Why save when you can inherit?

Is any kind of pension planning better than none?

That poser might seem like a no-brainer – surely any savings strategy is superior to a void?

Yet an emerging thread of what might gently be described as ‘last throw of the dice’ thinking looks set to challenge this.

Here’s the mooted long-term savings plan as roughly outlined by an increasing number of clients (mainly in their early 40s) when talking to their financial advisers (and passed on with incredulity to me or others equally agog at the oft haphazard direction of the UK’s pension savers).

“I know it might sound macabre but my main pension is the inheritance from my parents,” is how their pitch begins. … Continue Reading

Don’t rely on your pension scheme provider to sell you the best pension

A firm of lawyers recently warned that some annuitants could have grounds to make legal claims against  pension providers, trustees or financial advisers if they were not properly made aware of their annuity options at retirement.

When you approach retirement, pension scheme trustees (if you are in a company scheme) or your pension provider should alert you to the facility to shop around for an annuity.

This facility is called  ’the open market option’  and it allows you to scour the market for annuity quotations, rather than having to accept the quotation from the company you saved with for a pension.

But research by the Association of British Insurers shows that only 35 per cent of annuitants move to another provider, 33 per cent shop around but stay with their existing provider and 33 per cent do nothing.

This is a scandal because smokers, the obese and those with a life reducing medical condition could increase their annual income by 30 per cent (compared with what their existing company or insurer offers)  because they may be eligible for a ‘lifestyle’ or ‘impaired life’ annuity which pay more because of their reduced life expectancy.

Even common conditions, such as type 2 diabetes, arthritis and angina or just being on regular medication, could qualify you for a higher rate, so it is well worth flagging this with your pension scheme trustees or your financial adviser when you come to buy an annuity.

But  those approaching retirement are not always made fully aware of these choices, often because of poor communication on the part of insurers and scheme trustees. … Continue Reading

Thinking of moving abroad when you retire?

There are many reasons why you might want to move abroad when you retire. It might be to join your children who have emigrated or you may have come to the UK and spent much of your working life here and want to move back home. Or you just might feel after all these years of working you deserve a change.

You have some savings and of course there is the state pension that you are entitled to, since you have worked and paid the required National Insurance contributions. And here is where it can all start to go wrong.

As long as you move to the EU or one of sixteen other designated countries then all will be fine. However move to anywhere else in the world and you will find that your basic state pension will remain frozen at the same rate as when you leave the country.

So whilst other pensioners in the UK, the EU and the other sixteen countries all receive the maximum of the increase in earnings, inflation as measured by the Consumer Price Index or 2.5 per cent; in ten, twenty or thirty years time you will be receiving  exactly the same amount as you received when you first moved abroad.

There are 1.1Million UK pensioners living abroad and 540,000 of these live in the 156 countries where they are not entitled to receive any increase in their basic state pension. They are represented by an organisation called the International Consortium of British Pensioners (ICBP). Who have gone to great lengths to get this absurd and unfair situation put right.

They also point out that this rule discourages and prevents people from moving abroad and that by rectifying the situation the Government may well actually save money through the reduction in health care and other benefit costs. This is an area they are currently working on and if you are a pensioner you can help them by completing their questionnaire by following this link. www.surveymonkey.com/s/frozenpensions

Has the Cash ISA had its day?

Has the cash ISA had its day?  It has been a remarkably popular and successful savings product. Introduced to encourage saving on its launch it provided returns much higher than standard deposit accounts that not only beat inflation but had the key attraction of being tax free.

It gained universal appeal, attracting those with low incomes as well as high, more or less as many women as men and savers from all age groups. Overall some eighteen million people have an ISA and the £178 billion invested in them constitutes 16.4 per cent of all cash savings.

Yet, the consumer watchdog, Consumer Focus was recently compelled to launch a super-complaint to the Office of Fair Trading (OFT) on the basis that aspects of the market and the conduct of many providers was resulting in harm to consumers. … Continue Reading

A rare example of a tax incentive to save for non-tax payers

As incentives to save have been withdrawn, one gem that has remained surprisingly intact is the rule that provides for a tax relief on pension contributions even if you have no taxable income. Currently the tax relief available is 20 per cent on a maximum contribution of £3,600.

Anyone between the ages of 18 and 75 can contribute and this enables housewives, carers, the unemployed, students and anyone else who is UK resident, to continue paying into a pension during periods when they have no earned income.

