. I you are concernedabout your retirementprovision, please contact us toreview your current situation.
Live better inretirement
CONTENTS
20
20
18
16
06
5 Key points about annuities
Make the right decision now, because youcannot reverse it later.
Dont just accept the annuity your pensionprovider gives you.
Shop around - it could be worth up to athird more income per month or you.
You can combine multiple pension pots
into one annuity.
Common health issues includingsmoking, high blood pressureand diabetes can lead to an even higher
monthly income.
1
2
3
4
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6 07
COmE INCOmE
w d y at a labl c wh tt at a tck at all-t
w ad th Bak f elad qattatv a plcy f pt y
qz yld vt bd (lt) ad th vtt?
GENEraTiNGaN iNCOmEfrOm yOur
iNvESTmENTSAn important requirement, especially i youveetired or are approaching retirement
your AbILIty to
generAte Income
With more o us living longer in the
UK, maintaining our standard o living
in retirement and unding holidays and
outings requires some careul planning.
Have you considered how a longer liespan
and rising ination could aect you and
your ability to generate income?
Generating an income rom your
investments will be an important
requirement, especially i youve retired
or are approaching retirement, or i you
need to supplement your salary or have a
relatively short investment timerame.
fIxed Interest
Te most popular orms o income
investment are bonds (which are also
known as xed interest investments)
and cash, both o which pay a regular,
consistent rate o interest either annually,
twice a year or our times a year. You can
also obtain an income rom shares in
the orm o dividends, and many equity
unds are set up solely with the purpose o
generating a stable income. Importantly,
equity income unds oen aim to achieve
not only stability, but also an increasing
income in the long term.
Past perormance is not necessarily a
guide to the uture. Te value o investments
and the income rom them can all as well
as rise as a result o market and currency
uctuations and you may not get back the
amount originally invested. ax assumptions
are subject to statutory change and the value
o tax relie (i any) will depend upon your
individual circumstances.
good cAsh fLow
Income stocks are most usually ound in
solid industries with established companies
that generate good cash ow. Tey have
little need to reinvest their prots to help
grow the business or und research and
new product development and are thereore
able to pay sizeable dividends back to their
investors. Examples o traditional income-
generating companies include utilities, such
as oil and gas, telephone companies, banks
and insurance companies.
You should remember that these
investments do not include the same
security o capital that is aorded by a
deposit account. n
With more o us living longer in the UK,maintaining our standard o living in retirementand unding holidays and outings requires somecareul planning. Have you considered how alonger liespan and rising ination could aect youand your ability to generate income?
Which incomegenerating investmentsare right for you?In the cur rent environment o abnormally
low interest rates, cash savings accounts
almost all pay negative rates o returnaer taking into account the eects o
ination and tax. o discuss your nancial
position or review which type o income-
generating solutions are right or you,
please contact us or more inormation.
10 income investing tips
1Sustainable long-term dividend growth Investing in
businesses when the growth potential is not reected in
the valuation o their shares not only reduces the risk o
losing money, it increases the upside opportunity.
2Ination matters Always bear in mind the detrimental
eect o ination. Corporate and government bonds oer
higher yields than cash but returns can be eroded by
ination. Investment in property or equities provides a vehicle
to help achieve an income that rises to keep pace with ination.
3Consider international diversication A small
number o UK companies account or approximately
40 per cent o UK dividend payouts. Tis compares with
over 100 companies in the US, or example, that provide the
opportunity to increase the longevity o dividend growth.
4Patience is a virtue Investing or income is all about the
compounding o returns or the long term. As a general
rule, those businesses best placed to oer this demonstrate
consistent returns on invested capital and visible earnings streams.
5Reliability is the key Select sectors o the equity market
that do not depend on strong economic growth to deliver
attractive returns to investors.
6High and growing ree cash ow Look or companies
with money le over aer all capital expenditure, as this
is the stream out o which rising dividends are paid. Te
larger the ree cash ow relative to the dividend payout the better.
7Dividend growth In the short term, share prices are
bueted by all sorts o inuences, but over longer time
periods undamentals have the opportunity to shine
through. Dividend growth is the key determinant o long-term
share price movements the rest is sentiment.
8Cautious approach Prots and dividends o utility
companies are at the whim o the regulator. Be cautious o
companies that pay a high dividend because they have gone
ex-growth such a position is not usually sustainable indenitely.
9Investment diversication Te rst rule o investment
is oen said to be spread risk. Diminishing risk is
particularly important or income-seekers who cannot
aord to lose capital.
10Tax-efciency Increase your net income by using an
ISA (Individual Savings Account). Te proceeds rom ISA
income is ree o taxation, thereby potentially improving
the amount o income you actually receive. UK dividend income
has been taxed at source at the rate o 10 per cent and this cannot be
reclaimed by anyone. Te proceeds rom ISAs are also ree rom capital
gains tax, allowing you to switch unds or cash in without a tax charge.
Te economic environment has been particularly unorgiving
or investors who need to generate an income. Te Bank o
England reduced interest rates to a record low level as the
nancial crisis deepened and savings rates ollowed. n
7/30/2019 eSmart Money April 2013
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098
OTECTION
is your familyproTecTed financially?
Iggest expendIture
or pArentsucation and childcare remain the biggest
penditure or parents. Te cost o education*
cluding uniorms, aer-school clubs and university
sts) has increased rom 32,593 to 72,832 per
ild in the last ten years a 124 per cent increase.
hildcare costs are also up rom 39,613 in 2003 to
3,738 today a 61 per cent increase.
From birth to age 21, parents spend an average o
9,270 on ood and 16,195 on holidays which
w cost 4 per cent more than last year. In act, in the
t decade, costs have risen in all areas o expenditure
art rom clothing, which has seen a 5 per cent drop.
ookIng After the pennIes
ums and dads all over Britain are tightening their
rse strings, with more than three-quarters o
rents (76 per cent) orced to make cutbacks to
ake ends meet. While many are reining in spending
luxuries such as holidays (45 per cent), more than
quarter are also cutting back how much they spend
essentials such as ood (27 per cent).
