Archive for the ‘Finance’ Category

What’s My Pension Worth?

Friday, June 12th, 2015

FB - PensionsWorthIt’s hard to argue about the importance of saving for old age.  Those still of working age need to look at how they are going to finance their later years.

Those already retired need to think about getting the most out of their available finances.  The exact rules around pensions and savings can be changed in line with government policy at any given time.  Indeed the pension system has just been through an overhaul and with an election looming, politicians of all colours are setting out their plans for the future of pensions and the pensions of the future.  In reality, however, these plans only have any meaning to people who are focused on saving for retirement.  Let’s therefore look at some key questions on the topic.

What Is A Pension Pot?

Quite simply a pension pot is a common term used to describe savings which are specifically to finance retirement.  People contributing to a pension pot may get assistance from the government (in the form of tax relief) or from an employer (in the form of contributions).  Pension contributions are usually locked away until you reach retirement age.

How Do I Calculate My Pension?

There are plenty of online calculators to help with this.  It’s strongly recommended to keep track of how your pension is doing so that you know where you stand.  If you do decide you need to take action, sooner is usually better than later.

I Don’t Like What I’m Seeing, How Can I Build A Healthier Pension Pot?

You have three options.  You can save more money, you can manage your savings more effectively or you can do both.  It can help to look at this question in the light of your overall financial situation.  For example if you are carrying high-interest debt, such as credit-card debt, then it may well be in your best interests to focus any spare cash you have on paying this down.

Once you have cleared your debt, you can then divert the funds to building your pension.  If you do have spare cash and are in employment, then it may be useful to look at making extra contributions to your workplace pension.  This can be particularly helpful if your employer will top up any contributions you make.  If you’re unsure about locking cash away until you retire, then it may be worth looking at ISAs as an alternative.  Although contributions to ISAs are made out of post-tax income, generally speaking the income they generate is tax-free and the money in them remains accessible if you need it.

What Do I Need To Know About Getting More From My Pension Pot?

For many years getting more from your pension pot generally meant getting the best deal on an annuity.  Now there are vastly more options for those with pension pots.  With this in mind, it can be very helpful to get some professional advice before taking any significant decisions on how best to use your pension pot.

It is also advisable to keep up to date with any changes which may affect pensions.  For example at the current time, the Conservatives have a proposal to allow holders of annuities to sell them on.  If enacted this could have massive implications for existing pensioners.

It’s also worth remembering that, generally speaking, pensioners have access to the same savings and investment products as those of working age.  For example they get exactly the same ISA allowance as working adults. There are even some savings products tailored specifically to their needs (e.g. pensioner bonds). These can all help pensioners to make the most of their finances.

Why Do I Need Life Insurance?

Tuesday, June 9th, 2015

FB - Life InsuranceNo matter what anyone tells you, you don’t need life insurance.  Like the old saying goes “you can’t take it with you”.  Once you’re dead, money stops being a concern.  Of course, your having life cover could make a world of difference to your loved ones.  In the short term, it could help prevent their grief being compounded by financial anxiety.  Over the longer term, it could allow them to enjoy a better quality of life than they would have managed without it.  Let’s look at some basic questions about life insurance.

Why Take Out Life Insurance?

There are basically two reasons for taking out life insurance.  One is because you have to and the other is because you want to.  An example of the former is being required to take out life insurance as a condition of a loan, such as a mortgage.  An example of the latter is family protection.  In other words, making sure that the people who love and depend on you can manage financially in the event of your death.  When looking at this issue, there is one very important question you need to be able to answer.

How Much Is My Life Worth?

You are unique and irreplaceable.  There is, however, a fair chance that a lot of what you do every day is far from unique.  This is just as well because there is also a fair chance that somebody else will need to do it if you die leaving family or other dependants behind.  It’s entirely possible that at least some of these people will need to be paid for their services.  Therefore even if you are purely a home-maker rather than a breadwinner, your life does have a financial value.  If you also bring in an income then it is highly advisable to look at the impact of losing this.

I Have Savings And Have Made A Will So I’m Already Protecting My Family.  Do I Still Need Insurance?

Well done for making a will.  It would, however, still be a good idea to look at life insurance.  First of all, it will give you an opportunity to check whether your savings would be enough to protect your family in the event of your death.  Secondly life insurance payouts can be excluded from probate.  In very simple terms this means that your intended beneficiaries can receive the insurance funds in a relatively short time-scale – possibly long before the process of probate is completed.  This can go a long way towards easing the financial impact of your death.

