30 May 2014

Equity Release in the Mainstream

In 2013, £1.07 billion was raised through Equity Release plans. And with booming house prices (in the South East at least), I would expect that figure to continue growing.

That's because an increasing proportion of someone's wealth will be tied up in bricks and mortar. And while it may be great for many people to be able to pass the value on to family in due course, there's also a case for taking advantage of some of that growth yourself! An Equity Release plan provides the liquidity, enabling you to receive a lump sum (or a series of lump sums as an "income").

There is a cost, of course. With a Lifetime Mortgage (the most common form of Equity Release plan) the main cost is the interest on the loan which is added to the amount outstanding and has to be deducted from the value of the house after you die or move into care. And there are advice fees, too.

But to live a better retirement, plenty of people would say it's a cost worth paying.

Contact us for more information on Equity Release plans.

29 May 2014

A Good Time for Structured Products?

Different types of investment perform in different ways. That's what makes diversification so important. I've written about structured products before, and their behaviour can be different to the more common equity-based or fixed interest investments, for example.

Depending on what you think investment markets will do in the near future (the next year or few) now may be a good time to take a look at structured products. If, for example, you believe that markets will not continue going up as they have done now for five years (albeit with a couple of blips on the way), then having the more predictable return of some structured products might be the best thing for you.

One of the most popular types of structured products is the "kickout" or "autocall" product. They provide the advertised return (say 8%) for each year up to the point where you are kicked out - and the kickout occurs because the index that the product follows (such as the FTSE 100) is above a certain level at the anniversary. And because that level can be a "defensive" level below the start point, big returns in markets are not required to give you the product's modest return.

As ever there are risks, and here they include a dependence on the backer of the product - typically a bank - still being there at maturity.

27 May 2014

Thinking about Withdrawing your Pension?

One down-side of withdrawing a whole pension plan (expected to be possible from April 2015, and already possible with "Flexible Drawdown"), is that you get taxed on most of it as income. That is likely to push many people into higher rate tax (or even additional rate tax) even if they are not there already.

So here's a way of getting around that - by investing in an EIS (Enterprise Investment Scheme) you are entitled to income tax relief to the tune of 30% of the value invested. That's not going to suit everyone, but depending on your reasons for withdrawing, it's worth considering.

There may also be benefits should you die - if you don't withdraw a pension and don't use it to generate an income before you are 75, currently it could be subject to 55% tax. But in an EIS, after two years it is likely to be free of tax in the hands of your beneficiaries, since Inheritance Tax won't be due if it's a qualifying investment.

Worth a thought - contact me if it's worth more than that to you!

20 May 2014

Should I ... Invest in Woodford's New Fund?

Neil Woodford managed the highly successful Invesco Perpetual High Income fund for many years. It (still) is an "equity income" fund investing in larger, mostly defensive, companies which pay a dividend.

He left Invesco Perpetual and has now launched a new equity income fund - should you follow him?

Although I am a big fan of the original fund, I will not be recommending clients go into the new one for the time being. The first reason is that, on principle, I would not recommend a fund with a short history (less than three years generally) since it has certainly not had time to prove itself in different market conditions. The second reason is that I suspect that a successful fund needs more than a successful fund manager. While Woodford may have been in a sweet spot at Invesco with great support around him, it's possible he will be distracted by setting up his own company, or that the support team will be less effective, or whatever.

So for me, there's too much risk in the new fund for the time being.

16 May 2014

Fixed Term Annuities - A Good Option for Uncertain Times?

One of the messages I regularly need to get across to people is that buying an annuity is not the only option to create a pension income. I'm glad to say that the Chancellor helped me with this message in the last Budget when the press followed up with "the end of annuities" headlines.

Annuities are not going to end any time soon - they are still the best option in many cases, but it is certainly worth looking at alternatives, one of which is the Fixed Term Annuity (FTA).

The FTA is particularly good in present circumstances with a major change coming to pension in April 2015 (the ability to withdraw all your pension), and with continuing poor annuity rates.

Here's some key points:
  • You could take the tax-free lump sum from your pension, but not take any income
  • You could take a pre-defined income for, perhaps, 5 years and then look at annuities again to see if rates had improved
  • If you have health concerns you might get a better annuity rate in 5 years time
  • Guarantees are available on the value at the end of the fixed term
  • Some investment growth may be possible depending on the product
  • If you die during the term, the death benefits available to beneficiaries are likely to be better than for a standard annuity
In summary, it's about keeping your options open - something which standard annuities don't let you do.
Professional advice is certainly needed when considering these products (you probably couldn't buy one without), but they are an increasingly important option in the difficult process of getting maximum value from pensions.

14 May 2014

Not Everyone Should Try Investing

There's no doubt in my mind that investing requires some faith.

You are handing over your money to someone else who may be able to do a good job with it and give you a good result, but on the other hand... At the very least you may well see times when the value of your investment is less than what you put in.

Actually, the government-sponsored pension scheme - NEST - has a novel approach to that. For the early years of pension contributions you are invested in foundation funds which will not grow very much but neither will they fall in value. That gives your pension assets some time to grow and helps to avoid people opting out when they see values going down and don't understand that it happens.

For people who are used to a guaranteed return on their money in the form of bank interest (albeit not much!), it may be too difficult to make the leap into investing, even though the long term case is clearly better.

So if you talk to me as a financial adviser, don't expect me to press you to start investing. It may be that it would not be a comfortable experience for you.

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