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Help To Buy vs Lifetime: Which ISA is best?


Set to be introduced in April 2017, the Lifetime ISA essentially offers an alternative to the Help To Buy ISA. With two competing options on the table, it’s important to know which is best for you and your needs, as whilst they have some similarities, there are also key differences between the two.

The Help To Buy ISA allows you to save up to £200 each month to save for a deposit on your first home. The government then boosts your savings further to the tune of 25% up to a total limit of £3,000, as long as you’re a first time buyer purchasing a property priced up to £450,000 in London and up to £250,000 everywhere else in the UK. There is no minimum deposit each month, and you’re also able to pay in £1,000 when the account is opened that doesn’t count towards your monthly savings.

Available up to Autumn 2019, anyone aged sixteen or over is entitled to open a Help To Buy ISA. The accounts are limited to one per person, which means both people in a couple can have an account and benefit from the bonus.

The new Lifetime ISA is based on similar principles but has several important differences, with the most important being that it can be used either to save for purchasing your first home or as money put away as a pension for later in life. There’s no limit on how much you can save each month as long as you don’t go over the yearly cap of £4,000.

Again, the government offers a 25% bonus, but this is paid whether you use the money to purchase your first home up to a price of £450,000 anywhere in the country, or keep it for later in your life. Any money that’s taken out before your 60th birthday and not used for purchasing your first home will forfeit the government bonus plus any growth or interest earned from it, as well as incurring a 5% charge. If you wait until after you’re 60, you can take out everything tax-free.

As you will be allowed to have both a Lifetime ISA and a Help To Buy ISA, you can choose to do this, but you will only be able to use the bonus from one of the two accounts to buy a home. As the Lifetime ISA is essentially replacing the Help To Buy ISA, it makes sense to opt for the newer style of account after they are introduced next April. If you want to set up an ISA for your child, however, you could consider opening a Help To Buy ISA on their 16th birthday then transferring the savings to a Lifetime ISA two years later which will allow you to take full advantage of the government bonuses

As always, seeking professional advice to establish what is right for you and your objectives has to be paramount.  This article is intended to give information only and not advice.

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Sources: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414027/FTB_factographic_final.pdf

Car sharing deserves better tax incentives

A recent report, ‘On the Move’, published by Policy Exchange Think-Tank researchers, explores ideas and policy proposals on how to create a more mobile workforce. One of the key policy ideas in the Report is about offering tax benefits to commuters who use ride-sharing schemes and free parking in city centres for care sharing. Drivers who offer fellow commuters a lift should be given a tax break as part of plans to increase workers’ mobility, the think-tank has recommended. The Report identified a ‘strong case’ for the Government to encourage the growth of car-sharing.

The On the Move report, says that in a third of local authorities that make up the eight city regions no major employment sites (defined by having 5,000 or more jobs) are within a twenty minute commute by public transport and 80% of these Local Authorities have an unemployment rate above the national average. The think-tank says making it easier for people to travel an extra 20 minutes to a workplace would dramatically increase the job opportunities available.

Having access to a car for an extra 20 minutes of commuting time would give even more options, and the report said:

“Car-sharing, mediated by an app, is lowering the cost of travel for consumers, giving people on low-incomes access to car travel and reducing congestion on the roads. There is a strong case for the Government to incentivise its growth through commuter tax benefits.”

The report suggested such a policy would have a particular benefit in Birmingham, Leeds, Hull and Blackpool where there was already a higher than average number of car sharers.

The think-tank suggested either allowing employers to give workers travel vouchers to pay for ride-sharing which could be issued before tax, or allowing drivers to keep a portion of their earnings tax-free if they offer people a lift.

Sources: www.policyexchange.org.uk (Report published: 2015/08/17

60 is the new 40!

Good news for all of us who have accepted that we are getting older: Saga reports that new European research shows that 60 is the new 40! The research reveals that people are now reaching middle age at the tender age of 60, instead of the previously expected figure of 40 years old.

Saga’s Head of Communications, Lisa Harris, commented:

“Middle age is most certainly a state of mind. In today’s society we are living longer, healthier lives and the face of later life is changing beyond all recognition. Retirement is no longer a cliff edge decision where we stop working purely because we’ve celebrated a birthday. Instead we change the way we work – often with the goal of achieving a more rewarding work life balance that allows us to feel both valued in the workforce for the skills and experience we have to offer and also gives us the opportunity to travel, take part in hobbies, volunteer and generally have a bit of fun too. It’s not just about living longer – it’s about ageing well!”