O those parents who are cutting back, 68 per
nt have switched to buying cheaper or value
ods. Vouchers and discount codes are also
pular, with 56 per cent o these parents using
em to save on shopping bills. Many are also
ying to boost their income, with 40 per cent
ling personal items online or at car boot sales.
ushIng pArents fInAnces
o the LImIt
e cost o raising a child continues to soar and is
w at a ten-year high. Everyone wants the best
r their children, but the rising cost o living is
shing parents nances to the limit. Tere seems
be no sign o this trend reversing. I the costs
sociated with bringing up children continue to
e at the same pace, parents could ace a bill o
er 350,000 in ten years time [2].
Over the last ten years, London (239,123), the
uth East (237,233) and the East o England
(233,363) have remained the three most expensive
places to raise children. en years ago this was
closely ollowed by Wales, whereas now it is
Northern Ireland (232,883).
Families in the South West have seen the biggest
hike in costs, now paying 100,077 more per child
than they were ten years ago.
keepIng up wIth the LAtest
technoLogIcAL AdvAnces
Forget dolls and train sets. odays children want
the same toys as their parents, and the popularity
o smartphones, tablets and laptops is adding to the
expense o raising a child.
Many parents eel under pressure to keep up
with the latest technological advances even or
children as young as three years old. Almost a third
(28 per cent) o parents have bought their child
an electronic gadget in the last 12 months, with
around a h (18 per cent) paying out or a laptop
or tablet. Te average yearly amount parents spend
on these gadgets or their child is 302.
protectIng the fAmILys
fInAncIAL future
Many amilies are responding to nancial pressures
by saving less and spending less. wo-hs (40 per
cent) o parents have reduced the amount they are
putting towards savings and a urther 26 per cent
(up rom 22 per cent last year) have cancelled or
reviewed insurance policies to try to save money.
Almost hal (47 per cent) o parents have no lie
cover, income protection or critical illness cover
in place. While 36 per cent o parents do have lie
cover, only 11 per cent have critical illness cover
and a meagre 6 per cent have income protection.
cAtAstrophIc ImpLIcAtIons
on the fAmILys fInAnces
Te cost o raising a child wont always be the rst
thing parents think about when deciding to have a
amily, and regardless o the cost, people wouldnt
change having children or the world. But parents
considering cancelling insurance such as lie cover
or income protection as a way o saving money
need to think long term. It could have catastrophic
implications on the amilys nances i either parent
became unable to work or was no longer around.
Te cost o raising a child has increased rapidly
over the last decade and looks set to continue
rising. It is imperative that parents make sure they
nancially protect themselves and their amily and
seek proessional nancial advice to talk about
what best suits their needs. n
[1] he cost o a child calculations, rom
birth to 21 years, have bee n compiled by the
Centre or Economics and Business Research
(CEBR) on behal o LV= in December 2012 and
are based on the cost or the 21-year period to
December 2012.
Te report also includes omnibus research
conducted or LV= by Opinium Research rom
11-13 December 2012. Te total sample size was
2,013 UK adults. Results have been weighted to
nationally representative criteria.
[2] I the cost o raising a child continued at the
same pace as the last ten years (58 per cent increase),
in 2023 the cost would be 351,483.
* Does not include private school ees.
Parents who send their children to private school
can add 106,428 or a child at day school, and
195,745 or a child who boards, to the overall cost
o raising a child.
time to revieW yourfamiLy protection?Protection insurance oen costs lessthan people think, and whether to take
out cover is one o the most important
nancial decisions people will evermake. To discuss or review your current
requirements please contact us dont
leave it to chance.
RETIREmENTWEalTH PROTECTION
Having children has never been more expensive, with the cost o bringing up a child until they are 21 at an
ll-time high o 222,458. Tis is more than 4,000 up on last year and 82,000 (58 per cent) more than ten
ears ago, when the rst annual Cost o a Child Report [1] rom protection provider LV= was published.
Te cost o bringing up a child until they reach the age o 21 has hit an all-time high
genderneutrALItyNew rules mean women
could increase their pension
income by over 20 per cent
Te new 20 per cent upli in capped
income withdrawals will come into
orce on 26 March this year, and people
could start to see the benet o this upli
rom the start o their new income year
ollowing that date.
new gender
neutrAL ruLes
An income year is driven by the date
a person rst started taking income
withdrawals rom their pension. While
people do not need to take any action or
this upli to take eect, women could see
their income rise by over 20 per cent as a
result o the new gender neutral rules, but
they need to take steps to achieve this.
Changes to the maximum capped
income calculation as a result o gender
neutrality commenced on 21 December
2012. Te actors that determine the
amount o income withdrawals that men
and women are permitted to take rom
their pension each year is now identical,
which means the position or women has
improved signicantly.
extremeLy benefIcIAL
for women
o benet rom the new gender neutral rates,
an income recalculation point is needed or
women. It could be extremely benecial or
women to take this action, especially i more
income is needed to live on.
Te 20 per cent upli in pension
income will happen automatically,
However, women can now benet rom
enhanced gender neutral terms, so i
applicable to you, it is important you nd
out whether triggering a recalculation
could increase your income even urther.
Some pension schemes have the
exibility to recalculate the income annually,
making it easy or women to take advantage
o this enhancement. For those who are in a
scheme that does not oer annual reviews,
you could still trigger a recalculation by
transerring new money into your capped
income und, but you should always seek
proessional nancial advice to ensure this is
the best option. n
ARe you sAtIsfIed you ARe PAyIngtHe MInIMuM tAx neCessARy?As everyones circumstances are dierent, we would be delighted to review yours with you so we can
help you make the maximum tax savings. o discuss how we could help ensure that you are not paying
any more tax than you absolutely need to, please contact us or urther inormation.
Make sure you take advantage o the wide range o year-end tax
planning opportunities available this year. Here is our checklist o the
main top ten areas to consider or you, your amily and your business.
ax planning checklist 2012/13 or you,your amily and your business
for myseLf And my fAmILy
I hAve...
Made the most o my 2012/13 Individual
Savings Account (ISA) allowance
aken advantage o increased pension
contributions to reduce taxable income
Ensured that I have a tax-efcient
giing strategy
Used my annual capital gains tax
exempt amount
Reviewed my estate planning and my Will
for my busIness
I hAve...
