Given recent Government rulings about pensions, retiring in your mid-fifties might seem like a far-fetched dream. But is it possible to have a pension scheme flexible enough to allow you to retire at the age of 55?

One of our readers asked us recently about what kind of pension scheme could give him the ability to do just that. (1)

Our reader wondered if a UK Self Invested Personal Pension (UK SIPP) would be the best way to achieve that, but he was concerned that it might mean his money would be ‘locked’ into his UK SIPP fund.

If you do choose to take the UK SIPP road to retirement, what can you expect?

What we’re aiming to give you here is a brief overview of a UK SIPP. The idea of a UK SIPP is that they are personal pensions, not ‘one-size-fits-all’ pensions. For a more detailed consultation about whether they would suit you and your investment aims and objectives, we’d recommend you talk things through with your independent financial adviser.

If you want tax efficiency, taking the UK SIPP route is probably going to suit you very well. Depending on your earnings and your previous pension planning you should be able to put funds into a UK SIPP and receive tax relief on the premiums. Your adviser will be able to assist you with this and ensure you’re not losing out on any tax relief available to you.

Another potential advantage of a UK SIPP is that  allow you a wide range of investment options, depending on your attitude to investment risk. The following are just a few examples of what can be invested within a UK SIPP:

• Cash deposits

• Equities

• Gilts and Bonds

• Investment Trusts, Unit Trusts & Exchange Traded Funds.

Again, your adviser will be able to help you decide which of these investments might be most suitable for you, as well as helping you decide how ‘active’ you want to be with managing your investments.

Both a potential advantage as well as a disadvantage is that (as our reader wondered about) funds within a UK SIPP are ‘locked in’. This means you won’t be able to access them until you reach 55. There is a further restriction that, while you will be able to draw 25% as a tax free lump sum when you are eligible to at 55, the rest of your fund will have to be used to provide you with income benefits.

Bear in mind, too, that if you retire at 55, annuity rates are likely to be very unattractive, because it’s expected that you will have a considerable number of years of retirement ahead of you (all being well of course). Recent pension rulings also mean that the amount of income you can take under the rules of pension drawdown has been reduced. So if you want to draw a significant income at 55, you are going to need a sizeable amount in your fund.

At current rates, at age 55 a single life annuity would provide around £49 per £1,000 of capital (with a level annuity that stays the same) or £24 per £1,000 (with a Retail Prices Index linked annuity that rises by a percentage each year).

For an alternative approach to saving for your retirement, instead of a UK SIPP you could consider using a tax-efficient ‘wrapper’ for your investments, such as investing in an Individual Savings Account (ISA). By doing this, you will reduce the amount of tax paid on your investments and you can draw on the capital and / or the income when you choose to retire.

You can use your ISA allowances each year (currently £10,680 for the 2011/2012 tax year which ends on the 5th April) or you might want to consider onshore or offshore bonds if they are appropriate for you.

Overall, your best route will depend on the flexibility you might need, what level of income you would require at 55 and what your attitude to investment risk is.

For a free and confidential discussion about a UK SIPP and all your pension options, call Matt Higham on 0845 230 9876 or e-mail info@wwfp.net.

Sources:

1. This is Money

‘Looking forward to’ and ‘tax’ are phrases very rarely found in the same sentence. But we have good reason to in this case. 2012 tax allowances are akin to gifts from the government, which all too often get forgotten about, until it’s too late. In 2010, £15 billion was lost to the tax man in unused ISA allowances alone (1).

In times of austerity, that’s a costly mistake.

So we thought we’d take a look at three 2012 tax allowances you can very easily benefit from.

Firstly, Individual Savings Accounts or ISAs. ISAs come in two varieties – Cash ISAs and Stocks and Shares ISAs. Your tax allowances for ISAs is (in the current tax year) £10,680, meaning you can pay in up to £10,680 in the financial year as long as you meet a few requirements.

If you’re a UK resident, aged 16 or over, you can pay in £5,340 to the cash variety of ISA each tax year (the tax year runs from April to April). Any money held within your cash ISA accumulates interest without any tax being charged, unlike bank accounts.

