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Collateral Damage 2
Views in this article are those of the author alone and do not necessarily represent the view of Scottish Friendly.
Last month I wrote about the “accidental” collateral damage about to be inflicted on the friendly society sector due to regulations aimed at outlawing high net worth individuals exploiting a particular tax loophole. Unfortunately there is a far more insidious plot ahead that has the potential to inflict serious and lasting damage on the sector and it comes from Nigel Farage’s favourite institution.
A combination of draft regulations currently under discussion in the EU – the Packaged Retail Investment Products and Insurance Mediation Directive 2 – have the capacity to lay waste to a substantial part of the friendly society sector.
The trouble that is coming does tend to demonstrate everything that is wrong about Britain in Europe (for the record I’m a pro-European): European regulation not suited to the peculiarities of UK market plus our special ability to overcomplicate the implementation of European regulations.
In some European capitals, insurance products are regarded with some considerable suspicion. For them direct investment is the simple product construction, insurance wrapped products tend to be rather more complicated animals. Not so in the UK where personal pensions, life savings products, with-profits and (crucially for the friendly society sector) tax-exempt savings plans are the more day-to-day creatures with more exotic investments wrapped in OEICs and investment trusts.
With a European slant on the drafting then it’s no surprise that insurance products have been singled out for a new level of regulation. Effectively all insurance wrapped products will, according to these regulations, need to be sold after the provider has conducted some form of suitability test based on the client’s “knowledge and experience”. It won’t apply to direct investment.
So it will be possible to sell direct a geared investment trust in Chinese smaller companies with no suitability test but not so with an insurance wrapped UK tracker fund!
Of course a suitability test sounds harmless enough, and it’s difficult to object to. Who after all can argue that a client should be sold an unsuitable product? Perhaps that’s why the regulations have received such strong support especially from left wing MEPs keen to stand on the side of the consumer against the financial services providers.
Unfortunately in practice such a suitability test could get wildly complicated, especially due to the way the UK seems to have a particular knack for overcomplicating regulations from Brussels. How will for example the FSA, or FCA by then, interpret the obligation to meet the knowledge and experience test? On past form it’s unlikely to come in the guise of a clear set of rules and regulations that providers should follow? This ambiguity will force providers to regard a suitability test as advice, which of course can only be provided through an upfront fee.
A likely effect then will be to kill off the direct market for small premium insurance backed products. With a maximum premium of £25 a month friendly society tax-exempt savings plans are likely to be brought to an end if these regulations are implemented, and with it many friendly societies (especially those that haven’t diversified their product range – as Scottish Friendly has) will close.
What irony then that left wing MEPs, with the best of intentions, could be supporting regulations that could have the unintended consequence of ending a substantial proportion of the friendly society and mutual sector which was born of the same cooperative and mutual sector.
It’s almost enough to make you vote for UKIP, but I did say almost.
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand. Tax treatment depends on your individual circumstances and tax law may change in future.
Budget 2013: Child Trust Funds and Junior ISAs
Scottish Friendly welcome the Chancellor’s decision to consult on the integration of Child Trust Funds and Junior ISAs and urges the chancellor to switch all CTFs to the JISA regime emulating the exchange of former PEP wrappers to ISAs.
One need only take a cursory glance at the confusion and poor customer outcomes created in pensions as successive governments changed wrappers over time causing a historic patchwork of different regimes and contract types over generations. The last thing that the fledgling long term child savings industry needed was a similar set of confusing and competing wrapper regimes.
Scottish Friendly was always a strong supporter of the CTF and campaigned vocally for its retention. Additionally at the time of the Junior ISA launch Scottish Friendly was vocal in its opposition to the introduction of an almost identical child savings regime for what seemed entirely political point scoring.
There is no doubt that the new child savings regime has been a shadow of its former self with the Junior ISA increasingly becoming a middle class tax-break, compare this to the Child Trust Fund as the most successful mass market product in history.
However we have to recognise where we are at the moment as opposed to fighting past battles, we should therefore be thinking about how to make the cause of child savings work best under this regime. The Junior ISA regime is here to stay and it achieves (in our focus group sessions) a far greater immediate customer recognition that the Child Trust Fund, thanks to use of the universally recognised “ISA” badge.
To Scottish Friendly then the most realistic option available is a single child savings regime under the JISA badge. This will not only simplify the tax wrapper regime for child savings many parents have already found themselves with one child owning a CTF and another with a JISA. The confusion will simply lead to many parents giving up. A single simplified regime will make this much clearer and simpler for parents and children.
