our regular financial planning magazine

1. esmartmoney MAY/JUNE 2011
Is it time to Take a more
spring-clean flexible approach
to retirement
your portfolio? How the new rule changes could
affect your future planning
Picking the right combination of assets
will depend on your risk profile
How focused
Estate is your portfolio?
planning
Investing for growth,
income or both
Tax saving incentives
for substantial Absolute
charitable legacies
return funds
Steadier results through a
combination of strategies
A ION
16 S
E
rn C H N S
ge G
pa N
L PE
RU E W
to
Tu E
N

2. IN THIS ISSUE
in this issue
Financial 16
planning is 12
our business.
We’re passionate about making sure 11
your finances are in good shape. 05 Absolute return funds
Steadier results through a 15 gender-bAsed
insurAnce rAtes 20 budget 2011
At A glAnce
combination of strategies EU rules against sex discrimination The key announcements from the
Chancellor’s second Budget speech
Our range of personal financial planning services is
extensive, covering areas from pensions to inheritance
06 Pension reforms
Radical changes announced to 16 tAke A more flexible
APProAcH to retirement
22 budget 2011 winners
the public sector How the new rule changes could Who can expect to be ‘better’
matters and tax-efficient investments. affect your future planning off following George Osborne’s
06 estAte PlAnning Budget speech?
Contact us to discuss your current situation, and we’ll
Tax saving incentives for
substantial charitable legacies 18 Junior individuAl
sAvings Account
23 budget 2011 losers
Savings for children in Britain Who can expect to be
provide you with a complete financial wealth check. 08 is it time to sPring- ‘worse’ off following George
cleAn your Portfolio?
Picking the right combination of 18 stAte Pension Age
Helping Britain live within
Osborne’s Budget?
assets will depend on your risk profile her means
24 A budget for business
The highlights at a glance
10 tAxing times
19 nAtionAl sAvings &
How the taxman treats investments investments
Reintroduction of index-linked 26 wHAt tHe numbers
meAn to you
12 get your Pension
PlAnning bAck on trAck
savings certificates pegged to the
retail prices index
Post Budget 2011 taxation and
allowance data
Are you financially prepared
for retirement?
28 emerging mArkets
An important consideration for
15 How focused is
your Portfolio?
Investing for growth, income or both
some investors
02 03

3. WElcomE INVESTmENT
Welcome
Welcome to the latest issue of our
magazine, in which we present the key
financial planning topics that will help you
make more of your money.
As life expectancy rates in the UK continue
to rise, the coalition Government estimates
that nearly one in five people will live to see
08 Absolute
return funds
their 100th birthday. Radical legislation will
be required in an attempt to ensure pension
r
ss you Steadier results through a combination of strategies
d i sc u la n n i n g
savings are sufficient for these retirees, which
To
cial p
in turn will help reduce the burden on the
r
state. As people are also increasingly taking finan iremenTs o er In the current investment climate, absolute return funds could offer the ordinary investor access to a range
a more flexible approach to retirement, requ ain furTh se of more sophisticated investment techniques previously only available to the very wealthy.
T
often winding down rather than retiring on a
To ob aTion, plea
m
infor nTacT us.
specific fixed date, on page 16 we explain the These products, which have only become For the more adventurous investor, Unlike hedge funds, absolute return
new rules and consider whether you are likely co generally available in more recent years, absolute return funds could be used as the funds are fully regulated by the Financial
to be affected. aim to provide a positive return annually foundation of a portfolio while buying more Services Authority and investments
All investments carry a degree of risk regardless of what is happening in the aggressive funds alongside. Alternatively, for in them are covered by the Financial
but some are more risky than others. Once stock market. However, this is not to say more cautious investors they could provide a Services Compensation Scheme,
06
you have established a solid foundation of they can’t fall in value. Fund managers foundation for a more conventional portfolio. providing they are based in the UK.
savings for the short term, you may look stress that investors should not expect However, it is vital that investors choose Investors in absolute return funds are
to investments to provide more growth the funds to make money for them month carefully and obtain professional advice principally liable to Capital Gains Tax
potential over a longer period, typically in, month out, but over the medium before entering this market. (CGT), which is charged when you sell
23
five years or more. On page 08, we discuss term – five years – they should produce an investment and realise ‘gains’ (profits)
why no one investment strategy will suit positive returns. building A above a certain level. Current CGT rates
everyone and look at how to divide up your bAlAnced Portfolio are 18 per cent or 28 per cent for basic
investment portfolio into different types of invest in A wide Absolute return funds do not rely heavily and higher rate tax payers respectively.