If you’re a UK resident aged 18 or over, you can also invest in a Stocks and Shares ISA. You can pay in another £5,340 to a Stocks and Shares ISA, or if you haven’t used your cash ISA allowance you can pay in the full amount of £10,680. Just like the cash version, any gains or income from your Stocks and Shares ISA won’t face any tax charges.

Remember – your ISA 2012 tax allowances are lost at the end of each tax year, so if you don’t use it, you lose it!

Next, capital gains 2012 tax allowances (CGT). Up until April 5th 2012, we can make capital gains of up to £10,600 without incurring any tax. After April 5th, a new tax year starts, and we all get a new set of 2012 tax allowances. Remember that unfortunately, you can’t ‘roll over’ any unused allowance from the previous year.

In our experience, the CGT allowance seems to be one of the most under-used tax allowances, but it’s still a very useful one. It allows you to realise any gains on any investments that you’ve held without the benefit of a tax wrapper (like an ISA). For example, the shares you bought years ago that now appear to be worth a nice little amount could be cashed in within your capital gains 2012 tax allowances without you having to pay any tax.

Calculations for CGT can be on the complex side, however, so we always recommend employing the services of an accountant as well as your financial adviser to make sure you don’t lose out.

While discussing 2012 tax allowances, it is always worth taking a longer term look and thinking ahead towards pension and retirement planning. As an incentive to plan for retirement the government offers ‘tax relief’ on pension contributions, which, putting it simply, is extra money that the government adds to payments you make into a pension scheme.

Even if you aren’t in paid employment, you can still qualify for 2012 tax allowances with a pension and are allowed to pay in £2,880 from your own pocket to a pension scheme. Tax relief is added to this amount and turns your contribution into £3,600 immediately. That’s the easiest 20% return you are ever likely to make.

An independent financial adviser will have access to the best ISA and Pension schemes and will be able to offer a detailed report as to the suitability of such arrangements for you. So just like the 2012 tax allowances, an IFA is worth utilising as part of your financial planning strategy.

For a free and confidential discussion about your ISA and pension options, call Chris Rowe on 0845 230 9876 or e-mail info@wwfp.net.

Sources:

1. USwitch

A less weighty piece of financial news was revealed with the Barclays bank ‘Pingit’ money-sending service launched. And to brighten the day of consumers in the UK, inflation was officially down to 3.6% in January.

Moody’s warning of UK downgrade

Rating agency Moody’s warned that the UK was in danger of losing its AAA credit rating, placing the country on negative watch.

Source: Guardian

UK inflation falls again in January

The Consumer Prices Index official measure of UK inflation showed a fall to 3.6% in January from 4.2% in December. The Retail Prices Index showed a fall to 3.9% from 4.8% in December.

Source: Fundweb

Europe demands greater oversight of Greece in return for bailout

In return for a further bailout for Greece, a €130billion package, Eurozone finance ministers demanded tighter oversight of the Greek economy.

Source: BBC News

Energy company EDF’s profits treble

French Utility company EDF Energy reported that their profits had near enough trebled in 2011. They reported income after tax of £2.5 billion compared to £0.8 billion in 2010.

Source: Citywire

Fuel prices increase – again

Fuel prices look set to reach record highs with the price of petrol increasing by 1.46 pence in the last month and diesel rising by almost a penny.

Source: Citywire

Retirement age increases

The average age of retirement for both men and women in the UK has increased steadily in the last decade, figures from the Office of National Statistics show. The average retirement age for men is now at 64.6 years and for women is 62.3 years.

Source: Guardian

Huge demand for gold

Investors pushed the demand for gold to more than $200 billion, a recent survey from the World Gold Council revealed. Demand for gold in 2011 was at its highest level since 1997.

Source: Fundweb

Not a misquote of the famous Beach Boys hit, but three letters which are causing people with some types of private pension to suffer a near 20% drop in income.(1)

The Government Actuary Department, or GAD as it is also known, sets the limits on the income people can take from their draw down pension schemes. In an extraordinary resurgence of the Nanny State, the Government has decided that they will limit the rate at which many people can have access to their own money.

In recent years, with annuities at historically low levels, many people have decided to keep their pension pot invested. Instead of buying an annuity, they are living off the dividends of shares or other assets held within something called an Income Drawdown scheme, or draw down pension.

Even though draw down pension schemes are higher risk, many more people are exploring this option of funding their retirement because annuities currently offer very poor returns.

And now the government want to limit the amount of income you can take from your draw down pension.

Why aren’t people angry about this? Why aren’t pensioners marching on Parliament to protest against this? The reason might be that income drawdown schemes are still rare and if you do use them, you may not become aware of this change (that came into force in April2011) until your five year income review for your draw down pension becomes due.

You could then discover that the GAD ruling means almost 20% less income for you; that’s the equivalent of a £20,000 salary being cut to £16,000.

It’s a double whammy – annuities at low levels and income limits reduced on draw down pension schemes. And unfortunately, there is more bad news.

One of the attractions of using a pension draw down scheme is it allows part of your hard-won pension fund to be left to beneficiaries after your death. However the tax on lump sums left in this way has recently been raised by 20% to an eye watering 55% tax charge.(2)

Why? Well with greatly increased life expectancy the Government is worried that people with draw down pension schemes will run out of money and become a burden on the State. And remember, whichever shade of Government we have; Nanny knows best!

The Government would prefer you to buy an annuity which involves handing over a large part of your pension pot forever, to an insurance company for a secure income for life. For many people with small pension funds this is absolutely the right thing to do, but it’s not right for everyone and shouldn’t we have a choice?

Until we get fairer pension rules generally, there is one way that allows you to let go of Nanny’s hand and gain unlimited income from a drawdown policy, with no GAD limits. This is called Flexible Drawdown, but qualifying for such a scheme is not easy. HMRC rules mean it is only possible for those who can demonstrate a secure income of at least £20,000. (3)

What counts as a secure income? The State pension and an annuity. So if you do have a large pension fund, you might want to consider an annuity purchase with part of your fund, to get that £20,000 secure income, and then use the rest of your fund for flexible draw down pension.

Remember though, that as with all annuity purchases, enlist the help of an independent financial adviser to shop around to get the best rate and to see if you qualify for a medically enhanced annuity. Many people miss out on thousands of extra pounds in retirement because these options are not considered.(4)

If you can qualify for a draw down pension arrangement, your money can be withdrawn from your pension fund as required or stripped out completely and invested in assets that don’t attract the 55% tax charge on death.

Always take independent advice though about this to make sure you’re getting the right balance between risk and return so you can be free to carry on gadding about!

For a free and confidential discussion about buying an annuity, call Andrew Stallard on 0845 230 9876 or e-mail info@wwfp.net

Sources:

1. Scottish Life

2. Scottish Life

3. HMRC

4. Telegraph

£50 billion more QE from the Bank of England

For the 35th month running, the Bank of England’s Monetary Policy Committee voted to keep interest rates at 0.5% and also announced another £50 billion of asset purchasing to its Quantitative Easing programme.

Source: Fundweb

Second Greece Bailout to go ahead

Four days after the original deadline passed, it was confirmed that Greece will receive a second bailout package of £130 billion, following various austerity measures being passed, involving cuts to public spending.

Source: Fundweb

Repossessions fall to four year low

The number of homes being repossessed has fallen to a four year low, according to the Council of Mortgage Lenders (CML). The total number of homes repossessed in 2011 was 36,200 compared to 36,300 in 2010.

Source: Guardian

Record profit for Rolls-Royce

Rolls-Royce announced a record profit of £1.16 billion, with total revenue standing at £11.3 billion. The Derby and Bristol based company says it is ‘confident’ of increased growth in 2012.

Source: Guardian

FSA may block Co-op’s purchase of Lloyds branches

The Daily Mail has reported that there are fears the Financial Services Authority may block the sale of 632 Lloyds branches to the Co-op. Lloyds announced in December 2011 that it had begun talks with the Co-op.