One is tempted to ask, what now happens at 40 then? If no longer the threshold of ‘middle-age’, what significance does passing one’s birthday at 40 now have? It used to be an important marker of ageing – passing into middle-age with a feeling of old age creeping up on us, just around the corner. It used to feel like the beginning of the end – time to stop playing sport, stop thinking we are young and let ‘middle-age spread’ take over. Perhaps today’s perception of our life at 40, and for those that will follow us into this new idea of age, will now be marked by similar previously unrecognisable thoughts. Will 40 become the age we finally manage to buy our first house, or see us looking sceptically forward at another thirty years of employment, before we can afford to retire?

To balance this, at 60 we are now constantly reminded to develop a healthy lifestyle and exercise to keep fit – we have a new lifetime ahead of us – time to start playing sport again. So old-age is off the agenda, until we are at least 85, when we might have to finally consider giving up running marathons!

Sources: www.saga.co.uk (Published article: 2015/04 16)


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The New Pension Freedoms Checklist: Four Things You Must Do Before Making Any Decision About Your Savings

The new pension freedoms are great news for savers, with more flexibility and options for retirement now available. However, the freedoms also come with a level of risk, particularly for that first wave of savers looking to exercise their new rights in the next twelve months or so.

The main recommendation for savers is to seek independent financial advice. An adviser will be able to talk you through your options and ensure you get value for money. Whilst you weigh up your decision though, here are four more things to add to your checklist and consider carefully alongside any decision you make about how you’ll receive your pension income.

Make sure you factor in, but don’t overestimate, your state pension

It is important to remember that, alongside your private pension savings, you will also probably benefit from a state pension in your retirement. Where once it might have been tempting to rely on the state pension, now it is more readily expected that your personal savings will be your main source of income in retirement and the state pension a nice ‘bonus’.

With this as your model, it’s important to remember the income the state pension will give you when planning for your retirement, but at least equally important to not overestimate the contribution the state will make. Factor a realistic figure into your plans, alongside the income your personal pension will generate.

Don’t underestimate your lifespan

It is very common for retirees to underestimate their own lifespan and, by extension, the amount of money they will need throughout their entire retirement. Whilst it is, of course, a difficult factor to put any sort of prediction on, it is vital that you plan for a long and happy retirement, rather than risk trying to ‘get away’ with having less capital available to you. When planning your retirement income, make sure you’re planning for the long term!

Consider tax carefully

If you are looking at the new pension freedoms with some eagerness then don’t forget: whilst the taxation implications have been reduced, they have not been eradicated entirely.

After the first 25% tax free lump sum, withdrawals from your pension will be charged at your normal rate of income tax. If you are still earning an income, or if you make sizeable withdrawals in a tax year, then this could mean you enter the upper tax bracket.  Be very careful on how the provider tax the pension, you could be waiting some time to get back any over paid tax.

Of course, if what you are planning for your pension income requires this level of withdrawal, then it may well be worth that level of taxation, but take care and make sure you have planned for, and are aware of, the taxation implications that your actions will create.

Work out what you want to do with your money, rather than just trying to get the highest amount

Perhaps the most important point of all! Whilst money is important to each of us, ultimately it is merely an enabler. There is no better aid to a happy retirement than clearly planning how you want to spend your money: the things you want to buy, the experiences you want to have, the family you want to help.

Once you have planned what you want to do with your retirement, money decisions become much easier. Will accessing your pension through the new pension freedom arrangements help you get to where you want to go in your retirement? More so than any monetary factors, this is arguably the most important question for retirees to attempt to answer !


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How much money do I need?

Budgeting for retirement or as we like to say ‘ change of circumstances’ can be more difficult than budgeting whilst you’re still working. Some costs may increase, such as heating your home, and you’ll have to work out exactly how much income you will be receiving from your pension. The average British wage is about £26,000 – to replicate that in retirement you’d need a pension pot of more than £300,000. However, according to ‘Which?’ it’s unlikely that you’ll need as much money in retirement as you did while you were working, although the amount clearly depends upon your own hopes and expectations of how you will enjoy your life!

