Save Like The Young Ones

October 3rd, 2015

03 Save Like The Young OnesSaving for a rainy day is what lets you buy an umbrella to keep you dry until the rain passes. Alternatively you may be saving with a specific goal in mind, for example to buy a house, or towards a personal pension. Like many aspects of life, your saving needs and habits may change as time goes by.

If you are on the younger side, you may be looking at paying for your wedding, putting together a deposit on a house or planning for the costs of having children. If you are on the older side, then you may already have passed the bulk of life’s financial milestones. Instead you may be looking at saving for your personal goals. Alternatively you may be saving to help your children.

Whatever your age, the guiding principle should be to save money but enjoy life. You should also look at the most efficient and appropriate ways to save.

Treat savings as a key part of the family finances

In addition to day-to-day purchases, such as grocery shopping and utility bills, there are also recurring and foreseeable expenses which need to be managed. For example insurance policies may need to be renewed and household items, such as washing machines, may need to be replaced.

In very simple terms you will either need to have the money to pay for these or you will need to use credit.

It is also advisable to think about potential emergencies or challenges and how you would cope with them. For example having cash savings may form part of a plan for dealing with a period out of paid employment.

Do you really want to keep all your eggs in one basket?

As well as thinking about how much you need to save, it can be helpful to think about where to keep your savings. Here are some ideas.

Physical cash

Although keeping cash in the house (or elsewhere) means that you are missing out on the opportunity to earn interest, it can be convenient to keep some of your savings in physical form. If you need to use cash, but don’t want to, or can’t, go out, then having a stash of cash close to you can be very useful. Likewise if you live in a place where there is a limited number of ATMs, it may be useful to have a Plan B. Obviously storing physical cash has security implications. You will need to think about the pros and cons of this option for yourself.

Instant-Access Savings Accounts

These come in various forms such as standard savings accounts and individual savings accounts (ISAs). While the money is available to withdraw at any time, you will need to ensure that you understand how you go about accessing it. If you feel it is reasonably likely that you will need to withdraw more than the £250 available at ATMs, then you will need to check that there is somewhere accessible where you can pick up your cash, e.g. a local bank branch or Post Office.

Non-Instant-Access Savings Accounts

Some savings vehicles require a notice period before cash can be withdrawn. The reward for this may be better interest rates. Again, you will have to weigh up the reduced convenience against the potential gains.

Alternative Savings Vehicles

Premium bonds do not offer interest, but they do keep their cash value and can be redeemed at any time. Plus there’s always the possibility that you’ll win, somebody has to.

You might also wish to look at putting some of your savings into peer-to-peer lending. Unlike the previous options, there is always a risk of losing capital in this situation. On the other hand, there is the potential of attractive interest rates.



How To Stay On Top Of Your Money

September 30th, 2015

Would You Want A Mortgage In Your 90’s?

September 29th, 2015

04 Would You Want A Mortgage In Your 90'sMost mortgage borrowers aim to make sure their home loan is paid off by the time they retire. The idea of repaying a mortgage without the regular income that a salary brings is not an attractive option for many.

Banks, as a rule, tend to be wary of offering mortgages to older borrowers, knowing that there is less time in terms of prime earning years for the mortgage to be repaid in.

However, there are some lenders who now offer mortgages to older borrowers and whilst few people actively plan to pay a mortgage at the end of their lives, for some it is a new financial reality.

Getting a Mortgage While on a Pension

Following the financial crisis of 2008 and the ensuing property slump, the government became very particular about enforcing responsible lending.

The kind of borrowing that was possible during the decade of ‘cheap money’ from 1997 onwards had resulted in many borrowers being over committed, in negative equity and facing repossession of their homes.

Lending from 2014 became even more stringent, as banks and building societies were required to conduct thorough audits of prospective borrowers’ financial means, in order to vet their suitability for borrowing.

It is of course unlawful to discriminate against a borrower on the grounds of age, just as it would be to discriminate in any other way; banks cannot refuse to lend because the borrower is too old.

However, older lenders looking for low cost mortgages are often declined based purely on repayment criteria. If a lender believes that once a borrower retires their earning potential will decline, a loan is often refused.

Options For Retired Borrowers

Attempting to borrow after having retired is therefore even more challenging for many older people seeking a mortgage.

The credit market is not completely off limits to older borrowers and several lenders offer specialist mortgage products.

