WealthWiseJUN/JUL 2014

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1 FEATURING WealthWiseJUN/JUL 2014 Your ISA Does topping it up early on make a difference to your eventual return? How to invest a cash lump sum Insurance Making sure you have the right insurance at the right time are investment trusts worth having a look at? Pension freedom The reforms are set to bring greater freedom as to how you access your pension pot. We look into the key proposals and explain why annuities will still have a place in the market T F E - info@clearwaterfinancial.co.uk T F E - kingsbridge@clearwaterfinancial.co.uk Clearwater Financial Limited is a an Appointed Representative of Intrinsic Independent Ltd, which is authorised and regulated by the Financial Conduct Authority.

2 INSIDE THIS ISSUE 03 Welcome to the latest issue of our in-house magazine; specifically designed to help you make the most of your money by keeping you up-to-date and informed with important financial news and information. In this issue, we discuss the following: YOUR Isa savings 03 does topping it up early make a difference? THE pensions revolution a summary of the key announcements The pensions revolution continued... the self-employed and their pension saving options investment trusts are they worth looking into? the right insurance the right insurance at the right time investing a cash lump sum the options to consider Maternity leave & your pension how to ensure you don t lose out state pension top up scheme what you should know If you require any further information on any of the featured topics, or you would like to receive financial advice based on your own individual circumstances, please fill in your personal details on our contact me slip on page twelve, or alternatively please call or us to arrange an appointment. We look forward to speaking TO you FEATURING Why it is imperative the self-employed take care of their own pension savings The articles within this publication are for information purposes and general guidance only. They do not intend to address your individual requirements and therefore no person, nor corporation should act upon such information before acquiring full professional advice. Although great care has been taken to ensure all information is correct before publishing, there can be no guarantee all the information stated will still be accurate at the date of receipt, nor may it remain to continue to be in future.

3 WiseSaving 15, DON T FORGET --- FROM 1st JULY 2014 THE INDIVIDUAL ISA LIMIT WILL BE INCREASED Your ISA savings Does topping up early make a difference to your eventual return? According to figures published by Fidelity in April 2014, investing into an ISA early on in the tax year could increase your payout by more than 25,000 over 10 years. This highlights the financial benefits you could receive just by making sure you top up your ISA as early in the tax year as possible. Fidelity conducted a hypothetical study and their findings showed that if you had paid in your full ISA allowance in the FTSE All-Share index over the last ten years at the beginning of May, you would have a balance of 145,767. Whereas a saver that invested the same amount but as a lump sum payment right at the end of the tax year, would only have a balance of 120,902 over the same period. This suggests that inputting into an ISA early on in the tax year can make a significant difference to your ISA savings pot over time. If you do wait until the last minute right at the end of the tax year, before you invest in your ISA, you are potentially missing out on a whole year s worth of growth. The impact of compounding where the returns generate returns of their own increase with the amount of time investments are held. However, do be aware that this isn t always necessarily true and not always the best strategy. Often, when there is a rush to top up or contribute into either an ISA or a pension, it can often lead to price rises as a result of greater demand, so it may be beneficial to watch the market and perhaps wait until summer time to make an investment. Do also remember with any form of investment, there is a possibility that the markets may fall, so investing a lump sum into an ISA very early on, could put all of your capital at risk. Therefore it is important to bear this in mind and consider whether you would prefer to make regular investments over the year, rather than a lump sum contribution early on. The findings released by Fidelity do seem to sway towards investing early and of course, as long as any growth is re-invested, it can be beneficial to invest early on. However, please do note that this strategy does not suit every type of investor and you must assess your individual circumstances and your overall attitude to risk. Please do contact us if you would like to receive a tailored ISA assessment, we can help you decide the best approach dependent on your individual circumstances. THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. A PENSION IS A LONG TERM INVESTMENT THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE. 3

4 WisePensions The Pensions Revolution Back in March this year, the Chancellor George Osborne, announced that as of next April compulsory annuities are to be scrapped. So far, this seems to have divided opinion some welcome the move as a sign the government is treating pension investors like grown-ups by giving them more independence to manage their own savings. Others argue however, that it may encourage those more reckless to spend their savings far too quickly, leaving them less financially equipped for the rest of their retirement. 10,000 - the amount that can be taken as a lump sum from small pension pots. 12,000 - the new minimum income requirement (MIR) to enter a flexible drawdown arrangement. 15,000 - the new ISA limit as of July 2014, up from the current limit of 11,880. 4