My Financial Plan Doesn’t Leave Enough Money For Life-Insurance Premiums.

There are two ways to look at this issue.  One way is to review your financial plan thoroughly to see if there are any changes you can make so that you can afford the premiums.  The other is to see what you can do to get lower insurance premiums, which you can afford.

In very simple terms, premiums are priced based on the statistical likelihood of you dying within the term of the policy.  While there’s nothing you can do about your age, you can control your lifestyle.  For example, if you’re a smoker, giving up will both free up cash and make you more attractive to life insurance companies.

It’s also worth looking at what different types of cover are available.  This may help you to get the cover you actually need at a price you can afford.  For example, if your main goal is to pay off a mortgage, then it may be more affordable to take out a policy which decreases in value over its term, rather than one which provides the same level of cover from beginning to end.

Will I Benefit From The Pension Reforms If I’m Already Retired?

Friday, June 5th, 2015

FB - PensionsOne issue in the world of personal finance has dominated the headlines for months; the changes to Britain’s pensions industry that will have profound implications for savers and retirees for decades to come.

Much of the focus of the reportage has been on the effects of the changes on savers waiting to retire, but there are equally far reaching changes afoot for those who have already finished their careers and are enjoying their retirement.

In this article, we will explore what already retired pensioners need to know about their rights and entitlements under the new pension laws that come into effect this year.

What is an annuity?

There are currently five million pensioners living off annuities, insurance products bought with a pension lump sum that guarantee an income for life.

Because many annuities were virtually compulsory on pension policies until 2014, there has been less incentive in the market to provide competitive products that provide value for policy holders.

Why are annuities so bad?

This means that while some annuities have performed well and are offering pensioners a decent income in retirement, others pay out poorly every month.

Impoverished pensioners have been left feeling frustrated, with large sums invested but weak returns limiting their ability to enjoy the rewards of a life of work.

New rules now allow pensioners who hold annuities to sell disappointing policies, enabling them to regain control over their investments.

What can policy holders do?

Selling your annuity for cash will be possible from the financial year 2016-17.

The chief purchasers are likely to be the pension companies themselves, many of whom have already encouraged Pensions Minister Steve Webb to help develop the market.

However, it will not be possible to simply return an unwanted policy to the company you bought it from for a refund.

How do I sell my annuity?

The trade in second hand annuities could result in a new derivatives market where bundles of policies are packaged together and sold, which means that insurers will be keen to buy ‘good’ annuities and avoid ‘bad’ ones.

An annuity policy must stop paying out when the original holder dies, therefore insurers will be wary not to buy back policies from holders in poor health.

This will have implications for policy holders, who will possibly be required to pass a medical examination in order to get the best price for their policy.

How much is my annuity worth?

At the moment, selling your annuity attracts such massive tax penalties that there is no point in doing so.

The minimum tax levied on an annuity sale is 55 percent, with some policies attracting rates of up to seventy percent.

The lump sum that you receive will be taxed at standard income tax rates, so if you have no other income and your lump sum falls within the basic income tax band (say £30,000), you will be taxed at 20 percent. This means a tax bill of £6,000.

This is of course, far better than a tax penalty of over 55 percent, but by no means ideal.

The Chancellor has suggested that for many pensioners with good policies, the best strategy is to hang on to them. The new market for annuities does not exist yet and will take at least a year to evolve, which gives annuity policy holders time to get advice.

How To Profit From Deflation

Tuesday, June 2nd, 2015

FB - DeflationIt seems like a world away now, but the 1970s and 1980s both saw periods of double digit inflation, where prices rose at one point in 1975 to nearly 25 percent.

How any economy could function like this seems a mystery, until the obvious answer presents itself – Britain’s economy didn’t function under this burden, strikes, chaos and by 1982 over three million unemployed.

Ah, the good old days.

It rather puts our recent difficulties into perspective, whilst we have had a tough time as a nation since 2008, prices have remained stable in some areas and fallen dramatically in others.

We are in a period of deflation and whilst this might be bad news for manufacturers or property developers who hope for high prices for their goods and services, it is certainly good news for consumers.

It is good news for everyone willing to take advantage of the opportunities that deflation offers. This article is a quick examination of some of the ways you can benefit from our deflationary economy.


It is suggested by independent financial advisors that a review of ones mortgage deal every three years is advisable.

