Increased ISA allowance - Why we should be thanking George!

Since the age of austerity started, no budget has really given the UK population a reason to want to say “Thank you George Osborne”, as of 1 July the savers amongst us should be saying exactly that.

From 1 July, the ISA allowance will be increased to £15,000.  For the first time, the full allowance can be used for cash, not just stocks and shares.  In another change, Stocks and Shares ISAs can now be transferred into Cash ISAs, helping those with spending plans coming up be able to budget more effectively.

 

At a time when interest rates remain firmly in the doldrums, the ability to save a little tax and therefore boost overall returns is a welcome relief.

 

I am frequently asked, “Should I bother with an ISA?”  Although ISAs aren’t racy financial planning, they are - in my opinion - essential housekeeping for all of us.  A married couple fully utilising their ISA allowance each year for 10 years, earning 3%, could have a tax-free lump sum of c.£384,000 at the end of the period.

 

Pay off the mortgage? House deposit for the kids? Second property? Early retirement? Spend it how you want, but when you do, remember to say thank you to George.

 

Stuart Moss

Senior Consultant

Telephone: +44 (0)20 7893 3456
Email:  getintouch [at] broadstoneltd.co.uk

What is discretionary fund management?

Have you ever considered handing over complete control of your investment portfolio to a professional including important asset allocation decisions?  If so, are you equipped with the right information to make a choice?

You may have received an inheritance, proceeds from a business sale or a lottery win.  It may be hard to get on top of the options available to you and you may be looking for a way to access a professional service to invest and manage your wealth.

A discretionary fund manager (DFM) is a professional third party manager working to set parameters in terms of portfolio choices (risk profile, client preferences etc.).  The manager will create and maintain a portfolio that is specifically designed for you and tailored towards helping you achieve your objectives under a pre-agreed risk profile.  The manager will take full responsibility for all investment decisions set against a risk profile and capacity for loss that you have both agreed in advance.

The discretionary route might appeal to those who, perhaps, don’t have the time or knowledge to run their own portfolio and are unsure how to create a balanced spread of asset classes and review them regularly.  It avoids a large pile of paperwork and accounting for each transaction when it comes to HMRC reporting.

If you are looking to hand over control of your investment portfolio to a third party and not worry about it on a daily basis then this could be the option for you.

Mike Batchelor

Private Office

Telephone: +44 (0)20 7893 3456
Email:  getintouch [at] broadstoneltd.co.uk

Ways for you and your family to avoid paying inheritance tax on your life assurance policies and pension arrangements

Following the theme of my last blog, where I talked about the effective use of a Will and the services of a professional financial planner, today’s blog outlines some basic thoughts to help avoid the need to pay inheritance tax on life policies and pension plans.

In the case of life policies, these can and should usually be written in trust, as if they aren’t, the death benefits will be paid to the policyholder’s taxable estate, and be subject to inheritance tax. In this situation, a discretionary trust is often suitable, with the policyholder’s partner as the principal potential beneficiary, together if appropriate with any children. This generally brings an additional layer of flexibility and avoids further Inheritance Tax problems in the event of the policyholder’s partner/spouse dying.

In the case of pension plans, an expression of wish in the form of a ‘letter of wishes’ should always be written by the planholder to the scheme trustees indicating the person or persons to whom they would wish the value to be paid in the event of their death – indeed these often form part of the original application process. Some scheme trustees who are unwilling to follow expressions of wishes, insist on paying plan proceeds to the planholder’s estate. Consideration might be given in these cases to switching to a more accommodating pension scheme.

As an alternative to an expression of wish, a formal pilot trust (or ‘spousal by-pass trust’) might be established – especially for larger pension arrangements. This would give the trustees discretion to pay the proceeds to a wide range of potential beneficiaries, including the surviving spouse, but would enable them to ensure that the surviving spouse received only what he or she needed, so that the balance of the fund would not be held in their taxable estate on their death, and therefore avoid inheritance tax.

 

Duncan Wilson

Private Client Partner

Telephone: +44 (0)20 7893 3456

Email:  getintouch [@] broadstoneltd.co.uk

Will Collective Defined Contribution plans get out of first gear?

The new Collective Defined Contribution (CDC) plans, which were announced in the Queen’s speech today, may offer cost savings for pension savers.  We are sceptical whether they will ever get off the ground in the UK.

We live in a post-Defined Benefit (DB) world, where many FDs continue to rue the day their predecessors agreed to the open ended pension commitment of such schemes, and, where behind the scenes they continue to place considerable financial strain on many of the country’s employers. Most private sector employers closed their DB schemes over the last ten to fifteen years replacing them with DC arrangements, with comparatively lower levels of contributions.

While the industry discusses the merits of the system the elements that smell of with-profits, the cross generational subsidy, whether pensioners will be 30% or 50% better off, the real issue is: will employers want to adopt these systems? For three major reasons we think they won’t:

 

1.  It isn’t DB but it is a bit like DB.

 

A feature of Collective DC is an “aspiration” of a benefit at retirement which could be perceived as a defined benefit by members. With those expectations could come moral imperatives for some employers. It is unlikely that employers that bear the scars of DB would embrace these new risks with open arms.

 

2.  What about the flexibilities to be introduced from April 2015?

 

Which employer wants to explain to their employees that they are entering into an arrangement that removes all the new flexibilities that have been trumpeted by the press and have just come into force for an ‘aspiration’ they will be better off in retirement.

 

3.  Auto enrolment has already made DC the pension scheme of choice.

 

Many employers have been forced to review their provision and put something into place to meet their auto enrolment requirements. Will they want to undo that work and adopt a CDC approach? It is unlikely.

 

I am not against CDC and believe that we will come full circle and reappraise defined benefit provision in the future (perhaps long into the future) but fear that CDC has come too late. The Government should ensure their focus remains on repairing the active membership phase of DC provision to keep charges competitive, improving governance and ensuring knowledge and financial education is as good as possible to give individuals the skills to make informed choices.

David Brooks

Pensions Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk