our regular financial planning magazine

1. SmartMoney
Independent
Financial Services
NOVEMBER/DECEMBER 2011
Smoothing out your
portfolio’s returns
How to increase the long-term value of your investments
SIPPing into
retirement
Are you in control of
G OFFN your investments?
VINEREIG
STA OV LT
A S DEFAUg to
ettin the
Emerging
G with of
s is
grip nt cris ess
e
curr ebtedn
views
ind The lure of greater growth
and younger economies
Do your retirement Fine-tuning
numbers add up? your portfolio
Saving to secure the kind of pension Reduce risk, hedge inflation and
you would like to live on diversify your overall investment strategy
Independent Financial Services (UK) Ltd
404 The Waterfront, Stonehouse Park, Sperry Way, Stonehouse, Glos, GL10 3UT
Tel: 01453 797500 Fax: 01453 797559 Email: ifs@theifsgroup.com Web: www.theifsgroup.com
Registered in England No. 2937166.Registered Office: 404 The Waterfront, Stonehouse Park, Sperry Way, Stonehouse, Glos., GL10 3UT
Independent Financial Services (UK) Ltd is an appointed representative of Lighthouse Advisory Services Limited which is authorised and regulated by the Financial Services Authority.

2. Welcome retirement
Editorial Do your retirement
W
elcome to the latest issue of our
personal finance and investment
magazine. Inside this issue
numbers add up?
we provide you with quality analysis and
information on a wide range of topics to
Saving to secure the kind of
help you make your financial planning pension you would like to live on
decisions with confidence.
Before you can start planning for your How much money do you need to save to secure the kind of pension
retirement, you need to understand how you would like to live on when you retire? It’s a question that concerns
the money you’ve built up in your pension everyone saving for their retirement.
fund will be used to provide you with an
income when you retire. On page 05 we So it’s essential to make sure your Much will depend on when you plan
look at annuities – one of the options you numbers add up, especially as older to retire. Some people expect to have to
could choose to invest most of your pension people have seen their cost of living rise work until they are 65, some with a good
in, and one that will pay you a regular by almost a fifth in four years, according pension may aim for 60 and others plan
income throughout your retirement years. to calculations from Saga. Working with for an early retirement during their 50s.
In the UK more than £10bn is invested in the Centre for Economics and Business
annuities every year. Research, Saga estimated that the neW-found freedom
There are numerous ways of saving cumulative inflation rate on the RPI gauge Many of us may dream of long, easy days
for retirement, including various types of has been 13.9 per cent for the general in retirement, enjoying our new-found
pensions. The government views retirement population over the past four years. But freedom. But the illusion can too easily
savings as being so important that it offers people aged between 65 and 74 have be shattered if we do not have enough
generous tax benefits to encourage us suffered a rise of 19.1 per cent. income to live on. Few of us may realise just
to make our own pension provision. It is how much we could need in retirement to
usually also the case that you may be able daunting proSpect achieve a comfortable standard of living
to contribute to more than one pension Add to this the daunting prospect that and how long it will have to last.
– for example, if appropriate, you could one in three workers in the UK does As more people are living longer today,
contribute to a Self-Invested Personal not currently have a private or company so our pensions have to last longer
Pension (SIPP) as well as to your company pension, it means that around 15 million during our retirement years. Realistically
pension scheme. Read the full article on people will have to rely on the State a pension may have to provide us with
page 04 . pension or personal savings when they an income for over two decades, if not
In the light of recent market volatility it’s retire, according to research of 1,600 longer, after our salary stops.
perhaps natural to be looking for ways to adults by Prudential.
smooth out your portfolio’s returns going This makes the question ‘How much factorS to conSider
forward. One way for investors to achieve money do I need to save to secure the There are several factors to consider, such
some peace of mind is through ‘pound-cost kind of pension I would like to live on as your current age, how many years left
averaging’, a simple, time-tested method for when I retire?’ even more important. before your retirement, how you plan on
controlling risk over time. On page 06 we look spending your retirement years and how
at how pound-cost averaging enables investors much you can afford to save.
to take advantage of stock market corrections When you retire, the chances are that
and how, in this way, you could increase the you may not need as much to live on
long-term value of your investments. as you do when you are working. As
A full list of all the articles featured in this an estimate, a figure of between two-
edition appears on page 03. n thirds and a half of your present income
may be sufficient to maintain a good
Content of the articles featured in this publication is for
your general information and use only and is not intended
standard of living. n
to address your particular requirements. They should not
be relied upon in their entirety and shall not be deemed to The key To saving for
be, or constitute, advice. Although endeavours have been
made to provide accurate and timely information, there can
your laTer life is To
be no guarantee that such information is accurate as of the sTarT early. Making
date it is received or that it will continue to be accurate in pension conTribuTions is
the future. No individual or company should act upon such
information without receiving appropriate professional
a viTal parT of securing a
advice after a thorough examination of their particular coMforTable reTireMenT.
