SBA Financial - Solving the financial puzzle... ...piece by piece

Monthly Update - January 2010

10 things that 'THEY' don't want you to know

In this edition, we aim to cover what I feel are some of the hot topics in today’s world, which can affect people dramatically. So who exactly are “they”?

Well “they” are a mix of institutions, organisations and professions ranging from the government of the day, HMRC, life assurance companies, investment companies, pension fund managers and some financial advisors, accountants and solicitors.

I have found over many years of experience that most people, like me, want the same thing. They want someone they feel they can trust; who cares about them and who really knows their stuff, but can also explain complex issues in an easy to understand way, and I believe that we should do what we can to bring the truth to as many people as we can. So what don’t “They” want you to know?

1. Joint life Insurance or Critical Illness Policies: With the rare exception of certain policies which are specifically designed as part of an inheritance tax plan, no person in the united kingdom should really hold a joint life assurance or joint critical illness policy, because in essence you could be paying through the nose for this cover. The same amount of premium could be put towards having twice the amount of cover in place, and in some cases the cost might even be less.

2. Commission Payments: This links to the above item. It is vital to understand that all commission based financial advisors are being paid by the life insurance companies, but that ultimately the commission they are paid is then being added on to the premium you pay for your policies. A direct link is then established between how much commission the advisor is paid and the size of the premium. Having two separate policies may not generate any more premium than those of a joint policy, therefore the commission remains the same, but this means there may be no financial incentive for the advisor to recommend anything other than joint policies, this means they will only be required to do the work for setting up one policy but they will still get the same amount of commission.

3. Policy charges: Over the years many different and complex policy charges have been applied to all manner of plans offered by insurance companies. These include pension plans, investment bonds, unit trusts and protection plans to name but a few. As time has gone on more competitive plans have been released, these old plans with their old charging structures are, in many cases, extremely high in comparison and may not offer value for money anymore. Often, a change to a new plan of the same type may reduce the charges significantly, putting extra pounds in to your fund values. Of course you should ensure that a full comparison is conducted before taking any action to ensure that at new plan is better than what you already have.

4. Salary Sacrifice: This extra tax and NI boost has been available for many years and is available across a range of benefits that can be paid via an employer’s pay roll, rather than direct out of the employee’s taxed salary. The two most common areas this is used for, is that of pension contributions and childcare vouchers. It brings significant tax and NI savings to the employee and additional NI savings to the employer.

5. Using The Right Trusts: There several trust options available, but in essence all trusts, no matter which type you are using are generally used with the intention of ensuring that the right money, goes to the right people, at the right time. Often some of them will have the ability to safeguard assets or capital from inheritance tax, as well as the other potential benefits of saving second generation inheritance tax, or indeed, by use of the correct type of trust, protecting from future divorce and remarriage situations and even Long Term Care Fees.

6. Reclaiming Tax for Pensions: It is estimated that millions of pounds each and every year is wasted because higher rate tax payers funding their personal pensions, do not realise, or have not been told, that they need to reclaim the difference between basic rate tax relief, which is claimed on their behalf by the pension company, and the higher rate tax relief which needs to be claimed via their tax returns, this will have a devastating effect on the amount of tax they may have overpaid.

7. Will or not to Will: Every adult aged 18 or over in the UK should have a Will drawn up as part of sensible planning, but it is estimated that 7 out of every 10 people have not even drawn up the most basic of Wills, with no idea whatsoever of the consequences of doing this. Even in a married or civil partnership situation, without a Will there is no automatic right that everything that you own will go to your spouse or partner.

For those that have drawn up a basic Will, the majority of them have been drawn up with no thought or planning to what may happen in the future. Most people typically leave their estate to their spouse or partner and then onto their children and so forth, which on the face of it seems very reasonable.

However, from an estate planning point of view, this is the last thing that should be written into a Will (unless you are happy that what you have gifted can be attacked and taken away in the future?). If done correctly, a Will not only confirms who should get what, but will also provide for significant additional protection from the tax man along with protection from all manner of possible attacks on it.

8. Salaries versus Dividends: Many business owners do not withdraw their income/profit from their own business in the most tax efficient way possible. Typically, when this has happened, the business owner is giving up at least £1,000 per year of unnecessary Tax and NI to the Inland Revenue.

9. Long Term Care: It is becoming an ever increasing problem of aggressive, cash strapped, local authorities, pouncing on people when they are at their lowest point and in need of long-term care. Whether the care is needed at their own home, or in a residential home, local authorities will try to strip as much of their assets and cash away from them, to go towards the funding of care fees.

With pro-active planning, clients are able to not only provide for high standards of long term care, which of course is what they would wish for, but they may also able to ring-fence their assets, including their main home from being devastated when this type of catastrophe occurs.

10. Asset Allocation: Investing the right way for your future security and peace of mind is of course important, and far too many people still have their hard earned cash sat in one or more investments, where they simply are not managed properly and do not have an Advanced Investment Strategy. Any advanced investment strategy should use asset allocation models and a strict investment protocol that includes a very diverse range of investments being held.

Don’t be fooled by companies that say you are in a “managed fund.” This is not managed for you, it just means that the fund is managed in line with what the fund manager wants, which is often not the way the individual clients wants it managed. Have your own portfolio that is tailored to meet your specific needs.

We hope that one or two of these tips were helpful to you? Please feel free to email us with any specific questions that you may have, or better still reserve yourself a place to come along to one of our “The Truth About...” Seminars.

All you need to do is click on the link below to see which presentations still have some places left; it is as simple as that.

As always, please feel free to share our E-Newsletter with all your family, friends and work colleges.

Regards

Steve

Previous articles

Monthly Update - January 2010

10 things that 'THEY' don't want you to know