One thing which has not changed for a long time is the tax free cash (TFC) which someone can take from their personal pension.
For a long time, the maximum has been 25% of the value of the fund at the time of taking it. The earliest age you can take this is age 55, and because of the pension freedoms brought in by George Osborne (when he was Chancellor), this has never been easier.
All that needs to be done is to transfer the personal pension into what is called drawdown (basically another type of pension contract). Then, the 25% (or anything less than that) can be withdrawn.
What we sometimes do when planning a client’s retirement is transfer all of their pensions into drawdown, and then they can extract the 25% TFC at that time. In many cases, a client may not need the cash straight away, but for ease of use later, we normally extract the TFC and put this to a General Investment Account (GIA). This is an investment product which means the money can still earn, although not tax-free admittedly.
By doing this, it allows people to draw out tax-free sums as and when they need it, without all the hassle of extracting it from their pension bit at a time. This is the kind of flexibility people like and actually need in retirement, and gives them access to lump sums as and when they need it.
There are still some older policies that have a higher tax-free amount available, but they are few and far between now. Legislation many years ago brought in the 25% limit, and that is what applies to the vast majority of pension policies today.
You will find a lot of company/occupational/final salary schemes vary quite significantly in what they give out as tax-free cash, but it is not normally as generous as 25%.
So if you are old enough, in need of cash and think your pension is big enough to last you through retirement, why not give yourself some breathing space and access your TFC.
For further information on any aspect of financial advice and how MAP may be able to assist you, please contact us on 0345 241 1808 or email us at: firstname.lastname@example.org.
Where there is easy money to be made, you will always find someone wanting to steal it from you. It appears some scams are “back”, although to be honest, we doubt if they went away in the first place.
They probably lay fallow for a short time to allow people to forget everything they had been taught to watch out for. Some appear to be back with a vengeance, and in the run up to Christmas, you can bet anything they will hit you as hard as they can, if possible.
People call them scams, but we see them simply as stealing, because that is what it comes down to. Those who operate scams are trying to steal your hard-earned cash in one way or another, and are relying on you to slip up in some way, thus giving them a way in.
Some of our staff for example, have recently received emails purported to be from HMRC, telling them their refund is waiting to be paid. They just need to click on the link provided, enter bank details and hey presto! Now, when has HMRC ever written to you in the past to tell you a refund is pending? Never, and in all likelihood, it never will happen either. You always have to write to HMRC and claim money back, and usually you have to work hard and have patience to receive said money.
A similar thing is e-mails looking like they are from your bank, telling you your account has been locked and asking you to reply with your account details to resolve the issue. However, because these scams are not intelligent enough, most of these e-mails will appear to be from banks with whom you have never had any dealings with. Once again, clearly fake.
If you receive any suspicious e-mails or phone calls, in all likelihood it is a scam and you should therefore not disclose anything personal. Where anyone asks you for your bank details, PINs or passwords, it almost certainly is a scam and that person is trying to steal your money. No bank in the UK will ask you for all details at any time – specific ones yes, as they will already have some on file. If in doubt, hang up and speak to the bank or company in question by you phoning them. That way, you know you are talking to the real deal.
It seems today these thieves are using online ticket sites to get your money, and don’t forget that social media is good territory for them as well as it provides them easy access to at least get started. Be careful in anything you do online, and don’t hesitate to stop sending money anywhere until you have checked things out. As soon as you press ‘Submit’ your money may very well be lost forever, so take a minute to think before you jump in. You know the old saying – act in haste, repent at leisure.
For further information on any aspect of financial advice and how MAP may be able to assist you, please contact us on 0345 241 1808 or email us at: email@example.com.
Equity Release is a mechanism to release capital from the value of your property. In simple terms, it is a mortgage, but one that you don’t have to repay during your lifetime.
Whilst many different terms are used to describe Equity Release products, they all fall into one of the following categories:
Lifetime mortgages work very much like standard mortgages most people will already have experienced. The homeowner continues to own the property, but a mortgage (called a charge) is put over the property and this is registered on the property deeds at the Land Registry.
These details are public records although only the name of the lender is registered, not the amount owed. This prevents the property being sold without the mortgage being repaid because the purchaser’s solicitor will be aware of the charge and will need proof that it has been cleared before the property transfers to the new owner.
Lifetime mortgages can be separated into either interest-only mortgages and roll-up mortgages.
Are mortgages for life where the borrower pays the monthly interest on the debt. These can be fixed rate or variable rate similar to standard mortgages. The benefit of an interest-only mortgage is that the size of the debt never grows. The main issue is that the borrower will have less disposable income after the mortgage is in place and will have to undergo affordability tests to ensure they can maintain payment of the monthly interest. Most interest-only mortgages can be switched to a roll-up mortgage after the borrower reaches a certain age; normally 80.
