Principle First Financial Blog
Billionaire investor Warren Buffett has called on the US government to tax the rich rather than low earners, to reduce the govt deficit.
“Do we get more money from the person that’s going to serve me lunch today, or do we get it from me? I think we should get it from me,” Buffett told a business conference organised by Fortune magazine.
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The Government is considering encouraging workers in their mid-60s to delay retiring, by letting them draw the full state pension, as well as their wages, from the age of 67.
At present, every pound earned after the first £5 per month of wages is deducted from state pension benefits, through the means-tested pension credits system.
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If you are old enough to remember when Surf and Omo were two of the leading brands of washing powder on the market, you may well be interested in some facts relating to buying pensions annuities.
We have written before in these pages about the importance of shopping around for the best deal, when the time comes to turn your pension savings into a pension income by buying an annuity. The right to shop around with your pension savings and look beyond your existing pension provider, to the open market, is known as the Open Market Option, or OMO.
Many pension savers lose out by taking the first annuity offered to them, which is usually the deal suggested by the company which has managed their pension all these years. Because we enjoy the familiary of companies we know well – whether it be our pension company, our supermarket, or our bank – we can be lulled into believing that their offer will be the best deal for us.
We must be aware that not only are annuity rates at a 20-year low at present, but average male annuity rates have fallen over 45% since 1994.
However, according to latest industry estimates, if all pensions savers ’shopped OMO’ and sought out the most competitive annuity rate on the market, their collective pension income would spiral by a staggering £3.3bn between 2010 and 2030!
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New proposals by the Treasury would create a tax-free savings account for saving for children, similar to the Child Trust Fund scheme, but minus government contributions.
The new savings account would facilitate investment for children, with a ban on withdrawing funds until the child turns 18, both cash and stocks and shares accounts, maximum annual contributions, and tax-free returns on your children’s investment.
The proposals have been quietly welcomed by savings account providers, who had praised the Child Trust Fund scheme as the best option for saving for children in the country’s history.
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New proposals for a single European pension plan have signalled that Brussels is now acting to counter the dire state of pension planning and pension provision across the EU.
The Officially Certified European Retirement Plan (OCERP) would seek to provide pension plans with consistent standards across Europe and the UK, and was proposed by the European Commission in a green paper which has now been endorsed by the Association of the Luxemburg Funds Industry (Alfi).
The paper said the economic crisis had been a “wake-up call for all pensions.”
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Bournemouth builder Cameron Hope (59) bricked up the door of his local Barclays branch to protest about the current low levels of bank lending for commercial loans, mortgage loans, and first time buyer mortgages.
The protest made a statement that talking to a bank manager about a loan these days is like talking to a brick wall.
He claimed ‘We blocked the doorway as a way of saying that the banks are open, but the safe is shut.”
His protest ended 2 hours later, when police ordered the wall to be removed.
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As the first iPhone app appears specifically designed for pension planning, we are again reminded of recent reports that so many people are on the rocky road to bitter disappointment, when they take a real close look at how much they have in pension savings for their retirement.
This week, Aviva is addressing the problem with the Aviva Time to Act iPhone application, with which iPhone and iPad owners can work out how much they should be saving today into their pension plan, to reach their retirement targets at 65.
Principle First – the alternative to Aviva!
Would you like to find out right now what your pension plan or pension savings will give you – even if you don’t have an Apple gadget for Aviva’s new app?
You can do so right now, using the Principle First pension planner, right here on our website.
Our planner allows you to enter your current pension savings, your age and desired age of retirement, and the annual pension income you would like to have, at the end of your working life.
The planner will then put you in the picture as to what you really need to be saving today, to achieve the lifestyle to which you would like to become accustomed.
Turn pension planning fiction into fact today, with the Principle First pension planner!
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UK consumers repaid more unsecured debt in August than they took out, the Bank of England said today.
Net borrowing on credit cards, overdrafts and personal loans was down £120m for the month, the largest drop since November 2009.
The news confirms recent reports that said the average UK household has around £10,000 of unsecured debt (i.e. not including mortgage borrowings) and the focus for consumers is still very much on cutting down those borrowings, rather than including further saving and investment in their financial planning for the short term.
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Government proposals to scrap child benefit 2 years earlier, at 16 rather than 18, could cost families nearly £90 per month for the eldest child, and around £45 per month for each subsequent child.
This loss of £150 per month for a family with 2 children has been compared to the equivalent of the average family’s water, gas and electricity bills put together, and led to predictions that families may rely on credit cards and unsecured loans to make up the shortfall.
Next year’s VAT increase, and its effect on mortgages, is likely to place a further burden on the average family’s financial planning.
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If you spotted a pair of shoes with a ‘£20 off’ label attached, how would you feel if the shop owner then said the deal was available only if you bought a £20 pair of wellingtons as well? That’s more or less what’s been happening lately, in the world of savings and investments.