investments that change over time. rAnge of Assets on a rising market for their success, In addition, every investor can also realise
Do you want to grow your capital, Absolute return funds achieve their steadier rather the skill of the manager. They are £10,600 of profits in the current 2011/12
increase your income or both? Your answer results through a combination of strategies. therefore a true diversifier and could tax year without having to pay CGT. n
will determine the type of investments One strategy is to invest in a wide range also be an important tool for building a
you select and, in addition, you need to be of assets, including not only shares, bonds balanced portfolio that grows over the
24
aware of the concept of ‘total return’. This and cash but also the likes of property and medium to long term.
is the measurement of performance - the hedge funds. Another is to use derivatives,
actual rate of return of an investment or a which are specialised products that Absolute
pool of investments over a given evaluation allow investors to bet on the future price
period. Total return includes interest, capital movement of an asset. Crucially, this allows
return
gains, dividends and distributions realised investors to make money when an asset is funds achieve
over a given period of time. Read the full falling, as well as rising, in price. To make their steadier
article on page 15. money in a falling market, absolute return results through a
A full list of all the articles featured in this managers can make use of sophisticated
edition appears on page 03. investment tools such as ‘shorting’ and
combination of
‘credit default swaps’. strategies. One
Used properly, these tools aim to allow strategy is to invest
Content of the articles featured in this publication is
for your general information and use only and is not
absolute return funds to do better than in a wide range of
intended to address your particular requirements. They straightforward equity or bond funds when
should not be relied upon in their entirety and shall
markets are falling. However, they are likely
assets, including not
not be deemed to be, or constitute, advice. Although
endeavours have been made to provide accurate to lag behind their more conventional rivals only shares, bonds
and timely information, there can be no guarantee
that such information is accurate as of the date it is
when markets are rising. and cash but also
received or that it will continue to be accurate in the
the likes of
12
future. No individual or company should act upon such
Preserve weAltH, in good
information without receiving appropriate professional
advice after a thorough examination of their particular times And in bAd
property and
situation. We cannot accept responsibility for any
Absolute return funds have a broad hedge funds.
loss as a result of acts or omissions taken in respect
of any articles. Thresholds, percentage rates and tax appeal and a place in many investors’
legislation may change in subsequent Finance Acts.
Levels and bases of and reliefs from taxation are
portfolios because they aim to do what
subject to change and their value depends on the a lot of investors want, which is to make
individual circumstances of the investor. The value of
your investments can go down as well as up and you
money and preserve wealth, in good
may get back less than you invested. times and in bad.
04 05

4. NEWS IN brIEf
PENSION
You’ve
REfORmS
Radical changes announced
to the public sector protected
your most
Labour peer Lord Hutton has
recommended to ministers that public
sector workers should no longer have
final salary pensions. Instead they should
valuable assets.
have schemes linked to average earnings,
while paying more and working longer.
From 2015, most of the six million state
employees will be expected to retire
at the state pension age, which is due
to rise to 66 by 2020. Armed Forces
Estate planning
personnel, firemen and police officers, Tax saving incentives for substantial charitable legacies
who can currently retire in their 50s or
even younger, would have to wait until If you have an estate currently worth more than £325,000, you
But how financially secure are
your dependents?
they reach 60 to receive a pension.
should plan early and act decisively if you are to avoid burdening
Lord Hutton was asked to draw up plans your heirs with a future Inheritance Tax (IHT) liability.
for the future of public sector pensions,
which have become increasingly During Budget 2011 measures were IHT rate. Let’s be clear: no beneficiaries
unaffordable as life expectancy rises. announced to encourage charitable giving will be better off, just the charities to Timely decisions on how jointly owned assets are held,
This would mean the end of final salary that will be of interest to both the voluntary the tune of £300m. I want to make giving
schemes, which have largely disappeared sector and those who donate to charity. The 10 per cent of your legacy to charity the the mitigation of inheritance tax, the preparation of a
in the private sector. However, rather than
replacing them with the defined benefit
reduction from 40 per cent to 36 per cent in
the rate of IHT will become applicable from
new norm in our country.’
People with estates larger than £325,000
will and the creation of trusts, can all help ensure your
schemes common in the wider pensions 6 April 2012 where 10 per cent or more of a should arrange their affairs carefully to dependents are financially secure.
industry, he has recommended that the deceased’s net estate is left to charity. avoid paying more IHT than they need
relatively liberal career average earnings The current £325,000 nil rate IHT band is to. It’s never too early to think about this
system be adopted. frozen until April 2015 and will be indexed subject. There is a plethora of things people
against the Consumer Prices Index measure can do to reduce a liability and ensure they Contact us to discuss how to safeguard your
Lord Hutton says that, while the special
status of these workers should be
of inflation.