If you are approaching a point whereby it is time to consider the mortgage once again, it might be worth remortgaging with a different provider.

If you are currently wondering ‘how do I reduce my mortgage payments?’ now might be a good time to explore your options.

Whether you choose to take out a fixed rate deal or a variable rate or some other kind of mortgage deal with your new provider, the current market is, to some extent, geared towards the buyer.

Obviously we no longer live in the carefree days pre 2008 when questions like ‘and how will sir be repaying that home loan’, seemed petty and banal.

The irresponsible lending of the boom years is long gone and good riddance, now there are stringent and forensic surveys of a borrower’s ability to pay, but if those criteria are satisfied, interest rates on mortgages are lower than they have been for decades.

Where do I invest for growth?

The declining cost of fuel has had a remarkably positive effect on a whole range of companies (except the oil companies, of course).

Road hauliers, food manufacturers, construction businesses and the car industry have all seen their balance sheets improve over the last few months.

This means that their dividends have also improved and therefore investing in shares where overheads decline in cost can be seen generally as a good idea (though it goes without saying that the value of investments can go down as well as up and you might not get back what you put in).

Big Spends

In a period of time when the cost of borrowing, property and fuel are low, it is almost a given that other consumer goods and commodities will see their prices reduce.

You can normally get a good gauge for the price competitiveness of the economy as a whole by looking at the bargains on websites like eBay, Amazon and Groupon for example.

This isn’t a licence to go mad and by the jacuzzi you’ve always wanted (though you can if you want), but our sage suggestion is that you use the opportunity to find bargains that will add to your overall financial well being.

Investing in your home, buying an essential but costly item for your business or investing in a second property all might seem beyond your means normally.

However, in the current period of deflation it might be worth exploring whether these items are significantly more affordable.

If you are thinking of taking advantage of the opportunities deflation offers, then it might be an idea to get some impartial financial advice.

Post Election Infographic

Monday, June 1st, 2015


Find My Pension

Friday, May 29th, 2015

FB - FindSome things are so easily lost. Car keys, mobile phone, wallet, or you entire financial future.

At any given time a staggering five million people have lost track of their pension providers, like squirrels who bury acorns but forget where they put them.

The result of a lost pension may lead to a diminished income at retirement age and eventually the Treasury benefitting from the unclaimed wealth.

The government, keen for individuals to be as minimal burden on the state in their dotage as possible have launched the Pension Tracing Service which will help to find missing pension pots.

Finding them, however, is not the end of the story.

Reunited with your long lost pension

Pension pots need to be monitored in order to get the most out of them and to ensure your retirement is a time in your life you can enjoy.

Each pension pot that you have is subject to management charges and possible other annual costs.

In addition to this, some of the pension pots that you have might not have been performing as well as others.

Not all pension funds accumulate wealth as efficiently as others and therefore it is important to closely scrutinise how well your money has actually been performing over the years.

Once you have worked out which pension pots are performing and which are not, you need to explore your options.

Some pension plans might have benefits or guarantees attached to them, so make sure you know the long term consequences of any financial decision.

In addition to this, pensions that have a clause enabling you to retire earlier, or pensions that give you the option to draw down higher than normal lump sums cash free are also valuable and potentially worth keeping.

If you would like to review your pensions and assess the performance, it might be a good idea to seek some financial advice.


The Help To Buy ISA Explained

Tuesday, May 26th, 2015

FB- Help to

Getting on the property ladder in 2015 is harder for many people in Britain than it has ever been.

An indication of how hard is the latest roll out of the government’s ‘Help to Buy’ policies, the Help to Buy ISA, which offers attractive cash incentives to people saving for a deposit.

This blog is focused on explaining the complexities of the ISA and showing who it will work for and how they can get the most out of it as a savings opportunity.

Who is it designed to help

The Help To Buy ISA has been set up as a tax free saving scheme for first time buyers alone, so if you already have a property (or two) you can skip to the next article now.

This is exclusively for people getting on to the ladder (though if you know someone in this predicament and other than yourself, please read on, this advice might help secure them their first home).

The Help To Buy ISA is not dependent on income levels, anyone can open one irrespective of their earning potential, they simply have to be a first timer.

If you have owned a property previously but now you rent or live with parents and are hoping to get back on to the ladder, you won’t be eligible, as stated above, this is for first time buyer savings.

How do ISAs work?

Each month savers can deposit up to £200 in their ISA, which will be tax exempt.

The government will add twenty five percent of the total monthly savings in addition to the amount savers put in.

