Archive for the ‘Financial Planning’ Category

Cashing In On The New NISA

Tuesday, April 21st, 2015

FB - NISAFor decades now, successive governments have aimed to encourage saving. Arguably it is very much in their interests to do so. People with savings, pretty much by definition, are less likely to run into financial difficulties. This means that they are also less likely to need state benefits. In recent years, governments have made particular efforts to encourage saving for retirement (“We’re all in!”). While pensions have been the most traditional form of retirement savings, NISAs may also be worth investigating too.

The start of the ISA age

ISAs were introduced way back in 1999. Then as now they essentially provided a tax-efficient wrapper for savings and investments. To begin with there were two kinds of ISAs. A cash ISA received the entire interest income from their cash deposits without any tax being charged. A stocks and shares ISA was used for investments. The rules around tax were a bit more complicated, but they were still very tax efficient. People could choose to have one or the other or both. There was, however, a twist to the rules around ISA limits. Investors could choose to put their whole ISA allowance into a stocks and shares ISA. Alternatively they could choose to split the allowance between a stocks and shares ISA and a cash ISA. Those who did so still received the full ISA allowance, but there was a limit to how much they could keep in cash. Savers who simply wanted a tax-efficient savings vehicle, could choose just to have a cash ISA. If they did so, however, they could only save the maximum permitted cash allowance. ISAs were intended as products for the medium to longer term so the limits referred to the total amount holders could deposit. In other words, if you withdrew money from an ISA you couldn’t just replace it.

ISAs in practice

When ISAs were first introduced (financial year 1999/2000) investors could choose only to have a stocks and shares ISA in which case they could invest up to £7000. Alternatively they could choose to have both a stocks and shares ISA and a cash ISA, in which case they could invest £4000 via the former and save £3000 in the latter. Savers who only wanted a cash ISA could only save up to £3000. The limits and the ratios of cash to stocks and shares changed somewhat over the years but the basic principles remained the same. Then on 1st July 2014, the government introduced NISAs.

Having a NISA is so much nicer than having an ISA

Fundamentally NISAs work the same way as the old ISAs. The government used the introduction of NISAs as an opportunity to raise the deposit limits (to £15,000), but there is nothing particularly unusual about that. The headline change, however, is that the ISA allowance can now be used as the individual wishes. In other words, savers can now choose to use their entire £15,000 to hold cash, or in stocks and shares. Of course, there is a difference between being able to do something and it being a good idea. With that in mind, it may be helpful to get some professional advice from a qualified financial adviser before deciding how best to use your NISA allowance.

Those thinking of inheritance planning might be interested to learn of another change. In the days of ISAs, spouses could inherit the contents of ISAs tax-free but had to pay tax on the income from them. Now, however, the income from ISAs is included under the spousal transfer rules. (These rules also apply to those in civil partnerships).


Protecting Your Family If Your Are Too Ill To Work

Friday, April 17th, 2015

Protecting Your Family If Your Are Too Ill To WorkFor some of us, a good proportion of our time is spent avoiding thinking about difficult or uncomfortable things.

Tax bills, medical checkups, dealing with difficult people at work are just a few, but one of the more overlooked areas in many of our lives is that of insurance cover.

We might have adequate cover for the house, the car or the cat but surprisingly few people stop to consider how they might provide for their families if they became ill or suffered an accident.

Each year this leaves many thousands of people in serious trouble when they discover they or their partner is ill and unable to work. Instead of having a financial plan, they may simply have to struggle.

Recovering from a serious illness or planning for your family’s future should be the first priority in these circumstances, but for many, struggling to survive financially has to come first.

Sadly, the thought that naturally occurs: ‘I should be protecting my family’, has to take second place to struggling to pay the mortgage.

A critical illness policy ensures that the major liabilities you have, your mortgage or children’s university education could be paid off with a tax free lump sum if you are diagnosed with a serious illness.