Roll up mortgages require no repayments whatsoever. The interest that accrues on the debt is added to the debt each month and the size of the debt therefore increases over time. The benefit of a roll-up mortgage is that there are no repayments and, therefore, no affordability tests are carried out. The main negative is that the size of the debt can grow substantially over the lifetime of the mortgage and could completely wipe out the value of the property meaning nothing can be left to a beneficiary on death.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
A home reversion is not a mortgage because the ‘funder’ purchases a fixed percentage of the property for an agreed price. The price is highly likely to be below current market value because the funder anticipates having to wait a long time before they can realise their investment. When the purchase is finalised, the funder will be listed on Land Registry as a part owner of the property – referred to as a ‘Tenant in Common’.
With Home Reversions, there are no regular payments to make but the funder owns a fixed percentage of the property and, when it is eventually sold, will receive that proportion of the proceeds of the sale. It should be noted that the funder will have control of the sale and will have control over the final selling price. This prevents the owner’s estate from selling cheap to a relative or beneficiary, for example.
Home Reversion is particularly suitable when the homeowner is not particularly concerned about leaving the actual property to a beneficiary and doesn’t want regular payments to make during their lifetime but does what some certainty about the value of estate they will be leaving.
Who Can Do Equity Release?
Theoretically, anyone age 55+, but the younger the applicant, the lower the amount that can be raised. The sweet spot age is 75+ when many lenders will offer immediate roll-up deals.
Are There Any Issues?
When considering Equity Release there are a few things to be careful about. Firstly, any lifetime mortgage taken out should come with a ‘no negative equity guarantee’. This means that the value of the debt can never exceed the value of the property. For example, with a rollup mortgage, there is a risk that the debt could rise to be greater than the value of the property meaning, when the property is sold, the debt would not be fully repaid and the difference would need to be made up from other assets in the estate. If possible, a mortgage that is Equity Release Council (ERC) approved should be sought. All ERC approved mortgages will come with the no negative equity guarantee, along with some other guarantees; mainly concerning fees and charges.
Another significant issue to consider is whether the homeowner feels they may wish to move or downsize at some point. Most ER products will allow the borrower to move and take the mortgage with them; all ERC approved products will. However, if the new property has a lower value than the original (maybe the owner is downsizing with the intention of releasing capital) there is a risk that part of the capital already advanced may need to be repaid; in the extreme, this could wipe out the capital the borrower is trying to release by downsizing. The reason this occurs is that the lenders will only advance on a limited percentage of the property value. Whilst this percentage does increase with age, if the new property has a lower value, the outstanding debt may form too large a percentage of the new property value. In these circumstances, the homeowner could still move, but would need to repay the difference between the outstanding debt and the maximum that could be raised on the value of the new property.
The final major issue to consider is care. Whilst ER products are designed to be for life, they also terminate on the event that the borrower moves into full time care. With a joint product it would be when the second borrower moved into full time care. At this point, the property would be sold and the debt repaid.
The fact that it is possible the property may need to be sold before the end of the borrower’s life if they move into full time care can cause some inheritance planning issues. For example, a borrower may have a whole of life insurance policy with the intention that the policy proceeds would repay the debt on their death and the property could still be left to a beneficiary. The risk is that the repayment of the debt is triggered by the borrower being taken into full time care. At this point the proceeds of the life policy are not available and, unless there are sufficient other assets to repay the debt, the property would be sold.
Equity Release can form a critical and extremely useful part of later life financial planning but it is essential that the right product is selected that meets the current and reasonably envisaged future needs of the borrower. It is therefore essential that advice is sought from a suitably qualified equity release advisor. MAP has a number of qualified equity release advisors all of whom are also fully qualified general financial advisors giving them the breadth of knowledge to understand not only which product would be appropriate, but how this would fit with a client’s other financial requirements.
For equity release advice, we charge an adviser fee dependent on the loan amount, as invariably larger loans require more time and effort to complete:
For further information on how MAP may be able to assist with your equity release needs, please contact us on 0345 241 1808 or email us at: firstname.lastname@example.org.
Every quarter we carry out a review and analysis of investment funds that are available. What we look for are funds of a decent size – usually £100 million invested and above – and have a good consistent performance over the last five years. We aren’t interested in those that are brilliant only in the short term.
Once we have identified funds we are comfortable in using, we divide these into risk category, and there are five categories in total although we generally only use three of them:
Once all funds have been categorised into one of the above, this makes up our Recommended Fund List (RFL) and is what we use for new investments going forward. For existing investments, we review those with funds that have fallen out of the RFL, and ask the investor for their permission to move them into those which are in the RFL. So we are always monitoring and keeping a watchful eye on our clients’ money. Not only that, we will give you 24/7 access to how your funds are performing on the MAP Investment Portal.