Extracted prot rom my business
at the lowest tax cost
Made sure my sta remuneration
packages are tax-efcient
Careully considered the timing
o asset purchases and sales
Recorded any appropriate constructive
obligations in respect o employment awards
Planned the purchase o business equipment
to take ull advantage o capital allowances
TOp 10 Tax TipS
7/30/2019 eSmart Money April 2013
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TIREmENT
is 60 The
new 40?
data rom the latest census in 2011
showed there were 754,800 people
aged 64 in England and Wales,
and almost 6.5 million people are
turning 65 over the next decade compared with
5.2 million in the previous decade. he spike is
due to the post-war birth rate soaring when the
armed orces returned rom the Second World
War, with the new-born generation dubbed the
baby boomers.
pushIng bAck
the boundArIes
Allied with improved health care, more people
are remaining active as they approach retirement
age, and the report shows how they are pushing
back the boundaries at work and in their leisure
time. 23 per cent o 65- to 74-year-olds were
still wage earners in December 2012, compared
with 18 per cent when t he report irst launched
almost three years ago in February 2010.
fueLLIng the rIse
of Income And sAvIngs
With 55 per cent o 55- to 64-year-olds also still
in employment, compared with 41 per cent in
February 2010, this trend looks set to continue
as more baby boomers pass the age o 65. It has
already uelled the rise o income and savings
among over-55s during the last three years. he
typical over-55 now has an income o 1,444
each month along with 14,544 in savings
(December 2012), compared with a monthly
income o 1,239 and savings o 11,590 in
February 2010.
enjoyIng the
fruIts of your LAbour
Despite 80 per cent being concerned by
rising living costs over the next six months
(December 2012), the UKs over-55s are
determined to enjoy the beneits o extending
their working lives. Nearly hal (44 per cent)
plan to use their extra time in retirement to
travel more, while 42 per cent are ocused on
spending more time in their gardens.
Socialising is high on the agenda or many over-
55s in retirement, with 37 per cent planning to
invest extra time in their amilies and 33 per cent
keen to socialise more with riends.
the most
common motIvAtIon
hey also have philanthropic intent: two-thirds
(66 per cent) o over-55s would be interested in
carrying out charity work or volunteering once
they have retired. he most common motivation
is to give something back to the community
(49 per cent) and to stay active by getting out o
the house (48 per cent).
A new modeL for LAter LIfe
Its clear that the irst baby boomers are setting
out a new model or later lie, and getting the
most out o their improved physical health and
the reedom to continue working or longer. Many
people ind that staying active in a job helps to
keep them young at heart with the bonus being
that it boosts their earning and savings potential
in the process.
he key to making the most o this opportunity
is or people to start planning or their 60s and
beyond well in advance. In this way, rather than
accepting the old retirement stereotypes, you
can have the reedom o choice about whether
you continue to work or not, rather than eeling
orced to carry on out o the demand to meet
inancial commitments. n
are you using yourWeaLth to get What youWant from your Life?
Everyone enjoys using their wealth in
dierent ways. For you, it might be the joy o
travel, helping others through philanthropy,
sharing your success with amily and riends
or your passion or collecting. It might be
the simple reedom to do what you want,
when you want. Whatever your priorities,
we can help you use your wealth by ensuring
its working or you now and is structured
to be lexible or the uture. o discuss your
requirements, please contact us.
Te UK is witnessing the march o a new type o retiree as the rst post-war baby boomers pass the old
Deault Retirement Age o 65. According to Avivas latest Real Retirement Report, more than one in three
39 per cent) over-55s are continuing to receive a wage and nearly hal are intent on using their extra
arnings to travel more when they nish ull-time work.
Retiring baby boomers are setting out a new model or later lie
11
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13
INvESTmENT
superIor
performAnce records
Investment trusts are in a renaissance period
and are coming up on the radar o more people,
ar more than ive to ten years ago. here is a
lot more attention on the superior perormance
records o these trusts versus their equivalent
open-ended unds.
Investment trusts can play a useul role in your
investment line-up. Tey were born in 1868, are closed-
end products listed on the London Stock Exchange and
unlike their more popular rival, unit trusts, they have a
xed number o shares in circulation.
broAder economIc mArket
You can buy these shares when the trust is irst
launched in the oer period or you can trade
them on the stock market. Although a trusts
share price generally moves in line with the value
o its investments, the price can be aected by a
range o actors, such as demand rom investors
and the situation in the broader economic market.
Buying or selling shares when the price is
below the value o the trusts assets is called
trading at a discount, while the opposite scenario
o the shares being higher than the asset value
means youre trading them at a premium.
IncreAse your returns
In contrast to other types o und, investment
trusts can borrow money to boost investment.
his is known as gearing. Although gearing can
increase your returns when markets are on the up,
it can exacerbate your losses i markets are alling.
he more gearing the trust has, the more likely
your gains, or losses, will be magniied. Gearing
is one o the ways in which investment trusts have
managed to beat their unit trust peers.
Aside rom higher returns over the long term,
investment trusts can provide a more stable, growing
income. Whereas unit trusts tend to invest in equities
or bonds, investment trusts have the ability to tap
harder-to-access areas such as private equity.
shoppIng And
fIndIng A bArgAIn
he opportunity to buy a trust at discount is
like shopping and inding a bargain you know
is worth more than the price. But i youre
concerned about the price luctuating or the
discount widening even urther, trusts tend to
have control mechanisms in place.
Historically, most investment trusts have
traded at a discount and oten traded at high
discounts. Now, many have a discount control
mechanism where the board can buy back the
shares, which is a good thing, to ensure there are
not discounts o 40-50 per cent.
trAdIng At A premIum
On the ipside, i a trust is trading at a premium,
it does not mean its worth writing o. You need
to look at your time horizon. Its less o an issue i
youre invested or ten years with a quality manager.
Investment trusts have tended to have lower
charges, which can help to boost your gains over
the long term. A major beneit o investment
trusts is that they are usually cheaper than open-
ended unds, and this should help to increase
their popularity. n
Past perormance is not necessarily a guide to the
uture. Te value o investments and the income
rom them can all as well as rise as a result o
market and currency uctuations and you may
not get back the amount originally invested. ax
assumptions are subject to statutory change and the
value o tax relie (i any) will depend upon your
individual circumstances.
Investment trusts have had to exist in the shadow o unit trusts or the past
ew decades. But in rising markets investment trusts generally outperorm
other unds and can deliver more stable, growing income streams.