When sitting down to plan your budget, it’s a good idea to first get some idea of your current spending. A report by ‘Which’ suggests keeping three months’ worth of bank and credit card statements, payslips going back three months and three months of shopping receipts – remembering to factor in one-off spends like birthdays, Christmas, holidays and car repairs. Then work out where you think you’ll spend more once you’ve retired – because your situation is changing so will your spending habits. You’ll need to compare this with how much income you’ll be getting in retirement (from pensions, benefits or savings), to find out if there are any shortfalls.

The above simple plan is a long way off proper financial planning, but it should provide a handy starting point for indicating the income you might need in your retirement. Once you know that, we can set about working out exactly what you do need to make sure you can do everything you want in your later life.

It is also worth bearing in mind that the sums of money you spend on certain things can change for the better in retirement. The following are again good suggestions to start considering.

  • Have you paid off your mortgage? If so, that will significantly reduce your monthly spend. However, if you’re still renting in retirement, you’ll have to factor that cost into your outgoings when budgeting.
  • Have your children moved out? Raising a child until they’re 18 costs almost £220,000 in total – so your costs should come down significantly once they’ve flown the nest.
  • You’ll save on commuting. The average annual rail cost of commuting into London is £3,800, and that’s without factoring in parking at train stations.
  • Public transport. Over-60s get free off-peak travel on buses. And if you live in London, you can claim a Freedom Pass, which means you can use London’s public transport for free.

Some spending in retirement can typically go up, however:

  • Leisure spending – you’ll probably be spending more money on hobbies and holidays. Think about how many holidays you’ll want to take per year and remember to take advantage of senior discounts on dining out and theatre tickets.
  • Travel insurance – Which? research has found that people over 65 tend to pay more because statistically, they’re more likely to fall ill whilst on holiday. Shopping around will help secure you the best deal.
  • Heating. As you’ll be spending more time at home, the chances are bills will be higher. The Winter Fuel Payment, currently available to people born on or before 5 July 1952, could get you between £100 and £300 tax-free towards your fuel bills.

Planning for Retirement needs to go beyond this sort of initial informal research to fully include careful attention to Lifestyle Planning, but the above initial considerations should help you to start thinking about whether your current savings are going to be enough to do everything you want to do with your retirement.

Sources: www.which.co.uk (Published advice on the website: January 2015)


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Tax Year End Approaches: 5 Things to do Before April

The 5th April might seem a little way off yet, but the end of the tax year always seems to arrive faster than we think! For financial planning, the end of the tax year is important for a variety of reasons and so, before we hit the deadline, put some thought into the following five tips and maximise your saving opportunities before they disappear for good!

1- ISA Contributions

Postits(tax)3The annual ‘big one’. The amount you can invest into an Individual Savings Account (ISA) resets at the tax year end and there is no way of carrying over your allowance to next year. If you fail to use it then that’s it: it has gone. This tax year, following the change announced in 2014’s budget, the ISA limit was increased to £15,000, up from £11,520 in 2013/2014, which means that many of us may still have some room to save away some extra pounds from the tax man. There’s also no longer a limit on how much you can put into a cash ISA, so your entire £15,000 could be invested in that way, if you so wish.

2 – Pension Contributions and Flexible Pension Preparation

Pension contributions are another factor to check annually. Contributing to your pension is often a good way to manage your tax liabilities, although clearly it should be done with your full financial plan in mind. You’ll need to bear in mind the pension lifetime allowance however, which is now £1.25 million. Anything above that within your pension can currently be taxed, thus potentially altering your tax planning, so it’s especially worth checking the size of your pension pot if you’re considering extra contributions. Whilst you’re looking at your pension, consider preparing for its new flexibility: the new rules announced during the 2014 Budget come into force at the turn of the tax year.

3 – Keep an eye on the Budget

The 2015 Budget Statement will be delivered by George Osborne on Wednesday 18th March. Although changes that affect this current tax year are fairly unlikely, they are not completely unknown and ‘instant’ changes, such as the change to Stamp Duty announced during December 2014’s Autumn Statement, are a regular occurrence. This is also the Budget prior to May’s UK General Election, so expect some fairly major announcements designed to appeal to voters that could come into force at the start of the 2015/2016 tax year.