5 One of the biggest changes proposed that you will be able to withdraw all of your pension fund in cash from a money purchase pension scheme will also come into effect from April This will mean when and if you take your 25 per cent tax-free lump sum from your pension, you will be left with three clear choices: 1. Withdraw all of your money which you will pay tax on at your marginal rate 2. Enter into a drawdown arrangement which will come with less limitations and constraints than have been on offer previously 3. Purchase an annuity which will provide you with a set income for life, depending on your choice of annuity Under the new reforms, no matter how little your pension pot is, you will be able to draw down the benefits as rapidly or as gradually as you wish. Simplified drawdown products should become available, which should allow investors to keep their funds in growth assets that should maintain their real value over the lengthier retirements many now experience. The annuity market should also follow suit to offer a wider choice with greater flexibility once the current constraints have been lifted. While the most dramatic changes take place as of next year, some provisional arrangements have been put in place since 27th March this year. Flexible drawdown arrangement rules changed so that you no longer need a secure guaranteed income of 20,000 to meet with the minimum income requirement (MIR). The minimum guaranteed income level has been reduced to 12,000, which the government estimated would allow an additional 85,000 pensioners to access flexible drawdown. Those that do not still meet the MIR can use capped drawdown, which has seen the income limit increased to allow pensioners to draw a higher income in retirement. The rate for calculating an income limit is based on a number of variables, including factors published in tables by the Government Actuary s Department (GAD). A 100 per cent GAD rate is roughly equal to the income that could be paid from a single-life annuity and this was once the rate set for the income limit in drawdown, yet this has now been raised to 150 per cent. However do bear in mind, that if you were to withdraw your maximum level of income each year, you may significantly run down your pension fund. If you are planning to retire soon and you want to be able to have the choice to take advantage of the greater flexibility that will become available next year, one option could be to withdraw your 25 per cent lump sum, leaving your remaining pension invested - and live off the tax-free cash until the new rules come into force (if you can afford to do so). Alternatively you could consider purchasing a fixed-term annuity, which will provide you with a fixed retirement income for a set number of years usually between three and ten years as well as a defined amount upon maturity of your specified plan. Fundamentally, the new freedoms will allow everyone with a pension to remain within investments that generate a decent return when their pension is of the highest value and likely to grow the most however do remember that each individual s circumstances are different and although compulsory annuities are to be scrapped, annuities can still be a very effective way of covering you should you have the long life in retirement we all hope for. With all these changes to pensions beginning to take place seeking professional financial advice could prove extremely beneficial, particularly as each of us can have very different circumstances and no set route is right for everyone. Please do speak to us before you make a final decision as we can help you decide the best course of action to suit you. THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. A PENSION IS A LONG TERM INVESTMENT THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE. NATIONAL SAVINGS & INVESTMENTS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY. WisePensions SMALL POTS Under another short-term measure, the amount you can take in cash from a small lump sum pension pot has been increased. The amount that can be taken as a lump sum, from pots from previous employers, is now 10,000 - up from the previous 2,000. The number of pots that can be drawn from is also increasing from two to three. NATIONAL SAVINGS & INVESTMENTS The Budget also announced that from January 2015, new National Savings and Investments fixed-rate savings bonds will be launched. These will be available to those aged over 65 and each bond will come with a maximum investment limit of 10,000. TAX AND PENSIONS There is no maximum value of savings that can be built up in a pension by a scheme member, however, if you exceed the lifetime allowance currently 1.25m when you come to withdraw your savings, any amount in excess of the lifetime allowance will be charged at 55 per cent. If you take more than 25 per cent of cash from your pension, you will also incur a tax fine of 55 per cent. However, as of April 2015, the plans announced in the Budget will mean pensioners can withdraw their entire pension savings and be charged at their marginal rate however, you should carefully analyse the advantages and disadvantages of doing this before you decide to do so. The government has also launched a review of the 55 per cent tax levied on pension pots on death. Do also remember that if you choose to withdraw all of your pension pot, pay your marginal rate of income tax on it and then die with the funds still within your estate, there could be an additional 40 per cent inheritance tax charge to pay. THE NEW ISA Another change announced in the Budget will see the ISA limit raised to 15,000 a year from the 1st July They will also be simplified to allow investment in cash or stocks and shares, or a combination of both. Having a diversified portfolio can be a tax-efficient complement to any pension benefits in retirement, particularly as income can be taken tax-free. 5