Source: Citywire

On the home front, Grant Shapps announced his new idea about mortgages, the valuation of facebook took some people by surprise and Sir Fred Goodwin became simply Fred Goodwin.

Financial Services Authority takes action against UBS bank

UBS, the bank which suffered severe losses due to rogue trader Kweku Adoboli, is facing enforcement action being taken against it by the FSA as well as the Swiss financial regulator, FINMA.

Source: Fundweb

Housing Minister unveils new build mortgage plan

Housing Minister Grant Shapps unveiled plans for helping kick start the housing market. Under the NewBuy Guarantee Scheme, 95% mortgages (available to people buying a new build house worth up to £500,00) will be underwritten by the builder and the taxpayer, with a guarantee to lenders that they will not lose out.

Source: Guardian

Facebook valued at $100billion

Facebook founder and CEO Mark Zuckerberg announced he is selling shares in the social media site. Facebook, launched 8 years ago, in its Initial Public Offering (IPO) values the company as a whole at $100billion and it is believed the move will make paper millionaires of 1,000 current and former employees.

Source: Guardian

House prices fall in January

According to Nationwide, house prices in the first month of 2012 fell by 0.2%, and compared to this time last year, were down 0.6%. The building society predict that house prices will fall ‘modestly’ in the months ahead. The average price of a house in the UK is now £162,228.

Source: Citywire

Chairman of RBS defends Hester’s bonus

Sir Philip Hampton, the chairman of Royal Bank of Scotland, defended the bonus that was to have been paid out to Stephen Hester, the bank’s CEO, which Hester declined to accept. Hampton spoke on Radio 4′s Today programme.

Source: Guardian

Months of competition came down to the final hole as the winner of the 2011 Worldwide Financial Planning Business Services Golf League was crowned.

30 members of Cornwall’s business community battled it out from April to December, but it was Scott Burridge Commercial’s Carl Jenkin who took the title.

Carl became the fifth winner of the annual tournament after beating David Rogers from Clydesdale Bank in the final at Killiow Golf Club.

It was a close fought contest and Carl held his nerve to beat David on the final green by one shot.

“This has been the longest tournament we have run.” said event organiser and independent financial adviser at Worldwide, Matt Higham.

“The weather at the end of summer put the competition back, but the players kept going and I think the final, and how close it was, was fitting of the overall standard of the competition

“The members of the business community who take part really get a lot out of the tournament and I’m now looking forward to getting everything in place for the sixth event which starts in April this year.”

The competition, which features golfers from Cornwall’s business community, takes in a variety of the county’s courses.

Entries for the 2012 league are now being accepted. For further information please email Matt Higham at Worldwide Financial Planning on mhigham@wwfp.net or call on 01872 222422.

This was the reaction of one of our clients, when we were discussing their income in retirement.

If you’ve not heard the term before, an annuity is a guaranteed income for life, which you buy from an insurance company with your pension fund. Most people who are not lucky enough to have a final salary pension (and that is likely to be most of us in the future) end up buying a life insurance annuity.

Essentially, you swap your hard-earned lump sum for a guaranteed income for life. So, for example, a lump sum of £100,000 may buy you an income of £6,000 a year for the rest of your life, no matter how many or how few years that may be.

But why does a life insurance annuity give you such a poor return on your money? There are two main reasons: increased life expectancy and the return on Government bonds (otherwise known as Gilts). When calculating how much to pay out on a life insurance annuity, the insurance company will calculate how long you are likely to live and what the return will be on a “safe” investment such as UK Government bonds. As we are all now living longer (1) and the return on UK Government Bonds is at a level last seen in Victorian times, it means life insurance annuity rates are painfully low. (2)

However, there are a couple of things you can do to boost your retirement income. In effect (and this has a connection with our recent article about the lottery!) when you buy a life insurance annuity, you effectively make a bet with the insurance company on how long you will live. If you live a long time, the insurance company loses out because you get more money, but if you die early, before you have recouped the amount of your lump sum, they ‘win’. This is one reason we usually advise clients to buy a five year guarantee so at least if you fall under the fabled bus shortly after buying your life insurance annuity, your estate will continue to receive payments for five years.