situation. We cannot accept responsibility for any loss as a To review your currenT
result of acts or omissions taken in respect of any articles. reTireMenT provision and
Thresholds, percentage rates and tax legislation may change
in subsequent Finance Acts. Levels and bases of and reliefs
To assess wheTher your
from taxation are subject to change and their value depends nuMbers add up, please
on the individual circumstances of the investor. The value of conTacT us.
your investments can go down as well as up and you may get
back less than you invested.
02

3. in thiS iSSue
to fin g
uSS l
diScancia
our anninentS
y pl m
04
uire tain
req to ober
or furth tion,
In this issue
rma e
infopleaSt uS
tac
con
02
do your retirement
numberS add up?
Saving to secure the kind of pension
you would like to live on
07
emerging vieWS
The lure of greater growth and
younger economies
05
08
10
booSting your income
04 Sipping into retirement
Are you in control of your investments?
How to access a broad range of
income-producing funds
05 time to go
annuity Shopping? 10 fine-tuning
your portfolio
Don’t make your final decision until Reduce risk, hedge inflation and
you’ve received different comparisons diversify your overall investment strategy
06
Smoothing out your
portfolio’S returnS 11 tax matterS
How much of your hard-earned money
12
How to increase the long-term value of will the taxman get his hands on?
your investments
making the moSt of your
06
Staving off a
Sovereign default
11 penSion contributionS
Are you claiming higher rate pension
The need to get to grips with the tax relief?
current crisis of indebtedness
12
a neW flexible friend
07 perSonal protection
Could you cope with the unexpected?
Withdrawing as little or as much income
from your pension fund as you wish
wanT To Make More
of your money?
FOR MORE INFORMATION PlEASE TICK THE APPROPRIATE BOx OR BOxES BElOW,
INClUDE yOUR PERSONAl DETAIlS AND RETURN THIS INFORMATION DIRECTly TO US.
n Arranging a financial wealth check Name
n Building an investment portfolio
Address
n Generating a bigger retirement income
n Off-shore investments
n Tax-efficient investments
n Family protection in the event of premature death
n Protection against the loss of regular income
n Providing a capital sum if I’m diagnosed with serious illness Postcode
n Provision for long-term health care Tel. (home)
n School fees/further education funding
n Protecting my estate from inheritance tax Tel. (work)
n Capital gains tax planning Mobile
n Corporation tax/income tax planning Email
n Director and employee benefit schemes
n Other (please specify)
you voluntarily choose to provide your personal details. Personal information will be treated as confidential by us and held in accordance with the Data
Protection Act. you agree that such personal information may be used to provide you with details and products or services in writing or by telephone or email.
03

4. retirement
SIPPing into retirement
Are you in control of your investments?
There are numerous ways of saving for retirement, including various types of pensions. The government views retirement
savings as being so important that it offers generous tax benefits to encourage us to make our own pension provision. It is
usually also the case that you may be able to contribute to more than one pension – for example, if appropriate, you could
contribute to a Self-Invested Personal Pension (SIPP) as well as to your company pension scheme.
penSion Wrapper tax advantageS If you are an experienced investor, then
A SIPP is essentially a pension wrapper, This is a long-term savings vehicle with certain managing your own pension investments
capable of holding investments and tax advantages, but you should be prepared may be for you. However, you need to be
providing the same tax advantages as to commit to having your money tied up until comfortable that you have the skill and
other personal pension plans, that allows at least age 55. There are various options experience to make your own investment
you to take a more active involvement in for taking benefits from your SIPP that you decisions and have sufficient time to monitor
your retirement planning. SIPPs are not should be aware of. you can receive up to investment performance. So you can either
appropriate for small investment sums. 25 per cent of the pension fund value as a take control of your investments or pay
you can generally choose from a number tax-free lump sum (subject to certain limits); someone to do it for you. If you pay, your
of different investments, unlike some other the remaining benefits can be taken gradually costs will increase for this facility.