6 WisePensions Pension options for the Self-employed 4.5m - the number of self-employed workers in the UK recorded in March Recent research implies that fewer than a third of self-employed workers currently contributes towards a personal pension. According to figures published by the Resolution Foundation in April this year, self-employed workers are far less likely to contribute to a pension than an employee of a company. Although many newly self-employed people are now aged 50 and over according to the Office of National Statistics in March 2014 the survey suggested that just 31 per cent of all self-employed workers are currently contributing to a pension, which could impact their financial security in retirement. 6 So, what are the options available to the self-employed? When you are self-employed, you don t have access to a company pension scheme, which is usually also topped up by the employer, so you should consider saving into your own personal pension. Currently, personal pensions offer 20 per cent tax relief, which you can claim back and add to your pot you can also claim another 20 per cent from HMRC if you are a higher rate taxpayer through self-assessment meaning for every 100 contribution, a basic rate taxpayer has paid in just 80 with the remainder topped up by the government. A personal pension is usually easier to move around than a company pension, meaning you are less likely to incur some of the costs associated with transferring your money. Personal pensions also offer greater flexibility, as they allow you to choose where your money is invested. A Self-Invested Personal Pension (SIPP) for example, allows you to choose between a wide variety of investments, so if you are willing to spend the time reviewing your investments on a regular basis, they can prove an attractive pension savings vehicle. However, please speak to us for a personalised illustration in order to find out if a SIPP is right for you. How will the pension changes affect the self-employed? Following the announcements in the 2014 Budget, if the changes announced proceed, people will be given more freedom when choosing how to access their pension funds. As of April next year, you will be given the option to withdraw all of your funds as a lump sum and you will no longer be forced to convert your pension into an annuity. It is hoped that the introduction of the singletier state pension in April 2016 will also help self-employed workers save more for their retirement. This is due to a new state pension top-up scheme, which will allow pensioners to boost their state pension by up to 25 a week by making an additional Class 3 National Insurance contribution providing they meet with the set criteria. Self-employment as an alternative to retirement Official figures from the Office of National Statistics in March 2014 declared that the number of self-employed workers in the UK has increased from 3.9 million recorded in 2008, to approximately 4.5 million - with those aged 50 and over accounting for more than 70 per cent of this growth. If you are currently self-employed, it is vitally important to remember to take responsibility for your own pension savings and make proper provisions sooner rather than later particularly as you do not have the added benefit of employer contributions - so that you can have the financial security you hope for when you reach retirement. For more information about starting a personal pension plan or to review your existing personal pension, please do make an appointment with us. We are here to help you get the very most from your money. A PENSION IS A LONG TERM INVESTMENT THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

7 Eyeing up WiseInvesting Investment Trusts They are one of the oldest collective investment vehicles in the world, yet investment trusts are often dismissed for being too complex, too small or both. However, things are changing in the way other funds are distributed so this might encourage many investors to rethink this investment option. One reason it may be a good time to consider investment trusts, if you haven t done so already, is the introduction of the Retail Distribution Review. The removal of commission bias, often in favour of unit trusts, provided more transparency regarding costs and if you are on the hunt for an alternative income in the face of low savings rates it may also be worth consider this non-mainstream asset class. Investment trusts are usually cheaper - and can perform better over the longer-term - than unit trusts or open-ended investments, which often dominate the investment market. SELECTING THE MARKET There are hundreds of investment companies, across many asset classes, quoted on the London Stock Exchange from which you can choose to invest. Many offer the opportunity to invest in sectors such as technology, manufacturing, automotive, infrastructure or healthcare, for example. You can also select your investment target, such as income generation for example. Being closed-ended, investment trusts do not have to meet daily demands for new investment, which means that they are particularly well suited to the asset classes that demand a longer-term outlook or where cash is limited. These can include private equity, infrastructure or commercial property for instance. KEEP AN EYE ON CHARGES According to WhatInvestment in April 2014, over the longer-term (more than 5 years) investment trusts