Additionally a single JISA regime would also make the market considerable more competitive and flexible. Both of these are essential ingredients to achieve consumer trust and participation in a market. Leaving aside the issue of TCF (6) there is nothing more off-putting and offensive to a client than to have unnecessary barriers put in their way when it comes to making choices.
By retaining the CTF regime a generation of child savings plans would have been ghettoised in an increasingly uncompetitive market with potentially higher charges (as evidenced by one high profile decision in the past few weeks). Switching to a single JISA regime will allow a much larger market to obtain the benefits of product innovation that competition will encourage.
Furthermore a single market will be of immense benefit to the industry, who overnight will look at the JISA market not as a small niche opportunity but as an attractive mass market worthy of investment and innovation. This in turn will benefit all consumers as competition and innovation creates greater choice and opportunities.
The key ingredients to building a successful financial product are consumer understanding, simplicity and trust. Four years ago the Child Trust Fund encapsulated those values but, for all the wrong reasons, this no longer applies. It’s time to regain those values and it can be best achieved by a single JISA regime applying to all child savings plans.
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand. Tax treatment depends on your individual circumstances and tax law may change in future. Stock market investments can go down as well as up and the child could get back less than you have paid in.
Collateral damage
Views in this article are those of the author alone and do not necessarily represent the view of Scottish Friendly.
I noted almost a year ago about the death of the Maximum Investment Plan. At the time I was particularly delighted that the government was getting to grips with closing off such an obvious tax loophole for the rich and well advised.
However little did I know then that the blunt instrument that the government was about to apply to killing off a richman’s tax break would have profound implications at the other end of the market.
The current draft regulations have been published in the last couple of weeks outlining how HMRC are going to police the new £3600 limit on qualifying policies. They will apply from the 6th of April this year.
So lets be clear about this. There are a new set of regulations about to be enforced in the space of a few weeks and we still haven’t got the final regulations! Now I know that Scottish Friendly are a fast and efficient organisation when it comes to bringing products to market but even we think it’s a bit much to have only a few weeks notice of a new regulatory requirement. I honestly have no idea how some less efficient organisations are going to cope.
But leaving the question of timing aside its the regulations themselves that are causing me a great deal of concern. The regulations (I suspect by accident) include within their scope Tax Exempt Savings Plans from friendly societies which have a £25 a month limit and are exclusive to mutual friendly societies.
These are, by brand and definition, not a rich man’s tax break, they are a true mass market product often designed to get people started on a virtuous long term regular savings habit. However as they are a subset of qualifying endowment polices they are caught by the draft regulations.
The draft regulations will require any applicant to sign an incomprehensible declaration covering whether they are the beneficiaries of any other qualifying life polices (to which the majority of customers will answer “what’s a qualifying life policy”). Additionally they will need to certify that they are not investing more than £3,600 each year into such policies. It sounds fair enough but most customers, in my view, will struggle to accurately answer such a question. The confusion is likely to intimidate a number of customers into not following through on their application.
To actually police the policy, HMRC are requiring clients to provide their NI number, which will bring Tax Exempt Savings Plans into line with ISAs. Whilst I’ve got concerns about this for some categories of clients it does beg the question why HMRC need such a comprehensive declaration when they can easily check the sum total of policies to which a client is a beneficiary through their unique NI number.
So far so difficult enough. However, the regulations, as drafted, go one more step further and require the client to reach a higher level of disclosure than for any other financial product and require the client to provide their Unique Tax Reference (UTR). Cue a chorus of “what now”? Your UTR is another unique reference (I know it’s a oxymoron) used by HMRC, why have one unique reference when you can have two!
You’ll only know your UTR if you’ve ever completed a self assessment form and even then like me you’ll need to wade through several drawers of junk and papers to find it. Mine was underneath the drawer with all the polythene bags in it! So very few people know their UTR and those that do will struggle to find it.
In my view the majority of clients faced with the requirement to find or just understand the concept of a UTR will respond with a shrug of the shoulders and say “why bother”. Thanks to HMRC apathy has just been given a huge boost.
As I said a year ago I’ll not miss maximum investment plans and was delighted when the government took action to rule them out. But their “drone strike” solution will create a huge amount of collateral damage amongst the very people that the government is desperate to encourage to start fending for themselves and engaging with the financial services industry.
This policy is poorly timed, ill thought out and being exceptionally badly communicated. Was I naive to have expected more?
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand. Tax treatment depends on your individual circumstances and tax law may change in future.
Men vs Women: Who are the better savers?
Here at Scottish Friendly, we recently ran a survey on our website about your saving plans and habits.