traditional pension schemes that can be as an income or as additional lump sums,
more restrictive, and this can give you greater both of which are subject to your tax rate at managing your inveStmentS
choice over where your money is invested. that time, although this is potentially a lower There are a number of considerations you
It may also be possible to transfer-in tax rate than the one that you currently pay, need to be aware of, for example, you cannot
other pensions into your SIPP, which depending on your circumstances at the time. draw on a SIPP pension before age 55 and
could allow you to consolidate and bring there are usually additional costs involved
together your retirement savings. This may compound groWth when investing. you’ll also need to be mindful
make it simpler for you to manage your UK pension fund investments grow free of the fact that you may need to spend
investment portfolio and perhaps make of income tax and capital gains tax, which time managing your investments. Where an
regular investment reviews easier. allows funds to accumulate faster than investment is made in commercial property,
taxed alternatives and benefit considerably there could be periods without any rental
tax relief over the longer term due to the effects of income and in some cases the pension fund
SIPP investors also receive tax relief on their compounding of growth. may need to sell on the property when the
contributions. So you could potentially benefit Where tax has been deducted at source market is not at its strongest. SIPPs also charge
from between 20 per cent to 50 per cent tax on income within a pension fund – such higher costs than a stakeholder and you may
relief depending upon your own circumstances. as rents, coupons and interest – this is pay two sets of management fees for the
like some investments in other pensions, reclaimed by the pension provider and the wrapper and the underlying investments. n
any returns from investments within a SIPP are tax credited back into the pension fund.
free of income and capital gains tax. However, if you are an invesTor wiTh
unlike dividend payments received outside a not Subject to The experTise To Make your
SIPP, there is no 10 per cent tax credit applied tax declaration own invesTMenT decisions,
a sipp May provide you
to dividend payments within a SIPP. Assets held within the pension fund that wiTh The invesTMenT choice
carry no tax at source, such as offshore To enable you To Take
investments and government gilts, are not greaTer conTrol over your
subject to tax declaration or payments. reTireMenT planning. if you
are unsure, iT’s essenTial To
seek professional financial
advice. To discuss your
reTireMenT planning needs,
25%
The maximum
please conTacT us.
A pension is a long-term investment. The
fund value may fluctuate and can go down
percentage of your
as well as up. You may not get back your
pension fund value
original investment. Past performance is not
you can receive
an indication of future performance. Tax
tax free
benefits may vary as a result of statutory
change and their value will depend on
individual circumstances. Thresholds,
percentage rates and tax legislation may
change in subsequent Finance Acts.
04

5. retirement
Time to go
annuity shopping?
Don’t make your final decision until you’ve received different comparisons
Before you can start planning
your retirement, you need to
understand how the money you’ve
built up in your pension will be
used to provide you with
an income when you retire.
£10bn
One of the options you
could choose is to invest
most of your pension in an
annuity, which pays you a The amount invested
in annuities every
regular income throughout
year in the UK
your retirement years.
you purchase an annuity using the lump impaired life annuity. These usually beSt courSe of action
sum from your pension or, perhaps, pay a higher income amount if your At times of falling annuity rates it might
some savings, which provides you with a health problems (such as high blood be tempting to hold off buying an annuity,
guaranteed income for the rest of your pressure, kidney problems or diabetes) perhaps while you wait for rates to increase.
life. The size of the income you receive, could potentially reduce your lifespan. But this may not necessarily be the best course
however, usually depends on the size of you might also be able to receive an of action. If you decide to delay your purchase,
your pension fund, your age, your gender ‘enhanced annuity’ if you are a smoker rates could fall even further. In addition, every
and your health. In the UK more than or diagnosed as obese. month an annuity is deferred is a month
£10bn is invested in annuities every year. without income and this lost income may not
Shopping around be recouped in the future. n
annuity quotation you can purchase your annuity from any
When you retire, your pension fund provider and it certainly doesn’t have
iT’s iMporTanT To reMeMber ThaT
provider will inform you of your pension to be with the company you had your once you have agreed To purchase
fund total and offer you an annuity pension plan with. The amount of income your annuiTy in exchange for a
quotation based on the size of your fund. you receive from your annuity can vary pension suM, you cannoT change
The annuiTy aT a laTer daTe or Try
In general, most people purchase an between different insurance companies, To surrender iT for cash. Therefore,
annuity by the time they reach age 75. so it’s essential to receive comparisons you should seek professional
your choice of annuity will depend before making your final decision. advice To ensure you find The
besT possible annuiTy available.
largely on your financial circumstances, the This is likely To be one of The MosT
value of your pension(s), your retirement ‘open market’ option iMporTanT financial decisions
expectations and, possibly, on your health or Remember that you do not have to accept you’ll ever Make. we can help you
work ouT which annuiTy opTion
the health of your dependants. your pension fund provider’s annuity is besT for your own personal
you can choose whether you would prefer offer and could find much better value circuMsTances – please conTacT us
a level annuity or an escalating annuity. level elsewhere. Pension fund providers are also To discuss your requireMenTs.
annuities pay you a fixed level of income now legally obliged to inform you of your
each year, while an escalating annuity rights to choose an annuity. you can decide A pension is a long-term investment. The
increases each year in line with inflation. to take the ‘open market’ option providing fund value may fluctuate and can go down
The income generated from an that you haven’t already taken any benefits as well as up. You may not get back your
escalating annuity is usually significantly from your pension or agreed an existing original investment. Past performance is not
lower in the first few years than you would annuity with your pension provider. an indication of future performance. Tax
expect to receive from a level annuity. Before you take out your annuity, you benefits may vary as a result of statutory
could also opt to withdraw a tax-free change and their value will depend on
poor health lump sum – up to 25 per cent of the individual circumstances. Thresholds,
If you suffer from poor health, you may total value of your pension – known as a percentage rates and tax legislation may
qualify for an enhanced annuity or an Pension Commencement lump Sum. change in subsequent Finance Acts.
05

6. neWS in brief Wealth creation
Smoothing out
your portfolio’s returns
staving off a How to increase the long-term value of your investments
sovereign default In the light of recent market volatility, it’s perhaps natural to be looking for ways to smooth out
The need to get to grips your portfolio’s returns going forward. One way for investors to achieve some peace of mind is
with the current crisis of through ‘pound-cost averaging’, a simple, time-tested method for controlling risk over time.
indebtedness
P
ound-cost averaging enables investors SavingS habit
The turbulence that has gripped financial to take advantage of stock market Regular savings and investment schemes can be an
markets is a response to the perception that corrections and, by using the theory, you effective way to benefit from pound-cost averaging
politicians in the Eurozone and the US have could increase the long-term value of your and they instil a savings habit by committing you
been slow to face up to issues of indebtedness. investments. There are, however, no guarantees to making regular monthly contributions. They are
If Interest rates in the UK and the Eurozone that the return will be greater than a lump sum especially useful for small investors who want to
remain low for years to come, the pound and investment and it requires discipline not to cancel put away a little each month.
euro currencies would then be an unattractive or suspend regular Direct Debit payments if Investors with an established portfolio might
place for investors to deposit their cash. markets continue to head downwards. also use this type of savings scheme to build
exposure a little at a time to higher-risk areas of a
contingency planS regular intervalS particular market.
The direct exposure of UK banks to Greece is The basic idea behind pound-cost averaging The same strategy can be used by lump
fairly limited, but Bank of England Governor, is straightforward; the term simply refers to sum investors too. Most fund management
Mervyn King, revealed in his response to MPs’ investing money in equal amounts at regular companies will give you the option of drip-
questions in June that the Bank was working intervals. One way to do this is with a lump feeding your lump sum investment into funds in
with the Treasury to draw up contingency plans sum that you’d prefer to invest gradually – for regular amounts. By effectively ‘spreading’ your
for a Greek default. example, by taking £50,000 and investing investment by making smaller contributions on a
The European Central Bank together £5,000 each month for 10 months. regular basis, you could help to average out the
with the ‘eurosystem’ of 17 national central Alternatively, you could pound-cost average price you pay for market volatility.
banks can create money that is used to buy on an open-ended basis by investing, say, Any costs involved in making the regular
government debts to stave off a sovereign £5,000 every month. This principle means that investments will reduce the benefits of pound-
default. There is therefore no theoretical limit you invest no matter what the market is doing. cost averaging (depending on the size of the
to how much can be bought up. Pound-cost averaging can also help investors charge relative to the size of the investment, and
The sooner Europe’s political and financial limit losses, while also instilling a sense of the frequency of investing). n
leaders get to grips with the current crisis, the investment discipline and ensuring that you’re
sooner the markets can try and return to some buying at ever-lower prices in down markets. investing regular amounts could have
sort of normality. the advantage of averaging out the cost
market timing of your total investment over time and
uS Sovereign debt Investment professionals often say that the secret
may take away the worry of timing your
purchases correctly. regular investing
Across the pond, the recent downgrading of of good portfolio management is a simple one –
may be ideal for people starting out
US sovereign debt by Standard and Poor’s (S&P) market timing. Namely, to buy more on the days or who want to take their first steps
is an important symbolic moment in the shift when the market goes down, and to sell on the towards building a portfolio of funds
of economic power from mature industrialised days when the market rises. for their long-term future. To find
nations to emerging economies. As an individual investor, you may find it more out more about the different options
The US will only regain its AAA status difficult to make money through market timing. available to you, please contact us.
once politicians have demonstrated that they But you could take advantage of market down
can implement the necessary tax increases days if you save regularly, by taking advantage of
and/or spending cuts that will eventually get pound-cost averaging.
the ratio of outstanding debt to GDP onto a
downward trajectory.