A renaissance period or investment trusts
trust in
your future
Te opportunity to buya trust at discount is likeshopping and nding abargain you know is worthmore than the price.
In contrast to other typeso und, investment trusts
can borrow money to boostinvestment. Tis is knownas gearing.
heLping you groW yourWeaLth is an importantpart of What We dohere are many dierent ways to grow
your wealth. Our skill is in helping you to
understand your choices, and then helping
you to make the investment decisions that
are right or you. hat depends on your
lie priorities, your goals and your attitude
to risk. o discuss how we could help you,
please contact us.
7/30/2019 eSmart Money April 2013
8/15
15
time isrunning out
any time without losing tax relie. You do not
have to declare income and capital gains rom
ISA savings and investments or even tell your
tax ofce that you have an ISA.
Q. Can I put money into an I SA or my child?
A. Junior ISAs are a popular way or amily
and riends to build up tax-eicient savings
and investments to help with the cost o
university, provide a deposit or a house
or simply give children a start in lie. Any
child resident in the UK qualiies who wasnt
eligible or a Child rust Fund (CF):
Children born on or ater 3 January 2011
Children (aged under 18) born on or
beore 31 August 2002
Children born on or between
1 September 2002 and 2 January 2011
who didnt qualiy or a Child rust
Fund. Most children born between these
dates did qualiy or a CF
he current maximum allowance per child
per tax year is 3,600 and this will increase to
3,720 or the 2013/14 tax year. he account
is held in the childs name and a parent or
guardian can open and manage the childs
account. Once a parent or guardian opens
the account or their child, anyone, riend
or amily, is able to make a contribution
up to the annual limit. No withdrawals are
permitted until the child reaches the age o
18, at which point their account is automatically
converted into an adult ISA giving them ull
access to their investments and savings. n
Past perormance is not necessarily a guide to the
uture. Te value o investments and the i ncome
rom them can all as well as rise as a result o
market and currency uctuations and you may
not get back the amount originally invested. ax
assumptions are subject to statutory change and
the value o tax relie (i any) will depend upon
your individual circumstances.
Let us heLp you maKe
the right isa choiceTis tax year you can shelter up to11,280 rom tax by investing in anISA. o discuss how we could help yousave tax and make more o your ISAinvestments, please contact us. Dontmiss the 5 April deadline to benetully rom this years ISA allowance.
EalTH CREaTION lONG-TERm CaRE
A fLexIbLe wrApper
An ISA is not itsel an investment its a exible wrapper
under which a wide range o investments can be made, and
the proceeds are ree o capital gains or income tax. You
can choose rom two types o ISA Stocks & Shares ISAs
(shares, bonds or unds based on shares or bonds) and Cash
ISAs. Stocks & Shares ISAs are also known as Equity ISAs.
your questIons Answered
he 5 April ISA deadline is ast approaching and, i you
dont invest by then, you will lose your 2012/13 tax year
ISA allowance orever.
Here are answers to some o the most common
questions we get asked about ISAs.
Q. What is an ISA?
A. ISAs began on 6 April 1999. With an ISA you are
entitled to keep all that you receive rom that investment
and not pay any tax on it. You can save up to
11,280 in the current 2012/13 tax year. A tax year runs
rom 6 April to 5 April in the ollowing year. he ISA
scheme provides dierent ways o saving to meet peoples
dierent needs. You can plan or the short term or put
your money away or much longer.
Q. What are the dierent types o ISA?
A. here are two types o ISA: Cash ISAs and Stocks
& Shares ISAs. In each tax year you can put money, up
to certain limits, into one o each. Cash ISAs may be
suitable or short-term savings, so that you can get at
your money easily.
Stocks & Shares ISAs may be appropriate i you can
aord to leave your money untouched or longer than,
say, ive years.
Q. Can I have an ISA?
A. You have to be aged 16 or over to open a Cash ISA, or
18 or over to open a Stocks & Shares ISA. You also have
to be resident and ordinarily resident in the UK or t ax
purposes, or a Crown employee, such as a diplomat or
a member o the armed orces, who is working overseas
and paid by the government. he spouse, or civil partner,
o one o these people can also open an ISA. You cannot
hold an ISA jointly with, or on behal o, anyone else.
Q. How many ISAs can I have?
A. here is a limit to t he number o ISA accounts you
can subscribe to each tax year. You can only put money
into one Cash ISA and one Stocks & Shares ISA.
But, in dierent years, you could choose to save with
dierent managers. here are no limits on the number o
dierent ISAs you can hold over time.
Q. How much can I put into ISAs?
A. In the tax year 2012/13, which ends on 5 April 2013,
you can put in up to 11,280 into ISAs. Subject to this
overall limit, you can put up to 5,640 into a Cash ISA
and the remainder o the 11,280 into a Stocks & Shares
ISA with either the same or another provider.
So, or example, you could put:
5,640 into a Cash ISA and 5,640 into a Stocks &
Shares ISA; or
3,000 into a Cash ISA and 8,280 into a Stocks &
Shares ISA; or
nothing into a Cash ISA and 11,280 into a Stocks
& Shares ISA
Q. What are the tax beneits o an ISA?
A. You pay no tax on any o the income you re ceive rom
your ISA savings and investments. Tis includes dividends,
interest and bonuses. UK dividend income has been taxed
at source at the rate o 10 per cent and this cannot be
reclaimed by anyone. You pay no tax on capital gains arisi ng
on your ISA investments (losses on ISA investments cannot
be allowed or Capital Gains ax purposes against capital
gains outside your ISA). You can take your money out at
n times like these,
very penny counts.
nterest rates are at
istoric lows and rising
nation can erode
ur buying power. But
ne way to mitigate
hese eects is to shield
avings rom tax by
nvesting through an
ndividual Savings
Account (ISA).
Have you ully used your 2012/13 ISA allowance?
Measures introduced through theCare and Support Bill come intoeect in April 2017
Bills or long-term care in old age are to be capped at
75,000 in England. Te recent announcement or
changes to social care is thought to be part-unded by a
reeze on the inheritance tax nil rate band threshold.