net asset values have, on average, performed better than unit trusts. Of course however, there is also more volatility associated with investment trusts. Broadly speaking, investment trusts charge between 0.75 per cent and 1 per cent in annual management fees, so it would be a good idea to work out how long you want to stay invested and hence, how much it will cost. Charges on unit trusts are under review following RDR and the industry is moving towards clean share classes. Investment trust fees have always been clean because they have never paid commission to platforms. On the whole, if you don t think you will be trading very frequently and you invest 10,000 or more, you will probably pay less in platform and dealing fees with investment trusts as opposed to unit trusts. However, in contrast, many platforms will not charge you to buy or sell unit trusts, but most platforms will charge you to deal in investment trusts. LOOK FOR DISCOUNTS The share price is influenced by the overall demand for the shares by investors, whereas the net asset value (NAV) reflects the value of the selection. Any alterations to the discounts or premiums of trusts can prove both an opportunity and a risk to the investor. Trusts already established on a premium could be the next ones to fall, whereas cheaper trusts with a wide discount can do extremely well should sentiment turn and the discount were to narrow - particularly in a rising market. UNDERSTANDING GEARING Like other public limited companies, investment trusts can borrow money. A well-managed trust that is geared should generate greater returns when markets are rising. However, remember that borrowing money and increasing the company debt can reduce the value or the selection or portfolio and thus the net asset value. On the whole, the level of debt is kept below 15 per cent of the overall portfolio. However, some trusts can exceed this level of debt and then trade on what seems to be a wide discount so you should firstly do some research and find out the gearing via brokers lists or publications. Investment trusts can also retain up to 15 per cent of dividends and income received from the portfolio, in any one year. This money is referred to as the revenue reserve and can then be used to produce a stream of income for investors - even when markets become volatile and companies don t pay, or increase, dividends. This is then especially attractive to those investors looking to generate an income. Do remember, often the best strategy may be to hold a well-diversified investment portfolio made up of multiple asset classes in order to minimise your overall risk exposure. Therefore you do not necessarily have to choose between just open-ended or closed-ended investments; it may be wiser to hold a mixture of the two. THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE. 7

8 WiseInsurance The right insurance at the right time When it comes to insuring your life and protecting your family, there are plenty of options to choose from, however, as you go through life your circumstances are likely to change and so therefore, are your insurance requirements. Here we examine what insurances you should consider and at what time: Whether it is a life threatening disease, an accident at work, or the sudden death of a partner, no one can ever be sure what life may throw their way. Although insurance cannot stop these things from happening, or by any way cure the problem once it has, it can certainly ensure you and your family are financially protected as much as possible. LIFE INSURANCE If you were to get married, take out a mortgage and have a couple of children, you should consider taking out protection to ensure that should something unexpected happen to you, the insurance payout will cover your debts and look after your family. In this circumstance, life insurance should be considered high up on your list of priorities. Life insurance pays out a lump sum to your family if you were to die and the amount of cover you require will depend on your individual circumstances. Once you have estimated the amount of cover you need, you should check whether you receive life insurance cover through work. Many companies offer their employees a death-in-service benefit that will pay out if you were to die. The amount paid out is typically four or five times your salary. While death-in-service benefits certainly help, you must make sure the payout would be enough to support your family; if it isn t, it may well be worth taking out extra life insurance yourself. When you are relatively young, life insurance is often reasonably cheap and there are ways you can make it even better value. You may want to consider taking out a joint life policy, which would then pay out if you or your partner were to die. However, although a joint policy may be cheaper, do bear in mind that you will receive less cover. There are also alternative life insurance policies available. Rather than choosing a policy that pays out a lump sum, you could opt for a policy referred to as family income benefit, which is paid out monthly until the end of the agreed term. This can sometimes be preferred if you wish to ensure the monthly household bills and expenses are covered. This form of life insurance is usually cheaper than a lump sum policy as the total benefit that can be paid reduces each month. However, if you would prefer to leave your family a large lump sum, then it may be worth paying slightly extra for a level-term plan. CRITICAL ILLNESS COVER Life insurance will only pay out if you die but as you get older, the risks of suffering a serious illness unfortunately increase. If this were to happen, this could affect your ability to work and thus pay the bills