Private investors are likely to keep their
investments as simple as possible via direct
investment and collective vehicles such as
funds and investment companies, while those
with direct exposure to higher risk assets,
which may fall in value in the short to medium
term, at least have the capacity to grow again
in the future. n
06

7. protection
Investment
Personal protection Emerging
Could you cope with the unexpected? Views
Personal protection is an important part of most people’s financial planning requirements. The lure of greater growth
The financial effects on your family in the event of death or illness could be profound.
and younger economies
There are many protection options available and we can help you identify the most
suitable for your specific requirements. ‘Emerging markets’ is a broad term that
encompasses the giants of Brazil, Russia,
Personal protection is an important part of most critical illness: this provides you with a India and China (BRIC), as well as some
people’s financial planning requirements. The financial tax-free lump sum or regular income if you other nations. Emerging markets have
effects on your family in the event of death or illness are diagnosed with a serious specified illness continued to outperform developed
could be profound. covered by the policy markets, even during the difficult
If you were to die, at the very least you’d want Certain policies should also be written under economic climate we have experienced
your mortgage, debts and funeral costs to be an appropriate trust to ensure that monies pass throughout 2011. The lure for investors is
paid for. you’d probably also want the security to the right people at the right time and in the greater growth and younger economies
of knowing that your family would be able to most tax-efficient manner. n than typically found in the developed
maintain their current standard of living. West, but the trade-off for this growth is
If you became seriously ill or were injured and if you already have soMe higher volatility and greater risk.
had to give up work, you’d also want to be sure proTecTion soluTions in place The population and economic growth
that your family could continue to be supported
iT is beneficial To review These in these markets has created a potentially
regularly To ensure ThaT They
financially. you may decide to use your existing massive high-consuming middle class –
conTinue To MeeT your currenT
savings and investments, but how long would needs. financial planning estimated to be more than one billion
these last for before they ran out? should begin wiTh ensuring people by 2030, according to the World
Considering protection solutions is a good ThaT you have a secure and Bank, April 2010.
way to safeguard against unforeseen events or appropriaTe proTecTion Emerging markets have large
expenses and can provide your dependants with foundaTion in place To cope wiTh reserves of natural resources and these
the financial security you desire. dealing wiTh The unexpecTed reserves should also aid their future
– please conTacT us To review prosperity as commodities continue to
these are the basic protection foundations your currenT requireMenTs. be in high demand.
you should set up: In addition, many emerging markets
have lower government debt burdens than
life insurance: this provides financial security developed nations and may have large
for your dependants in the event of your holdings of foreign exchange. This means
death and helps them to pay some or all of the that spending in most emerging markets
outstanding debts/financial commitments such has not been dramatically curbed by the
as your mortgage and other liabilities recession, as has been the case in many
income protection: this replaces part of your income developed nations, which has allowed
if you are unable to work because of an illness or further stimulation of their economies and
disability for a short or a long period of time infrastructures to continue while some
domestic markets have waned. n
Investments in emerging markets are
by their nature generally considered
truSt to be higher risk. The value of these
investments and the income from them
Certain policies
can go down as well as up and you may
should also be
not get back your original investment.
written under an
Past performance is not an indication of
appropriate trust
critical future performance. Tax benefits may
vary as a result of statutory change and
illneSS their value will depend on individual
Provides you with a circumstances. Thresholds, percentage
tax-free lump sum or rates and tax legislation may change in
regular income subsequent Finance Acts.