The move to boost philanthropy, known
leave the maximum amount to their family
and not the taxman. n
dependents, wealth and assets, don’t leave it until
respected, it is no longer acceptable as ‘10 for 10’, will cost the Treasury about it’s too late.
for pensions to be paid in early middle £170m a year by 2015/16 but it is estimated
THIS IS A vERY COmPLICATED AREA
age. In future, the uniformed services the measure could result in more than
OF FINANCIAL PLANNING AND
should not be able to retire before £350m worth of additional legacies in the OBTAINING PROFESSIONAL ADvICE
their 60th birthday. He also says that it first four years of the scheme. IS ESSENTIAL TO PRESERvE YOUR
should be possible to introduce the new The Chancellor, mr Osborne told the WEALTH FOR FUTURE GENERATIONS.
pension ages by the end of the current Commons: ‘If you leave 10 per cent or FOR INFORmATION ABOUT HOW WE
COULD HELP YOU, PLEASE CONTACT US
Parliament, in 2015. more of your estate to charity, then the
TO DISCUSS YOUR REqUIREmENTS.
Government will take 10 per cent off your
06

5. WEAlTH crEATIoN WEAlTH crEATIoN
DID yoU kNoW?
Since April 1962 to February 2010, shares have
beaten cash:
n in 92.3 per cent of all 10-year periods
n in 100 per cent of all 15-year periods
n in 100 per cent of all 20-year periods
Source: The Office for National Statistics and M&G
data, February 2010
Is it time to
The important thing to remember about investments is
that, even if your investment goes down, you will only
actually make a loss if you cash it in at that time. You
should be prepared to take some risk and you may see
spring-clean
some falls in the value of your investments.
There is also the issue surrounding currency risk.
Currencies – for example sterling, euros, dollars
and yen – move in relation to one another. If you
are putting your money into investments in another
your portfolio?
country, then their value will move up and down in line
with currency changes as well as the normal
share-price movements.
Another consideration is the risk of inflation. Inflation
means that you will need more money in the future to
buy the same things as now. When investing, therefore,
Picking the right combination of assets will depend on your risk profile Saving your money in a range of assets beating inflation is an important goal. n
helps reduce your exposure should one of
All investments, including cash deposits, carry a degree of risk but some are more risky than your investments suffer a downturn. For many SprINg-clEANINg
investors the creation of a ‘balanced’ portfolio
yoUr porTfolIo
others. Once you have established a solid foundation of savings for the short term, you may
look to investments to provide more growth potential over a longer period, typically five years means spreading investments across a When reassessing your financial plans, it’s important
to consider the five steps below before you do
or more. There is no one investment strategy that suits everyone and your decisions on how to range of products to minimise risk exposure. anything with your money.
divide up your investment portfolio into different types of investment will change over time.
1) What are your financial goals?
2) What’s your time frame?
If appropriate to your particular situation, your portfolio. Above all, there is tax treatment, which could affect your one particular asset. Key to Growth stocks are held because 3) What is your attitude to risk?
the start of the new 2011/12 tax year is the importance of diversification, choice. These asset classes have different diversification is selecting assets investors believe their value is 4) How much can you afford to invest?
a good time to reconsider your attitude both geographically and between risk characteristics and whilst these that behave in different ways. likely to grow significantly over 5) Have you obtained professional financial advice?
towards risk for return and give some sectors, even between asset classes implicit risks cannot be avoided, they the long term, whereas value
thought to whether the structure of and the weightings you wish to keep can be mitigated as part of the overall A ‘sAfety net’ by shares are held because they
your portfolio is still in line with your in each part of your portfolio. Not investment portfolio by diversifying. diversifying are regarded as being cheaper TO DISCUSS HOW WE COULD HELP YOU
investment aims and objectives or having all your eggs in one basket Saving your money in a range of assets Some assets are said to be than the intrinsic worth of REASSESS YOUR ATTITUDE TOWARDS RISK, GET
AN OvERvIEW OF SOmE OF THE ALTERNATIvE
whether your investment attitude has means that if one part of your helps reduce your exposure should one ‘negatively correlated’ – for the companies in which they
TYPES OF INvESTmENTS THAT ARE AvAILABLE
changed. Also, in the current economic portfolio underperforms, this could be of your investments suffer a downturn. instance, bonds and property represent a stake. By mixing
AND HELP YOU mAKE INFORmED DECISIONS
climate, with interest rates so low and compensated for elsewhere. For many investors the creation of a often behave in a contrary way to styles that can outperform or
ABOUT HOW, WHEN AND WHERE TO INvEST FOR
the prospects of future rising inflation, When you choose to invest, your money ‘balanced’ portfolio means spreading equities by offering lower, but less under-perform under different THE FUTURE, PLEASE CONTACT US.
you could be losing out by keeping your can be spread across five main types of asset: investments across a range of products to volatile returns. This provides a economic conditions, the overall
money in a savings account because minimise risk exposure. ‘safety net’ by diversifying many of risk rating of the investment
inflation is beating the return on interest n Cash Given some forward planning, you the risks associated with reliance portfolio is reduced. Selecting The value of investments and the income from them
rates and, therefore, the real spending n Gilts (Government bonds) could decide on the amount of risk upon one particular asset. It is the right combination of can go down as well as up and you may not get back
power of your money is less. n Corporate bonds with which you’re most comfortable. also important to diversify across these depends on your risk your original investment. Past performance is not an
n Equities (stocks and shares) By spreading your investments over different ‘styles’ of investing, such profile, so it is essential to seek indication of future performance. Tax benefits may
tHe imPortAnce of n Property a wide range of asset classes and as growth or value investing, as professional advice to ensure vary as a result of statutory change and their value
diversificAtion different sectors, it is possible to mitigate well as across different sizes of that your investment portfolio is will depend on individual circumstances. Thresholds,
You should consider the weighting You should remember that different the risk that your portfolio becomes companies, and different sectors commensurate with your attitude percentage rates and tax legislation may change in
and balance of the constituents of types of investments may receive different overly reliant on the performance of and geographic regions. to investment risk. subsequent Finance Acts.
08 09

6. TAxATIoN TAxATIoN
Taxing times
How the taxman treats investments
Different investments unnecessAry tAx on sAvings Higher rate taxpayers have a total liability
are subject to different If you or your partner is a non-taxpayer, of 32.5 per cent on dividend income and
tax treatment. The make sure you are not paying unnecessary the tax credit reduces this to 22.5 per cent,
tax on bank and savings accounts. Avoid while additional rate taxpayers have a total
following is based on
the automatic 20 per cent tax deduction on liability of 42.5 per cent reduced to 32.5 per
our understanding, as at interest by completing form R85 from your cent after tax credit is applied.
6 April 2011, of current bank or product provider or reclaim it using Interest from fixed interest funds: any If you or your partner is a non-
taxation, legislation and form R40 from HmRC. interest paid out from fixed interest funds taxpayer, make sure you are not
(these are funds that invest, for example,
HM Revenue & Customs paying unnecessary tax on bank and savings
individuAl in corporate bonds and gilts, or cash) is
(HMRC) practice, all of sAvings Accounts (isAs) treated differently to income from funds
accounts. Avoid the automatic 20 per cent
which are subject to You pay no personal Income Tax or Capital invested in shares. Income is paid net of tax deduction on interest by completing
change without notice. Gains Tax (CGT) on any growth in an ISA, 20 per cent tax. Non taxpayers can re-claim form R85 from your bank or product
or when you withdraw your money. You can this amount, basic rate taxpayers have
The impact of taxation provider or reclaim it using form
save up to £10,680 per person in an ISA in the no further liability; higher rate taxpayers
(and any tax relief) 2011/12 tax year. If you invest in a Stocks and pay an additional 20 per cent, additional
R40 from Hm Revenue & Customs.
depends on individual Shares ISA, any dividends you receive are paid rate taxpayers pay 30 per cent (whether
circumstances. net, with a 10 per cent tax credit. The tax credit distributed or re-invested). greater than 100 per cent of the amount changed from 1 April 2008. The bonds fall Any income (dividends) you receive
cannot be reclaimed by anyone including capital gains Tax (cgT): no CGT is paid paid in). If you are a higher or additional rate under different legislation and corporate from your shares carries a 10 per cent
non taxpayers. There is no further tax liability. on the growth in your money from the taxpayer now but know that you will become investors are no longer able to withdraw tax credit. Higher rate taxpayers have a
The impact of taxation (and any tax reliefs) investments held within the fund, but when a basic rate taxpayer later (perhaps when you 5 per cent of their investment each year and total liability of 32.5 per cent on dividend
depends on your individual circumstances. you sell, you may have to pay CGT. You have retire, for example), then you might consider defer the tax on this until the bond ends. income and the tax credit reduces this to
a personal CGT allowance that can help limit deferring any withdrawal from the bond 22.5 per cent, while 50 per cent additional
nAtionAl sAvings & any potential tax liability. (in excess of the accumulated 5 per cent offsHore investment bonds rate taxpayers have a total liability of
investments (ns&i) Accumulated income: this is interest or allowances) until that time. Whether you pay Offshore investment bonds are similar to 42.5 per cent reduced to 32.5 per cent
You can shelter money in a tax-efficient way dividend payments that are not taken but tax will depend on factors such as how much onshore investment bonds (above) but there after tax credit is applied.
