Archive for the ‘Investments’ Category
Nice to see you–to see you NISA!
Amongst all the major pension changes announced in the Budget you could have easily missed the fact that the ISA rules are also changing.
On 1 July 2014 the new rules relating to ISAs announced in March’s Budget announcement come into effect. The launch of the NISA is the biggest change to the ISA rules in 15 years. So – here goes – your five minute guide to the changes.
There are a load of other “what if” questions that you may have. We’ll tackle these in another blog post soon. For now that’s probably enough.
As always, this information isn’t intended to constitute financial advice or suggest that a NISA is suitable for you. To get to the bottom of that thorny question you may need to sit down with an authorised financial adviser and get some personalised advice. Get in touch if you fancy a chat, a cup of coffee and, if you’re lucky, a biscuit or two!
Steve Clark
Director
Your 5 minute news round-up
An airport in your pension?
The Daily Telegraph ran a story on Tony Fowler, who now owns a 50% stake in the Isle of Wight airport.
He and a friend bought it from the receivers and expect to restore it to profitability. Mr Fowler bought his share through his pension fund – an airport is a commercial property which is among the permitted assets for a self invested personal pension scheme. Mr Fowler now commutes from his home to the airport in his gyrocopter – but has to pay the same landing fees as everyone else.
Interest rates: what to do?
With the recovery in the UK economy, many are predicting that interest rates will rise sooner than the Bank of England predicted with its ‘forward guidance’ in the summer.
At that time, it expected its own base rate to remain at about current 0.5% level until 2016, but could that happen sooner? And what can you do to prevent a rate rise becoming a personal calamity? Both the Daily Telegraph and the Sunday Times asked the question. Both agreed rates could rise sooner than 2016. And both came up with only one positive recommendation: if you have a mortgage, fix the interest rate at today’s low levels to protect yourself from the possibility of soaring mortgage repayments.
Cautious SMEs reluctant to grow
Most small and medium sized enterprises (SMEs) don’t want to grow, reports the Daily Telegraph.
Over 80% of those surveyed said they wouldn’t borrow to expand, while only a fifth plan to increase their capital investment over the next year and 16% will increase R&D spending. Just under a fifth expect to take on more staff.
Is it time to fix?
Borrowers might do well to take advantage of current low interest rates, suggests the Daily Mail.
With inflation currently at 2.7%, two-year fixes at 1.5% and five-year fixes at 2.5% look like a bargain. Rates may fall a bit further for the kind of higher loan-to-value loans supported by the government’s Help-to-Buy scheme (typically 90%+), but fixed rates for borrowers with lower LTV ratios have risen a little in recent weeks.
Invest-er-mate
The 50th anniversary of Dr Who has seen a boom in associated memorabilia, reports the Daily Mail.
Real Daleks are pretty rare, but anyone still in possession of a 1965 Codeg clockwork Dalek – purchased for a princely 82p – can now get up to £800 for it, which is better than a lot of stock market investments have done.
Tech boom forecast
One of Britain’s most successful fund managers has predicted a boom in technology shares.
Nick Train, manager of the Finsbury Growth & Income fund, is quoted by the Daily Telegraph as predicting a massive boom in tech stocks over the next decade. (For the record, Mr Train was not managing a technology fund at the time of the notorious dot-com bust). He holds a third of the fund’s investment in technology stocks.
Carbon credit fraudsters closed
The UK authorities have closed down 19 firms which, between them, had tricked 1500 investors into paying £24 million for worthless ‘carbon credits’.
The scam played up the ‘green’ merits of carbon credits, but these certificates were sold at vastly inflated prices.
Hoping for a Jisa boost
The Daily Telegraph has been campaigning for a change to the rules on Child Trust Funds, to allow parents to transfer these CTFs to the newer and more flexible Junior Isa (Jisa) which replaced CTFs in 2011.
According to the Telegraph, up to 6 million children have CTFs paying poor rates while better rates are available in Jisas, and Jisa schemes also offer a larger range of funds for longer-term investments. The Telegraph predicts that Chancellor George Osborne will announce a change in his Autumn Statement on December 5th.
Affordability tests may spell trouble
At least half of all potential borrowers under the second phase of the Help to Buy scheme could be disqualified by lenders, reports the Sunday Telegraph.
The two biggest lenders that have signed up to the scheme – Lloyds and RBS – use ‘affordability’ tests which measure what proportion of a buyer’s income goes on mortgage repayments. These two banks require borrowers to be able to cope if rates rise to 7%, in effect almost doubling from their current level. Experts say this will prevent a great many potential homebuyers from securing a loan.
Steve Clark
Your 5 Minute Catch Up
Here’s a quick and easy catch up on some of the news storied we think you might want to read.