Therefore a saver who regularly puts away £100 will receive £25 from the government to go into the tax free account.

In the first month that the account is open, your total allowance is a one off of £1,200, meaning that the government’s contribution will be £300.

The government will invest a total of £3,000 in the ISA, meaning that savers who get the full amount from the government, must have invested £12,000 of their own money in the ISA

Once you buy your first property the government will pay the tax free money they have invested off the value of the mortgage, directly to the lender.

This means the money from the government never ends up in your bank account accruing interest unfortunately.

How do I apply?

You can open a Help To Buy ISA in the autumn of 2015 and they will be available through all high street banks and building societies.

The actual interest rates offered by lenders will differ (as is the way with the current market for regular ISAs), and there will inevitably be a highly competitive market for First Time Buyers to take advantage of.

If you already save using an ISA then you will not be able to take advantage of the Help To Buy ISA as well.

The policy is only available for people buying a property up to the value of £450,000 in London or £250,000 throughout the rest of the UK.


Why Are Mortgage Approvals At 6 Month High?

Friday, May 22nd, 2015

Why Are Mortgage Approvals At 6 Month High?The Mortgage Market Review, which took effect in 2014, imposed “affordability criteria” on lenders. In simple terms it aimed to rein in high-risk mortgages. Like any change it triggered speculation about its potential effects.

Almost a year later, mortgage approvals remain high, while house prices are currently holding fairly steady. So what does this mean in practical terms? Well if you’re thinking of buying a house, here are some questions you might want to consider.

Is Now The Right Time For Me To Buy?

One of the key points to understand about house-buying is that it involves a lot of expenses in addition to the actual price of the house. Along with the infamous stamp duty (on homes costing over £125K), there are likely to be fees for solicitors and surveyors as well as mortgage-arrangement fees. These all need to be factored in to your rent v buy calculations.

Some mortgages impose an early repayment charge if you end them before the full term of the loan (e.g. if you move house). Likewise if you use an estate agent to help sell your house, you will pay a fee for their services. Therefore it’s a good idea to think carefully about how long you will need to stay in a house to make all these expenses worthwhile. It can also be a good idea to factor in a margin for adjustment. In other words, where would you stand if house prices stayed steady rather than rising? What about if they actually fell slightly? If you feel uncertain about any of these points, then renting may be a better option for you.

I’m Ready to Buy, How Do I Reduce My Mortgage Payments?

The good news is that lower interest rates can feed through into lower rates on loan products, including mortgages. There are still great mortgage deals out there. The trick to being able to take your pick from the low-cost mortgages is making yourself as attractive as possible as a customer. There are basically three steps to doing this. Firstly, put together as much of a deposit as you possibly can. Secondly, make sure your credit record is sparkling clean. In particular make sure that you avoid being scored negatively for reasons you can easily address. For example being on the electoral roll is a plus point for your credit score so make sure you are. Also make sure that any actual mistakes are corrected. Thirdly make sure that you stay within the affordability boundaries laid down by the Mortgage Market Review.

You can expect a prospective lender to check this thoroughly, so doing your homework in advance can be a useful exercise in seeing yourself as others see you.

What Happens If Interest Rates Go Up, Or If They Go Down?

If you are on a fixed-rate mortgage deal then any changes in interest rates will only affect you once the fixed-rate term comes to an end. If mortgage rates rise then you can reasonably expect this to feed through into your mortgage repayments. Therefore in addition to all the other questions we’ve just discussed above, it is also advisable to think about how you would cope in this situation. In principle lower interest rates should also mean lower monthly repayments. It would, however, arguably be very risky to base a financial strategy on this happening. In practical terms, if you are planning to make a house a home and stay in it over the long term, say at least 5 years, then it is entirely possible that you will see interest rates rise and fall during this period. Your financial strategy needs to be able to cope with both scenarios.


Protect Your Portfolio

Tuesday, May 19th, 2015

Protect Your PortfolioFor all the old jokes about change being the only constant, change also has a habit of making people nervous. Stock markets are ultimately made up of people – traders on one side and the employees of the companies they trade with on the other. Because of this the prospect of significant change can be reflected in the performance of the stock exchange. This effect can often be noticed around election times in general.