Being able to clear debt or afford to have your home adapted if you needed a wheelchair access or had other disability needs would be a relief in very difficult circumstances.

It is tempting, when you are younger, to simply rely on your continued good health and assume you will remain fit and healthy into the future.

This is a common mistake and it shows that human beings tend to be bad about predicting future risk.

The reason for taking out insurance in the first place is to protect against the things that are not exactly certain to happen, but that would be catastrophic if they occurred.

One of the realities of life in the 21st Century for most working people is the degree to which security has become a comparative rarity.

Jobs with generous health care packages, a relaxed and generous attitude towards sick leave and which pay enough for employees to amass enough savings to pay for long periods of ill health are rarities.

Instead, employers now expect their staff to take care of themselves if they are seriously ill, so taking care of your own future has now become an essential task.

There is a wide range of life insurance and critical illness policies available and the right package for you will depend on your own circumstances.

The number of dependents, the size of your mortgage and any other liabilities will all determine what level of cover you need.

In addition to this, your lifestyle, current health and any potentially hazardous work or leisure related activities will affect the policy you receive.

If you have decided that the time has come to be proactive about securing your future against the possibility of ill health, then it might be a good idea to get some financial advice.

Consulting a professional advisor does not commit you to taking out any policy, but it will give you a thorough understanding of the options open to you.

How Much Should You Take Out Of Your Pension Pot?

Tuesday, April 14th, 2015

How Much Should You Take Out Of Your Pension Pot?No one is as wise, prudent or capable of self restraint as they think they are. When we think of a large sum of money, £100,000 say, we tend to think in terms of what it might buy: An incredible car, several years travelling round the world, a large new extension transforming our house into a dream home, or continued financial security in our old age?

The latter is, of course, less exciting, less glamorous, and less fun, but far more important, which is why, after 6th April this year, savers who become eligible to draw down their pensions need to exercise a degree of caution.

Last March the Chancellor of the Exchequer, George Osborne, announced that annuities, the insurance policy taken out against the value of your pension, guaranteeing a monthly income for life, would cease to be compulsory.

This means that pensioners can now access as much or as little of their nest egg as they like in a lump sum, and then commit the rest to an annuity or a different kind of policy thereafter.

The question, however, is how much can one withdraw from a pension before it ceases to be a viable savings pot?

Twenty years ago, the financial advisor William Bengen calculated what he believed to be an exact figure for the amount an investor could withdraw annually and maintain the same standard of living.

Bengen, who lived and worked in the USA, based his calculations on a portfolio of US stocks and bonds, divided evenly between the two. He assumed that on average, bond returns would be 2.6 percent and the return on shares would be 8.6 percent.

He also assumed that the total length of time that a person would be drawing on a pension for would be thirty years and on this assumption he argued that each year; a total of four percent of the overall pot could be withdrawn without running out of money.

However, all such calculations reflect the era in which they were made and the investment world 20 years later, post 2008 crash is very different.

There are plenty of economists and advisors who now argue that Bengen’s projections are flawed and do not match the current investment realities of our age.

A new study into pension draw down by Michael Finke, Wade Pfau and David Blanchett, published in 2013, titled “The 4 Percent Rule is Not Safe in a Low-Yield World,” state that pension companies cannot rely on Bengen’s rule any longer.

A larger population than ever before is reaching retirement age and the growing wealth of previously poorer countries with high savings rates is attracting more and more capital away from UK and US companies.

These factors combined mean that in 2015 we exist in an economy where yields of investments are much lower than when Bengen first calculated his four percent rule.

Because portfolios on average are not performing as well as they once did, one cannot rely on the same figures and arguably one should try to draw down less, or perhaps not draw down at all.

This might sound like an argument for re-instating annuities, and savers who want those kinds of guarantees can buy annuities if they choose.

Before committing yourself to any course of action with your pension, it is always advisable idea to get some practical advice, in fact most pension companies will insist on this.