Banks and building societies have been offering an attractive savings deal on 1 product, but with hidden strings attached. The practice of offering tied investments – i.e. investments at a good rate conditional on another purchase or undertaking – has been widespread enough to draw attention at European level. The EU has concluded that up to 572 million customers, in the UK and across the EU, have been tied in to a lender by being persuaded to take on a second savings deal or investment deal they otherwise might not have chosen.
Typical scenarios include a good savings deal on a bank current account, but only if you lodge your salary there each month, or a loan which is available only if you sign up for a credit card as well.
A recent example is Yorkshire Building Society’s investment bonds offer of 6% in its Combination Bond, provided investors place the same amount in a Legal & General investment bond at the same time.
Not only is the customer possibly taking on a product they may not need, but they can also feel less mobile, in terms of shopping around or switching bank, by virtue of having 2 links to their lender, instead of 1.
While tied investments are quite legal, they underline again the recommendations of the Office of Fair Trading for buyers of savings and investments products to work with a qualifed financial adviser, so that they know what is involved, when comparing the best savings and investments deals.
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The average UK household now has some £10,000 of unsecured debt, above and beyond the major debt of their mortgage loan. The struggle to reduce the legacy of debt from the financial crisis is making good financial planning difficult for many families.
Payday loans are increasing in popularity as many people run short of cash mid-month – but a quick look at their cost is chilling reading and, from an adviser’s point of view, highlights again the value of good financial planning advice.
While a basic £100 payday loan means a payback a week later of £110, late payments result in your owings quickly spiralling through the roof.
On day 9, your £100 jumps to £135, reaches £160 by day 11, by day 16 has gone to £180, and reaches £200 on day 23.
If you take a larger loan of £500 for a month, you owe £650 at the end of 31 days.
These loans are based on contractual agreements and are quite legal – they are simply not very …. advisable.
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In yesterday’s column we touched upon the large numbers of people turning 65 over the coming 2 years, and their emerging realisation that they could well be hard up in old age, having failed to salt away enough cash in their pensions.
These were the children of the baby boomer generation, whose experiences of the good years of the 80s appears not to have filtered through to their pensions pots.
Today we find the following alarming facts about the level of understanding of pensions planning, among the children of the 40s and the 50s.
- 2 in 10 baby boomers do not know how much income they will need when they retire
- 3 in 10 know little to nothing about their pensions saving arrangements
- 4 in 10 have no clue how much a £100,000 pension pot would pay out in pension income
- only 3 in 10 believe they are properly prepared for retirement
- and despite all the above – 9 in 10 do not believe the basic state pension is enough to live on.
It appears that we have an epidemic of future-blindness that is preventing us from seeing far enough ahead to sit down with our financial adviser, and do some meaningful pensions planning.
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They call it ‘non-disclosure’ – the failure to fully reveal the truth about your health history, when applying for critical illness insurance. Even a genuine mistake can cost you thousands, even hundreds of thousands of pounds!
Worse than this, your non-disclosure does not have to relate to your current claim. Any aspect of your health not disclosed can be used as a technicality that will void your claim – by giving the insurer the chance to say: if we’d known that, we wouldn’t have given cover so cheaply – perhaps not at all!
Here are a few anecdotal examples freshly exhumed from the files of one of the larger critical illness insurance providers.
A 59-year-old man who claimed for a heart attack was refused, when the insurer unearthed a previous history of asthma and a family history of heart conditions, and declared that had they known about this, his original application would have been declined.
A man diagnosed with lung cancer was refused a payout because he had failed to disclose a heavy drinking habit – even though this was unrelated to his claim.
A 43-year-old woman who claimed for multiple sclerosis was refused, when the insurer discovered she had been diagnosed before her policy application. This would have resulted in her being refused cover.
There have also been instances in the past of claims rejected on the basis of ‘inadvertent’ non-disclosure, where a policyholder had failed to inform the insurer of a flawed health history in their family, because they were genuinely unaware of it. One case involved a heart condition in the medical files of a claimant’s father – the claimant was unaware of it, as it had never been discussed at home.
With critical illness insurance, it pays to read the small print, and preferably in the company of an expert – so don’t forget to call upon your independent financial adviser!
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They call them the baby boomers, and they are certainly arriving like a Big Bang on the pensions scene. They were born in 1945-46 as the war ended, and are threatening to strain government resources to the limit, as many of them take the basic state pension very soon.
Some 1.45 of them will turn 65 by the end of 2012 – around 650,000 in 2011 and 800,000 more in 2012.
What is more, many of them spent their working lives in the golden era of final salary pension schemes and rising property prices, and paid less attention than they should have to making their own pensions provision. Many have inflated expectations of the lifestyle their pension lump sums and ongoing pension income will bring.