The Buckinghamshire Building Society, the Harpenden Building Society and the Staffordshire Building Society are three of a number of lenders who will lend to retirees who meet the borrowing requirements.

However, in many cases, older borrowers are forced to find other means of financing a mortgage such as equity release schemes and lifetime mortgages.

Both these options are far more expensive than a regular mortgage and can result in the borrower losing ownership of the property.

Most retirees with dependents and grandchildren are concerned that the wealth they have accumulated throughout their lives, goes to their families.

Lifetime Mortgages are a loan secured against the value of a property and they are only repaid after the homeowner passes away or has to go into long-term care.

Interest is added to the loan throughout the life of the agreement and the mortgage is repaid from the sale of the property when the borrower dies or goes into care.

This is normally a very attractive deal for the lender who can quickly access far greater equity in the property than the value of the loan.

For borrowers without dependents, it offers a secure property for life with no obligation to repay, but for the majority of borrowers who have relatives, it is a less enticing deal. The tax-free savings that can be made by passing on wealth in an estate no longer apply.

The equity in the property, which would normally be passed on to the next generation, becomes impossible to leave to children and grandchildren.

Borrowing for older people has become more complex in the past ten years and many of the options available need to be carefully considered.

There are lenders who will cater for older borrowers but it is normally a good idea to have as complete a picture of the mortgage market as possible.


Raise Money: Downsize To A Smaller Property

September 25th, 2015

02 Raise Money Downsize To A Smaller PropertyYour current home may well be the place where some of your happiest memories were created. Realistically, however, downsizing may be an excellent way of financing many more. Here is a quick guide to some key questions on the topic.

Why should I downsize my home?

Home may be where the heart is, but property has a financial value. There are various schemes which make it possible to release equity in property while you continue to live in it. These each have their advantages and disadvantages and you would need to do your research thoroughly to decide if one of them was right for you.

Downsizing simply means moving from a more expensive property to a more affordable one. This may be a smaller property and/or one in a different area. This turns home equity into cash, which can be used for other purposes. For example it can be used to help your children get on the property ladder themselves.

The practicalities of downsizing

Downsizing is essentially selling a home and buying another one. This means that you will have to go through the home-selling and home-buying processes again. It also means that you will have to pack up and move your worldly goods.

You will also have to be realistic about whether or not all your current possessions will actually fit into your new home. Instead of feeling sad or stressed about this, it may help to think about it as an opportunity to adjust to your new situation. It may also be appropriate to think about giving inheritances in advance. For example if you have some furniture you love and wanted to pass on, you could pass it on now.

You could look at storage as a temporary option. For example if you’re downsizing to help your children with a deposit, you could store larger items until they have bought their own homes.

You could also find new and possibly better ways of storing and accessing familiar items. Younger people may be able to help with this. For example photo albums can be turned into collections of digital photos. All your precious memories will still be saved – and in a fraction of the space.

You might also like to consider selling some of your excess possessions. This can mean anything from listing them on eBay to selling items through a specialist channel, e.g. an auction. Before disposing of anything for free, you may wish to check to see if it is worth selling. Perhaps some of your memorabilia has historic value, and would be of interest to a local museum.

Downsizing and the family finance

Your main reason for downsizing may be to help your children, but hopefully there will be some money left over for you too. This means that you need to think about how to make best use of it.

Of course, this will depend on your individual situation. For example, you may want to think about how likely it is that you will need to access this money in the near future. If it is important that you can withdraw it quickly, then you will need to keep it somewhere which allows that, such as an instant-access savings account.

If you are confident that you can live without the money for some time, then you have a wider range of options. For example you could put some of it into bonds or invest some of it in stocks and shares. Whatever you do, it should be in line with your plans for retirement and your overall financial goals.

More Accessible Investing With Social Media

September 22nd, 2015

01 Accessible Investing With Social MediaIn the past ten years social media has become so all pervading that it seems to have seeped into every area of work and personal life.

Dating, socialising, parenting and politics have all undergone the Facebook and Twitter revolutions and now so have finance and investing.

A new app has been developed, christened the ‘Facebook of investing’, which allows investors to share their experience, expertise and knowledge online in much the same way that the social networking site works do.

Risk and Reward

The new app, called Invstr, has been created to help first time investors manage the amount of risk they are exposed to.

