After several recent rallies in share prices, we are currently seeing another slight downturn; so investors could be forgiven

for being slightly nervous about investing in shares, in case they fall even further in value. Markets might, of course, fall again but if you look at the long term trend for the FTSE100, you will see that the index is currently some 35% below its ‘long-term trend’.

Of course, there is no guarantee that share prices will return to their long term trend, but with hopes of economic recovery in so many quarters, it seems to be reasonable to anticipate a further share rally – perhaps more sustained than before.

Should we buy now and hope for the best?

Whether or not now is a good time to buy shares is a matter for each individual to decide. However, holding off investing in an Individual Savings Account (ISA) may not be necessary, thanks to a change introduced in 2008.

It would be good to say that by allowing investors to move money from their cash ISA into their equity ISA without using up part of their annual contribution allowance* is to the credit of the government. Unfortunately, it was this administration which introduced ISAs to replace the arguably more generous Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) which had been in place for some time. I recall going to the first industry briefing on the topic and asking specifically whether it would be possible to switch assets from one class (there were then three separate ones, including shares, insurance policies and cash) and was told that this was not possible.

Well now it is – at least from cash to equities.

Why is re-balancing so important?

This is important because of a thing called ‘asset allocation’. The theory, which we will address in a future blog, is that it is better not to put all your eggs in one basket, but to hold different types of asset so that, should one do badly, the others might perform better, ensuring that you escape the worst effects on all your investments at the same time.

So what is the benefit now?

Because it is now possible to switch money from a cash ISA into equities, you can micro-manage your assets and avoid having too much in cash; safe, but unlikely to perform as well as shares over the longer term.

What should you be doing?

You should consider some or all of the following:

• There is no reason to hold off investing in an ISA if you are not sure about shares, put your money into a cash and switch later;
• If you think equity markets will rise again soon, think about switching more money from cash into equities, within your ISA; and
• If you are over 50, consider making a further investment later in the year as well as some money now.
• For more information about making personal provision for retirement through various forms of investment visit: ISAs and pensions. Capital Reward Plus offers access to no-nonsense retirement and investment planning.

* (The annual allowance is £7,200 this year for most people, although from October the over 50s will be able to invest up to £10,200 – half of which can be in cash).

NOTHING CONTAINED IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL ADVICE.

Of course, one of the most challenging issues is intestacy; simply not having made a will. Where this occurs, money can end up with those whom the individual did not wish to benefit, at the expense of those who were the intended – but unwritten – beneficiaries. Those who think making a will is ‘tempting providence’ might consider that failing to make a will is an even greater temptation to it!

What are the hidden ‘taxes’?

Most of us suspect that lawyers are the main beneficiaries of any legal activity and it is unsurprising that they have a large share in the will-making process. But in practice, many executors will actually prefer to use their own solicitors to help with all the paperwork and technicalities, rather than those of the testator (the person making the will in the first place), perhaps because it is more convenient to use someone near where they live or work.

It can be here that the problems start. Many people leave the original copy of their will with their solicitor for convenience. In some cases, the solicitor will also be the ‘back-up’ executor, in case the nominated executors pre-decease the testator, or simply refuse to act. However, they cannot normally simply ‘take over’ and cut out the first named executors.

What it appears that some can do – or at least may attempt – is to impose a charge on the executors before they will release the will to them, or their solicitor.

In fact, according to the Law Society, this is only legitimate if the testator actually entered into an agreement to this effect. However, executors may be reluctant to challenge such a fee (which is likely to have been set below the cost of using the small claims court to recover it), in case it further delays the provision of the required document. After all, without it, the probate process cannot proceed.

In effect, a few solicitors who were paid to prepare the will are apparently seeking ‘a second bite of the cherry’; imposing a tax, if you will, on the estate for releasing documents.

What should you be doing?

In practice, there is very little you can do except pay up and then complain to the Law Society. However, it may also be worthwhile considering:

Making sure that you know the contents and whereabouts of any will you are likely to have to execute;

Seeking legal advice if you become an executor as early as possible, to ensure that you know what your rights and obligations are – in particular if there are any charges that the drafting solicitor might make, as you will need to have the cash ready; and

Ensuring that the solicitor you intend using, or you, if you are acting on your own, are able to obtain the document as soon as the testator dies.

This is not about ‘money-grabbing’; it is about being prepared and in a position to expedite matters, so that the family can move on.

For more information about making personal provision for retirement through various forms of investment visit: ISAs and pensions. Capital Reward Plus offers access to no-nonsense retirement and investment planning.

NOTHING CONTAINED IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL ADVICE.

So that’s the end of the matter is it?

Well, no. Just like many ‘final salary’ schemes in the private sector, the parliamentary pension scheme is in deficit – caused largely by increasing life expectancy – in this case to the tune of some £50 million, according to the government actuary.

