30 May 2013

One approach to retirement income

People are beginning to understand that you can shop around for the best annuity for your pension money. But many haven't yet seen that there are other options than an annuity.
 
Those options include "income drawdown", where your pension money remains invested but you take an income from it up to the allowed limit.
 
But you can also combine different options.
 
Let's say, like many people, you don't want to stop work completely at 65 (or whenever) but intend to work a few days a week. In that case you could move your pension money into a drawdown scheme, and take a small income to replace some of your old salary. The invested money has a chance to grow further if you don't take too much income.
 
And when you stop work completely, you can either increase the income from the drawdown scheme, or use the pension money to buy an annuity. Who knows... perhaps annuity rates will have improved by then! Or (sorry to point this out), perhaps your health will not be quite as good and you will be entitled to an enhanced annuity.
 
Given that retirement might last a third of your life, it has some advantages to keep your options open.

20 May 2013

Don't Forget Inheritance Tax

The amount of tax income the government received from Inheritance Tax increased in 2011/12 to £2.91 billion, up from £2.72 billion in 2010/11 apparently.
 
The most likely reason is the freezing of the allowance - the nil rate band - at £325,000. That's now frozen until 2017/18. The implication for all of us is that more and more people will be brought into the IHT net. In fact, the number of estates which were subject to IHT in that year was up by 3,000 to 20,000. Overall that doesn't sound like a lot, but given the prices of property - the largest part of most estates - my guess is that most of those will be in the south east of the country.
 
There are a number of tried and tested techniques for reducing an IHT liability, although it does need careful consideration of someone's objectives - preserving access to capital to fund care costs is a  big thing for many people, for example.

This is one area where professional advice costing three or four figures could make a five or six-figure difference in a family's wealth!

16 May 2013

Keeping on top of your investment funds

I always advise people to keep investment funds under review - at least annually for a long term investor. Things change in the investment world, as well as in individual funds, and here's an example...
 
Sometimes a popular unit trust (or "OEIC") fund can have too much money being invested with it - believe it or not. The way that unit trusts are structured means that the fund manager has to use investors' money to buy the underlying investments which the fund is there for. But that isn't always easy.
 
Fund managers First State have just announced that their popular Global Emerging Market Leaders fund has reached that point. Too much extra investment in the fund will hamper their ability to use it effectively, they say. So they are imposing an initial charge of 4% from September 2013. That will certainly slow, if not stop, the inflow of new investors' money since there is generally no initial charge.
 
The same thing happened with another emerging markets fund not long ago - Aberdeen Emerging Markets imposed a 2% initial charge.
 
Actually, that does highlight the advantage of another type of investment: Investment Trusts. They are structured differently from Unit Trust funds - but that's another blog.

7 May 2013

Now, where did I put that pension?

Almost one in four people have lost track of a pension plan, according to Age UK. The trouble is that when you change jobs you might be provided with a new pension plan so the old one goes on ice. And when you move house you don't necessarily think to tell all those old pension companies.

There is a government-backed tracing service for pensions which is certainly worth using if you think that applies to you: Pension Tracing Service - beware of commercial imitations which will end up charging you.

But there's an opportunity to improve the system with the new Auto-Enrolment regime. Since every employment will have to provide a pension, it should be possible to transfer your pensions assets from one employer's scheme to another's. Something of the sort is slated for the forthcoming Pensions Bill, but in the meantime, the Tracing Service is your best bet.

Once you've made contact with that pension again, you might consider consolidating it with others to make it easier for yourself in the future (and perhaps to get rid of a pension with high charges, limited investment options, ... but beware of losing the extra benefits of some older plans). Contact us if you would like some help with that.

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