The app allows investors to predict the opening and closing prices of shares and to follow them and other investments for several weeks to see how accurate their predictions are.

The function allows investors, who are testing their investment skills, to share information with one another and to share predictions. It gives first time investors a chance to experience the movements of the stock exchange without risking real money.

Investing Money for the First Time

All savvy investors are looking to minimise risk and maximise reward and one of the first and most essential lessons that any cautious investor can learn is prudence and caution.

Being able to see how shares perform over a period of time before committing any real finance to them is a new way of enabling investors to make educated choices.

The Wisdom of the Crowd

Human beings are social creatures; we have developed from the level of primitive tribes to complex societies by working and learning together.

Investing might seem like it is a world away from hunting mastodons in groups, but in reality there are clear similarities.

In our fast paced, digitally connected 21st Century world, we still approach problem solving with stone age brains.

The thought processes we have evolved over millennia, based on our need to cooperate, the thrill of risk and the fear of future scarcity.

We have evolved to learn a great deal from one another, to cooperate and to collaborate and, of course, to trade.

New technologies that enable human beings to interact in the way they have evolved might be the key to enhancing rewards and minimising risks.

Levelling the field

The first time investor is invariably a home investor, risking their own funds and relying on their own luck.

The knowledge, resources and capital in the marketplace of course are concentrated in the hands of professionals and investment firms, with whom the novice must indirectly compete.

Being able to share predictions with other investors might also enable novice investors to level the playing field with major investors and give their investments (when they involve real money), a fighting chance.

Research is the key

It goes without saying (but we have a legal duty to say it anyway), that all investments involve a degree of risk, even when handy new online tools are created to manage it.

Investors who use Invstr to help them research the market should be mindful that no website in the world can offer a risk free investment opportunity and the value of an investment can go down as well as up.

However, any tool that can help to increase the amount of market knowledge an investor has access to will help to inform decisions to purchase, or to pass on investment opportunities.

Investment is often about intuition, judgement, best guesses and hunches.

Many of the world’s most seasoned investors, in their memoirs, have written that their successes have rested on being able to limit the amount of guessing they do.

Invstr might be a useful way of using the wisdom of crowds in order to prevent the panic of the herd from crowding out astute investment decisions.


Flood Risk – Check Your Insurance

September 18th, 2015

insurancefloodOne of the grim inevitabilities of the winter months in Britain is the prevalence of flooding.

Britain has experienced several years of above average rainfall that many scientists attribute to climate change.

In 2007, for example, the country was 20 percent wetter during the winter than any other year since records began in 1879.

Some studies have suggested that flooding is in part due to the development of towns, cities and farmland, preventing natural drainage from taking place.

Are you ready for the rain? This article is a quick guide to the likely risks of flooding and the steps that you can take to make your home safe from the high waters, or insured against them.

Waterlogged postcodes

Towns like Boscastle in Cornwall that was virtually swept away by flooding in 2004, or Hebden Bridge in 2012, are reminders to Britain and to the insurance industry, that some areas pose higher risks of flooding than others.

Insurers pay a great deal of attention to scientific information on flooding and calculate insurance premiums accordingly. As risks change, so the insurance industry devises new products to insure against them.

There are two types of flood risk insurance: buildings flood insurance that covers structural damage to your home, and home contents flood insurance that covers your belongings and furnishings.

If you have standard buildings and home contents insurance but you live in a high risk flooding area, you will need to change your policies to specific flood risk cover.

If you don’t have flood insurance and your home is damaged by flooding, there is a chance that your insurer will not pay out on a standard insurance claim.

Flood Maps

The Environment Agency has some sound advice about how to prepare for the possibility of flooding. It is important to visit the agency’s flood risk map to see if your home is likely to be affected.

The agency suggests that homeowners and business owners should create a flood plan before bad weather begins.

In addition to this, it is advised that you prepare your property’s flood defences in advance.

This could involve investing in a consultation with a surveyor or an architect to assess your property’s flooding needs.

A flood protection advisor can also be contacted, who will give an assessment of the costs involved in protecting your property from flooding.

If you find that insurance costs for your property are high, or that the level of risk to insurers is so great that they will not insure you at all, there are still options.

You might want to consider consulting a mortgage broker who can help secure a policy from specialist insurers who offer policies on higher risk homes.

There is also help and advice available at the National Flood Forum, who have a list of insurers who have signed up to the forum’s Charter for Flood Friendly Insurance.