07

8. inveStment
Boosting your income
How to access a broad range of income-producing funds
Generating an income from investments is usually an important requirement dividendS from ShareS and
for many people who are retired or approaching retirement, those who equity income fundS
need to supplement their salary or even those with a relatively short Many companies distribute part of their
profits each year to their shareholders in
investment timeframe.
the form of dividends. Companies usually
T
here are thousands of income- fixed intereSt from bondS seek to keep their dividend distributions at a
producing funds to choose from Bonds are issued by governments similar level to the previous year, or increase
and they are divided into different (known as gilts in the UK) and companies them if profit levels are high enough to
types, or sectors. The four main (corporate bonds) to investors as a way warrant it. If companies do not make a
types of income fund are: to borrow money for a set period of time profit then no dividends will be paid and
(perhaps five or ten years). During that there is no guarantee.
money market funds – these pay interest time, the borrower pays investors a fixed
and aim to protect the value of your money. interest income (also known as a coupon) rental income from property
bond (fixed income) funds – this type of each year and agrees to pay back the and property fundS
fund pays a higher rate of interest than cash capital amount originally invested at an Some people invest in ‘buy-to-let’ properties
deposits but there is some risk that the value agreed future date (the redemption date). in order to seek rental income and potential
of your original investment will fall. If you sell before that date, you will get the increase in property values. Property funds
equity income funds – the income is market price, which may be more or less typically invest in commercial properties
produced from dividends paid to shareholders. than your original investment. for the same reasons, but there are risks
In return for some risk to your capital, you may attached. For example, the underlying
get a more regular income than you would credit ratingS affect properties might be difficult to let and rental
from cash, and the income, as well as your the market price yields could fall. This could affect both the
capital, may increase over time. Many factors can affect the market price income you receive and the capital value.
property funds – these funds pay income of bonds. The biggest fear is that the
from rents but the value of your investment issuer/borrower will not be able to pay Selecting fundS
can fall as well as rise. its lenders the interest and ultimately There are a number of key points you should
In addition, there are mixed asset funds, be unable to pay back the loan. Every consider when selecting funds. Initially, you
which invest your money in both bonds bond is given a credit rating. This gives need to balance your need for a regular
and equities. investors an indication of how likely income with the risks. The income from a
the borrower is to pay the interest and fund may be higher and more stable than the
intereSt from caSh or money to repay the loan. Typically, the lower interest you receive from cash deposited in a
market fundS the credit rating, the higher the income bank or building society savings account but it
This income varies in line with the interest investors can expect to receive in return can still go up and down. There may be some
rate set by the Bank of England. The fund’s for the additional risk. risk to the capital value of your investment.
investment manager will aim to get the A more general concern is inflation, which If a regular income is important to you
best rate available, helped by that fact that, could considerably erode the real value of the and you do not need to cash in your
with large sums to deposit, funds can often interest paid by bonds. Typically, bond prices investment for now, you may be prepared
achieve better rates than individual investors. rise if interest rates are expected to fall, and to take this risk.
The capital amount you originally invested fall if interest rates go up. Where funds are invested in real estate/
in cash is unlikely to go down (subject to the If you invest in bonds via a fund, your commercial property, you may not be
limits for each deposit under the Financial income is likely to be steady but it will not able to switch or cash in your investment
Services Compensation Scheme). If the be fixed, as is the case in a single bond. when you want because assets in the
interest rate is lower than the rate of inflation, This is because the mix of bonds held in fund may not always be readily saleable.
however, the real spending value of your the fund varies as bonds mature and new If this is the case your request to switch
investment is likely to fall. opportunities arise. or cash in your shares may be deferred
08

9. inveStment
4
The number of
main types of
income fund
annually
All income funds
must pay income
at least annually
or suspended. you should also bear in a percentage of the sum invested. yields on
we are able To offer you
mind that the valuation of real estate is bond funds can also be used to indicate the
access To a broad range of
generally a matter of valuers’ opinion risks to your capital.
incoMe-producing producTs.
rather than fact. To discuss your requireMenTs,
diStribution policy please conTacT us.
SectorS for income inveStorS to Suit your income needS
Income funds of the same type are grouped All income funds must pay income at least
in ‘Investment Management Association annually, but some pay income distributions The value of these investments and the
(IMA) sectors’. The main IMA sectors for twice a year, quarterly or monthly, so you can income from them can go down as well as
income investors are: Money Market; Fixed invest in a fund that has a distribution policy up and you may not get back your original
Income (including UK Gilts, UK index-linked to suit your income needs. investment. Past performance is not an
Gilts, Corporate Bond, Strategic Bond, Global If you need cash regularly, you may indication of future performance. Tax benefits
Bond and High yield); Equity Income; Mixed consider selecting income units/shares. The may vary as a result of statutory change
Asset (i.e.UK Equity and Bond) and Property. income generated in a fund is paid out in and their value will depend on individual
you need to consider the fund yield, which cash to investors who own income units. If circumstances. Thresholds, percentage rates
allows you to assess how much income you you choose the alternative – accumulation and tax legislation may change in subsequent
may expect to get from a fund in one year. In units/shares – your share of the income is Finance Acts.
the simplest form, it is the annual income as automatically reinvested back into the fund. n
09

10. inveStment
Fine-tuning
your portfolio
Reduce risk, hedge inflation and diversify your overall investment strategy
Commodities have received much media coverage over the past year, with prices rising as other asset classes falter.