The market for pension investments is fluid, complex and difficult to predict, so it is often worth accessing some impartial financial expertise before making decisions about your financial wellbeing for the rest of your retirement.


How To Benefit From Low Oil Prices

Friday, April 10th, 2015

How To Benefit From Low Oil PricesAs the old saying goes – what goes up must come down. Recently oil prices have been coming down quite spectacularly. This has naturally raised the question of how investors can benefit from this. To answer this question, we need to understand why oil prices have fallen. There are essentially three theories on this.

Oil prices are being deliberately kept low

High oil prices encourage people to look for lower-cost alternatives. These include shale gas and coal. As oil prices drop, it becomes less attractive to extract other kinds of fuels. This is particularly true of shale gas as fracking is still highly controversial. One school of thought holds that oil-producing countries are prepared to take a short-term hit in terms of oil prices to stop alternative industries, such as shale gas, from gaining acceptance. Consequently as soon as the oil-producing countries are happy that they have eliminated the threat (for now at least), oil prices will rise again.

There is an excess supply of oil

High oil prices encourage oil production. If, however, there is an over-supply of oil, prices will fall. When this happens production is reduced until prices rise again. In an ideal world a continual cycle of rising and falling prices would be replaced by a balance between supply and demand. In the real world, however, demand for oil can vary hugely for a number of reasons. This makes it very difficult to strike this perfect balance.

There is reduced demand for oil

Another explanation is that weakened economies have a lower demand for oil. To put it another way, oil is essential for many purposes, but not all purposes are essential for daily life. For example oil prices feed into petrol prices. Petrol is used by the emergency services, which have to keep going day in day out and therefore have to buy petrol regardless of the cost. Petrol is also used for leisure travel, but people can reduce or cut out leisure travel if the cost of it becomes too high.

Energy costs are a matter of long-term strategy

The truth is that any or all of these explanations could explain the drop in oil prices. What some consumers may find harder to understand is why lower oil prices take so long to become lower petrol prices or heating bills or air tickets. In fact, some people may even see this delay as an example of “fat cat” profiteering. However very few oil-dependant companies are buying fuel now to use now. Large companies value stability as it enables them to create long-term business plans. They therefore engage in long-term supply contracts, which can result in them paying well above market prices for the fuel they need. (Of course, the reverse is also true). They may also choose to invest in oil-related companies so that they can benefit, in some way, from rising prices.

So how can individuals benefit from the oil market?

This is the key question and it is one which deserves serious consideration. It could also be worth thinking about the question of energy in more general terms. Regardless of what oil prices do in the short term, the reality is that oil is a finite resource (as are other fossil fuels). Because of this, we need to look at alternative sources of energy for the future. We also need to look at ways to use the resources we still have more effectively. Therefore investments which relate to either of the above could be well worth taking some time for to get professional advice from a qualified financial adviser.

What The General Election Means For Your Wealth

Friday, March 27th, 2015

What The General Election Means For Your WealthWith the General Election now less than 100 days away, the contenders are throwing their economic hats into the ring. Although none of the 3 main parties has provided a manifesto as yet, they have all been giving their views on tax and spending and reducing the UK deficit. Here is a quick overview to where the three main parties stand on balancing the UK’s books.

The Liberal Democrats

The Liberal Democrats plan to increase the amount lower earners can take home by raising the personal allowance to £11K in their first year of office and then to £12.5K by the end of their (first) term. Whilst they, unlike Labour, have not (yet) suggested bringing back the 50p tax rate on incomes over £150K pa, the closeness of previous votes on the issue means that this could not be completely ruled out. What is being proposed for the moment is a “Mansion Tax”, which would essentially work in the same way as Council Tax but with the funds going to central government. Additionally the Liberal Democrats have suggested increasing Capital Gains Tax to 35% (from 28%). This would potentially affect people who own second homes (e.g. buy to let landlords) as well as those who own other forms of investments such as shares. Their aim is to have the UK back in the fiscal black by April 2018.