4 – Capital Gains Tax Allowance

A perennially forgotten ‘gift’ from the taxman, the Capital Gains Tax Allowance is £11,000 for the current tax year. This means that you pay no tax on Capital Gains up to that amount. It is also an individual allowance, meaning that a couple can shelter up to £22,000 and genuine gifts from a spouse or civil partner do not count towards the allowance. There are various other exemptions and careful planning can again really help your tax position.

5 – Children’s Savings

Don’t forget that many of the above also apply to your children! Junior ISAs for this tax year are £4,000; their Capital Gains Tax Allowance is set at the same rate as adults and they can even make pension contributions. Who knows, depending on their age, they might even be able to tell you something about March’s Budget!

The Future of Annuities

What role are annuities likely to play in retirement planning in the light of pension freedoms coming into effect from 6 April 2015? There has been much debate about annuities, particularly since Chancellor George Osborne announced a number of changes to pensions from April 2015, welcomed by Standard Life in a recent bulletin.

Those changes mean pensions are becoming more flexible, with savers being given the freedom to control the pension funds they’ve worked hard to save – it is their money after all! They can take those funds as and when they choose to from the age of 55. This means people will have more options than simply buying an annuity at retirement, as was the case for many previously.

According to Standard Life, that doesn’t mean we have seen the last of annuities – far from it. True, you can’t change your mind when you buy one, but they do have the advantage of giving the security and certainty of a guaranteed income for life, or for a period of time of your choosing. In addition, as annuities work like insurance, if you have serious health issues you’ll benefit from enhanced rates. There’s also the added attraction that some annuities guarantee an income for your spouse too, in the event of your death.

On the other hand, they don’t offer much in the way of flexibility. What if you needed a lump sum to cover an unexpected event, a new car, or wanted to help pay for one of your grandchildren to go to university? For that reason, and with the pension changes now giving savers many more options, we’re likely to see annuities becoming part of a more varied pensions mix, alongside lump sum withdrawals and flexible income, or what is known as drawdown.

So using some, not all, of your pension funds to buy an annuity would give you a guaranteed level of income and peace of mind that life’s essentials were covered. The remaining funds could be kept invested in a pension to provide a flexible income and lump sum withdrawals when you need them.

Another trend we could see emerging is savers keeping their options open for longer by choosing flexible income and buying an annuity in their later years when they’ll get a better annuity rate – and the reassurance of a guaranteed income. One thing is certain – the way we look at our retirement planning is likely to never be quite the same and taking into account individual circumstances and requirements has never been more important!


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NS&I – New Pensioner Bonds – 65 Plus Bonds


In January 2015 NS&I are launching new Bonds for investors aged 65 and over. These are the Bonds announced by the Chancellor in his March 2014 Budget statement.

Full details of the Bonds will be available when they go on sale in January 2015.

The new Bonds at a glance;

What are the Bonds?
• Lump sum investments providing capital growth
• Choice of terms – 1-year and 3-year
• Designed to be held for whole term, but can be cashed in early with a penalty equivalent to 90 days’ interest

When do they go on sale?
• January 2015 – exact date to be announced
• Available for a limited period only

Who can invest?
• Anyone aged 65 or over
• Invest by yourself or jointly with one other person aged 65 or over

How much can I invest?
• Minimum for each investment £500
• Maximum per person per Issue of each term £10,000

What about interest?
• 1 Year Bond 2.80% gross/AER* (2.24% after basic rate of tax)
• 3 Year Bond 4.00% gross/AER* (3.20% after basic rate of tax)
• Fixed rates, guaranteed for the whole term
• Interest added on each anniversary

The tax position
• Interest taxable and paid net (with basic rate tax taken off)
• Higher and additional rate taxpayers will need to declare their interest to HM Revenue & Customs (HMRC) and pay the extra tax due
• Non taxpayers, and those eligible to have any of their interest taxed at the new 0% rate (which starts from April 2015), can claim back the tax from HMRC
• NS&I are not currently part of the R85 scheme so we can’t pay the interest gross on these Bonds


The government has set the total limit of subscription to £10 billion –  Applications will be dealt on first come, first served basis and investors will be able to apply by post, online and by phone.