Chancellor George Osborne announced during
the Autumn Statement 2012 that inheritance tax
rates would rise rom 325,000 (650,000 or
married couples and registered civil partners) to
329,000 (658,000 or couples) in 2015/16. Tis
will now be delayed until 2018/19. As a result o this
three-year extension, more people could be subject toan inheritance tax bill. Inheritance tax is charged at
40 per cent and is payable when the value o an estate
exceeds the available nil rate band threshold.
dIsAppoIntment
At the LeveL of the cAp
Jeremy Hunt, the Health Secretary, told the
Commons in February that the historic long-term
care reorms would save thousands o people rom
having to sell their amily home to pay or care.
Some campaigners voiced their disappointment at
the level o the cap, which was more than double the
35,000 recommended by the independent Dilnot
Commission in 2011.
meAns-tested
government support
Alongside the cap, Mr Hunt announced a rise rom
23,250 to 123,000 in the asset threshold beneath
which people will receive means-tested government
support or care bills. He also announced a lower cap
on costs or people who develop care needs beore
retirement age, as well as ree care or those who have
needs when they turn 18.
Andrew Dilnot, whose report recommended a
cap o between 25,000 and 50,000, said he was
disappointed by the governments proposal o a
higher level, but did not think it would undermine
his system. Te proposed 75,000 cap rom 2017
equated to 61,000 at 2011 prices, he p ointed out.
he measures will be introduced through
the Care and Support Bill and come into eect in
April 2017.n
hoW can We heLp you?We recognise that everyones needs are dierent
and choosing the best care provision or you or
a amily member is an important decision. o
discuss how we could help you make an inormed
choice, please contact us.
Te 5 April ISAdeadline is astapproaching and,i you dont investby then, you willlose orever your2012/13 tax yearISA allowance.
your IsAALLowAnceI you are over 18
and a UK resident,then each tax yearyou have an ISA
allowance.
stocks &shAres IsA
Te allowances orStocks & Shares ISAsor this tax year and
the next one are:
2012/13: 11,280 2013/14: 11,520
dId you know?You can split your
allowance and save upto 5,640 in a Cash ISA
in 2012/13 and theninvest the remainder ina Stocks & Shares ISA.
Once a parent or guardianopens the account ortheir child, anyone, riendor amily, is able to makea contribution up to theannual limit.
sociaL care in oLdage capped at 75,000
7/30/2019 eSmart Money April 2013
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Youve
protectedyour 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 a
will and the creation of trusts, can all help ensure yourdependents are financially secure.
Contact us to discuss how to safeguard your
dependents, wealth and assets, dont leave it until
its too late.
6
CONOmy
uk crediT raTingdowngrade
overnments cApAcIty
o repAy Its debtsedit ratings provide an indication o a
vernments capacity to repay its debts, but
y concerns about the downgrade leading to
rise in the borrowing costs or the UK appear
erplayed, at least i the recent experiences
the US and France are any indication: the
S lost its AAA status in August 2011 while
ance was d owngraded in November 2012. Te
rrowing costs o both nations have declined
nce their respective downgrades while their main
ockmarket indices have risen signicantly.
IscAL consoLIdAtIon
rogrAmme
Te implications o the UKs downgrade are likely
prove more political than economic. Moodys
nouncement highlighted the challenges that
ubdued medium-term growth prospects pose to
e governments scal consolidation programme
d the coalition government continues to ace
bstantial challenges in its attempts to reduce
e UKs debt levels. Politicians have placed
nsiderable value on the UKs top credit rating
ndeed, in the Conservative Partys maniesto o
ring 2010, George Osborne pledged to saeguard
Britains credit rating. As such, the news o the
downgrade puts more pressure on the Chancellor
o the Exchequer than on the economy itsel.
cAtALyst for fresh troubLe
aking everything into consideration, a drop
in the UKs credit rating is not likely to make
much dierence to the undamental perormance
or health o the countrys economy. Although
Moodys decision highlights the challenges that
the government ace, the downgrade itsel is likely
to represent a symptom o the existing problems
rather than a catalyst or resh trouble.
promIsIng
growth prospects
Te decline in the value o sterling is likely to
continue, as investors move their money into
currencies used by countries with more promising
growth prospects. A weaker p ound would certainly
help exporters, but it also makes imports more
expensive. Te price o petrol has already risen over
the past month, and urther increases like this are
likely to put more pressure on household incomes
and company prots, as well as on economic growth
as a whole. A lower credit rating could also make it
more expensive or the UK to borrow money.
Longer to
resoLve thAn expectedIn a similar way to borrowing rom a High Street
bank, i you are in a well-paid job and are living within
your means, you will have to pay a lower interest
rate on a loan than someone who the bank thinks is
overstretched and maybe not able to keep up with
repayments. At present, the UK needs to borrow more
than 100bn a year rom investors, both at home and
around the world. It seems that the UKs economic
problems, in line with many other countries, will take
longer to resolve than expected. n
Te credit rating agency Moodys, at the end o February, downgraded the UKs sovereign debt rating rom AAA to AA1,
elegating the UK to the second tier or the rst time since 1978. Te announcement made headline news, but it was ar
rom unexpected and the possibility o a downgrade had been predicted; the coalition government is taking longer than
xpected to reduce the UKs sizable decit and all three leading credit rating agencies Fitch, Moodys and Standard &
oors had already placed the UK on a negative outlook during 2012, stoking expectations o a downgrade.
Te UK has lost its AAA credit rating or the rst time since the 1970s
aking everythinginto consideration, adrop in the UKs creditrating is not likely tomake much dierenceto the undamentalperormance or health othe countrys economy.
7/30/2019 eSmart Money April 2013
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19
THE NEWS
Th ppct f a l pd f pltcal ctaty fllw lct
italy, th z thd-lat cy, ha hattd th f ay
cal epa facal akt ad dtatd that th ccy
a py t hck.
ThE iTaliaNElECTiONUncertain election results rekindle euro-crisis ears
Italys protest vote against the
Eurocrats has wrenched market
attention away rom the hunt
or yield and back onto political
risk. he social disaection caused
by youth unemployment has been
strikingly relected by the surge o the
Five Star movement.
Italian economic undamentals are
ragile and the recession still deep. At
best, the political impasse in Italy will
push back the markets expectation o a
recovery there. At worst, the contraction
could deepen as consumer and business
condence cowers under an extended
period o political uncertainty.
