Budget 2015: good news for savers, first-time buyers and pensioners

by Patrick Goddard, Independent Financial Adviser

By and large, it was the pre-election Budget that everyone expected; and it provided at least something for most people to smile about. 

Overall there was plenty of good news for our clients at every stage of their financial journey – along with some announcements that mean certain clients need to plan or take action soon.

Pensioners with annuities

For those who have already retired, the biggest headline was annuities.  From 2016 it is proposed that pensioners will be able to trade in their existing annuities for cash, if their provider permits it.  The cash can be taken as a taxable lump sum (with the 55% tax charge abolished and tax applied at the marginal rate); or it can be used to provide a flexible annuity; or invested to provide a flexible retirement income.

New pension rules: don’t forget about tax

by Paul Northmore, Managing Director

The new pension rules announced last year come into effect on 6th April 2015 – “Freedom Day”.  

From that date, if you are 55 or over you can withdraw your entire ‘defined contribution’ pension pot as a cash lump sum if you wish.  (‘Defined contribution’ means how much you receive depends on what you’ve paid in.) 

Many are tempted by the new freedom.  A recent survey by The Pension Advisory Service and TD Direct Investing indicated that 24% were planning to take at least half of their pension pot as cash. 

But there are some important tax considerations.

The new tax rules for pensions

75% of each lump sum you withdraw is subject to tax – and your pension pot withdrawals are classed as ‘income’ and taxed by the same rules.  This means:

Should you cash-in your final salary pension?

By Patrick Goddard, Independent Financial Adviser

If you have a final salary pension scheme, many people may be rather envious!  These schemes, which usually pay a proportion of your salary at the time you retire, are now few and far between.  

Final salary schemes are a type of pension known as ‘defined benefit’ – no matter how the markets perform, you know how much you’re going to get when you retire.  

But most schemes now are ‘defined contribution’ schemes – the only certainty is how much gets paid into the scheme, not what your payout may be.

The certainty of a final salary scheme is what’s so appealing.  So who would give that up?

Well, with the pension reforms which come into effect in April 2015, everyone has considerably more freedom in how to use their pension fund – whether it’s a defined benefit or defined contribution scheme.

I am fed up with my job – can I retire?

by Peter Harrison FPFS, Independent Financial Adviser.

This is a question I get asked a lot: “I’ve been at work since I left college – now I want to live a little! Can I afford to?”

The first step in answering this question is to understand what capital and income you may need if you stop full time work – bearing in mind that you may need cash for a long holiday, buy a camper-van and travel the world, carry out some home improvements, help out the children a little.

After that, you need to remember that your resources will now have to last you for the rest of your life – and inflation will erode their value over time.

How Julie saved £144,000

by Mike LeGassick, Independent Financial Adviser with Manning and Company

Julie* from Plymouth worked hard as a social care worker.  She also planned for the future, putting money away faithfully into her Final Salary pension scheme.  She could expect a comfortable retirement.

But there was a problem.  Julie had a health scare, which prompted her to think: what if retirement never comes...? 

The simple question worth £176,000.

By Mike LeGassick, Independent Financial Adviser, Manning and Company

When it comes to critical illness, we so often think, “It’ll never happen to me”.  But it did happen to two of my clients.  With their consent, let me tell you their stories.

Matt’s story

During a meeting with some clients in January, I casually asked after their son Matt, who was also a client of mine.  It was an innocent question; but when their response was that he was “bearing up” I was somewhat confused.  

It turned out that Matt had discovered a lump just a month before.  He had it investigated, and it resulted in the immediate removal of a testicle as it was an invasive seminoma.  

Should you invest in bricks and mortar?

By Peter Harrison, Chartered Financial Planner, Manning and Company

Those with available cash may wonder whether to buy an investment property.

Property is often thought of as a reliable long-term investment – and indeed predictions for the next few years look good.  However, the Mortgage Market Review (which came into effect a month ago) will mean borrowers purchasing a property solely for their own use will be scrutinised to ensure they can afford the repayments.

Don’t let freedom go to your head

by Mike LeGassick, Independent Financial Adviser, Manning and Company

The recent Budget announcement on pension reform heralds a seismic shift in the personal pensions market.

Until now those who have diligently saved into their pension pot have had certain limitations imposed on how it may be spent, and when.  As a result most pension pots have had to be spent on an annuity – a form of insurance policy which provides a guaranteed income for life.

The Budget means that as from April 2015 you have much more freedom.  You will be able to invest it in other ways; or take the whole pot in cash if you like (although still not until you are 55, unless you’re prepared for a tax penalty). 

After the first tax-free 25%, there’ll be tax to pay on the rest.  But the point is you will have choice, like never before. 