Insurance Against Flood

As with most potential disasters, nine tenths of the solution lies in pre-emptive action. It is important that you identify your level of risk and work with the official and industry bodies that exist in order to limit it.

Insurers will tend to look more favourably on claimants who have done whatever they can to limit the risks and prepare for the potential deluge.

The alternative is a large clean up bill and an unsympathetic insurer.

During a crisis, when there are numerous claims being made against insurance policies, and shareholder profits to protect, insurers will create their own criteria about who they consider to be worthy of a pay out.

By prudent action now you can get yourself on that list.

Get To Grips With Your Pension Lifetime Allowance

September 15th, 2015

pensionallowanceAs the song goes “I got bills, I gotta pay, so I’m gon’ work, work, work every day.” At some point however, people may want or need to give up going to work every day. Even younger people need to think about how they will pay their bills if they are unable to work for any reason.

If you are intending to give up work permanently, it is absolutely crucial to plan ahead. One option is to save into a pension. If you choose this route, it is important to understand your annual and lifetime allowances. It’s also important to be clear on what will happen if you exceed them.

The following explanation applies to defined contributions pensions. Defined benefits schemes may have different rules.

It also applies to the time before you start to make any sort of withdrawal(s) from your pension pot. Once you start withdrawing money, you may trigger different rules. (search: MPAA)

The Annual Allowance

As its name suggests this is the amount you can save towards your pension each year. Generally speaking you can save an amount equal to your earnings, up to a maximum of £40,000.

If you put in more than you earn, then you will only get tax relief to the amount of your qualifying earnings. For example, if you earn £10K pa and put all of this towards your pension along with £5K from another source, you will only get tax relief on the initial £10K. Alternatively if you earn £45K pa and put all of it towards a pension, you will only get tax relief on the initial £40K.

There are different rules for those who are not in paid employment. At current time, those not in work can receive tax relief on pension contributions up to the value of £2,880. They can pay in more than this, but will not receive tax relief on these extra contributions.

The Money Purchase Annual Allowance (MPAA)

Starting this tax year, making withdrawals from pensions can result in your annual allowance being reduced to £10K pa. This is too complicated to discuss further here. It is however worth being aware of this. If you plan to make withdrawals from your pension fund, it is strongly advisable to check how this could affect your annual allowance.

The Lifetime Allowance

This is the amount of pension contributions on which you can receive tax relief over your lifetime. For most people it is currently £1.25 million and will reduce to £1 million in April next year.

If you are currently asking yourself “how can I save money on my pension pot”, then one possible solution might be to ring-fence your lifetime allowance. This is known as individual protection.

As with the MPAA, the rules around this are complicated. They also depend on the type of pension arrangements you have, i.e. defined contributions or defined benefits. If you do have substantial pension savings, however, it could be worth looking into this.

Pensions and Tax

You may also be asking yourself “what tax will I owe on my pension pot?” The answer here is also likely to be, it depends.

If you take any funds over your lifetime allowance as a lump sum, you will be taxed at 55%. If you used funds over your lifetime allowance to generate a regular retirement income, you will be taxed at 25%.

This is in addition to any tax which is due on the income itself. Income from pensions is taxed in the same way as income from employment. Those who have reached state pension age are, however, exempt from paying national insurance contributions, even if they continue to work.

For pension advice please contact Maxim Wealth Management

Is Life Insurance Still An Asset For The 50+?

September 11th, 2015

asset50Most people start families in their 20s or 30s and this is also the first time they think about family protection, life insurance and making sure that their loved ones are taken care of if they die.

Once this life cover is purchased, it is common to forget all about it and only review it every couple of years when a review of ones finances is due.

Decades later, when your circumstances have changed and your family has grown up, it might be tempting to question whether a life insurance policy is necessary at all.

However, cancelling a policy might involve hidden costs. This blog post is a quick guide to the possible pitfalls of cancelling your policy.

Changing Circumstances

If your children are over the age of 18 or a substantial part of the mortgage is paid off, there might be little reason to keep your policy.

It seems rather obvious to say, but if you cancel your policy the first thing you will lose is the cover it offers.

If you need to take out a future policy for any reason, you will find it far more expensive in terms of monthly payments than the original agreement.