The survey was conducted in 2012 over a period of 4 weeks and received over 1,600 responses.
After generating some key statistics, we produced this infographic to illustrate our findings.
Read more
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Tweet your tip starting with the hashtag #simplesavingtips. You must also include @scotfriendly in your tweet.
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The closing date is 1st April after which our 10 winners will be chosen from all eligible entries. Please only use one Twitter account to enter and limit multiple entries to one per day. For full details, see our terms and conditions.
Thoughts of the week – Focus group findings
Views in this article are those of the author alone and do not necessarily represent the view of Scottish Friendly.
Just back from the focus groups on our new ISA product.
It’s a little known fact that only a small percentage of the population use their Stocks & Shares ISA allowance, making it a middle class tax break for the wealthy and well advised only. But actually getting the face to face feedback (well from behind a screen) really underlines the problem.
The general population are not put off Stocks & Shares ISAs by the contents of the products. It’s just plain and simple ignorance and lack of information from the industry. You can actually watch the moment when the penny drops with investors when they realise that they are allowed two ISAs each year. For some it’s like discovering a pound in the bottom of your jeans pockets, for others there is an almost palpable fury that this information has been kept from them.
At a time when the political classes are clashing over the “bedroom tax” and everyone is scrapping about trying to save public expenditure whilst increasing the tax take, perhaps the government is colluding with the industry about this second ISA happily keeping people in the dark in case it costs them even more tax.
We usually put “Use it or lose it” in our ISA and tax exempt savings plan literature to illustrate to clients that if they don’t make use of these legitimate methods of paying less tax then they just lose them. But perhaps we ought to turn this against the industry? Start promoting the second ISA option to clients or lose it altogether?
Stocks and shares ISAs invest in the stock market, and the value of shares can go down as well as up and so returns are not guaranteed. Tax treatment depends on your individual circumstances and tax law may change in future.
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand.
Saving money as a student
It’s National Student Money Week this week so we thought we’d compile some handy tips for students to follow in order to save them some money. Student loans often don’t stretch very far and working anywhere near full time is often impossible. That said; there are plenty of things students can do to make sure what money they do have coming in goes the distance.
1. Be smart when buying textbooks
Academic texts are very rarely cheap and depending on what course you are doing you could be facing a bill of hundreds of pounds (engineering based textbooks tend to be excruciatingly expensive for instance). You may also be required to get them all at once. Have a good look around for anyone selling books second hand, students who have recently completed the course you are studying may wish to get rid of the books you now need for instance.
Make sure you check the relevant noticeboards/online resources and see if you can pick up a bargain. Of course, it’s also worth looking at online book-sellers, as they will invariably be cheaper than the high street.
2. Get yourself a travel card
Should you wish to succeed at university you’re probably going to have to attend at least some lectures or tutorials. If you’re lucky enough to live across the road from the lecture theatre then of course you’ll be walking. But if not, it may be time to get a travel card. Whether it’s a bus pass, oyster card or whatever else, it’s more than likely that investing in a travel card could save yourself a substantial amount of money – do your sums and you’ll find that this may very well be the case. You could even use the money you save to make sure you have the shiniest most up to date edition of the aforementioned textbooks.
3. Be smart with your meals
This one applies to life in general but especially so when cash is tight. If you plan your meals effectively and buy a weekly shop, you can, generally speaking, save money. You could also speak to your flat-mates and see when they’ll be around so you can arrange to eat together and split the cost. You’ll find it’s much less expensive than forking out on a daily basis. You can also divide up cooking and cleaning duties. All very democratic.
4. Make use of your student card
Student cards are a fantastic resource and you will be able to get some great discounts on a wide variety of stuff. Whether it’s free entry to the club on a Friday night or 40% off a pair of jeans, it’s still money off. So you’d be daft not to use it. Just think of the books. Always make sure you ask for a discount even if it isn’t advertised. Many shops do offer a student discount and just don’t tell anybody about it. Also, sign up to any student money saving websites you can. Every little helps.
5. Get a part time job
Depending on the intensity of your course this one might not always be possible but any extra money coming in will be a help. Try and strike a balance between work and study (including some time off both of course, for your sanity) and you might even find you can save some money. If you do find yourself with any extra cash, sticking it away somewhere that you don’t have easy access to it is not a bad idea. It’s important to get into the habit of saving money and the earlier you can start, the better.
If you have any tips of your own we’d love to hear them. Tweet to @scotfriendly and let us know.
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand.
Investment basics for the family
Investing for your family’s future
When it comes to investing, there’s no time like the present. Whether you want to put some money away for your retirement, a round-the-world trip, or to help with your child’s university fees, the sooner you start, the better.
