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Are you paying too much for your pension contract?

1st July 2011 



With a growing consumer trend for competitively priced products along with the abundance of information available to you over the internet it is becoming more of a concern for many to ensure you are getting the best deal.


As you will be aware with personal pensions there are no guarantees as to the future value of your pension as there are many unknown factors that can influence things, however one aspect that you do and can control is how much you pay out in charges.


 

Contributions

Term

Annual Charge

Annual Growth

Retirement Fund

Fund 1

£200 per month

30 Years

1.5% p/a

7% p/a

£178,982

Fund 2

£200 per month

30 Years

1% p/a

7% p/a

£195,891

As illustrated above assuming all things equal charges can have a large impact on your pension fund. However as also mentioned, almost the only thing you can control with your pension contract is the amount of charges you pay during the accumulation stage, along with how much you wish to pay into the plan.


With so many varying conditions that can influence pension growth, one of the most significant is fund performance. The charges for pension contract can vary but one reason for differing charges is the underlying investment funds.


If you are to invest into a tracker fund that is designed to track a certain market or indices you will pay fewer charges than a fund that is actively managed which aims to outperform the same market or indices, therefore it is important that you understand where your money is invested.


There are many types of pension contracts available all with differing charging structures policy features and investment options, therefore if you are looking to compare pension contracts it is important to understand the features and charges of your individual arrangements as a starting point.


Should you wish to conduct a review of your pension arrangements please contact Daniel Middleton on 01902 425230 or email daniel.middleton@howardwright.co.uk.



Making sure your pension can give you maximum return

1st June 2011


Lately, I am time advising more people as to the best way to take their pension. As you may be aware, there have recently been changes that have altered the ways you can take your pensions. To summarise, if you have a regular pension from say a company pension and this, added to any State pension you are receiving, comes to more than £20,000 per year, you could take whatever you want from any personal pension either as a single lump sum or as a regular income through a flexible drawdown.

If your pension income is below £20,000 you are left with taking an annuity (a regular pension purchased from an Insurance Company) or, if your fund is large enough, to take a Drawdown pension (where you leave your pension money invested and take an income up to a predetermined maximum from the investment). Both schemes have advantages and disadvantages but until recently, you could take a larger regular income from the drawdown scheme however this advantage is now being taken away, due to the recent changes in legislation. I recently met Kate. She had a small pension due from the Council, a personal pension earned from her employment elsewhere and is due to take her State Pension in the future. Her sole aim was to take as much as possible as soon as possible from her personal pension pot. As the pension from both the Council and State fell short of the £20,000 required to take the personal pension as a lump sum, we had to look at alternatives. As she was neither in poor health, nor smoked, the option of taking an enhanced annuity, which could increase the pension was not available.

This left us either taking the drawdown pension, which we excluded as her pension pot was fairly small and as such not suitable, or taking an annuity. As with many people, she was disappointed with the amount that she could take from an annuity today and asked me if it was possible to achieve a better pension.

There are providers, such as MGM Advantage that offer a Flexible Income Annuity. We looked at what Kate might receive from them and she was pleasantly surprised that the initial income offered was nearly 20% extra than she would have received from her current pension provider. For more information on pensions, contact Frank Davis on 01902 425239 at Howard Wright Ltd. Howard Wright Ltd is authorised and regulated by the Financial Services Authority


The advantages of Legal and General's Portfolio Regular Investment Plan

1st May 2011


As you may have seen recently, the government has begun to make major alterations to pension schemes. For most of us, the reductions in the amount that can be placed or held in a pension will be of little consequence, but if you are a higher rate tax payer you may well find yourself in a position of not being able to contribute any further funds towards your pension. What can you do?

You can place funds into your ISAs and this would in all probability be the first port of call. After that, there has been little that you can do in order to avoid exposing your savings to the full rate of taxation. To counter this, Insurance companies have been striving to develop plans that can offer the potential for growth whilst protecting the funds as far as possible from taxation in the future.

Legal and General have come up with a new contract, called a Portfolio Regular Investment Plan, using some existing legislation that may be of interest to people who have used up their ISA allowance. This is a "qualifying Life Assurance" which means that not only is the investment protected from higher rate tax whilst it is being invested, it is also protected from both income tax and capital gains tax when you take the proceeds of the policy.

In the past this type of investment, although tax efficient, has been hampered by two failings, fund choice and the relatively high cost of setting up the plan, and the small fund range offered. Legal and General seem to have overcome this disadvantage by savagely reducing the costs of the scheme and having access to 120 different funds; both their in- house and the best external managers should satisfy the majority of investors looking for a choice of funds.

Unlike the ISA investments, this scheme also offers an element of life assurance; this can also be written on a joint life basis if required. This means that although not it's primary aim, the investment can be used for both inheritance tax and school fees planning in the future should your needs alter.

Although this may not be of use to everybody, it is certainly something that should be considered if you have utilised your ISA allowance and you have funds that you can regularly invest and you want to protect your money from the grasp of the taxman.

The value of the plan can go up or down, is not guaranteed & investors may not get back as much as they have invested. The plan's tax favoured status depends on investors maintaining regular payments. If investor's don't maintain payments or need to cash-in all or some of the plan early, they may have a tax charge. There is also an early cash-in charge in the first three years.

If you would like further information please contact Frank Davis on 01902 425239 at Howard Wright Ltd. Howard Wright Ltd is authorised and regulated by the Financial Services Authority

 

Estate Planning

1st March 2011


Nearly all of us will wish to pass on a legacy of wealth to our loved ones, children and grandchildren and one of the most common ways of doing this is to pass on our assets such as our home and our savings, after our death.

 

Many of us save on a regular basis with ISA’s, deposit accounts and children’s saving policies all providing a lump sum at a predetermined date in the future to coincide with university fees or a special birthday.

 

However an alternative way of providing a lump sum for an individual or a number of beneficiaries could be Whole of Life Insurance. Such a policy would need to be written under trust, in order to ensure that the proceeds on death do not form part of the deceased estate. These policies will provide a predetermined amount on your death in return for an individual insurance premium.

 

Based on average life expectancy of 83 years, for a female aged 60, with a monthly premium of £100 the sum assured on death could be £54,817. This amount gives a return on the total premiums (£27,600) of 98%.

 

So although the premium would have been paid for 23 years, it would have required 46 years of payments before you had paid in an amount equal to the sum assured.

 

Rate of Return

If you were to save £100 per month with an average interest rate of 3% net compounded annually it would take approximately 29 years to produce a return of £55,000.

 

Therefore when considering passing wealth onto future generations it may be worth considering all options available to you. Of course regular savings can be accessed at any time where as a whole of life insurance policy is payable only on death hence the importance of matching your objectives with your financial planning.

 

Key Benefits

 

If you would like further information about Estate Planning please contact Daniel Middleton on 01902 425239 or daniel.middleton@howardwright.co.uk