Sterling and the Importance of Image

Outside of the Euro zone, most individual countries have their own currency (at least officially). Therefore in order for international trade to take place, there has to be an agreed rate at which one currency is exchanged against another. While individuals may not think of themselves as being involved in the global market, the truth is that it impacts the daily life of pretty much everyone. Many of the products on supermarket shelves are imported and the UK exports both goods and services. Therefore the strength of any currency as compared to other matters to most people’s money management more than you might initially think. In many ways the relative strength of currencies can be seen as an opinion on the prospects of the countries in question. Therefore, when a country’s future is uncertain, such as in a period before an election, that country’s currency may become weaker in comparison to countries with more stability.

Will the Pound Sterling Start to Spin?

It is a reasonable expectation that markets will react when a new government is formed. If the market’s reaction is negative then it is entirely possible that there will be a fall both in the value of the stock market and the value of sterling itself. This may well be only temporary, but this may be of small comfort to investors who prefer stability. Those old enough to remember the 1990s may still recall “Black Wednesday” (16th September 1992) when sterling collapsed and the UK was forced to withdraw from the European Exchange Rate Mechanism. Investors might want to look at their options for protecting their portfolio against a severe drop in the value of sterling. This could be a particularly important step for those with a more international lifestyle, for example those planning on retiring abroad or sending (grand) children to study abroad.

What Does This Mean in Practical Terms?

There are many different approaches to investing, no matter what your attitude to risk you can probably find one which fits in with your financial plan. Some people like to invest directly into stocks and shares, others prefer investing in funds. Whether you are investing for growth or income, whether you specialise in a particular sector or prefer tracker funds or managed funds, you will have to understand that markets and currencies have their ups and downs. At the same time, investing can also be a classic example of the phrase “don’t put all your eggs in one basket”. Opening up your investing horizons to opportunities overseas and in other currencies can be a very helpful way of reducing your exposure to (temporary) issues with the UK market.


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Life Insurance Made Simple

Friday, May 15th, 2015

Life Insurance Made Simple“Expect the unexpected” may be an old cliché but the unexpected can and does happen. Hoping that it happens to someone else is a very poor strategy in terms of family protection. To put the matter quite simply, if you have people who depend on you in any way, you should be checking to see whether you need life cover.
Protecting my Family – Every Parent’s Priority

When making a financial plan, it’s entirely understandable that people give priority to their present-day needs before worrying about the future. It’s also understandable that people will think about common challenges, such as unemployment, rather than highly unusual ones, such as the death of a younger person. The good news is that insurers also understand that healthy, young adults are far less likely to die than their older counterparts. This means that, generally speaking, younger people can reasonably expect lower insurance premiums.

Understand What You Need – and What You Can Afford to Pay

The starting point for arranging life insurance is understanding what you absolutely need in order to keep going in the event of the death of one or more family members. This includes the death of anyone who makes a significant, non-financial contribution to the household, for example a home-maker or care-giver. The tasks these people do will still need to be done in the event of their death – and they’ll need to be paid for. This forms your baseline in terms of taking out cover. If you can afford to pay more than the minimum then you may choose to do so, to make life a little easier for those left behind after a bereavement. Alternatively you may prefer to take out a lower level of cover to have more money available for the present. If, however, you are unable to afford the minimum level of cover you believe you need, then it is very advisable to look seriously at ways to make up the shortfall. If, however, you really can’t afford higher premiums at all, then having at least some cover is usually better than having none.

Choosing the Right Type of Cover

The first question to ask is whether you need whole-life cover or term assurance. Whole-of-life cover, as its name suggests, offers indefinite cover. In other words, as long as you pay the premiums as agreed, your beneficiaries are guaranteed an eventual pay-out. Term assurance is cover for an agreed length of time, a term. If you die within this period, your beneficiaries will receive a payment, otherwise the policy will simply expire. Choosing which one is best for you depends on your personal situation. It should be noted however, that term assurance tends to be less expensive than it’s whole-of-life counterpart.

The second question to ask is whether or not you expect to need the same level of cover over the forthcoming years. For example, if the main purpose of the policy is to cover a mortgage (or other debt), then it may be appropriate to have a level of cover which decreases over time, along with the level of debt. If, on the other hand, the main purpose of the insurance is to provide for the future of young children, then it may be best to have cover which increases over time, to keep pace with inflation.

The importance of trust

Whatever form of cover you choose, you may wish to consider ring-fencing the proceeds of the policy into a trust. In simple terms, this separates the proceeds of the policy from the rest of the estate. This means that it is kept of out the probate proceedings, which may be very lengthy and can therefore be made available to the intended recipients much more quickly.

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