Perils of the wrong pension
Making the wrong choice with your pension can be costly. The Daily Mail told the story of a retired solicitor who was concerned about his poor state of health and wanted to secure lifetime income for his wife from his pension fund. But he bought the wrong type of annuity, one that had a guarantee period of ten years. He died only weeks after the ten year guarantee ended – and his widow was left without any income.
44 Financial offer a full retirement planning service to help make sure that you make the right choices when you are retiring.
Cap on pension charges proposed
The government has opened a consultation on an upper limit on pension charges, reports the Daily Telegraph.
Its target is older schemes, often closed to new members, that can have charges of up to 2.1% a year. Modern schemes have charges of under 1%, and the higher charges can cut pension scheme members’ retirement pots by tens of thousands of pounds.
If you have older pensions that you have not checked for some time it may be worth looking at this. Please contact 44 Financial to discuss our Pension Review & Health Check.
Fund costs are falling
Over 85% of investment funds have created new share classes with lower annual fees, according to research cited by the Daily Mail.
Previously, fund managers could pay rebates to the ‘platforms’ on which investors hold their assets out of their management fees, but new ‘clean’ share classes that pay no rebates offer investors lower charges and a better deal overall. Most platforms are in the process of switching to the new lower-cost share classes.
Charges to hit more trusts
The Chancellor’s Autumn statement is likely to include a measure that will raise charges on trusts, predicts the Daily Telegraph. At present, those seeking to avoid inheritance tax can set up a series of trusts and so long as each trust is worth less than £325,000 no tax is paid. But the legislation provides for a 6% periodic charge every ten years on larger trusts, and it is likely this tax rate will be extended to all trusts whose combined value exceeds the £325,000 threshold.
More could save from offset switch
Millions of homeowners could make useful savings by switching to an offset mortgage, says the Independent. At present only about 10% of borrowers have this type of loan, but with savings rates so low the benefit is significant. By merging your saving and mortgage accounts you avoid receiving taxable interest. Instead of earning a taxable 1% on your savings, you reduce the interest you pay on your mortgage by the amount in your savings account. With mortgage rates at 3-4% you will save far more in mortgage interest than you were earning on your savings.
Tax task forces get tough
HMRC’s tax task forces, set up to track down tax avoidance in specific sectors, are hitting their targets, reports the Daily Mail. In the first half of 2013 they collected an additional £32 million and are on target to bring in over £90 million for the full year. Restaurants, landlords and owners of second homes are among their targets.
Parents shell out more than ever
Young adults are getting an unprecedented level of financial support from their parents, reports the Daily Mail.
Over 70% of home leavers get some help, and nationally parents fork out £44 billion a year, or an average of £1,125 a year per child. But 25-29 year olds get even more, an average of £2,599 a year. The biggest items of support are property (£11 billion), cars (£4 billion) and weddings (£4 billion), but the biggest change in recent years has been the rise in the number of parents helping adult children with their living expenses – rent and bills.
Lenders target accidental landlords
Mortgage lenders are targeting ‘accidental landlords’ who they think should be paying higher interest rates, reports the Daily Telegraph.
Homeowners who have been unable to sell, have moved and rented out their homes have become landlords by accident rather than by choice. They should have informed their lenders and converted from residential to buy-to-let mortgages, but hundreds of thousands have not done so. Often the lender’s buy-to-let interest rate will be as much as 2% above the residential rate.
Mortgage brokers say people whose properties are worth more than their loans can usually re-mortgage to a more favourable rate if their own lender’s but-to-let rate is high, but that those in negative equity are trapped and have to accept their existing lender’s terms.
Social Care Funding –questions & answers
Funding for long term care has become a higher priority over recent years and advice in this area is also important for many who wish to understand the level of care that they may/may not be entitled to receive.
Recent research suggests that many people are overestimating the amount of assistance the State will provide towards care costs in later life due to a fundamental lack of understanding of the new proposals. Here are some of the questions being asked.
According to the Office of National Statistics, the number of people predicted to live until the age of 100 will increase from 14,500 to 110,000 by 2035.
But with this increased longevity comes an increased possibility to having to pay care costs in later life – and potentially for a much longer period.
The Government’s proposals for reform of long-term care funding in the UK will start to be phased in as soon as 2015. Recent research commissioned by the Financial Times suggests that while there is a good awareness of some of the more highly publicised improvements to the current regime (such as the cap on care costs) there is still enormous confusion over how they will work and what they will cover.
With this in mind, we’ve looked at some of the more detailed aspects of the reforms in a simple Q&A style.
Q. Where are we at the moment?
A. Under the current system, if an adult needs to move into a residential or nursing home, the State will help cover the costs if the individual’s assets are below a means-tested threshold. This threshold is £23,250 in England.