This process is ongoing and we are constantly monitoring external factors, be they political or economic. At the moment, the economy is in what at best can be called a transition phase. We have reasonable growth in the UK, but we have Brexit looming, and at this stage no-one knows how that is going to affect us. What we at MAP will do is watch all the funds our clients are invested in to make sure that they keep on track.
If you would like to find out more about the MAP investment process or our RFL, please call us on 0345 241 1808 or email us at: email@example.com.
Please remember that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Recently at MAP we had what we think of as a success story, and no it didn’t happen overnight.
A couple who have used the MAP investment platform since 2011 found themselves this month, after a good period on the stock markets, having total gains over the total time of their investment period in excess of £½million.
The couple had followed a fairly balanced investment strategy of 30/40/30 – which is investing in three funds at 10% each in cautious low risk, four funds at 10% each in middle risk and three funds at 10% each in high risk.
We had monitored this money every quarter since inception, and had received the clients’ permission to switch funds as and when we thought it necessary. The clients admitted early on that they had no knowledge of all of these funds, and so basically let us get on with it, which is what we did.
Calculations show that we have managed to get them 7.88% per year every year since we started in 2011. Bear in mind that whilst the FTSE100 achieved an index figure of 7,500 in August 2017, it started off in 2011 at about 5,700. At February 2016, it had fallen to 5,700 from around 7,000 in April 2015, so there have been some lows as well as highs.
The MAP investment process aims to hold clients investments in solid funds which perform consistently well. That is all we are trying to do – it’s not rocket science, but, with rigorous research and hard work, we can deliver strong returns.
If you have money to invest, why not try the MAP way; it really works. Call us on 0345 241 1808 or e-mail us on firstname.lastname@example.org.
One of the things that has happened recently and has probably gone unnoticed by many is that the female State pension age has been raised. This will have a profound effect on many people’s pension planning – both individuals and married – and we would guess that not many people actually know about it, let alone do anything about it.
Pensions are basically a long-term savings plan with tax relief, and because of this long-term effect, you cannot change things easily. A person should put away as much as they can afford into a pension and get the relevant amount of tax relief. If this satisfies what you are likely to need when you get to retirement age, fine.
But what is satisfactory? Here is a sample estimation:
Say your parents and older siblings died at age 90, meaning you could very well need 25 years of pension if you retire at 65. Furthermore, you are likely to £15,000 per year in retirement. This means you will need a pension pot of about 25 x £15,000 = £375,000.
You then need to do a cumulative growth calculation for the years you will be saving and how much you can save per year. Using our cumulative growth tables, if someone aged 23 put £3,000 away per year and got 6% growth on this, at age 65 they should have around £375,000.
Pension planning is something everyone should do but is not a straightforward process. So why not contact MAP and we can assist. You can call us on 0345 241 1808 or e-mail us at email@example.com.
Since we know that we will always get taxed, what we should always do is plan. Now planning can cover a variety of situations, like reducing tax overall, or perhaps even take yourself out of tax altogether. The one thing everyone should do is plan things so you get the smallest tax bill you can. You owe it to yourself and your family.
The key area of planning we would like to cover here is the use of tax allowances. Bear in mind most allowances are given for a specific year, and if you don’t use them, you lose them. It is therefore only common sense to use as much of them as you can.
“There are only two things certain in life – Death and Taxes” (Benjamin Franklin)
The main one is the personal allowance which everyone gets. In an ideal world, we would like to see all household income split 50/50, but that is not possible with PAYE income of course. For all investment income in a household, it is down to each couple as to who this belongs to, so couples can split this according to their situation. If both spouses are working, it can get split 50/50; if only one works, it can be split 1/99, i.e. whatever uses up unused allowances. Buy to let property income is an ideal example as well.
In the current tax year, each individual can have dividends up to the value of £5,000 non-taxable, and savings income up to £1,000. This is reduced to £500 for higher rate tax payers and nil for additional rate tax payers. So, once again the argument is there to split such income between spouses as suits you and not HMRC. Even if dividends are higher than £5,000 per year, bear in mind that if someone is liable at basic rate tax, then dividends over £5,000 per year are taxed at 7.5%; for someone liable at higher-rate tax, dividends over £5,000 are taxed at 32.5%, so there are still some savings to be made.
Self-employed people should also consider employing their spouses as this is a good way to “spread” income. It’s not just a case of putting this into a set of accounts – there does have to be some substance behind the figures, so some planning and logistics should take place before you automatically just jump in. PLAN!
Remember that for most allowances it is a case of use them or lose them.
If you would like help with tax planning, please call us on 0345 241 1808 or e-mail us on firstname.lastname@example.org.
The Financial Conduct Authority does not regulate tax advice