They may be in for a shock, when they realise that the basic state pension is just £97.65p per week.
Read : First Swell of baby boomers drains basic state pension
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Did you know that you can reduce your potential liability to Inheritance Tax by passing your family home on to your children right now?
If you survive for 7 years after the transfer of ownership, any Inheritance Tax liability can fall away – provided it is done in the correct way, of course, and with quality Inheritance Tax advice.
However, there is a hidden condition you should factor in to your Inheritance Tax planning. If you continue to live in the house after you have gifted it on, it remains liable for Inheritance Tax, because you continue to benefit from it. This is known as a ‘gift with reservation’.
By paying a commercial rent to your children and becoming their tenant, however, this danger can be averted.
Just another example of how, with a little good Inheritance Tax planning, you can avoid Inheritance Tax altogether, in certain situations!
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Did you know that most critical illness cover these days covers your children too?
Depending on the provider, your kids can be covered by up to £25,000 of children’s critical illness insurance at no extra cost! Some insurers offer much less free children’s cover, however, so it’s worth asking for advice and shopping around.
Royal Liver offers a special add-on to its illness-related income protection cover, which provides a lump sum, equal to four months of your cover, to parents who wish to take a break from work to care for a sick child.
If you want to locate an expert specialist in relation to the health condition you are claiming for, BUPA’s Best Doctor service offers information on leading medical specialists for every illness, on a worldwide basis.
There are also a number of telephone helpline services now included with certain critical illness policies, offering information, advice and counselling to those claiming for critical illness.
And Prudential is even offering ’severity based’ cover, where you can receive a part payout for relatively mild forms of a disease or condition.
With so many hidden or not so well-hidden options, it is defintely worth checking out and shopping around for the best add-on deals!
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For the past decade or so it has been possible to set up children’s pension plans, providing parents with a perfect long term savings option that is not accessible to their kids during the heady years of college and their twenties.
Children’s pensions attract tax relief and are subject to the same rules as adult pensions, and cannot be accessed by the child until they turn 55. With 50 years or more to grow in the stock markets, the relatively modest investments of up to £2,880 per year by a parent today can grow into a very substantial nest egg as part of their child’s retirement planning.
Read Article : Children’s pension plans take centre stage to replace Trust Funds
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Have you ever played FTSE with the idea of a punt on the stock markets?
This could be the ideal time, as Credit Suisse has just launched a new suite of investment funds that include a low-cost FTSE 100 tracker at the rock-bottom price of just 0.33% a year. The fund still offers ‘full replication’ i.e. will buy most or all of the stocks in the FTSE 100, as opposed to adopting a sampling strategy by buying one share in each industry sector on the index.
By taking this replication approach, tracker funds seek to replicate the index – although they are unable to outperform it in the way that actively managed investment funds strive to do.
Nonetheless, given its low cost, and given that on average only a third of actively managed funds do manage to outperform their index in any year, the Credit Suisse FTSE 100 tracker could be worth a look.
Read full article – New investment funds track the FTSE at low cost
Interested? Contact our funds experts now with an online investment enquiry or ring 0800 678 5929 today.
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Once there was a man whose wealth was valued at £400,000. However, he had never heard of Inheritance Tax.
He had 4 sons whom he loved dearly, and they loved him back, because they knew that, some day, they would get their hands on the dosh.
One day, the kindly father decided the time had come to pass his wealth on to his sons.
His 1st son was a Monday’s child, and so his father gave him his £100,000 on Monday.
His 2nd son was a Tuesday’s child, and so his father gave him his £100,000 on Tuesday.
His 3rd son was a Wednesday’s child, and so his father gave him his £100,000 on Wednesday.
His 4th son was a Thursday’s child, and so his father gave him his £100,000 on Thursday.
Then the kind father, his work in this world done, lay down and died on Friday.
His sons were heartbroken, and called in to see his body that very morning, on their way to the Mercedes showrooms with their money.
However, Thursday’s child was particularly unhappy.
He had discovered that their father’s tax-free allowance for Inheritance Tax was £325,000 and that most of it had been used up by the gifts he made on Monday, Tuesday and Wednesday.
This left tax relief of just £25,000 left over for his gift on Thursday. Thursday’s child was hit for Inheritance Tax of 40% on £75,000 of his money, leaving him with a tax bill of £30,000, payable to the Evil Tax Wizard who Lived on the Hill.
Worst of all, that £30,000 of Inheritance Tax could have been totally avoided, with just a short chat and some good Inheritance Tax advice from a financial adviser.
Moral: A little financial advice goes a long, long way.
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If you have a life insurance policy for, say, £200,000, writing the life insurance in trust removes the value of that cover from your estate, and could protect it from Inheritance Tax at 40%, saving you up to £80,000! Those 15 minutes spent filling out a form with your financial adviser could be the best-paid quarter of an hour of your life!
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