and support your family. It is in this circumstance critical illness insurance could prove essential. Critical illness insurance will pay out a lump sum should you suffer one of the critical illnesses defined within your policy with many policies now also including payouts for less severe illnesses. When you are younger, critical illness insurance is usually more expensive than life insurance as the insurance companies deem you more likely to make a claim. However, it is still worth considering as critical illness insurance can buy you options for example, if you were to suffer a critical illness you may be able to return to work again and you may wish to retrain a critical illness insurance pay out could provide you with the option to do this. INCOME PROTECTION Protecting your income should also be something you consider. Income protection insurance will pay you an income until retirement if you are left unable to work long-term as a result of an illness or injury. How much this form of insurance costs depends on your age, occupation and the amount of cover you would like and it is possible to alter the amount of cover to suit your budget. For example, you can choose to cover just your key expenses as an income protection plan will not cover your entire salary. 8

9 You should also check your employer s sick pay policy because extending the time before your policy pays out to coincide with the end of your sick pay could also reduce your monthly premium. You could also use this strategy if you have some savings that could cover your expenses for an extra few months. There are also shorter-term policies available. These usually pay out for up to five years and are often a cheaper alternative. Of course, while the need for protection is often much higher if you have a young family, not all budgets can stretch to each form of insurance, so if this is the case you should prioritise the cover you would find most valuable to suit your circumstances. There are other providers of payment protection insurance [Short-term income protection] and other products designed to protect you against loss of income. For impartial information about insurance, please visit the website at org.uk. WHAT ABOUT ONCE THE CHILDREN HAVE LEFT HOME? Once your children have left home and the mortgage has almost been paid off, or is certainly more manageable, your protection requirements may reduce. However, as you have grown older you may have picked up a few illnesses along the way, diabetes or high blood pressure for example, so protection may cost slightly more. However, there are ways you can reduce the cost without leaving yourself exposed. You may be able to reduce the term of the policy for instance perhaps to coincide with the end of your mortgage term, or if you feel you have built up enough savings, you could insure for a lower sum payout. You might also consider a shorter-term income protection insurance policy particularly if you are not far off retirement and feel you have enough pension savings you could take earlier, should you find yourself unable to work again. As health problems can increase your insurance policy premiums, which can then prove expensive, it may be worth considering an over-50s plan with no medical underwriting. They do usually offer a less amount of cover, however there is a guaranteed acceptance for anyone aged 50 and over. Additionally, depending on your policy provider, if you were to die within the first year of taking out the cover, they will refund the premiums you have already paid. These over-50s plans can be beneficial should the condition of your health make other forms of insurance policies seem prohibitively expensive, however if you are prepared to answer questions about your health, you can often receive a greater level of cover by taking out a policy with medical underwriting. REACHING RETIREMENT Once you finish work and hopefully you have paid off your mortgage, protecting your income should no longer be an issue. However, the risk of illness does increase with age and many insurers require you to be under 60 when you take out cover and often no older than 70 when you reach the end of the term. Your main protection priority in retirement is likely to be ensuring your legacy isn t subject to a large inheritance tax (IHT) bill. It is possible to reduce your future IHT liability through careful financial planning and this is where we can help. It can be difficult to avoid paying IHT, particularly if the value of your own home alone exceeds the nil rate band which is currently 325,000 for individuals or 650,000 for married couples or civil partners. However, you could consider life insurance perhaps in the form of a whole-of-life policy, which would pay out a lump sum to your family in the event of your death, this could possibly then be used to pay any IHT bill. Yet you must take into consideration that because this is a guaranteed payout, the premiums on this type of policy can be high so you need to weigh up whether it is worth taking out to cover an IHT bill, or whether it would work out better to leave the bill to be settled from your estate. Do also remember, that if you do decide to take out a whole-oflife policy to cover an IHT bill, you should certainly consider having it written in trust. Without doing this it would mean the payout would be added to your estate, potentially increasing your IHT liability. If you would like to speak to us in further depth regarding your insurance requirements now, or in the future, please do not hesitate to make an appointment with us we are here to help. THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE INHERITANCE TAX PLANNING OR TRUST PLANNING. When you are relatively young, life insurance is often reasonably cheap and there are ways you can make it even better value 9