Investing in commodities within your portfolio may not only create exposure to different investment products, but can
also help reduce risk, hedge inflation and diversify your overall investing strategy.
C
ommodities, like much else, are They tend to behave differently They can either be physically backed by
subject to the laws of supply and to conventional asset classes and the commodity itself or use swaps with other
demand. When demand rises, as can therefore be very useful for the financial institutions to provide the exposure.
has been the case with gold over purposes of diversification within an Should the price of the commodity
the past few years, the price rises. Stock investment portfolio. fall, so will the investment, as the ETF will
market volatility and rising UK inflation simply track its performance. ETCs also
have attracted a diverse mix of investors to viable Way to acceSS allow investors to ‘short’ or ‘leverage’ their
this sector. commoditieS investment. Investors should be careful here,
In October the Monetary Policy Committee An investment fund that enables investors as these strategies involve high risk. Although
(MPC) announced £75bn of new quantitative to access the sector and spread risk, there are potential gains to be made, there
easing (QE) measures to help boost the with investors investing in a variety of could be significant potential losses too.
faltering economy and free up the money commodities, is a passive fund incorporating With the incredible rise of emerging
markets. The stock market reacted positively Exchange Traded Funds (ETFs). economies forecast over the coming years,
to this news with mining and commodity ETFs provide appropriate investors with the the commodity markets may provide
stocks benefiting from the QE which filtered chance of buying whole indices in the same appropriate investors with a range of
through to asset prices. way as buying a share on the london Stock investment opportunities to enable them to
Exchange. In addition, they are eligible for grow their wealth over the longer term. n
Safe havenS preServe Wealth inclusion within Individual Savings Accounts
Commodities are physical assets. They and do not attract any stamp duty. Investments in commodities are by their
include oil and gas, metals such as gold and nature generally considered to be higher
silver, and so-called ‘soft’ commodities such tracking the future price risk. The value of these investments and
as wheat, sugar and cocoa beans. They are Equity-based commodity ETFs invest in shares the income from them can go down as
often called ‘safe havens’ as they preserve of commodity companies through an index well as up and you may not get back your
wealth in a physical way. such as the FTSE 100, whereas Exchange original investment. Past performance is not
The sector has little correlation with stock Traded Commodities (ETCs) are instruments an indication of future performance. Tax
markets and currencies, which means if that track the price of the commodity, or a benefits may vary as a result of statutory
equity markets fall, the price of commodities basket of commodities. change and their value will depend on
won’t necessarily fall. individual circumstances. Thresholds,
percentage rates and tax legislation may
change in subsequent Finance Acts.
ftSe100
One index through
which ETFs invest in
shares of commodity
companies
£75bn
The amount of
quantitative easing
measures announced by
the Monetary Policy
Committee in
October
10

11. Wealth protection
taxatIon
Making the most
of your pension
contributions
Are you claiming higher rate
pensions tax relief?
If you pay higher rate tax you will not receive
tax relief automatically on your personal pension
contributions unless you claim it. This means
Tax matters
that someone earning more than £42,475 in the
current financial year could potentially be losing
a fifth of the value of their pension if they are
not actively claiming back higher rate tax relief
on their contributions.
How much of your hard-earned money
claiming tax back
will the taxman get his hands on? If you pay income tax on your earnings before
Inheritance Tax (IHT) in the UK may be one of life’s unpleasant facts but IHT any personal pension contributions, your pension
provider claims tax back from the government
planning and quality advice could help you pay less tax on your estate.
at the basic rate of 20 per cent. In practice,
For the 2011/12 tax year, no IHT is these circumstances and can reduce the this means that for every £80 you pay into your
charged on the value of your estate up to amount of IHT due. n personal pension, you end up with £100 invested
£325,000. This is known as the ‘nil rate in your pension fund.
band’. Everything above this is taxed at There are a nuMber of If you are a higher rate tax payer paying
40 per cent. opTions you could uTilise 40 per cent, you may able to claim an additional
If an individual’s IHT nil rate band is To reduce your faMily’s ihT tax relief. Depending on how much you earn
not used up on their death, the unused bill. why noT invesTigaTe The over the higher rate tax band, any additional tax
proportion can be transferred to their
wealTh proTecTion services relief could range from between a further 1 per
we offer? ihT is a highly
surviving spouse or civil partner. cent up to a maximum of 20 per cent.