AusterIty-fIrst
soLutIon
Te elections have also emphasised that
the most powerul opposition to the
euro-zone crisis managers austerity-rst
solution to the blocs nancial crisis could
come rom the ballot box. Tree polls last
yeara reerendum in Ireland on new
scal rules and elections in the Netherlands
and Greecewent in avour o the euros
political masters, in Greeces case only just.
However, in Italy, the euro zone seems to
have run out o luck in a vote interpreted as
a rejection both o the countrys traditional
inancial-market tranquillity ollowing
the promise rom European Central
Bank President Mario Draghi in July to
do whatever it takes to save the euro.
A grAnd coALItIon
We can now expect weeks o hiatus in
the Italian political system as political
leaders discuss whether they can orm
a grand coalition that can govern the
country seems a certainty. Nothing
ormal can happen until March 15, at
the earliest, when Parliament is ormally
convened. By May 15, President Giorgio
Napolitanos mandate will expire and a
new president must be elected. An early
decision to call new elections seems
unlikely: to do so in an apparent eort
to get the right result or the EU risks a
urther backlash among voters.
fIscAL dIscIpLIne
Te political will to preserve Eurozone
stability has been proven in Greece. A new
government in Italy, when it is eventually
ormed, is more likely to be unstable and
ineective than unorthodox and radical.
Fiscal discipline is likely to be broadly
preserved even i serious structural reorms
are now o the agenda. Hence, the negative
market reaction to events in Italy may
provide an opportunity to buy into the
periphery, albeit at signicantly higher
yields. It will be important to keep an eye
on the rating agencies, who could well
jangle nerves with another downgrade i
policy uncertainty in Italy persists. n
political class and o the austerity many
Italians see as being imposed on them by
Brussels and Berlin.
fInAncIAL-mArket
trAnquILLIty
he return o growth in Southern
Europe is oicially projected to be
reached in the next 12-18 months, but
may have been urther postponed due to
recent uncertainty. But there was no sign
o any rethink: euro-zone governments
and the European Commission have
urged Italy to stick to the path o
economic overhauls and budget
stringency. he election has challenged
the optimism beginning to emerge
among politicians that the crisis was
over, which had been encouraged by the
Italian economic undamentals are ragile
and the recession still deep. At best, the
political impasse in Italy will push back the
markets expectation o a recovery there.
Te elections havealso emphasised thatthe most powerulopposition to the euro-zone crisis managersausterity-rst solutionto the blocs nancialcrisis could come romthe ballot box.
Silvio Berlusconi
7/30/2019 eSmart Money April 2013
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0 21
warren buffeTT,one of The mosTsuccessful invesTorsof The 20Th cenTury
IndIng Low-prIced vALue
hile evaluating the relationship between a stocks
vel o excellence and its price, Buett asks himsel
veral questions to nd low-priced value:
As the compAny
onsIstentLy
erformed weLL?
e looks at a companys return on equity (ROE) and
termines whether or not they have consistently
rormed successully, compared with others in the
me industry. However, looking at the ROE o a
mpany over the last year alone isnt enough. o get
better perspective o historic perormance, investors
ould view the ROE rom the past 5-10 years.
As the compAny AvoIded
xcess debt?
uett also considers the debt/equity ratio o
company, as he would preer to see minimal
mounts o debt, meaning that earnings growth
being generated rom shareholders equity and
ot rom borrowed money. A high level o debt
mpared to equity will result in volatile earnings
d large interest expenses.
re profIt mArgIns hIgh?
re they IncreAsIng?
ot only does the protability o a company
pend on a good prot margin but also their
argins consistently increasing. A high prot
argin means that the company is not only
ecuting its business well, but increasing margins
eans management has been efcient and
ccessul at controlling expenses. Investors should
ok back at least ve years to get a clear indication
a companys historical margins.
how Long hAs the compAny
been pubLIc?
One o Buetts criteria is longevity: value investing
means looking at companies that have stood the
test o time but are currently undervalued. He will
usually consider companies that have been around
or at least 10 years, meaning that he would not
consider most o the technology companies that
have had their initial public oerings (IPOs) in the
past decade. Historical perormance is also crucial
determining i a company can perorm as well
going orward as it has done in the past is tricky,
but Buett is very good at it.
do the compAnys products
reLy on A commodIty?
He will usually steer clear rom investing
in companies whose products are
indistinguishable rom those o their
competitors; i they d ont oer anything
dierent than another irm within the same
industry, Buett sees little that sets them apart.
He uses the term economic moat as a way o
describing any characteristic that is hard to
replicate; the wider the moat, the harder it is or
a competitor to gain market share.
Is the stock seLLIng At A
25 per cent dIscount to
Its reAL vALue?
Te most difcult part o value investing is
determining whether a company is undervalued,
and is Buetts most important skill. Investors
must analyse a number o business undamentals,
including earnings, revenues and assets, to
determine a companys intrinsic value, which is
usually higher than its liquidation value.
Buett will then compare it to its current market
capitalisation. I his measurement o intrinsic
value is at least 25 per cent, he s ees the company
as one that has value - the key to this depends on
his unmatched skill in accurately determining this
intrinsic value.
the proof Is In the puddIng
As you can see rom the above examples, Buetts
investing style reects a practical, down-to-earth
attitude. Tis value-investing style is not without its
critics, but nobody can question the success it has
brought. Te thing to remember is that the most
difcult thing or any value investor is in accurately
determining a companys intrinsic value. n
Inormation is based on our current
understanding o taxation legislation and
regulations. Levels and bases o and relies rom
taxation are subject to legislative change and their
value depends on the individual circumstances o
the investor. Te value o your investments can go
down as well as up and you may get back less than
you invested.
investment strategyOur services cover a wide range o
investment products and strategies. Ourdedication to fexibility and innovation
ensures we are able to secure new andtactical opportunities to help with your
investment strategy. To discuss what you
need to do next, please contact us orurther inormation.
Warren Buett is considered by many as the most successul investor o the 20th century and named one the most inuential people in the world by ime magazine in 2012. In this article we look at Buetts
nvestment mythology and analyse some o the most important tenets o his investment philosophy.
Te important tenets o his investment philosophy and mythology
Buett also considers the debt/equity ratio o
a company, as he would preer to see minimalamounts o debt, meaning that earnings
growth is being generated rom shareholdersequity and not rom borrowed money. A highlevel o debt compared to equity will result in
volatile earnings and large interest expenses.