within this Government-backed savings instead reinvested into your fund. Even though gain is realised over the 5 per cent allowance is one main difference. With an onshore When you sell shares, you may be liable
institution. During Budget 2011 it was they are reinvested, they still count as income (or on full encashment) and how much other bond, tax is payable on gains made by the to CGT on any gains you might make.
announced that NS&I is to relaunch index- and are subject to the same tax rules as for income you have in the year of encashment underlying investment, whereas with an Current CGT rates are 18 per cent or 28 per
linked savings certificates. Returns will be dividend income and interest. (the gain plus other income could take you offshore bond no income or CGT is payable cent for basic and higher rate tax payers
tax-free and the maximum that can be saved is into the higher rate tax bracket). Those with on the underlying investment. However, respectively. You have an annual allowance
£15,000 per individual per investment. onsHore investment bonds age-related allowances could lose some or all there may be an element of withholding tax and special rules apply to calculating your
Investment bonds have a different tax of this allowance if the gain on a bond added that cannot be recovered. gains or losses. n
unit trusts And oPen-ended treatment from many other investments. to other income takes them over £24,000 The lack of tax on the underlying
investment comPAnies (oeics) This can lead to some valuable tax planning in the 2011/12 tax year, which equates to a investment means that potentially it can
With a Unit Trust or OEIC your money is opportunities for individuals. There is no marginal rate of tax on ‘the age allowance grow faster than one that is taxed. Tax may, WE ARE COmmITTED TO mEETING
pooled with other investors’ money and can personal liability to CGT or basic rate Income trap’ element of their income chargeable at however, become payable on a chargeable THE NEEDS OF OUR CLIENTS AND
be invested in a range of sectors and assets Tax on proceeds from your bonds. This is 30 per cent. event (usually on encashment or partial HELPING THEm BUILD WEALTH IN THE
such as stocks and shares, bonds or property. because the fund itself is subject to tax, If you do defer withdrawal, you will encashment) at a basic, higher or additional mOST TAx-EFFICIENT WAY. THERE
ARE mANY DIFFERENT WAYS TO
Dividend income from oEIcS and unit trusts equivalent to basic rate tax. not usually need to pay tax on any gains. rate tax as appropriate. Remember that the
GROW YOUR WEALTH. OUR SKILL IS IN
invested in shares: if your fund is invested in You can withdraw up to 5 per cent each year However, this will depend on your individual value of your fund can fluctuate and you HELPING YOU TO UNDERSTAND THE
shares, then any dividend income that is paid of the amount you have paid into your bond circumstances at that time and, as such, may not get back your original investment. CHOICES AND THEN HELPING YOU
to you (or accumulated within the fund if it is without paying any immediate tax on it. This you should seek professional financial and mAKE THE INvESTmENT DECISIONS
reinvested) carries a 10 per cent tax credit. allowance is cumulative, so any unused part tax advice regarding this complex area. uk sHAres THAT ARE RIGHT FOR YOU. FOR mORE
INFORmATION, PLEASE CONTACT US
If you are a basic rate or non taxpayer, of this 5 per cent limit can be carried forward The taxation of life assurance investment If you own shares directly in a company you
TO DISCUSS YOUR REqUIREmENTS.
there is no further income tax liability. to future years (although the total cannot be bonds held by UK corporate investors may be liable to tax.
10 11

7. rETIrEmENT rETIrEmENT
get your pension It is estimated that one third of
people in their 50s have
planning back on track
no retirement savings at all.
cash. Bonds, gilts and some structured If you have maximised your pension options such as a drawdown pension and
products may also provide a halfway contributions, it is also possible to continued pension investment.
Are you financially prepared for retirement? house between cash and equities. contribute into a partner’s pension plan.
So don’t forget to consider a spouse’s countdown to retirement
If you are a 50-something, are you financially prepared for current and previous employers, who will be able to provide countdown to retirement pension. If you are a higher earner in a – 6 montHs remAining
retirement? It is estimated that one third of people in this age pension forecasts, as will the companies managing any private – 5 yeArs remAining final salary scheme, you should ensure You will need to contact your pension
group have no retirement savings at all. However, the plans you pension plans. During this period we can help you that any additional pension savings don’t providers to find out how your pension
make in the final approach to retirement can have the most You then need to consider how much income you’ll need in review your retirement goals. It’s also breach the ‘lifetime allowance’ as this will eventually be paid and to ascertain
significant impact on the size of your eventual pension. retirement. It’s important to be realistic – you may spend less if important to obtain up-to-date pension could generate a tax bill. The lifetime the value. If you decide to defer your
For those in their 50s, pension planning has always been you are not commuting to work, for example – but don’t forget forecasts. Is retiring at the age you allowance will be reduced from £1.8m retirement you will have to inform your
particularly important, but today’s 50-somethings face a series to factor in holidays, travel and any debts you may still have. planned still realistic and achievable? to £1.5m from April 2012. Also, if you pension providers.