The Labour Party

One of Labour’s headline policies is to reintroduce the 10p tax rate as a bridge between the nil rate personal allowance and the 20p rate. At current time, however, they are yet to specify how much income would be included in this rate. They have, however, stated that the impact on government finances could be counterbalanced by withdrawing the Marriage Couples’ Tax Allowance. Labour plans to reduce the deficit by a combination of ending further borrowing to finance spending and an increase in various taxes. They have proposed reintroducing the 50p tax rate on incomes over £150K pa. They also support a Mansion Tax, although they are yet to explain how specifically, this would work. On the subject of houses, while Labour have, as yet, made no comment on Inheritance Tax, even taking no action could have a serious impact on many people. Rising house prices have made IHT a reality for increasing numbers of people. Unless the nil rate is raised at some point in the future, then the impact of IHT will continue to spread. Labour have also proposed a tax on banker’s bonuses. One policy which may prove popular with the electorate is a 5% pay cut for government ministers.

The Conservative Party

The Conservatives’ plan is essentially to reduce the deficit by cutting government spending. They too aim to have the UK back in the black by 2018. They plan to raise the personal allowance to £12. 5K pa (from its present level of £10.5K pa). Likewise the 40% rate would start at £50K pa (from its present level of 41.9K pa). Their stated aim is to have these tax changes in place by the end of the next parliamentary term. While this would not deliver any short-term improvements to higher-earners, it might not have an adverse impact on the family finances either. The Conservatives have not only made a commitment to a Mansion Tax, but have actively opposed it in the past. Likewise, while they have not many any pledges on Inheritance Tax, they have made recent changes to pensions rules from 6th April 2015 which effectively makes it easier and more tax efficient to pass on pension pots between generations. It is an open question as to whether or not the Conservatives will be able to increase the nil-rate band to reflect the impact of rising house prices. There is, however, no obvious sign that they would seek to lower the bands.

How To Protect The Value Of Your Home

Wednesday, March 25th, 2015

How To Protect The Value Of Your HomeA decade ago, adding value to most properties was simplicity in itself, you simply bought a house and waited. This was during an unsustainable housing market boom that ended in an epic slump and it isn’t one we should be hoping for again anytime soon.

Protecting your home’s equity now takes more active involvement but home improvements needn’t be a complex, tortuous business if you follow a few simple rules.

Emotional buyers

After house hunters have considered their budget, they may choose the property that speaks to them on an emotional level.

People may buy based on how they feel, far more than they buy based on rational, logical thinking.

With this in mind, it is possible to create an attractive, sellable ambience in your home without spending a fortune.

First Impressions

Before house buyers see the interior of your home, they will see the garden, walk up the path and look at the windows and the front door.

All of these have the potential to kill a sale if they are in a poor state of upkeep, so it makes sense to start with some essential garden upkeep.

It might be a good idea to look at the exterior of your own home from the stand point of a potential buyer and think about what they might find appealing and what might be a potential turn off.


Some home owners believe that spending thousands on new bathrooms, conservatories, extensions and kitchens are the only way to add serious value to a home.

However, big spending home improvement projects eat into any profits you might make from a sale, so it is always a good idea to find cheaper, more effective ways of creating a fresh, bright, appealing atmosphere.

Firstly, de-clutter. You are in the business of creating a blank(ish) canvas that potential buyers can project their own personality on to. It’s hard to imagine living in a place that is full of someone else’s odds and ends.

Secondly a new coat of paint in neutral colours (don’t make any ‘loud’ statements when you are trying to sell) and some minimalist soft furnishings will make an enormous difference.


What have you put off for months? How many leaky taps, dead light bulbs and half finished painting jobs are there around your home?