So if you are in a position where you have savings but no taxable income;  by transferring savings into your pension, the 20 per cent tax relief means that the amount you actually have to fork out is just £2,880 because HMRC tops up your contribution with  £720.

It is also possible for parents and friends to pay into a pension on  behalf of a child or grandchild.

The rule is one pension per child, so a group of relatives such as parents, grandparents and friends could all contribute, on condition that the amount paid is does not exceed the £2,880 net contribution limit.

Given the current lack of incentives to save and that George Osborne  is known to be keen on cracking down of benefits for middle class and affluent families, the survival of this tax relief is welcome. Let’s hope it remain so.

Office of Fair Trading response to cash ISA super-complaint by Consumer Focus

The ISA market is a shambles and Consumer Focus deserves a big thank you from the 17 million or so ISA holders for bringing some of the issues to the attention of the Office of Fair Trading.

The response was extremely disappointing for savers. The fact that banks create ISA accounts with worthwhile rates that are then subsequently reduced to next to nothing after a year in the knowledge most savers won’t move their money is apparently OK.  The fact that when savers do move their money the manual, bureaucratic systems used to mange ISA transfers by the banks results in savers losing interest is apparently also acceptable.

It was extraordinary to learn that ISA providers still use cheques to transfer money between ISA accounts when banks have been pushing electronic money transfers for years and even more extraordinary that some providers use second class post to send these off.

Consumer Focus did however manage to gain an improvement on what was the most important issue that they brought up and that was the length of time it takes to transfer ISA money between different providers. The new agreement is that the transfer will take a maximum of fifteen days (down from twenty three) and that the receiving provider will start paying interest a maximum of two days after receiving the funds from the old provider. That isn’t to saty that some ISA providers don’t do this or better now, but many don’t. There was also an agreement to print the current interest rates on ISA statements, a welcome step that will help bring to peoples attention if the interest rate on their account has been significantly reduced since they opened it.

Unfortunately several other issues brought up by Consumer Focus were not accepted as valid complaints. Below I have provided a brief outline of the main issues raised by Consumer Focus followed by a short summary of the OFT response;

1 Insufficient transparency of interest rates caused by the use of short lived bonus rates to attract new savers which were then substantially reduced.

Response: The OFT decided that since it is made clear that these bonus rates are only temporary that there is no problem with the use of bonus rates to attract new savers.

2 Confusion was caused by so many similar accounts with almost identical names. Providers frequently create new accounts which are the same as existing accounts in all aspects except interest rates and many have very similar names. … Continue Reading

A sweetener to attract investors

With such low interest rates and many savers nervous of investing in the stock market Hotel Chocalat has come up with an interesting alternative. It has issued a new savings bond, which instead of paying interest in pounds and pence will pay it in chocolate. For example if you buy a £2,000  bond you will receive six tasting boxes a year worth a total of £107.70, which is equivilent to a return of 5.38%., there is also a £4,000 bond that returns thirteen tasting boxes a year. The company are aiming to raise £5M through this bond issue.

I am still reading in the press that companies are finding it difficult or expensive to obtain bank loans. And we all know that the banks are certainly not passsing on great returns to savers, so maybe there is scope for more companies to cut out the middle men and offer savers something new?

Child Trust Funds, well intended but what a mess!

Messy; tricky to get a firm grip of; troublesome; costly – and liable to keep you up at night. Child trust funds (CTFs), like the youngsters themselves, are proving an absolute handful for politicians, parents and policy wonks. Despite the singularly cherubic premise of tax-free savings for children, the flaws and fissures in this former flagship Government savings policy have emerged into an unsparing spotlight ahead of a general election expected in April or May.

For the uninitiated, every baby born on or after 1 September 2002 is sent a voucher worth at least £250 from the ­government. That can be converted into cash for one of three account types: a safe, risk-free cash deposit; much higher-risk stock markets (with hefty fees); or so-called ‘stakeholders’ which plough your offspring’s money into shares but then funnel the cash back into cash as your child approaches 18 years old (and caps the charges). Anybody can chip in to help too: from parents to grandparents, uncles and aunts to family friends, an extra annual £1,200 can also be parked in the account to give a leg-up to the fund’s value. But that’s not all. The babies benefit from a further £250 government bonus at the age of seven. … Continue Reading