ROfIlE PROfIlE
Warren Buett
7/30/2019 eSmart Money April 2013
12/15
Isnt it time
you had afinancial review?Well make sure you get the rightadvice for your individual needs.
We provide professional financial advice covering
most areas of financial planning, including, tax-efficient
savings, investment advice, retirement planning, estate
& inheritance tax planning, life protection, critical illness
cover and income protection.
t i i, la a .
23
IN THE NEWS
A faly wth 2 chld cld th aal pdabl c dp by
p t 1,752 p.a. 2013/14, whl th wth 3 chld cld l 2,449 pa. Wth
pc fat tha c, t patv f ay fal t kw hw
thy wll b affctd, ad what pt a avalabl t hlp pv th tat.
ThE ChildbENEfiT
Tax CharGETe child benet tax charge, introduced on 7 January, aects over one million amilies
whAt Are the
ImpLIcAtIons of
the tAx chArge?
Benet payments will continue to be
paid in ull to the claimant, but i the
households highest earners personal
taxable income exceeds 50,000 per tax
year then the amount will be clawed back
by way o a tax charge. Once taxable
income exceeds 60,000 in a tax year, the
charge will be 100 per cent o the benet
claimed i.e. the value o the benet is wiped
out. For incomes between 50,000 and
60,000, the tax charge is 1 per cent
or every 100 income exceeds the
50,000 threshold. Overall, these people
will benet, as the tax charge will always be
less than the benet claimed.
For the 2012/13 tax year, the tax charge
will never exceed 25 per cent o the yearly
benet claimed as the tax charge will only
have been operational or one quarter o
the current tax year. As such, the tax will
be limited to 438 where benet is being
claimed or 2 children, or 612 or
3 children. Around 500,000 people will
need to complete a tax return or the rst
time. Te tax charge will be collected
at 2 per cent or payments over the upper
earnings limit - i the employer agrees to
pass their 13.8 per cent NI saving on to
the pension then the contribution itsel
can be increased. Another alterative is
to simply continue claiming the benet
and paying the tax, which is a more likely
consideration or those amilies where
the higher earner has adjusted net income
between 50,000 and 60,000, when the
benet will still exceed the tax charge. n
under sel assessment; thereore, or those
submitting online, the rst return will need
to be in by 31 January 2014. It is important
to note that ailure to do so could result in
nes and late payment penalties.
whAt ActIon
cAn be tAken?
Tis will very much depend on an
individuals personal circumstances and
priorities. Making an individual pension
contribution to reduce income to below
50,000 would wipe out the child benet
tax charge altogether, while higher rate
tax relie would also be available on the
contribution i it all alls in the higher rate
band. Any contribution reducing income
to a level between 50,000 and 60,000 will
still result in a surplus o child benet over
the tax charge, and a tax return would still
need to be completed.
A pension contribution by salary
sacrice is an alternative way o reducing
taxable income. With the employers
agreement, an employee can reduce
their contractual income in return or
an equivalent employer payment to their
pension. Te employee will also save NI
are youconcerned aboutthe chiLd benefittax chargebeing unfair andcompLex?To discuss how we could help you
understand the complexities o
the child benet tax charge andsecure the best results or your
individual needs, please contact
us or urther inormation.
7/30/2019 eSmart Money April 2013
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4 25
ETIREmENT
how To makeThe mosT ofyour pension
ith less than ve years to go beore retirement,
ere is still a lot you could do to maximise your
entual pension income. ake a look at our
ecklist to see how we could help you make the
ost o your pension pot.
heckLIst In the run-up to
our retIrement
Request up-to-date statements or your personal
and company pensions
Get an up-to-date state pension orecast at
direct.gov.uk
race any lost pensions through the Pension
racing Service at direct.gov.uk
Include any investments and savings when
assessing your retirement income
Seek proessional nancial advice i theres a
signicant shortall, as delaying or phasing
retirement could be an option
Reduce any potential investment risk to protect
your pension rom any downturns in the stock
market as you approach retirement
I possible, augment your pension by
increasing your contributions and/or adding
lump sum payments
ake advantage o any unused pension tax
allowance. Current rules allow you to carry
unused allowances orward or three years
n hink about whether you want to take
your pension as an annuity or through
income drawdown
n I you want to take an annuity, decide
which type. An annuity can, or example,
increase by a set percentage or be linked to
the rate o inlation
n Look at impaired lie annuities i you have any
serious health issues
n I appropriate, consider consolidating your
pension or pensions to a Sel-Invested
Personal Pension (SIPP) i you want to take
income drawdown
n Consider whether you want to take 25 per cent
o your pension pot as a tax-ree lump sum and
think about how you might use this money
n Write a will or review any existing will
you have in place
n Check what will happen to your pension
i you die
n Assess the value o your estate or inheritance
tax (IH) purposes and consider ways to reduce
a potential liability
Seek proessional nancial advice i the value o
your estate is signicantly higher than the nil rate
IH band (currently 325,000) or your nancial
aairs are complicated n
All fgures relate to the 2012/13 tax year. A
pension is a long-te rm investment, and the und
value may uctuate and can go down. Your eventual
income may depend upon the size o the und at
retirement, uture interest rates and tax legislation.
Te Financial Services Authority does not regulate
estate planning, wills or trusts.
need heLp?What should you be doing in the run-up
to retirement? To discuss your options,
please contact us or more inormation.Dont leave it to chance.
Te closer you get to retirement, the greater the need to preserve your savings and ensure they will last
ll through your retirement. In addition, youll need to consider whether you need to make changes toour investments as you approach retirement.
ake a look at our checklist to see how we could help you
With less than ve years togo beore retirement, thereis still a lot you could doto maximise your eventualpension income. ake a lookat our checklist to see howwe could help you make themost o your pension pot.
7/30/2019 eSmart Money April 2013
14/15
6
THE NEWS
a bleak picTure ofpeoples abiliTy To copewiTh financial shocks
AnAgIng to
ut somethIng AwAythough 63 per cent o Britons are managing
put something away, nearly a third (32 per
nt) have a total pot o less than 1000, which
less than the UK average combined monthly
ortgage and council tax costs (1009). In
dition, almost one in ive o those who
pect their inancial priorities to change are
riously concerned about job security
r the coming year.
