From April 2010, the earliest age you will be able to draw funds from your pension will increase from 50 to 55. This means that if you are 50 today, you could take the tax free lump sum from your pension, and either take an income from it, or defer that to a later date. From April 2010, you'll have to wait until fo anohe 4 1/2 years.
But why would somebody want to start to take their pension fund so early? Lets run through an example. A gentleman has £400,000 in his pension, and a £100,000 mortgage fixed at 5%, with 10 years remaining. He chooses to take the 25% tax free lump sum, but defer taking an income until 60. This enables him to clear his mortgage outright, as coincidentally, the tax free lump sum is £100,000. As he has no mortgage to pay, he now has an extra £1079 per month to put into a pension. With tax relief of a higher rate tax payer, this would be grossed up to £1,798 per month. Starting to sound good.
If he could achieve 5% growth after charges on this fund between now and retirement, and increase the contributions in line with average earning each year, this extra contribution of £1798 per month would have grown to just shy of £350,000, whereas had he left the £100,000 in his pension, it would only be worth £179,000. Not a bad way to enhance his retirement planning. In the mean time, the remaining £300,000 would also have grown to £537,000.
So why has clearing the £100,000 mortgage provided such an increased fund. In effect, you are getting the tax relief twice. When the funds were originally put into the pension, they received tax relief at his highest marginal rate. Although you cannot recycle the tax free lump sum directly back into the pension, by clearing a mortgage and then funding from income, you are clearly not recycling the same funds. As such, when the new funds are invested into the pension, they are awarded tax relief all over again.
There are a few instances where this cannot be done, but in the main, this makes good financial sense, if done at the right time, for the right people. Those aged between 50 and 55 will lose the ability to do this in April next year, so if this sounds like you, it may be worth considering this now.
So its not all doom and gloom about pensions after all! Make hay while the sun shines!
Friday 9 October 2009
Monday 5 October 2009
In our bank we trust.
The banks really are in for a fun time of it at the moment. Every time you open a paper, there appears to be a new story as to how they have ripped off their trusting customers. Unfortunately this is something that we have been saying for quite some time. This is what happens when you leave a spotty teenager with 3 weeks training in charge of your finances. In summary, a few of the stories of late;
Accident, Sickness and Unemployment (ASU) policies sold to people who couldn’t ever claim on them. These types of contracts have a long history of not paying out. Not to be confused with income protection contracts, ASU policies are only underwritten at the point of claim. Only after paying the premiums for years do you find out you weren’t eligible for the cover!
Major high street banks, including their Private Banking divisions are among companies charging exorbitant fees for acting as executors on customers' wills, an investigation has revealed. As seen in the Independent this weekend, people taking up offers of free or discounted will-writing services have been warned their beneficiaries could end up paying "obscene" fees. An Independent on Sunday inquiry has revealed some major high street banks, solicitors and will-writing firms advise clients to appoint them as executors on customers' wills and levy fees of up to 4.5 per cent on the estate on death. On an estate worth £500,000, that equates to £22,500 - about four times as much as the fees that the best-buy probate firms charge.
Because the advisers in banks aren’t independent, and are therefore only selling the banks products, the advisers are restricted in the level of help they can give you in selecting investment funds. They can ‘sell’ you the concept of a stocks and shares ISA, and then not select an appropriate investment inside it for you. Investment selection is the most important part, as this will have the greatest impact on what you get back, and when. Banks have been seen to be putting low risk clients into funds that have lost 45% in 6 months. Hardly a low risk investment.
So in other words, when it comes to managing your money, I would strongly suggest that you go to an independent financial planner. Otherwise, you may well just get ‘flogged’ the latest product they are getting an enhanced bonus on! You have been warned.
Accident, Sickness and Unemployment (ASU) policies sold to people who couldn’t ever claim on them. These types of contracts have a long history of not paying out. Not to be confused with income protection contracts, ASU policies are only underwritten at the point of claim. Only after paying the premiums for years do you find out you weren’t eligible for the cover!
Major high street banks, including their Private Banking divisions are among companies charging exorbitant fees for acting as executors on customers' wills, an investigation has revealed. As seen in the Independent this weekend, people taking up offers of free or discounted will-writing services have been warned their beneficiaries could end up paying "obscene" fees. An Independent on Sunday inquiry has revealed some major high street banks, solicitors and will-writing firms advise clients to appoint them as executors on customers' wills and levy fees of up to 4.5 per cent on the estate on death. On an estate worth £500,000, that equates to £22,500 - about four times as much as the fees that the best-buy probate firms charge.
Because the advisers in banks aren’t independent, and are therefore only selling the banks products, the advisers are restricted in the level of help they can give you in selecting investment funds. They can ‘sell’ you the concept of a stocks and shares ISA, and then not select an appropriate investment inside it for you. Investment selection is the most important part, as this will have the greatest impact on what you get back, and when. Banks have been seen to be putting low risk clients into funds that have lost 45% in 6 months. Hardly a low risk investment.
So in other words, when it comes to managing your money, I would strongly suggest that you go to an independent financial planner. Otherwise, you may well just get ‘flogged’ the latest product they are getting an enhanced bonus on! You have been warned.
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