The government now says that the taxpayers’ contribution will remain limited to 20% of the commons wage bill of £46.1 million, rather than increased as previously planned. However since any shortfall has to be made up by the treasury as ‘employer’, and the treasury gets its money from the taxpayer, it is difficult to see who else is footing the bill. The only alternative is for MPs to pay more towards their own retirement benefits, which is like asking turkeys to vote for Christmas.

It was only in 2002 that MPs voted to increase their pension accrual rate to one fortieth of salary for each year they sit. Compare this with ordinary mortals who can seldom, if ever, accrue at a relatively ‘miserly’ sixtieth (often only an eightieth) for each year they work and you can see why the MPs scheme is so expensive.

How does this affect us?

Our taxes will have to continue funding benefits for MPs that most of us cannot possibly hope to match except by working for 50% longer than an MP (and even then probably earning substantially less than they do).

This – together with repaying all the government borrowing that was necessitated by the banking collapse – means that taxes will certainly have to rise over the next decade whoever wins the next general election.

How bad this gets will depend on who can best control government waste (sorry, that should have read “spending” – but maybe not). But the 50% tax rate for those earning £150,000 and above and the removal of higher rate tax relief on pension contributions for the same group may prove to be just the tip of the iceberg.

What should you be doing?

There is little we can do as individuals to influence what goes on in Westminster. However, we can take steps to protect ourselves as far as possible from the main impact of any changes.

Maximise use of Individual Savings Accounts (ISAs) – because the growth is tax free, only income from UK dividends is taxed (and then at just 10%) and the money you take out is totally free of tax.

Maximise investments into your pension – because in addition to the same tax-free growth as an ISA, you receive tax relief at 20% on all contributions up to 100% of earnings (but not more than £245,000 a year) and most higher-rate taxpayers can also receive an additional 20% tax relief, too (and a quarter of the fund can eventually be taken as tax free cash).

Consider making pension contributions for your children or grandchildren. You can put in as much as £2,880 a year per child and the government will top this up to £3,600 for them. They can then access tax free cash when they reach 55 and also start drawing an income, if they wish to.

For more information about making personal provision for retirement through various forms of investment visit: ISAs and pensions. Capital Reward Plus offers access to no-nonsense retirement and investment planning.

NOTHING CONTAINED IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL ADVICE.

Whatever you think of the job done by Michael Martin as Speaker of the House of Commons over the past nine years or so it is a fact that, like the Prime Minister and Lord Chancellor (head of the House of Lords) he is entitled to retire on a pension of half his earnings, in order to preserve the dignity of the “three Great Offices of State”. Most people would have to work for 30 years to reach this level of benefit – and then only if members of one of the best pension schemes available (other than those enjoyed by MPs, of which more later).

What is this worth?

It has been calculated that his total pension pot is worth about £2 million, greater than the fund that we mortals can build up without incurring a tax charge of up to 55% on the excess over the Lifetime Allowance (which is £1.75 million, this year).

Part of this is his MP’s pension, which accrues at a much faster rate than any non-politician could achieve through even the best defined benefit (usually called final salary) schemes. After all, they decide on their own pay and benefit – at least, they have up to now …

Will recent changes help?

Changes to the pension rules introduced in April 2006, mean that most people can build up massive pensions too doesn’t it?

Well in theory, that might be true; but in practice it is unlikely to be the case.

Assume that you are 50 and earning £40,000 a year. If you want to generate a pension of £20,000 a year (half your earnings) including a basic state pension of about £8,000 a year, at age 65, then according to the Daily Telegraph (24/5/09) you would need to invest £1,230 a month (assuming 3% annual growth, 1.5% annual charges and 3% p.a. inflation) or about 37% of your gross income. Of course for a younger person, who has longer to invest and allow their money to grow in the tax-favoured environment of a pension scheme, the monthly contribution would be much lower. But who, when they have a young family, can afford to put much aside for retirement planning?

What should you be doing?

There are a number of simple guidelines that should help you save for a pension that gives you the best possible chance of a comfortable retirement.

+ Start saving for your pension as early as possible. Grandparents can put up to £2,880 each year into a pension for their grandchildren and the taxman will add £720 to top it up to £3,600 a year (we will cover this in a future blog).

+ Always consider joining an employer’s pension scheme if one is offered, because otherwise you could lose any contribution they make on your behalf.

+ From 2012, employers will either have to offer a pension scheme of a certain standard, or enrol you into the new Personal Accounts to be launched then by the government.

+ Never rely solely on an employers’ scheme but consider investing additional amounts into a separate scheme of your own in order to maximise your potential retirement income.

+ Think about diversity of investments – in other words do not put all your eggs in one basket, but consider a spread of asset classes.