coMplex area of financial
Assets passed between spouses or planning and you should
registered civil partners are exempt from always obTain professional additional rate tax payerS
IHT (assuming the spouse or partner is advice. we can assess your From 6 April, if you are an additional rate tax
domiciled in the UK), regardless of the individual circuMsTances payer and pay 50 per cent, you may also be
worth of the assets and how soon you die and help you find The able to claim additional tax relief at your highest
after acquiring them. righT soluTion(s) To MeeT rate. Depending on how much you earn over
your requireMenTs. the higher rate tax band and your level of
reducing your family’S tax bill contribution, any additional rate tax relief could
Any amount of money you give away Tax laws are subject to change, possibly range from between a further 1 per cent up to a
outright will not be counted for IHT if retrospectively. The rules for individuals maximum of 30 per cent.
you survive for seven years after making who are not UK resident or not UK Claiming higher rate tax relief on personal
the gift. If you die within this period, the domiciled are different and therefore tax pension contributions is for many people the
amount of the gift will be included within and local laws should be considered. single most important relief they can claim, yet
your estate. Taper relief may apply in hundreds of thousands could be missing out.
To obtain your additional tax relief you must file
hoW much of your eState could go to the a tax return or get HM Revenue & Customs to
taxman in the 2011/12 tax year? change your tax code. To do this, you have to
contact your local tax office.
value of your estate your iht bill payable
less than £325,000 £0 full tax relief Straight aWay
£400,000 £30,000 If you are employed, usually your employer will
£500,000 £70,000 take occupational pension contributions from
your pay before deducting tax (but not National
£600,000 £110,000
Insurance contributions). you only pay tax on
£700,000 £150,000 what’s left. So whether you pay tax at basic,
£800,000 £190,000 higher or additional rate you receive the full relief
£900,000 £230,000 straight away. n
£1,000,000 £270,000
11

12. Wealth creation
75
It is no longer
compulsory to buy an
A new
annuity at this age
£20,000
flexible friend The amount you have to
declare you are already
receiving annually as
a secure pension
Withdrawing as little or as much income income
from your pension fund as you wish
Generating a retirement income has now become even more flexible. From 6 April, new rules were
introduced to replace the previous pension drawdown arrangement which have now provided
investors with greater flexibility and control over their pension options when they retire.
qualifying for thiS option annuity being paid to you (from a personal benefit those who do not want to buy
Flexible drawdown is more flexible than pension or company pension) either from an annuity by age 75 or who want more
the previous income drawdown, and if you the UK or from overseas; or a State pension flexibility and control over their pension.
qualify for this option it removes the cap being paid to you either from the UK or However, the majority of people may still
on the income you could take. This will from overseas. want to purchase an annuity in retirement,
not be available to everyone and there are because it enables them to secure a
certain criteria that must be met before you did you knoW? guaranteed income in retirement. n
can opt for it. n The effective compulsion to buy an
Flexible drawdown gives some individuals annuity by age 75 has ended planning for your
the opportunity to withdraw as little or as n you now have more flexibility to defer reTireMenT can Make a
much income from their pension fund, as taking a pension and tax-free cash world of difference. for
and when they need it. To qualify, you have payments post age 75 More inforMaTion abouT
to declare that you are already receiving n Capped drawdown – this option how we could help you,
a secure pension income of at least enables you to draw an income for life, please conTacT us To discuss
£20,000 a year and have finished saving with an annual limit, without having to
your requireMenTs.
into pensions. The same rules apply to purchase an annuity
dependants who elect flexible drawdown. n Flexible drawdown – if you have a The fund value of a flexible drawdown
secure income of over £20,000 per arrangement may fluctuate and can
Secure penSion income annum you will not be subject to go down as well as up. You may not
If pension contributions have been made limits on the income you take from get back your original investment. Past
to any pension in the same tax year or your drawdown performance is not an indication of future
if you are still an active member of a n There has been an increase in the tax performance. Tax benefits may vary as a
final salary scheme, it isn’t possible to payable on lump sum death benefits result of statutory change and their value
start flexible drawdown. Once in flexible from drawdown will depend on individual circumstances.
drawdown, it isn’t possible to make Thresholds, percentage rates and tax
further pension contributions. flexibility and control legislation may change in subsequent
A secure pension income means a over your penSion Finance Acts.
company pension being paid to you either These new rules, with the exception of
from the UK or from overseas; or an the increased tax on death payouts, could
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