Budget 2014

In honour of the new twelve-sided pound coin announced on Budget Day, here are our twelve top headlines from the Budget 2014.

First, for individuals:

1.  ISAs are becoming simpler, and the annual tax-free limit is rising to £15,000 in July.  Savers will be allowed to save the maximum amount in cash, instead of splitting their money between cash and stocks and shares – sure to be a popular move. If you don’t already have an ISA, this is the perfect opportunity.  Talk to us for advice.

2.  Junior ISAs will see an increase in the annual tax-free limit to £4,000 per year. A good way to get the younger ones in your family engaged with saving!

3.  A new pensioner bond from National Savings & Investments will allow those aged 65 and over to save up to £10,000 at better interest rates than currently available on the market – a figure of 4.0% for a three-year bond has been indicated.  If you’re eligible and have the wherewithal to save, take advantage of this.

Mortgage lenders tighten up after recent Mortgage Market Review (MMR)

By Lisa Burton, Financial Adviser and Specialist Independent Mortgage Adviser, Manning and Company Independent Financial Advisers.

If you want a mortgage after 26th April you’ll need to prepare yourself for the mortgage lender’s scrutiny over your household’s monthly living expenses.

Due to a change in policy brought about by the recent Mortgage Market Review, all lenders will have full and complete responsibility for assessing whether customers can afford the loan. It is hoped this will ensure good lending practices take place and everyone avoids the fall-out of the last mortgage lending crisis.

What does this mean for you, the borrower?

We recommend getting yourself financially fit before even making a mortgage application.  Lenders will be looking at 6 months’ worth of finances to assess if you really can afford the mortgage repayments and not just at this moment in time but for future affordability too.  If you’re not sure where to start, speak to an independent financial adviser.

For those who would just scrape through now, bear in mind you may not at the end of April.  If you already have a mortgage offer but haven’t found a house, get your skates on as you may find you no longer meet the lender’s new criteria at the end of April, when you will need to be re-assessed under the new policy.

UK Government boosts property market with the ‘Help to Buy’ scheme

By guest blogger, Paul Trueman, Independent Mortgage Adviser - Anthony Trueman & Co Ltd

In April 2013 the government introduced the ‘Help to Buy’ scheme to help revive Britain’s property market. The scheme will run for 3 years and is intended to help first-time buyers and people who already own their own home to move house more easily.

However, since its launch a year ago the media has reported a great deal of controversy surrounding the scheme, asking if it really is helping the property market or instead simply inflating house prices and creating an artificial housing bubble.

Regardless of the view point, it is important any individual thinking of applying for the scheme gets good independent advice before embarking on any type of mortgage commitment.

What is Help to Buy?

So, what is Help to Buy and how does it work? Well, there are two main schemes available in the UK: equity loan and mortgage guarantees.

Just 16 days to the breadline for families in the South West

By Patrick Goddard, Financial Adviser, Manning and Company Independent Financial Advisers

The money could run out in just 16 days for families in the South West and 26 days for the UK as a whole.

According to a recent report, if the main breadwinner was taken seriously ill or suddenly died, families in the South West had on average just 16 days before all their savings ran out and they found themselves on the breadline.

According to the report, the average household savings in the UK was just £1,010. But if you thought that was low, 33% of UK households had no savings at all - meaning they could be on the breadline tomorrow.

Optimistically, people had believed they could survive 3 times longer (48 days on average) compared to the reality of 16 days.

Without any other means of income, what about relying on friends and family? The average monthly amount they could spare was £107; however 66% of households said they would not expect to receive any financial support from friends and families.

This year it doesn’t get better; with welfare reforms, austerity measures and cuts - how long could your family survive financially if the worse was to happen?

If this makes you feel vulnerable, then arrange a free meeting with a Manning and Company financial adviser who will review your finances and discuss what protection measures you could put in place.

Research - Legal & General Deadline to the Breadline Report 2014

Annuites: when is advice non-advice?

By Steve Ansell, Independent Financial Adviser, Manning and Company

This year the government has announced the launch of a new website tackling the issue of annuities and seeking to advise consumers who currently hold an annuity or are thinking about it. 
 
An annuity is an insurance product, bought on retirement with the money saved in your pension pot.  It pays you a regular sum for as long as you live. But buyer beware, there is no going back once you’ve bought it.

It has long been the cry of reputable IFA’s that some clients have taken up the offer of annuities without fully realising the potential consequences of their product choice - or worse, have not received proper advice on its suitability for them.

Inspiring the extraordinary

By Paul Northmore, Managing Director, Manning and Company

You might believe that managing your finances is all about reducing life’s risks – for example, taking out life insurance, or critical illness cover, or a fixed-rate mortgage.

Security is certainly a part of it; but it’s not the whole story. 