of challenges that no other generation has had to deal with. If you are currently on target to receiving less than you’d As you approach the final five years, still have outstanding debts, such as a If you decide to purchase an annuity you
This age group has benefited from huge improvements in ideally like, it is essential that you obtain professional advice you’ll need to consider moving any stock mortgage or credit cards, you should use should seek professional advice to ensure
health and longevity; men retiring at 65 can now expect to live about how you can make up any shortfall. With ten years or market-based investments into safer any surplus money to reduce them. that you get the best rate. If you smoke or
into their early 80s, while women of the same age can expect less to retirement, you need to maximise your savings during options such as cash, bonds or gilts. If Deciding how to take your pension have certain health problems, even minor
to celebrate their 85th birthday. this period and not only into pensions but utilising other there is a sudden market correction now, benefits is one of the most important ones, inform the annuity provider as you
many people currently in their 50s have also seen their appropriate investments. You will need to consider whether you may have insufficient time to make financial decisions you’re ever likely to may obtain a better rate.
pensions and savings squeezed from all sides, with company options such as retiring later or working part-time beyond your good any losses. make. It’s important not to leave it until By deferring taking your state pension,
pension schemes being cut back while the value of the state retirement date may be a more realistic way of meeting your If you have any lost pensions and need the last minute to decide what you will you could qualify for a bigger pension. If
pension has fallen. Ignoring the problem completely is likely to retirement goals. help contacting the provider, the Pension do with your pension fund. You need to you opt to do this you’ll need to contact
make it significantly worse. It is not only how much you save but where it is invested Tracing Service (0845) 600 2537 may be obtain professional advice and consider the Pensions Service. If you work beyond
Planning for retirement is one of the biggest financial that can make a difference. We can assist you to carry out an able to help. The tracing service will use your options properly; simply buying the your retirement age you do not have to
challenges people face, and the one you can least afford to get audit of existing pension plans and help you look at where this database, to search for your scheme annuity offered by your pension provider make National Insurance contributions.
wrong. If you are in your 50s and find yourself in this position, they are invested, how they have performed and what charges and may be able to provide you with could significantly reduce your income in Any additional money earned could be
there are steps you can take to improve your pension prospects. are levied on them. It may even be appropriate to consolidate current contact details. The information retirement and there is no second chance saved in a pension plan. n
existing pension plans or take steps to protect capital values can be used to contact the pension to make a better decision.
we cAn HelP you get your Pension – there are a number of guaranteed products that could help provider and find out if you have any You also have other retirement
PlAnning bAck on trAck you achieve this. pension entitlement. alternatives available and the freedom
As part of this review we can also look at the diversification Potentially you now have just 60 paydays to choose when and how you take your CHOOSING HOW TO TAKE
countdown to retirement of your assets, as this can help protect against sudden market remaining until you retire. So it’s essential pension, with the previous compulsory YOUR PENSION BENEFITS IS
– 10 yeArs remAining movements. With a ten-year time frame, investors need to that you save what you can during this annuity age of 75 withdrawn. Under the ONE OF THE mOST ImPORTANT
Before you can draw up financial plans for the future, you weigh up the risks of equity investments against safer cash- period, taking advantage of pensions and new annuity purchase rules, you are
DECISIONS YOU’LL mAKE, SO
IT’S vITAL YOU HAvE ALL THE
need a clear view of your current position. Do you know what based products. tax-efficient investments. Remember, this given more flexibility about how you
FACTS. TO FIND OUT mORE
you are worth? As a starting point, people should establish Generally, the nearer you are to drawing your pension, the money will have to produce enough choose to use your retirement savings.
ABOUT HOW WE CAN HELP
what their likely state pension entitlement would be. This can less investment risk you should take. But over this period it income for you to live off for potentially You can still convert funds to an annuity YOU, PLEASE CONTACT US.
be done by completing a form BR19, available at www.direct. is reasonable to include equities within a mixed portfolio, more than 20 years. if you wish, but you also have more
gov.uk. You should also contact the pension trustees of your particularly given the very low returns currently available on
12 13

8. INVESTmENT NEWS IN brIEf
How focused is
your portfolio?
