Archive for the ‘Savings’ 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.
Reality check for graduates
The Independent on Sunday told this summer’s graduates to get on the case in sorting out their finances.
First step is to sort the bank account – some banks automatically shift graduates to a special type of account with an automatic interest-free overdraft, but others don’t, even though all banks do have special accounts for new graduates offering not just interest-free overdrafts but other goodies.
Student loan repayments don’t start until you’re earning over £21,000 but after that they’re automatically collected via the employer’s payroll system.
Steve Clark
And the winner is–Inflation!
According to the Daily Mail, there now isn’t a single savings account in the UK that pays interest above the rate of inflation. 
With the inflation rate as measured by the Consumer Price Index up from 2.4% to 2.7%, the best easy-access account the Mail could find is an ISA paying 2.3%. Savers who are basic rate taxpayers would need to get 3.38% before tax to match the inflation rate while higher rate taxpayers would need 4.5%.
With the top non-ISA account paying 1.7% gross, a saver putting in £1,000 would see their spending power decline to £986 after 12 months even after banking their interest. But the cuts go on – National Savings & Investments announced it was cutting the rate payable on its own ISA from 2.25% to 1.75% in September.
These are tough times for savers, who need to consider alternatives to standard savings accounts if they need a higher income.
Steve Clark