Welcome to our first edition news update
The objective is to throw some common sense, with the odd bit of humour, onto some serious financial situations. After all money is important, especially if you don't have any!
OUR PHILOSOPHY IS: REDUCE DEBT AND CREATE WEALTH!
In developing this website we have remained loyal to our philosophy and as such you will not see any adverts promoting car loans, personal loans or any other kind of loan ...we will not encourage further debt!
An example of how helpful we can be:
One of our clients found some old pension certificates referring to his employment some years ago. On his behalf we contacted the Pensions Schemes Registry who were able to process his enquiry resulting in him been entitled to a small back dated pension from previous employment.
Pension Scheme Registry, PO Box, 1NN, Newcastle-Upon-Tyne. Tel No: 0191225 6316
Our news section will always feature faq's with expert advice relating to issues of the day!
'Q' Another client (yes, we have more than 1) is concerned about his With Profit Endowment Policy, which he took out to repay his interest only mortgage, and the insurance company have informed him of a potential shortfall at the end of the mortgage term.
'A' There is no definitive answer as the current With Profit Fund Manager's are being pessimistic in the prospect of immediate recovery, that is why they have applied the MVAF (see investments for definition) to protect all plan holders.
Also the FSA have asked all life companies to down grade there projections on growth assumption from 5%/-7%-9% to 4/6&8, therefore it is quite logical using lower growth assumptions that the new projections for growth on your endowment will inevitably show a shortfall. Under no circumstances should you make up the potential shortfall by increasing your endowment premium, as one life office suggested.
A couple of our suggestions,
1. Apply that shortfall to your mortgage and change that portion to a repayment. If the monthly payments become expensive, ask your lender to extend the term and when the endowment matures to pay off the interest you will only have the restructured part to pay.
2. Pay the extra that the insurance company suggested into a cash ISA, and then change your mortgage to a daily interest rate as they will usually allow over payments. This way by putting ‘chunks of wedge' into the mortgage and keeping the payments the same, your debt will start to reduce.
'Q' In this day and age we are frequently asked to visit elderly relatives of clients who are asset rich and cash poor. In this particular instance the husband had been in business for several years, and assumed his business would be his pension, unfortunately this was not to be. You should always be allowed to live with dignity, which in this case was giving cause for concern.
'A' We recommended an equity release scheme, which gave a tax free income, with the interest rolled up against the equity of the house, and a guarantee of no negative equity. Both parents and their children are happy, as the parents can now enjoy their retirement. The children are happy for them, plus their Inheritance Tax Liability is reducing all the time!
'Q' Can I be a member of the Superannuation Scheme and have a personal pension with only my salary as income?
'A' The answer is NO, but you can have a Stakeholder pension scheme. The rules state that if you earn £30,000 and under you can take out a Stakeholder & pay up to a maximum of £234 pm net of tax. One of the biggest benefits is that there is no coloration between the 2 schemes on maximum benefits at retirement.
In's and out's of S2P: The government introduced the Second State Pension (S2P) in April 2002 to encourage employees who had not already been contracted out of the State Earnings Related Pension (SERPS) to do so. They want to encourage as many employees as possible, especially those earning less than £11,000 pa to contract out. The 'carrot' they are offering the lower paid is extra contributions ,and the government is also allocating contributions to those who look after an ill or disabled person and those who receive Invalid Care Allowance.
The problem for employees wanting to contract out is that S2P and the old SERPS pension need to perform between 1%-3% above the earnings index, which in today's climate is unlikely. One may take the opinion (if you are young and bold) that by contracting out, in the long term, the markets will come back, which we think will happen. For those who contracted out with SERPS and you are young it maybe in your interest to revisit this area, but for employees who are within 10-15years of retiring you may wish to consider contracting back in.
Remember, these second tier pensions are paid in addition to your basic state pension, but they only pay a percentage of your income over your whole working life, that is the frightening prospect!
Sounds very grand, but it is only common sense to use a matrix when you are considering creating a wealth strategy which gives you that framework. Below we have created a table which you may find useful. in evaluating your ‘attitude to risk', the top of the table represents high risk, but potentially high returns. The bottom represents the opposite no risk but little return.
It is important to remember that with investments:
1. Your investment can rise as well as plummet
2. Past performance is no guide to future performance
3. As independent advisers we will never use the word guaranteed when discussing investments - maybe capital secure! Because even though your bank or building society deposit account looks guaranteed, if they go bust, you will only be covered for a certain amount.