Some policies are designed to pay for the cost of schooling and university education of children if a parent dies, but this might seem redundant if your children are now grown up and have left home.

You might also find that you still need a life insurance policy as grandchildren could become dependents and the financial future of your partner might be in jeopardy if you pass away.

It might be that if you died over the age of 50, your partner could still be several years away from retirement age, and may therefore be dependent on an additional source of income that a policy could provide.

What are the savings?

If you cancel your life insurance policy you will save the cost of the monthly contributions and in today’s economic climate this could well be ready cash you can’t do without.

However, whilst you might be making savings to your financial plan in the short term, the financial risks to your family dramatically increase if you were to unexpectedly pass away.

Life insurance in many ways is a far wiser investment for families with less disposable cash than others, as the financial pressures on wealthier families in the event of bereavement will be lesser.

Lower Insurance Premiums

Cancelling a policy outright is not the only option open to policyholders facing financial difficulties.

It might also be possible to agree with your policy provider to pay a reduced contribution or to have a lower level of cover for a period of time until your financial situation improves.

Most UK life insurance policies have no charge for cancellation, but if you do cancel and then re-apply for cover, the increased cost of a new policy will act as an unofficial penalty.

Protecting My Family

One possible way of spreading the costs of life insurance is to look at the cover both you and your partner have.

When you initially took out life insurance cover, you might have decided with your partner to take out a joint policy. Normally they cost less than two separate policies and are a lot easier to set up.

However, if you have two separate policies, it might be worth exploring whether taking out joint cover is more cost effective.

Much of this will depend on the age and relative health of both policyholders, but the good news is that nearly all over 50s are accepted on to new life insurance policies, without the inconvenience of a medical.

10 Financial Tips For New Graduates

September 9th, 2015


Do You Qualify For The New State Pension?

September 8th, 2015

qualifystateIf you reach state pension age on or after 6th April 2016 then you will come under the rules for the new state pension. Here is a quick guide to what that means in practice.

Out with the old and in with the New State Pension – What exactly changes?

Under current rules the state pension is divided into two parts. These are the basic state pension and the additional state pension.

The basic state pension is calculated based on your national insurance record. The additional state pension is calculated based on your earnings.

It is currently possible to opt out of making payments towards the additional state pension. This is known as “contracting out”.

The new state pension will combine both the basic and additional state pensions. This single-tier pension system will only be based on your national insurance record. As a result, it will cease to be possible to opt out of making payments towards the additional state pension. Therefore those who are currently doing so may see their national insurance contributions increased.

Will I qualify for the State Pension?

You will need 35 years of National Insurance contributions to qualify for the full new state pension. As a rule of thumb, you will need at least 10 years of NI contributions to qualify for any pension under the new rules.

There are, however, some exceptions to this. These are particularly likely to apply to married women or widows who chose to pay NI at a lower rate. If you are in this situation it is particularly worth checking whether you could qualify for the new state pension.

Those with more than the qualifying threshold but less than the maximum can expect to receive a partial new state pension. For example someone with 15 years of NI contributions will receive 15/35 of a full new state pension. Someone with 25 years will receive 25/35 of a new state pension and so on.It should be noted that the website has a pension calculator which anyone can use. At current time it is still being updated to reflect the changes caused by the new state pension. It can still, however, offer users a ballpark idea of where they stand.

Take steps to deal with a shortfall in your pension

Under current rules, you can buy extra credits for the state pension. This option only applies to those who reach state pension age before 6th April 2016. In other words you need to reach state pension age before the new state pension scheme starts. You may choose to defer receiving your pension until after the new state pension scheme is launched. Even so, however, your claim for a pension will still be treated under the old rules.

For those who will be treated under the new rules, there is another option. This is to volunteer to pay “Class 3” National Insurance Contributions. Basically these are used to fill gaps in your NI record. For example if you went to work or study abroad for a while, this time might be “missing” from your NI history. Ideally you should look at this option in the context of your overall financial plans, including your retirement plans. In particular you should check if increasing your state pension might reduce your entitlement to other benefits.

You can also look at the option of deferring your state pension. Each year you defer adds 5.8% to the value of your state pension. While this is a considerable reduction from the 10.4% on offer at the moment, it may still be useful. One Final Point…

Remember you have to apply for pensions (both state and private). You should be contacted about this a few months before your retirement. If you are not, then you need to be proactive and contact your provider(s) yourself.


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