Tese statistics paint a bleak picture o peoples
ility to cope with nancial shocks that could hit
w or in the uture.
AmILIes shouLder
he burden
25 per cent o respondents with amilies have
aned a substantial amount to their children,
en to simply help them meet daily living
penses. Support is also provided or higher
ucation and property purchases, with an average
an o almost 15,000 an 11 per cent increase
om the amount reported last year. Interestingly,
hen asked what theyd rather give their children
oney or, parents opted or helping them get on
the housing ladder (63 per cent) over university
es (21 per cent).
A stArk ImpAct
on pArents fInAncesTis level o support is having a stark impact on
parents nances with a quarter (24 per cent)
cutting back on their savings and almost one in ten
(8 per cent) stopping saving altogether.
However, it isnt just parents unding their children;
whole amilies are pulling together to support each
other. Te report shows that grandparents are helping
their grandchildren; children are lending money to
their parents, and siblings are also supporting each
other. Specically, on average grandparents have lent
3,665 to their grandchildren, 6 per cent have lent
to their parents with an average amount o
4,371 exchanging hands and 9 per cent o people
have lent an average 3,485 to their sibling.
the sAvIngs
shortfALL spIrAL
Te wider economic climate is also increasing the
pressure on those struggling to save. 30 per cent
o people report that they have been orced to
cut back on their savings by rising costs, whilst a
urther 27 per cent are saving less than two years
ago, principally due to a lower level o disposable
income. Across the board, the majority (64 per
cent) o people report that having no money
available is a major barrier to saving.
ImportAnce of
buILdIng A sAfety netPeople clearly recognise the importance o saving
something towards their uture nancial wellbeing,
which is encouraging. Te importance o building
a saety net or themselves and their amilies is a
priority, with 63 per cent o people reporting that
they managed to save some money in the last
12 months. However, just a quarter o those people
believed they were saving enough to meet their
long-term needs, with a urther 37 per cent saying
they would denitely not be achieving this goal.
When we are aced with immediate inancial
commitments, such as mortgage payments and
day to day living expenses, then it is absolutely
necessary to give these pressing needs priority.
However, taking a wholly short-term view o our
inances will mean we are unprepared or the
inancial needs and challenges that lie ahead
in the uture. n
is it time to taLK to us?To discuss how we could help you toreview your current nancial situation
and plan or your uture goals, please
contact us or urther inormation.
Almost 15 million people across the UK (31 per cent o the adult p opulation) are not currently making any eorts to
ave or the uture, while eight million people (17 per cent) have no savings to their name at all, according to Scottish
Widows seventh annual Savings and Investment Report.
Are you prepared or the nancial needs and challenges that may lie ahead in the uture?
Achieving a
comfortableretirement.Do you need a professionalassessment of your situation tomake this a reality?
If you are unsure whether your pension is
performing in line with your expectations, and that
youve made the right pension choices dont leave
it to chance.
Contact us to discuss these and other important
questions, and well help guide you to a
comfortable retirement.
7/30/2019 eSmart Money April 2013
15/15
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RETIREmENT
As your wealth grows, it is inevitable that your estate becomes more complex. With over400,000 people now expected to reach age 75 each year [1], more and more people could beaced with a 55 per cent tax charge on any money le in their pension und when they die.
Will yOur rETirEmENTSTraTEGy miNimiSEpOTENTial TaxES aNdduTiES ON yOur dEaTh?Immediate access to your pension unds, allowing you totake out what you want, when you want it
free of Any deAth tAxMoney saved via a pension can be passed on to a loved
one, usually outside the pension holders estate and ree
o any death tax, provided the pension und has not
been touched and the pension holder dies beore age
75. People ortunate enough not to need immediate
access to their personal pension may thereore decide
not to touch those savings or as long as possible.
However, once someone reaches age 75, the
death benet rules change dramatically and their
entire pension und may become subject to a 55 per
cent tax charge on death. Tis means it can become
a race against time or many individuals to reducethe impact o this charge.
fLexIbLe drAwdown LIfeLIne
It can take years to move money out o the 55 per
cent death tax environment using capped income
withdrawals due to the set limits on the amount
that can be withdrawn each year. A lieline can,
however, come in the orm o exible drawdown.
Flexible drawdown can provide people with
immediate access to their pension unds, allowing
them to take out what they want, when they want
it. Flexible drawdown is only available to people
who are already receiving 20,000 p.a. minimum
guaranteed pension income which can include
their state pension entitlement.
For individuals who wish to leave as much as
possible to their beneciaries, taking income rom
their pension and giing it to their beneciariesunder the normal expenditure rules will allow
certain amounts o money to be passed to their
beneciaries outside their estate.
pAssIng money
outsIde the estAte
Tis may be more tax-efcient than suering the
55 per cent death tax charge, or the 40 per cent
inheritance tax charge i the money is simply
brought into their estate. Any money taken out
under exible drawdown will be subject to income
tax, so higher rate tax payers need to be careul toensure the money is either passed on outside their
estate tax-eectively or that their estate is within
the annual IH allowance o 325,000 (2012/13).
Tis may be particularly relevant or people who
are approaching, or who have already reached,
their 75th birthday, especially as many older
pension arrangements will not allow pension
savings to continue to be held beyond that date.
Younger people who have accessed their pension
und, even i its just to take the lump sum cash,
could also be at risk o the 55 per cent death tax,
and could benet rom moving unds out o this
environment as efciently as possible. n
Want to investigatethe opportunitiesavaiLabLe to you?Te benets o exible drawdown should not
be underestimated. Putting o accessing your
pension income could store up problems when
you reach age 75. But once someone does access
their pension und, regardless o age, exible
drawdown can dramatically help with estate
planning. o investigate the opportunities
available to you, please contact us today.
[1] Oice o National Statistics, igures rom 2011 Census.
Flexible drawdown is a complex product. I you are at all uncertain about its suitability or
your circumstances you should seek proessional fnancial advice. Your income is not secure.
Flexible drawdown can only be taken once you have fnished saving into pensions. You
control and must review where your pension is invested, and how much income you draw.Poor investment perormance and excessive income withdrawals can deplete the und.