Good financial management puts you in charge of your money, not the other way around.  Your money is there to help you achieve your dreams, whatever that means for you.

But it’s not only money that can make dreams happen – it’s having the right opportunities, and being inspired. 

That’s why at Manning and Company we like to get behind those who are doing something amazing, and particularly those who are inspiring and equipping the next generation; which is why we’re supporting two local ‘inspirers’ – The Plymouth University Raiders, and Antony Jinman.

If it’s to be...

by Steve Manning, Founder, Manning and Company

A great modern business and life philosopher taught me, quite a number of years ago, that "If it’s to be…it’s up to me". I totally agree.

Of course, much that impacts us throughout life comes from external sources. While we can’t control many of those things, we can control how we react, and how we prepare.

This applies to all aspects of life – for example, relationships; health, wealth and happiness; or state of mind.

In many ways it has become so much more difficult just to cope with day-to-day life. We are conditioned to achieve so much; encouraged to own so much; and until recently, to borrow so much - and by doing so, to achieve ‘great happiness’ in the process.

Annunities: the gamble of your life

By Mike LeGassick, Independent Financial Adviser, Manning and Company

When planning your retirement, you may worry that you will outlive your income.  It’s understandable, as we’re all generally living longer and enjoying better health. 

For some, an annuity is the answer.  An annuity is an insurance product, bought on retirement with the money saved in your pension pot.  It pays you a regular sum for as long as you live.

But annunities come with a very significant risk.  You are gambling that you will live long enough to receive back as much as you paid in. 

Care: can you afford it?

Andy Hopper, Independent Financial Adviser and Long-Term Care Specialist at Manning and Company, answers questions about the cost of residential and nursing care.

Andy, there have been announcements in recent months about changes in funding for residential care. What have these been about?

The government has been looking at ways to reform the rules for residential and nursing care funding. They have been guided by the Dilnot Commission Report, published in 2011. Amongst other things, the Report proposed capping the costs which individuals would have to pay for their care. This is good for those with assets, as it limits the amount they would be expected to pay; and also means that their home would not necessarily have to be sold to fund care.

So what is the current situation?

From 2017 anyone with assets (including their home) worth more than £123,000 will have to pay for the first £72,000 of their care costs. Additionally they will pay “bed and board” of up to £12,000 annually when in a nursing home. 

Never too young for money management!

By Patrick Goddard, Independent Financial Adviser, Manning and Company

At Manning and Company we talk a lot about planning for the future.  Hopefully you have your own financial future under control (if not, come and talk to us!) - but what about the next generation? 

Of course, if you have dependents it’s important to consider how they would be taken care of, should anything happen to you. 

But what about also equipping them to take care of themselves? 

Are we teaching our children the importance of good financial management from an early age?  And an early age it needs to be; as research indicates that adult financial management habits have been formed by the age of 7!

Tomorrow never comes!

Tips on planning your finances, from Steve Manning, Founder of Manning and Company Independent Financial Advisers

Steve, it’s a tough economy at the moment.  Why should people still make it a priority to plan for the future?

Yes, there are lots of demands on everyone’s finances today.  But the fact is tomorrow WILL come!  A recent report by HSBC showed that the British are woefully unprepared when it comes to funding their retirement – actually, the worst of the 15 nations surveyed.  An average retirement in the UK will last 19 years – yet the average person’s pension pot will be used up in just 7 years.  State pension benefits won’t come close to funding the standard of living most people expect.  The important message is this: your future is in your hands.  If you don’t plan sufficiently today, then it won’t be the future you hoped for.

Is a traditional pension scheme the right approach?  Or are there other options?

Some people are relying on property assets to fund their retirement – or savings; perhaps an inheritance; or investments.  The point of a pension plan is that it’s a systematic and reliable way to save for the future.  It gives you choices when you reach retirement age; and there are tax benefits too.  It’s fine to build up a mixed portfolio, as long as it works together sensibly and cost-effectively.  It’s wise to take independent advice to make sure that’s the case.

What about those who are “asset rich but cash poor”?

The reality is that many people have a lovely home, yet very little money.  Equity release has received some bad press over the years, certainly; and it’s made people approach it with caution - as indeed they should, because it does have implications.  Yet with today’s equity release plans it may still be the right option for some people.  It can provide the cash they need, and still allow them to live in the home they love.  It’s not the only option though; and seeking independent advice can help find other choices.

Will the welfare state leave you short-changed?

By Steve Manning, founder of Manning and Company

Living in a country that has a welfare state, we can be lulled into a false sense of security.

Clearly there is a moral and ethical need for welfare but it is also open to abuse and this is obviously cause for concern.

What we perhaps do not realise is that the ‘middle class’ are more vulnerable than they might think. Why?