Review your finances!
Whatever your age, it always makes sense to review your finances. What may have been suitable a few years ago, might be quite inappropriate to meet your current needs. Life’s path is full of deliberate decisions and unexpected changes – both the ‘knowns’ and ‘unknowns’ (to paraphrase the US politician, Donald Rumsfeld).
With so many variables, we can only highlight a few issues here that may help you to focus on matters that could affect you, either now or in the future.
Life events that you may chart or anticipate, include (amongst almost limitless possibilities):
- change of job – including moving from salaried to self-employment;
- buying a home;
- birth of children;
- school and university fees;
- a recent inheritance;
- retirement; and
- planning in case a family member might need to go into care.
All of these events may well affect your financial road map.
This category includes matters that cannot be planned for in advance but which could have a huge impact, such as a serious illness either of the bread-winners or dependent family members, relationship break-up and ultimately, death.
Other unexpected changes include those brought about by new Government policies – for example some of those introduced by the recent Budget were particularly radical and could have a huge impact on your plans:
- Changes to pensions rules (effective in 2015-16, but with some immediate transitional effect) affecting defined contribution pensions;
- Abolition of compulsory annuity purchase altogether and allowing savers unlimited access to their pension pots.
Focus on what matters to you
- what you want from life so you can enjoy it to the fullest;
- what type of education you want for your children;
- the importance of security – protecting you and your family from unforeseen events will affect the decisions you make about insurance, for example life, health and income protection policies;
- the balance between enjoying the good things in life now and putting money away for the future – and how to invest wisely;
- making a will to provide for your loved ones and to limit the amount of inheritance tax payable when you die.
A regular review with sound analysis and advice from your adviser will help to ensure that you are ‘on track’ and not missing out on something important. You may also want to discuss the many benefits of putting your investments onto a platform.
Annuities – A sea change
The Chancellor’s changes to the rules on annuities announced in the Budget might just make the difference to whether or not you can purchase your seaside home or other retirement dream.
The changes and how they will affect you
The ‘writing on the wall’ for the current annuities rules was heralded in February when the financial conduct Authority published its critical annuities market review. It concluded that most people could get a more generous income in retirement by shopping around for an annuity from a different provider.
Following this up in his March Budget, the chancellor announced the government’s plans to “… legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots”.
Flexibility and choice
For those aged 55 or over, from April 2015, whatever the size of a person’s defined contribution pension pot, it is proposed that they will be able to take it how they want, subject to their marginal rate of income tax in that year, 25% of their pot will remain tax-free.
Those who continue to want the security of an annuity will still be able to purchase one – and it is important to remember that because annuities aren’t obligatory, it doesn’t mean they won’t be right for some people! But people who want greater control over their finances can draw down their pension as they see it – keeping their pension invested and drawing down from it over future years if they so wish.
Interim rules until April 2015
The immediate changes, effective from 27 March, allow people to have greater freedom and choice now over accessing their defined contribution pension savings at retirement. These are:
- Reducing the amount of guaranteed income people need in retirement to access their savings flexibly, from £20,000 to £12,000;
- Increasing the amount of total pension savings that can be taken as a lump sum, from £18,000 to £30,000;
- Increasing the capped drawdown withdrawal limit from 120% to 150% of an equivalent annuity;
- Increasing the maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) from £2,000 to £10,000 and increasing the number of personal pots that can be taken under these rules from two to three.
The government’s own proposals to give impartial guidance remain unclear, so ensure you seek professional help from your adviser to guide you through this ‘brave new world’ of pensions choices.
New ISAs: Great news for savers!
A welcome surprise for savers in the March Budget was the relaxation by the Chancellor of the rules governing tax-free ISAs (Individual Savings Accounts).
The essential message is that from 1 July 2014:
- ISAs will change into a new, simpler product, the ‘New ISA’ (NISA), with an annual investment limit of £15,000 (an increase of £3,480 over the 2013/14 figure);
- NISAs will have no restrictions on the amount you can put into cash or stocks and shares
Mix ‘n match options
From 1 July, you can invest your whole NISA allowance of £15,000 in either cash or stocks and shares, or any combination of the two (previously, it was possible only to save up to half of the ISA limit in a cash ISA.)
Interim rules before 1 July
The interim rules from 6 April until 1 July could give rise to confusion, so bear these points in mind:
Until 1 July
- The total amount you can pay into a Cash ISA is £5,940.
- You can also pay into a stocks and shares ISA, but the combined amount you pay into ISAs must not exceed £11,880. You can put the full amount into stocks and shares.
Any payments you’ve made to an ISA since 6 April 2014 will count against the £15,000 NISA subscription limit for 2014/15. If you have paid into a Cash or stocks and shares ISA since 6 April 2014, you will not be able to open a further NISA of the same type before 6 April 2015.
However, you may make additional payments – up to the new £15,000 limit – into your existing account(s) or by transferring those account(s) to another provider.
From 1 July
Your existing ISA will automatically become a NISA with the higher limit of £15,000 and greater flexibility. From 1 July, you can then add further money to either your cash or stocks and shares NISA, up to the new £15,000 limit.
Only one cash NISA and one stocks and shares NISA can be opened in each tax-year. However, you can then transfer your Cash or Stocks and Shares NISA between providers as many times as you wish.
- Junior ISA and Child trust Fund thresholds are lifted to £4,000 from 1 July.
- The Government is to consult on enabling peer-to-peer loans to be held within a NISA.
- We’re here to help with any queries you may have on the new NISA regime!
Life Insurance – Why you should leave it to trust
A life insurance policy is perhaps one of the most straightforward of financial products – a ‘no-brainer’ when it comes to protecting your loved ones by ensuring that they will be well provided for in the event of your untimely death.
However, on purchase, you should give close consideration to asking for the policy to be ‘written in trust’ so that the policy would pay out as efficiently as possible.
What is a trust?
Put simply, a trust is a legal mechanism where one or more ‘trustees’ are made legally responsible for holding your assets. Assets include, for example, holdings such as land, money, buildings, shares or even antiques which are placed in trust for the benefit of one or more ‘beneficiaries’.
Importantly, life insurance is also such an asset.
Benefits of life insurance written in trust
Placing your life insurance into a trust can have major benefits, with few or no drawbacks.
There are several major advantages to writing the life insurance policy in trust, which can be summarised as follows:
- Control – you specify who your beneficiaries are and can direct how you want the proceeds to be paid out.
- Speed of payment – policy proceeds can be paid out very swiftly after death. By being written in trust, the policy becomes payable before the probate of your will takes place – which can take many months. Normally, the insurer will pay simply on production of a death certificate. Needless to say, this can be of great practical help to your family at a difficult time.
- Inheritance Tax – the policy benefit paid out on death is outside of your estate for inheritance Tax (IHT) purposes. Indeed the policy pay-out could be used to cover part or all of any IHT payable on your death.
Issues to consider
Once the trust has been created, you cannot subsequently cancel it without the trustees’ permission – as you have handed control over to them. How your assets are allocated following your death needs close attention, so always consider taking appropriate legal and financial advice before setting up an insurance policy written in trust.
Financial advice you can count on
We provide services to help you improve your financial plans. We are experts in the field and aim to deliver information, advice and solutions which are clear and easy to understand.
We will help you throughout your lifetime and pride ourselves on our long standing client relationships. With Charles Derby, your plans will be kept under review so you can rest assured in the knowledge that expert assistance is always on hand.
Visit www.charlesderby.com or www.charlesderbywm.com
or contact your local Charles Derby Financial Adviser