Our ...January Newsletter 2011
Welcome to our first newsletter of 2011. Jackson Jeffrey Financial Services would like to wish all of our readers a happy, healthy and prosperous year, I know that for many 2010 was a tough year due to the economic climate and although I do not believe we are out of the woods yet I am hopeful that things are gradually moving in the right direction!
In this issue we focus on personal financial planning, which should be relevant to all of our readers. Our aim is to address the specific issues that our clients and readers face. Please do let us know if there is something that is important to you, regarding either personal or corporate financial planning matters that you would like to see in future newsletters.
In this issue:
- 5 Top Tips for choosing your Independent Financial Planner…
- New ISA Limits coming into force in April…
- Greater Flexibility with your Pension…
Five Top Tips for choosing your Independent Financial Planner
(The New Year is the perfect opportunity for you to review this)
- What qualifications does the planner have?
The minimum qualifications that an individual must hold to practice as an Independent Financial Planner/Adviser are being increased in 2012. At that time, they will need a level 4 qualification (such as the Diploma awarded by the Chartered Insurance Institute).
Some planners have already exceeded this minimum to demonstrate their professionalism and ability and have achieved ‘Chartered Financial Planner status’ – the gold standard in financial planning. To accomplish this, the planner must complete degree level professional qualifications and have at least 5 years experience. Furthermore, they must adhere to a code of ethics and commit to ongoing professional development.
- What experience does the planner have?
You should ask the planner how many years they have been in practice and their background as to the specific types of work and clients they have been involved with. This will give you a feel for whether they will be able to assist you with your personal circumstances.
- How will I pay for the planner’s services?
The planner should clearly explain how they will be paid for their services. This could be by a fee or commission (from a product provider) and you should be given the choice.
Financial planners work in different ways and fees can be charged in a number of ways, for example hourly rates, project fees, percentages of funds invested. They should explain this prior to carrying out any work for you.
- Do I have a preference regarding a male or female planner?
It can be quite difficult for us to divulge all of our personal financial information to a financial planner; however this is generally necessary in order that they can provide suitable advice to you.
Some women (and men) have a preference to engage a female financial planner, however as there are many more male planners than females you are likely to find that not all firms offer the choice.
- Do I get on with the planner?
Probably most importantly, you want to choose a financial planner who you get on well with. You ideally want to build a trusting, long lasting relationship with them, where they will develop a good understanding of your personal objectives. This type of relationship develops gradually, so you won’t want to change your planner too frequently, not when you have invested your time in the relationship.
Often, after an initial meeting (which should be offered with no obligation for you to proceed) you can make a judgement as to whether you feel they are the right person for you.
New ISA Limits coming into force in April
ISA allowances are set to rise next year, providing an additional incentive for savers. During the current tax year (2010-2011), investors can save up to £10,200 in an ISA. However, from 6 April 2011, ISAs will be linked to inflation. Increases will be based on the Retail Prices Index (RPI) for the September preceding the beginning of each tax year on 6 April.
The index-linking plan was originally announced in the Labour government’s March Budget, and was later confirmed in the Emergency Budget released in June by the coalition government. However, subsequent speculation over the coalition’s plans to cut public spending had led to fears the annual amount available to save in ISAs would be frozen. Nevertheless, the government appears keen to encourage individuals to save, despite also taking the decision to cut tax relief on pension contributions.
The Office for National Statistics confirmed that RPI for September 2010 was 4.6%. Once rounded up, this equates to a rise in the region of £480. The maximum annual contribution into an ISA in the next tax year will therefore be £10,680. This can be invested in a stocks-and-shares ISA, or up to half the amount – £5,340 – can be saved in a cash-only ISA, with any remaining allowance available for investment in a stocks-and-shares ISA. The ISA allowance was increased in October 2009 for those over 50 years of age, and was subsequently raised in April 2010 for those under 50.
According to the Investment Management Association (IMA), net ISA inflows have averaged more than £400 million since October 2009, and 47% of investors would invest more if the allowance was increased further. Meanwhile, according to HM Revenue & Customs, more than 14.9 million individuals subscribed to ISAs in the last tax year, although this was slightly lower than the previous year, when almost 15.2 million individuals subscribed.
ISAs are tax-efficient vehicles that allow individuals to save and invest without having to pay income tax or capital gains tax. ISAs can be a good way for people to start saving, or to add to their existing savings and investments. If you cannot afford to take advantage of the full annual allowance, it is still worth putting away what you can via a monthly savings plan, which can start from £50 a month. Looking ahead at the annual allowance, it is worth remembering one of the golden rules of ISA investing – use it or lose it!
Greater Flexibility with your Pension
Britons are set to enjoy greater financial flexibility during retirement under draft legislation released by the UK Treasury ahead of the 2011 Finance Bill. From 6 April 2011, individuals will no longer be forced to buy an annuity by the age of 75 with the money that they have saved in their personal pension scheme. Instead, they will have the additional options of continuing to save or moving to a drawdown arrangement in which their pension pot is left invested and money is drawn out.
Nevertheless, the measures include restrictions, notably the amount of money that can be withdrawn from a personal pension scheme at any one time. This will be limited to 100% of the equivalent single-person annuity that could have been bought with the funds in their pension pot. This restriction is intended to prevent individuals from withdrawing and spending all the money in their pension scheme and then calling on the state to support them. However, individuals can withdraw more than this amount if they can prove that they receive pension income of at least £20,000 per year. In this case, they can take out as much as they like.
The increase in flexibility will end a rigid system in which individuals are forced to buy an annuity by the age of 75, even when annuity rates are particularly poor. An increase in life expectancy and an environment in which older people work for longer have made the 75-year cut-off appear progressively more unrealistic and draconian.
Treasury figures show that 450,000 individuals bought an annuity in 2009, while 200,000 people are in income drawdown arrangements. According to Treasury figures based on data from the Financial Services Authority (FSA), approximately 50,000 people who are currently in drawdown arrangements could benefit from flexible drawdown, while an additional 12,000 people could access flexible drawdown.
The National Association of Pension Funds (NAPF) has welcomed the additional flexibility, but also believes that the new rules are most likely to benefit those with large pension pots and multiple income streams. Many people are still likely to choose to purchase an annuity, which will provide a fixed income over their remaining lifetime. Moreover, NAPF warned that most people are simply not saving enough into their pension schemes, and urged the government to do more to encourage and support strong occupational pension schemes and “creative, flexible” ways for individuals to save for their retirement.
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