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Keeping one eye on a 2015 interest rate rise

It is now six years since emergency measures were put in place to protect the global financial markets from imploding when the banking crisis spiked in 2008. To stave off a liquidity disaster, many global policy makers decided to cut interest rates to record low levels.

At that juncture most experts, commentators and the investment community assumed this would be a short term effort; an emergency measure, maybe lasting months, if not months then just a year or two. Virtually no one could see interest rates remaining so low for so long.

We have been waiting for a reversion to the mean ever since; surely, normal interest rates have to come back into play at some point. However, this begs many questions: what is a normal rate of interest? Are we still, in effect, in the aftermath of the banking crisis, with limited, real corrections to market conditions yet to come? Aren’t governments still as indebted (if not more?) than they were in 2008? Is a secondary banking crisis, or crash, a possibility?

Put another way, have those “temporary” emergency measures done nothing more than put some difficult decisions out into the long grass? And was the 2008 crisis actually a multi-year one, which could drag for years to come from here?

There is a simple premise here to consider… maybe nobody knows the answers! In the past few weeks, oil prices have tumbled; falling at the time of writing to around $80. Just a few weeks ago, the consensus of the major oil analysts was that the short term outlook for oil was in the range of $100-$110. Even those people whose job it is to sit behind a desk and study the fundamentals couldn’t see the fall that has taken place.

Markets and market prices are notoriously unpredictable and are virtually uncontrollable (over time). Interest rates are no exception. Central bankers and governments cannot ultimately control interest rates; they can and do control them to a point and most certainly for a time but as John Major found out in the early 1990s, if markets dictate then governments can get caught out. This lesson is found time and time again in the history of markets.

Market conditions have been perfect for central bankers to maintain low base rates; most notably the lack of any inflationary pressure has taken away the one economic condition that would force interest rates higher.

As we enter 2015 there is little doubt that the consensus is to stick with low interest rates and to try and maintain the wider UK economic recovery, which seems fragile at best. It is likely therefore that we will see more of the same for some time to come. But watch out for any sign that inflation is starting to take hold; as any sailor will tell you, a storm can appear more quickly than you can move your boat and so it is with inflation – it can rise from seemingly nowhere. Any signs that inflation may be rising would suggest that policymakers would have no option but to start increasing rates and this could happen far quicker than anyone may realise.

The message here? Make sure your financial planning is structured to cater for the unexpected.


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Quick tips on financial planning for thirty-something professionals

After age 30 it is probable that financial planning will be upped one or two gears and become a far more intense matter.

It is worth reflecting how things have changed over the past few generations; more and more people are going to universities, families are having children later, are buying property (and by definition therefore taking on mortgages) at later ages and everyone is facing up to a longer life and a (much) later retirement. All at the same time as an explosion in the number of people working for themselves and a rapid disintegration in occupational pensions.

Overall, this leads to one conclusion; having a structured financial planning approach to navigating through these “mid-years” (roughly defined as from 30 to 50) is more important than ever before, arguably even critical.

What are the main aspects?

One: have a plan. It may seem obvious, but many people don’t!

Two: assume that the future will be different to today and plan accordingly. There is no guarantee that interest rates will remain so low, that property will always go up, that the government lifeboat (for example universal healthcare and pensions) will always be there, to name but a few. It is only one generation since interest rates of around 13% were commonplace. O.5% seemed inconceivable. Any decent financial plan will cater for different future scenarios.

Three: revert to the tried and tested; save first, borrow second. Only borrow what can be afforded. Any financial plan will have saving as its centre point.

Four: maximise everything. Ensure (as much as one can) that there is the right provision in place to protect the family in the event of the unforeseen (death, serious illness, loss of income); that any investments (including, and maybe especially, pensions) are invested to get the best growth. Again, it may sound obvious but many people leave their invested monies in under-performing areas for decades at a time; structure plans and investments to minimise tax, particularly into the long term (for example, is there a better ‘tax haven’ than ISAs?) and then with borrowing make sure that the costs of the borrowing are low and that they can be afforded even if these costs unexpectedly rise.

Finally, spend time financial planning. Find a plan which works and write it down; work with the best professionals to execute this plan and then constantly keep it under review, adjusting where required to cater for individual circumstantial changes as well as wider economic changes. Most people, historically, have spent more time planning their annual holiday than planning their finances. Spend time on planning the holiday by all means, but more time on the longer term financial plan.


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