You can also tip the odds in your favour in a number of ways; firstly by shopping around and secondly by seeing if you qualify for an enhanced life insurance annuity. An enhanced annuity is one that will pay out more money if you have any one of a number of medical conditions.

We’ve found that a lot of people haven’t realised they qualify for an enhanced annuity, but it’s certainly something worth checking. People with raised blood pressure, increased cholesterol, heart conditions, diabetes, smokers or those who are overweight can usually qualify.

Taking independent advice to see if you could qualify for an enhanced annuity will cost you at most a few hundreds of pounds and could well cost nothing at all. In return, you could get many thousand pounds of extra income over your lifetime.

A recent survey conducted by Partnership, who are a leading provider of Enhanced annuities, showed an average increase of over 23% in enhanced annuities over standard annuities – that’s nearly an additional £1 in every £4 for your retirement income.(3)

Put another way, it means that a £50,000 lump sum might buy you £3,000 a year income with an ordinary life insurance annuity, but that same £50,000 could get you just under £4,000 a year with an enhanced annuity. Added up over the years, this makes for a lot of extra income in your retirement. What could you do with almost £1,000 a year extra? Maybe a holiday, maybe gifts for your family, maybe just a few extra luxuries.

Our conclusion here is that if you’re considering, or even not considering, a life insurance annuity, talk to your independent financial adviser. Ask your adviser to find out if you qualify for an enhanced annuity on medical grounds and you could be considerably better off in your retirement. So if you’re thinking ‘annuities? I don’t think so!’ maybe think again.

For a free and confidential discussion about buying an annuity, call Andrew Stallard on 0845 230 9876 or e-mail info@wwfp.net.

Sources:

1. NHS

2. Guardian

3. Partnership

Dental treatment: it’s expensive, right? Well, not as much as you might think. In fact, the range of prices for dental treatment can vary rather wildly. The problem is how to find the best value treatment and the most affordable way of paying for it. Dental payment plans could be the answer.

Which?, the consumer rights organisation, investigated the cost of dental treatment in 2010 and came up with some interesting results. They called over 400 private dental practices to check prices and discovered a huge range of costs: an initial check-up for example could cost anything from £45 to £124. (1)

This survey was one of the things that prompted the Office for Fair Trading (OFT) to examine the whole dental market, both private and NHS, in more detail to discover if competition is really working and whether it is giving best value to us, the customer.

The insurer, Simplyhealth (who as their name suggests are primarily health insurers) in their 2011 annual dental survey said that some 40% of the 10,000 people surveyed said they had been put off having regular dental check-ups by the cost. (2)

The off-putting cost of dental treatment, if it does indeed put us off going for treatment, has an impact on our working life and business. Dental payment plans could help mitigate this. MetLife, another insurer, in their 2011 study of employee benefit trends found that nearly half (49%) of employees surveyed considered Dental Cover to be in the top 5 of their benefits, with 24% placing it in the top 3. (2)

A survey by Health Insurance Magazine highlights the confusion that can surround dental treatment, with opinion amongst both brokers and dental payment plans providers being that individuals and businesses lack reliable resources to make an informed choice. (3)

The magazine’s survey goes on to reveal that cost factors are starting to have a real impact on employees’ dental treatment, with, most worryingly, 40% of employees said that they would cancel an appointment for necessary dental treatment on cost grounds, something which has the potential to compromise their oral and overall health and wellbeing.(3) In turn, this could compromise work attendance and performance, something companies will be very concerned about.

So what to do? The answer could lie with the inclusion of dental payment plans as part of an employee benefits scheme. Dental payment plans can provide both a financial safety net for employees as well as being an affordable and valuable benefit.