Q. Who will be eligible for help?
A. Anybody who has assets below £118,000.
Q. Is everyone eligible for help?
A. No. Where assets (including the family home) are worth in excess of the new £118,000 threshold, the resident will need to self-fund until such time as capital resources are depleted below the threshold or until the £72,000 cap is reached.
Q. Does this mean that the maximum any person will have to pay towards their own care costs is £72,000?
A. Unfortunately not. This is because this amount only applies to the cost of care. Even then it is limited to an amount up to that which the local authority is willing to pay which will count towards the cap.
This means that if the cost of nursing care is £500 per week, but the local authority maximum is £300 per week, only £300 per week will count toward the £72,000 cap. Also the so-called ‘hotel’ costs are not covered. These are the costs of board and lodgings. The individual will be fully liable for these costs up to a maximum of £12,000 per annum.
Q. How does this work in practice?
A. Susan has assets to the value of £250,000. As this is greater than the £118,000 threshold, she will be required to fund her own care costs up to the cap of £72,000.
Susan chooses a care home where the cost of care is £500 per week. However, as the local authority is only willing to pay £300 per week towards care, only £300 per week will count towards the cap.
This means that the cap will be reached after 240 weeks (£300 x 240 = £72,000) by which time Susan will have paid a total of £120,000 towards her care. She will also have had to pay an additional amount towards her accommodation and food costs (circa £12,000 per annum).
Q. Will all contributions made by the resident count towards the cap?
A. No. As can be seen from the above, only an amount up to the local authority rate will count towards the cap. Costs incurred in respect of food, accommodation and personal expenses will not be taken into account either. Likewise, contributions made at a time that the resident is assessed as having ‘moderate care needs’ will not count. Contributions will only count towards the cap from the point that the resident is assessed as ‘eligible’.
Q. What happens when individuals reach the cap of £72,000?
A. The Government will then pay for the cost of care. The individual may still be liable for
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the costs of care that exceed the local authority maximum and
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the ‘hotel costs’ of care
Q. How then would your summarise the key reforms?
A. We’d summarise it as follows:
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Introduction of a £72,000 cap on an individual’s liability to the cost of care.
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Means-tested threshold to increase from £23,250 to £118,000.
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Access to a deferred payment arrangements.
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‘Hotel’ costs capped at £12,000 pa.
Q. What are the criteria for determining eligibility for assistance?
A. The eligibility criteria are yet to be announced but draft regulations indicate that the national criteria (which will be introduced in 2015) will be set at a level equivalent to ‘substantial’ in the current system – prompting organisations, such as Saga and Age UK, to express concerns that this will be too high a level.
Q. But at least the house is safe, right?
A. While the Government has made much of the fact that no-one will have to sell their home during their lifetime to pay for care, this does by no means guarantee that the house will be available to pass down to the next generation.
The value of the home will count towards the means test threshold of £118,000 unless an exception applies (for example, the resident has a partner who will continue living in the property).
However, rather than being required to sell the home upfront to pay for care costs, the local authority will put a charge on the property which will be recouped from the estate on the resident’s death. Under new rules, interest will accrue on the amount outstanding, increasing the debt still further.
Q. Does this mean that an individual will not have to sell their house to meet the costs of care?
A. Yes – at least during their lifetime under the deferred payment arrangements. However, the house may need to be sold after their death to meet accumulated costs and interest meaning that the heirs are denied their inheritances.
And finally…
The Care Bill is still making its way through Parliament and is likely to be subject to further change before the proposals are implemented. Ministers are aware of the growing confusion around social care costs, and the Department of Health has confirmed that this will be addressed with ‘new and comprehensive information resources for the public’.
Our Comments
What is clear is that those needing care are in many cases likely to face overall costs that are significantly higher that the £72,000 cap.
With this in mind, clients with concerns will want to consider the wisdom of making provision for protecting accumulated wealth from the effects of the potential costs of long-term care. This is a minefield and an issue that requires specialist advice – not just from a financial adviser but also a solicitor.
At 44 Financial we work with specialists in this area and can refer our clients to a team that will be able to help them. If you’d like to speak about your family’s situation please give us a call.
Steve Clark
Photo courtesy of Debs Byrne Photos
Investing for Income
Investing for income isn’t a choice any more, it’s a necessity.
The Daily Mail recently said that with interest rates on deposits below the rate of inflation, traditional savers would have to widen their search to secure a reasonable income.
In the paper the experts quoted said they needed a combination of shares, fixed interest and commercial property to avoid too much risk, and with this could generate an income of 3-5%.
If you are looking for income from your investments give us a call on 0116 380 0133.
Steve Clark
44 Financial Ltd is authorised and regulated by the Financial Conduct Authority. The contents of this brief press comment are not intended to infer that any specific course of action is suitable for you. Specific individual advice is required to make sure that you end up with the most appropriate solution for you.