It goes without saying that you need to get these fixed if you don’t want buyers to assume you’re selling a cheap fixer-upper (they’ll still buy, but at fixer-upper prices).

The home you have lived in for years is your most valuable asset so it makes sense to maximise its value when you come to sell it. One piece of torn linoleum in the bathroom or a blocked gutter could cost you dearly.

Getting Help

It might be that DIY is not your strong suit, in which case, there is no shame in hiring an expert to help you with a few jobs.

When You Need Financial Advice

Friday, March 20th, 2015

When You Need Financial AdviceHuman beings, in general, are notoriously bad at calculating risk and weighing up reward, it’s almost hard wired into us.

Our survival, millennia ago, was based around our inability to think too much about the future and focus on ‘eating today’.

This, while useful hunting Mastodons, is less helpful when planning our financial futures and we may take key decisions in our lives without much thought to our finances.

This article will help explore some of the times when financial advice might make all the difference to our wealth and future happiness.

First Home

Before the 2008 crash, at the height of Britain’s property prices, the speed at which house purchase decisions were made reached epic proportions.

The availability of mortgages and other cheap credit in an economy based on an unsustainable housing boom resulted in countless first time buyers finding themselves, post crash, in negative equity.

Others found that when the ‘sweetheart deal’ mortgage rate they signed up to ended, their home became exceedingly expensive.

In both instances some financial advice might have prevented a lot of long term heartache.

The long term effect of negative equity or an expensive mortgage deal can be immense, being ‘trapped’ in your property that you can only sell at a loss or saddled with a huge mortgage obligation should be avoided at all costs.

You can often get mortgage advice from independent financial advisor as part of the overall cost of the loan you take out.


People cringe at the thought of discussing money and finances along with the romantic side of tying the knot, but it is essential that you are realistic about the economics of marriage too.

Getting married, sharing a home, and potentially having children together means that life insurance, wills and inheritance and the ownership of shared assets all have to be considered.

Accessing financial advice is important at this point, as there are countless life insurance policies, critical illness covers, and other provisions to cover your individual needs to choose from.

Having an expert who can guide you towards the best deals might well save you money in the long run.


Sadly, for many married couples, divorce too will be a significant milestone.

It goes without saying that during the complex and emotionally painful process of ending a marriage expert legal advice is necessary, but it is also important for both parties to have financial advice too.

You might experience a considerable decrease in your income as a result of divorce from your partner, or you might be the recipient of money in the divorce settlement.

You might be the partner who is obliged to pay out a large settlement, or the one who has most responsibility for ongoing child maintenance payments.

If you become the sole provider for any children from the marriage, you may need to consider your life insurance and critical illness cover.

You might already have these policies but they may need to be reviewed in order to reflect the value of any maintenance payments you receive.

A financial advisor can also offer guidance on the most effective way of investing any lump sum from the divorce so it continues to grow in value, and can be used to pay for education and university costs for your children, or add to your own retirement fund.

Some divorcing couples also need to disentangle their pensions and here a financial adviser can be invaluable.


In savings terms, your retirement starts now.

Making sure we have an income that will sustain us after our working life is over is something that many people put off until their 30s or 40s, but the longer you leave it, the more costly it becomes.

If you are just starting out on the road to planning your retirement and you have no idea about what choices there are or what pension products to buy, getting some advice is a good place to start.

However, you might already have a portfolio of investments and a variety of pension pots that you have built up yourself.

In this case it might be important to find out whether you current pension providers or other investments are performing effectively, compared to the rest of the market.

A financial adviser will be able to give your portfolio an audit and suggest whether or not your money could be put to better use elsewhere.

Knowledge is wealth

The more expertise that is available to us, the better informed we are and the less likely we will be to make costly decisions that are not easily undone.

Financially, we only have so many options, money, and time, to spend investing it, so it is important not to rely on pot luck.

So if you have a significant milestone in your life fast approaching, you might find it useful to talk over your options with an advisor.

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