Dental payment plans are something companies are increasingly considering. What stops some of those companies from going ahead, however, seems to be finding the expertise to put exactly the right plan in place. An interesting thing that a survey of their clients conducted by dental benefits provider Denplan found was that for most companies, the key purchasing criteria for dental payment plans were simplicity of product (67%) with price and broker recommendation also being important considerations. (4)

Denplan, in their 2010 survey of company attitudes to employee benefits showed that 66% of companies said that value for money was more important for them in 2010 than it had been in the previous year. (4)

Opting to use a broker to find you the right dental payment plans for your employees can provide many advantages, particularly for smaller companies, which in many cases are the most likely to benefit from the expertise. The likely reason for this is that smaller companies are less likely to have dedicated Human Resources staff to look after benefits. If this is the case for your company, consider using an employee benefits adviser to find the best dental payment plans for you and your employees.

For a free consultation about dental payment plans as an employee benefit, call Dean Laley on 0845 230 9876 or e-mail info@wwfp.net.

Sources:

1. Which?

2. Simply Health

3. HI Magazine

4. Denplan

And here’s something you may not know… If you die without leaving a will, you may be giving your estate away to the crown when you die.

What you are likely to be aware of already is that if you die without leaving a will, your estate may go to distant unknown relatives under the rules of intestacy. Less well known is that if no relatives can be found, the Crown receives your estate.

If you live in the Duchy of Lancaster or in Cornwall and you have no surviving relatives then the Duchy or Duke respectively claims the assets. The rule on passing of assets to the Crown or similar is known as bona vacantia (or ownerless property) (1).

To the Duke’s credit all the money received in recent years under the bona vacantia rule has been donated to The Duke of Cornwall’s Benevolent Fund and distributed to local charities in the South West (2). So if you have no relatives and you are happy for Prince Charles to receive all your money to distribute as he wishes, do nothing about leaving a will. But if you want some say in how your money is spent and would like to leave a bequest to a favourite charity or cause, then do make a will.

And if you do have potential beneficiaries, by leaving a will and making plans for what will happen to your estate after your death will be of even more benefit. We’ve heard many people say that leaving a will isn’t necessary as they think their money will automatically go to their spouse, civil partner and children. Yes, maybe, but with no will, it might not be in the proportion intended and will usually only be after considerable delay and possibly large legal bills, leaving your beneficiaries with less than they could have had.

Inheritance tax can also become a problem if you die without leaving a will. Without proper planning having been undertaken, a surviving partner may be forced to sell the family home to settle the intestacy rules and pay inheritance tax. The situation becomes even more difficult if you are not married or in a civil partnership: without you leaving a will, your much loved partner may receive nothing.

At a time of bereavement, it’s surely unnecessary to compound the sadness of the loss by adding financial hardship or uncertainty. Remember as we’ve said before there are two certain things in life; death and taxes. Leaving a will can at least reduce some of the taxes!

As financial advisers we do not arrange wills but as part of a holistic view a good adviser should highlight the dangers of leaving this to chance or in an extreme case, the good Duke. Estate planning and leaving a will is a vitally important part of a financial plan and can also have profound consequences during life.

One of the other advantages of planning what happens with your estate in advance is that certain of your assets can be excluded from any long term care financial assessment, should you need care in the future. This is something you should always consult your solicitor about as well.

Unfortunately many people only consider this when care home fees have to paid imminently and then any estate planning may be viewed by local authorities as deliberate deprivation of assets and disregarded when an assessment is made of their total wealth for the payment of care home fees.

A note of caution, however: your primary intention for this type of financial planning must always be as part of estate and inheritance tax planning and must be done in such a way that no intention to avoid paying care home fees could be inferred. Plan as far forward in advance as you can and always take legal advice.

To round off, if you haven’t already done so, consider making and leaving a will. And remember, next time you raise a glass to the Duke of Cornwall, without leaving a will you may be offering him more than loyalty and good wishes; you could be offering him all of your money!

For a free consultation about planning for your estate, call Andrew Stallard on 0845 230 9876 or e-mail info@wwfp.net

Sources:

1. bonavacantia.gov.uk

2. Duchy of Cornwall