Isn’t it time Investing for growth, income or both GENdER-bASEd
INSURANCE RAtES
you had a
Do you want to grow your capital, increase your future economic ups and downs. As your
income or both? Your answer will determine the financial situation changes over time, you may EU rules against
type of investments you select and, in addition, need to make the necessary adjustments to sex discrimination
you need to be aware of the concept of ‘total your investment portfolio and switch from
return’. This is the measurement of performance growth assets to income. The European Court of Justice has
- the actual rate of return of an investment or ruled that gender-based insurance
financial review?
a pool of investments over a given evaluation investment timeline rates are unlawful in a move that
period. Total return includes interest, capital Broadly speaking, younger people are saving could lead to a shake-up in the
gains, dividends and distributions realised over for the long term and don’t necessarily need annuity market. This major ruling
a given period of time. their investments to produce a current income takes effect from 21 December 2012
but will be looking to guard against inflation. and will fundamentally reshape the
income And cAPitAl Under these circumstances growth funds may retirement landscape, leading to the
APPreciAtion be more appropriate. likely equalisation of annuity rates
We’ll make sure you get the right Total return accounts for two categories
of return: income and capital appreciation.
Income includes interest paid by fixed-income
For middle-aged investors, growth funds are
still generally the right option, but the amount
invested is likely to be larger as a result of
for men and women. This ruling
means it will be imperative that
every investor shops around with
advice for your individual needs. investments, distributions or dividends.
Capital appreciation represents the change
higher income and savings accumulated over
previous years. With a secure capital base
their pension fund at retirement;
if they don’t they risk ending up
in the market price of an asset. Total return behind them, middle-aged investors may also with a homogenised standard–issue
looks to combine income with capital growth consider putting part of their savings into annuity which is almost certain to
We provide professional financial advice covering to achieve the best overall return. some higher risk investments, such as more be a poor deal for them.
Whether you choose an income or a growth fund specialised pooled funds.
most areas of financial planning, including, tax-efficient will typically depend on your circumstances and When investors start to approach retirement, Following this announcement,
it would be natural to assume
savings, investment advice, retirement planning, estate objectives – in other words, your investment time
frame, your attitude towards investment risk and
their priorities change. Having built up a capital
sum, they usually need to start switching towards that rates may drift towards the
& inheritance tax planning, life protection, critical illness what you need the investment to provide for you. funds that provide an income once they stop
work. Although share-based investment funds
middle of where male and female
rates currently stand. However, to
cover and income protection. A regulAr streAm of income tend to do well over the long term, they can swing begin with, insurers might be very
If you need a regular stream of income, sharply in value over the short term. So people of conservative about the annuity
focusing your portfolio on assets that will help retirement age should perhaps consider switching rates they offer and we could see
To discuss your options, please contact us. you achieve this, such as cash and bonds, will
provide a fixed income. If you have a longer
into more defensive, income funds at this point. n rates for men cut to where female
rates are without much, if any, rise
investment time period or you do not need an WE UNDERSTAND THAT CHOOSING in rates for women.
immediate income, you could consider a larger INvESTmENTS CAN BE DIFFICULT, SO
allocation to growth-focused investments. WHETHER YOU’RE A FIRST-TImE INvESTOR The ruling may also encourage
It is possible to buy an income fund and a growth OR AN ExPERIENCED ONE, WE CAN HELP insurers to build more personalised
YOU TO ExPLORE YOUR OPTIONS AND
fund to capitalise on the advantages that come with pricing systems, leading to annuity
TAILOR YOUR PORTFOLIO. THIS COULD
each type of investment strategy. Some investment income becoming more related to
BE AS SImPLE AS ENSURING YOU GET
houses manage both income and growth funds,
THE BEST RATES FOR SHORT-TERm CASH
you and your individual lifestyle. To
which provide a little of each style in the same fund; mANAGEmENT, OR A mORE COmPLEx some extent this process is already
however, there is usually less choice available. UNDERTAKING TO CREATE AN INvESTmENT under way with the expansion
Whatever your preference, if you hold a PORTFOLIO TO GROW YOUR WEALTH FOR of enhanced annuities offering a
variety of investments, both growth and THE LONG TERm. PLEASE CONTACT US FOR higher income if you have health
income, you should be better prepared for mORE INFORmATION. problems or are a smoker.