+ Remember that the greater the potential reward, the greater the risk that you will lose part or all of your money. There is no such thing as a free lunch,

For more information about making personal provision for retirement through various forms of investment visit: ISAs and pensions. Capital Rewards Plus offers access to no-nonsense retirement and investment planning.

NOTHING CONTAINED IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL ADVICE.

Salaries

It has been announced that MPs received a pay rise of 2.33% from 1 April 2009 – let’s not get into the debate about their expenses, which has just cost Speaker Michael Martin his job. By contrast, data from the Office for National Statistics shows that average earnings in the private sector have fallen by 1.2% in the year to March (public sector pay has risen by 2.6% over the past year). To a large extent, this actually relates to falling bonuses, but it is not just the bankers who are suffering; anyone relying on bonuses is likely to see their total income falling.

This is more than just an inconvenience, because it could affect borrowing power when it comes to arranging a mortgage – or remortgage – for your home.

So while you and I are suffering from falling income, those we elected to serve us are feathering their own nests – in every sense, apparently – paid for by you and me.

Pensions

Perhaps this inequality will be ‘paid for’, when it comes for us to retire. Those working in the private sector – which actually generates the nation’s wealth – must surely be entitled to better pensions than politicians, as a pay-back for our inferior earnings?

Not a chance. The MPs have made sure that their own pension scheme accumulates benefits at a rate faster than any other pension scheme I have ever come across. And who is this generous employer who is guaranteeing high pensions to people in generally secure jobs based on faster rising salaries? You and me, again!

The fact is that MPs – who were once given awards such as the Knighthoods and Peerages as a reward for increasingly senior levels of ‘service’ – can now expect to earn much more than the rest of us (other than the bankers, who they are so careful to protect). They also enjoy pretty good job security (and severance terms, when the voters finally get tired of them. And they retire on index-linked pensions that, quite frankly, those of us paying for them cannot even dream about (well, actually, I do dream about it, but I admit to being strange in that way).

What should you do?

MPs will always make sure that they are better off than the people they ‘serve’ – if you will forgive the use of that word.

That means the rest of us have to look after ourselves – especially with the value of the state pension having fallen so much, compared with wages, over the past decade.

Fortunately, we can still make personal provision for your retirement through various forms of investment including the more tax-efficient ones like ISAs and pensions. Capital Reward Plus offers access to no-nonsense retirement and investment planning.

NOTHING CONTAINED IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL ADVICE.

Once in a while, it can be a good idea to get back to basics, so when the weekend press starts going on about ‘emerging markets’ as if there were the solution to all our investment challenges, it is worth putting this into context.

What is an emerging market?

Emerging markets are generally held to include places like India, Brazil, Russia and China. We are not really talking about places like Japan and the Pacific Rim, which were emerging markets some decades ago.

What the term means is those territories that do not have well established financial markets with a long history; it does not refer to ‘backward states’ which would certainly not include Russia and China. The real point is that many investment experts see these as offering growth potential simply because they have not already become as mature as the UK, US and Europe, in terms of the way investors support businesses through well established stock markets and collective investments (like ISAs unit trusts and so on).

Of course, the law is not the only ‘killjoy’; life insurance companies also generally offer lower premiums to non-smokers than to those who enjoy an occasional puff. But they have a good reason for this.

Smoking can – as we are frequently told – seriously affect your health and this means that it can shorten life. This being the case, it is not unreasonable for insurance companies to want to charge more to smokers. After all, they have to collect sufficient money in premiums to pay out all the claims, cover their costs and also make a profit (otherwise what are they in business for?). Those who put the largest ‘strain’ on the life fund – that is, are most likely to make a claim – should obviously pay more than those whose lifestyle makes a claim less likely.

This should not be seen as a moral judgment on smoking; any more than the fact that life insurance generally is much cheaper than it was a few years ago!

Yes, cheaper.

Of course, everyone knows that life insurance can become expensive once you turn 40; but what is not generally known is that a life policy could now cost less than half what it would have in 1979.

The reason is all to do with ‘life expectancy’. This has improved dramatically over the last three decades, so life insurance premiums have plummeted. In fact the drop has been so consistent that even those who have arranged insurance quite recently could find they can save money by taking out new cover – even though they are older.

If you would like to see what we mean, why not click here to give yourself a quick quote. It is remarkably easy and you may be very surprised by how much you might be able to save, compare with your existing premiums.

Will Swine ‘Flu affect premium levels?

The current outbreak is unlikely (on evidence so far) to make a significant difference to what insurance companies call mortality data. If, however, your health has deteriorated since you last took out any life insurance, your may find that there is no saving and you are better off staying where you are.

If you would like to arrange replacement – or additional – life insurance, including critical illness cover if you wish, you can do so online with a minimum of fuss at the end of the quotation system (although you are under no obligation to do so).

To work out how much cover you may need, please click here,

NOTHING CONTAINED IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL ADVICE.