10 WiseInvesting How should you invest a cash lump sum? Whether it is receiving a redundancy payout, inheritance money or even a substantial lottery win, receiving a sizeable cash lump sum can dramatically transform the shape of your financial future. A lump sum of money however, shouldn t always be treated the same as investing and often requires slightly different treatment. Here is our guide to how you can make the most of a cash lump sum: Firstly decide which investment product will suit you Primarily you need to decide how and when you want to access your money. You may wish to save the money for your retirement, so you may choose to invest your lump sum in a pension, but bear in mind, you won t be able to access the money before you reach age 55. Alternatively, if you think you will need the money before then, other types of investment products may be more appropriate. You also need to determine the level of risk you are comfortable with. It may be worthwhile to invest in a multiple of asset classes to diversify your risk exposure. Some investment products could expose you to a higher level of risk than others, like Venture Capital Trusts or emerging markets funds, when compared to a fixed interest fund for example. You could also increase your level of risk exposure by investing in the shares of just one or two companies, rather than spreading your investment over shares in many companies. You also need to consider how much time and commitment you can give your investments, as some require close observation on a regular basis. Index-linked investments can offer you instant variation and the added shelter that they are following the market. Other investment products however will require your regular observation on how well they are performing, so will take up more of your time. Work out your investment strategy A sensible strategy might be to create a welldiversified portfolio to enable you to monitor the performance of your investments and achieve the returns you hope to. To accomplish this you should aim to spread your money across multiple asset classes such as property, equities, fixed interest (such as government and corporate bonds) and cash. 10 Each asset class can offer a different contribution to your portfolio, with varying levels of risk. For example, equities are often regarded as the most volatile and thus the riskiest of the four main asset classes, followed by property, with cash often considered the less risky option of them all. Of course, there are also differences in the level of income you can expect from these different asset classes. While you can choose shares that deliver a good stream of variable dividend income, fixed interest bonds are much more focused on delivering a regular and reliable income. So again, you should analyse which option you would prefer. Allocating your assets Determining your asset allocation within your portfolio will often depend on your attitude to risk and the level of income your want to receive. If you are comfortable in taking a few risks and you do not see yourself needing access to the money for a while, you could hold as much as per cent of your portfolio in equities. If you would rather be more cautious, it may be better to build up your portfolio with investmentgrade bonds and cash, with perhaps your equity allocation making up 20 per cent or less. If receiving an income is important, it may be worth holding more fixed interest bonds, perhaps even opting for a greater premium in high-yield bonds rather than investment-grade bonds however these do often carry greater risks. If you already have a well-structured portfolio in place, you might want to keep the existing asset allocation and just add your lump sum over each asset class or you might wish to add new classes of investment to further extend your portfolio. Tax planning To achieve the highest level of return possible, you should aim to make your money as taxefficient as possible. Payments into your pension will receive 20 per cent tax relief from the government, 40 per cent for higher taxpayers, which gives your investment a sizeable boost - as well as giving you tax-free gains. An ISA (Individual Savings Account) will also provide a tax-efficient return and the current limit is to be raised to 15,000 from 1st July this year. Some ISAs, as well as pensions also have capital gains tax (CGT) exemptions. CGT is payable at the rate of 18 per cent or 28 per cent, depending on taxable income, on any profits you make in excess of the annual allowance, which is 11,000 for the 2014/15 tax year. You can also use a spouse s allowance as well as your own and if you plan well, you could stagger taking your money to avoid a large tax bill. For more information regarding your investment portfolio, or for help in getting started, please do not hesitate to contact us. THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. SOME FUNDS WILL CARRY GREATER RISKS IN RETURN FOR HIGHER POTENTIAL REWARDS. INVESTMENT IN SMALLER COMPANY FUNDS CAN INVOLVE GREATER RISK THAN IS CUSTOMARILY ASSOCIATED WITH FUNDS INVESTING IN LARGER, MORE ESTABLISHED COMPANIES. ABOVE AVERAGE PRICE MOVEMENTS CAN BE EXPECTED AND THE VALUE OF THESE FUNDS MAY CHANGE SUDDENLY. INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