15

9. rETIrEmENT rETIrEmENT
Take a more flexible
approach to retirement Retirement Options
How the new rule changes could affect your future planning Your questions answered
As life expectancy rates in the UK continue to rise, the n Your GAD maximum will be reviewed conventional Drawdown flexible Drawdown
coalition Government estimates that nearly one in five people every three years up to age 75 and lifetime Annuity
annually thereafter.
will live to see their 100th birthday. Radical legislation will
n Drawdown is available from age can I get tax-free cash? Yes, up to 25 per cent Yes, up to 25 per cent Yes, up to 25 per cent
attempt to ensure pension savings are sufficient for these 55 (or earlier for those with a of your pension fund cent of your pension fund of your pension fund
retirees, which in turn will help reduce the burden on the state. protected pension age) with no
upper age restriction. I’m over 55, how Anybody with a private Anybody with a private Anybody with a minimum
People are also increasingly taking a new retirement rule n If you die after starting to draw do I qualify? pension can buy an annuity pension can go into drawdown, secure pension income
more flexible approach to retirement, cHAnges from 6 APril 2011 an income from your pension, any but not all pension providers of at least £20,000 a year
often winding down rather than retiring n The maximum pension contribution remaining pension fund will be taxed at offer the option can go into flexible
on a specific fixed date. The new rules limit is reduced to £50,000 from 55 per cent, regardless of your age. drawdown but not all
allow for that flexibility, enabling you £255,000 annually. The balance of a n Until age 75, there will be no tax pension providers offer
to secure income from part of your notional £50,000 annual allowance charge on death for undrawn funds this option
pension while keeping the rest invested, from the previous three tax years and a lump sum can be paid to your
for instance. If you are under 75 you are can be carried forward, allowing for beneficiaries. After age 75, undrawn How much income It depends on the size of your As little or as much as you As little or as much as you
likely to be affected. Even people with potential catch up in 2011/12. funds will be taxed at 55 per cent on will I get? pension pot and the annuity rate want, within a yearly want up to 100 per cent
some years to go until retirement have n The previous types of income-drawing death, but ring-fenced from the rest of (you can shop around to secure maximum limit of your pension, provided
something to think about. arrangement have been abolished your estate. the best rate) you qualify
While the new rules make these and replaced by the simple term n Defined benefits will be valued using
retirement options possible, not all ‘drawdown pension’, of which there a flat factor of 16. How much tax will I pay? Your income is taxed at source Your income is taxed Regular payments and
pension providers will necessarily offer are two types – capped and flexible. n The Lifetime Allowance will be under PAYE (Pay As You Earn) at source under PAYE cash withdrawals are
all the options. very few providers n To qualify for flexible drawdown, you reduced from £1.8m to £1.5m from (Pay As You Earn) taxed as income at source
already have a drawdown option must have a secure income stream April 2012. under PAYE (Pay As You Earn)
for traditional personal pension already in payment of £20,000 per n Tax charges are applicable on funds
plans. Fewer still are expected to year or more. in excess of the Lifetime Allowance. What happens to You exchange your fund for a Your pension (or part of it) Your pension (or part of it)
offer flexible drawdown. So these n Under capped drawdown, the my pension? secure income from an stays invested stays invested
rule changes mean that now is an maximum annual income is based on WITH THE INTRODUCTION OF THE insurance provider
NEW PENSION RULES, THERE’S NO
appropriate time to discuss your a Government Actuary Department
BETTER TImE TO REvIEW YOUR
pension arrangements with us. On the (GAD) calculation of 100 per cent of ExISTING ARRANGEmENTS. THIS What are the risks? None. Your income is secure As at least part of your pension Any part of your
right, we have provided a summary of the relevant annuity, instead of the IS A COmPLEx SUBjECT AND and it never runs out is invested, its value could go up pension that remains
the retirement rule changes. previous 120 per cent. RECEIvING PROFESSIONAL ADvICE as well as down. In the worst invested could go up
ABOUT THESE CHANGES AND HOW case scenario, the value of your as well as down in value.
TO COPE WITH THE NEW mINImUm
pension could be completely In the worst case scenario,
INCOmE REqUIREmENT IS ESSENTIAL
TO ENSURE YOU mAxImISE YOUR eroded. You might live longer the value of your pension
RETIREmENT INCOmE. TO DISCUSS than you expect could be completely eroded
YOUR PARTICULAR REqUIREmENTS, You might live longer than
PLEASE CONTACT US FOR you expect
FURTHER INFORmATION.
What investment No investment As much or as little as As much or as little as
choice do I have? choice needed your pension provider allows your pension provider allows
What happens if I die There is nothing payable The rest of your funds can be The rest of your funds
after I take it out? unless you have selected a joint used to provide an income for a can be used to provide
life annuity, an annuity dependant or can be passed an income for a dependant
guaranteed for a term, on to a beneficiary as a lump or can be passed on to
or value protection sum, subject to a 55 per a beneficiary as a lump sum,
cent tax charge subject to a 55 per cent
tax charge
to discuss your options at retirement please contact us for further information.
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