11 Maternity leave 30 & your pension How to ensure you don t lose out WisePlanning WisePensions - the number of years worth of National Insurance contributions to qualify for the full state pension Preparing for the birth of a baby is an exciting and often very hectic time, so it is easy to appreciate that thinking about your pension is not top of your to-do list. However, it is important to realise the impact of having a family on your retirement pot, as you may be able to take certain steps to lessen the blow. Here is our brief guide to what you should be aware of: THE STATE PENSION To qualify for the full amount of state pension, you currently need 30 years worth of National Insurance contributions (NICs). However, time taken off work to raise a family can leave you with a big gap in your record, particularly if you have more than one child. So, take the time to review your current entitlement by attaining a state pension statement, which is currently available from the DirectGov website, so you know just how much of a gap you may need to bridge. Also, if you currently have a child under 12 and you are entitled to Child Benefit you may be able to apply for Class 3 National Insurance credits, which should boost your entitlement to your eventual state pension. SPEAK TO YOUR EMPLOYER If your employer is currently making contributions into a pension scheme on your behalf, speak with your employer to find out if these contributions will continue during your maternity leave. Alternatively, consult your employment contract, which should provide further information. If their contributions will stop, ask if you are able to make any personal contributions that you miss as a result of your maternity leave. Here is more information about the pension rights available when considering maternity leave, under the two types of employer pension schemes: Final Salary: 1 You should continue to build up your pension as normal while you are on paid maternity leave, however you should only pay a contribution based on the maternity pay you receive from your employer. Money Purchase: 2 Your employer may pay contributions that are based on a higher rate than your level of maternity pay, however do check what their individual policy is as there are rules surrounding this. Do be aware that you could end up paying smaller contributions to the scheme if it is based on your amount of maternity pay, which could result in a smaller eventual pension pot so you might want to consider looking at ways to top this up. Unpaid maternity leave: 3 If your employment contract reveals that your maternity leave is actually unpaid, neither you, nor your employer, are obliged to pay into your pension. However, any time worked before or after your maternity leave would count towards your pension. Many employers do offer paid maternity, yet do check your individual contract of employment and then discuss your situation with them so that you are fully aware of your position before deciding on any particular course of action. A PENSION IS A LONG TERM INVESTMENT THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. 11

12 State Pension top-up scheme Is the government offering us an olive branch? new state pension top-up A scheme, which is due to become available from October 2015, will allow pensioners to buy an extra 25 a week. This will be offered to existing pensioners and those reach state pension age before 6 April 2016 women currently aged 61 or over and men aged 63 or over. It is being introduced as an aim to help anyone who is likely to be excluded from the new single-tier state pension, which is due to come into force in April This new state pension arrangement will see the existing basic state pension and the Second State Pension conjoin into one simple weekly payment of 144. The current system in operation sees the basic state pension approximately 110 per week topped up by an additional Second State pension, however this is not available to everyone. By introducing the new topup scheme, available for 18 months from October next year, savers could receive up to 25 per week of extra pension money by opting to pay Class 3A voluntary National Insurance contributions. In April 2014, the Department for Work and Pensions (DWP) issued an example of the contribution you would have to make to receive a 1 per week top-up, which is dependent on your age: 1. A 65-year old, to receive an annual top-up of 52 equating to 1 per week, would have to make a lump sum payment of A 70-year old, to receive the same weekly top-up, would have to make a lump sum payment of A 75-year old, again to receive the same weekly topup, would have to make a lump sum payment of 674. Do also note, there is due to be a limit on the maximum contribution you can make, which for a 65-year old is 22,250 which would provide an extra 1,300 per year for life. It does seem that by introducing this new scheme, the government is offering an olive branch to those who may retire before the single-tier state pension is introduced in April Do remember the scheme is due to run for just 18 months, so if you feel you would like to top-up your pension, it may be something well worth considering as soon as the scheme is introduced in October next year. For more information on any of the articles or related topics within this publication, or for individual financial advice based on a range of financial products, which may be available, please fill in your details on the right and return this to us. Personal information will be treated as confidential and held in accordance with the Data Protection Act. You agree that your personal information may be used by us to provide you with details of products and services we may offer. Name: Address: Post code: Telephone: I would like to know more about: PLEASE RETURN TO EITHER: 6/7 Southernhay West Exeter Devon EX1 1JG 56 Fore Street Kingsbridge Devon TQ7 1NY This magazine is for general information only and represents our understanding of the current law and HM Revenue and Customs Practice. We cannot accept responsibility for any errors or omissions it may contain.