So where to begin? In this article, we look at some investment basics you should consider before deciding what to do with your money.
First things first – how’s your financial position
Can you afford your mortgage payments? Do you have a pension in place? Do you have a little cash tucked away for a rainy day? Thinking about these things will help you understand if you’re ready to invest —and how much you can afford.
Risk versus return – weigh it up carefully
Heard the one about the man who made millions on the stock market? Or the horror story about the guy who lost his life savings overnight?
These are obviously extreme cases and it’s impossible to tell you the exact return you may get in the future, whatever funds you select. But generally speaking, higher returns are only ever a reward for taking on more risk.
Want to play it safe? Government bonds offer lower risk but are unlikely to make you rich quickly. They are linked to an index of bonds issued by the UK Government. However, as with all investments, your cash in value can rise and fall on a daily basis and you could get back less than you have paid in. You should also be aware that trying to ‘play it safe’ with a lower risk fund can actually be risky in itself. The fund may not perform well enough to negate the effects of charges and there is always the possibility that you could be left with a paltry return if any.
Got time to invest?
Investing can be time-consuming, particularly if you decide to trade on the stock market yourself. For a start, there’s the research — checking the financial position of the companies you want to invest in. Then there’s the actual buying, monitoring and selling of shares.
Investing in the stock market can offer greater growth potential. But as we all know, with stocks and shares, the value of your money can go down as well as up.
Managed Funds
If trading yourself sounds like a step too far, you may want to consider a ready-made fund linked to the stock market, but managed by experts on your behalf.
With the UK Active Fund, you can give your money the long term growth potential of the UK stock market. Stocks and shares in this fund are selected by an expert fund manager with the aim of outperforming the market. In the case of this fund, it’s performance will largely depend on the movement in the UK stock market along with the ability of the fund manager to select stocks and shares that grow.
UK Active Fund is a higher risk and reward fund which is linked to an actively managed investment in UK stocks and shares. But remember, your cash in value can rise and fall on a daily basis and you could get back less than you have paid in.
My Choice (ISA) and My Plans
Scottish Friendly’s My Choice (ISA), currently offers a range of 4 funds, including both a Government Bond Fund (lower risk and reward) and the UK Active Fund (actively managed / higher risk and reward). With My Choice (ISA) you can choose the proportion of your investment which you wish to allocate to different funds with different levels of risk. So, although you’re not trading directly, you still have a certain level of control over your investment.
If investing for the family, and using My Plans, you will also have the option to tag different life policies within your Scottish Friendly ISA with different family members names. That way everyone can be sure they get their fair share!
How soon will you need your money back?
Most investment products recommend that you invest for a minimum term – the idea is that the longer you invest, the more potential that your money may grow. So before deciding on a product, think about when you’ll need your money back.
Beat the taxman
The bad news: Taxation can take huge chunks out of any returns you make on investments. The good news: there’s a whole range of tax-efficient ‘wrappers’ out there that shield your returns from the taxman. These include pension plans, workplace share schemes and individual savings accounts (ISAs).
Scottish Friendly’s My Choice (ISA) and Junior ISA (for children) are both stocks and shares (investment) ISAs. Either way, you won’t pay any income tax or capital gains tax on any profits you make (other than tax on dividends from UK shares). Remember tax treatment depends on your individual circumstances and tax law may change in future.
So now you know the basics, why not get your family investment plan in place? Even £10 a month can soon add up when you choose an investment type that fits your needs.
Scottish Friendly has provided no advice in relation to these plans or funds. If you are in any doubt as to whether a plan is suitable for you, you should contact a financial advisor for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk Advisers may charge for providing such advice and should confirm any cost beforehand.
February is the new January
I’ve had a few hare-brained money saving schemes in my time and here’s the latest.
Cashless February.
‘What is it?’, I hear you ask. Please bear with me and I’ll explain.
For me, New Year’s resolutions have always been troublesome. In fact so troublesome that I don’t even bother to attempt them. It probably has something to do with the fact that the very stroke of midnight on New Year’s Day is invariably spent swigging an alcoholic beverage while simultaneously attempting to scoff what’s left of the Pringles.
So for me, February is the new January. You heard it here first. With the excesses of the festive season now a fast-fading memory, it makes it that bit easier to make a fresh start. February is also the shortest month of the year which should make enduring any not-so-new-year resolutions less taxing (can I say tax-free?) – and I’m all for that. And when you take into account that most people are still on full holiday mode at least until the 2nd or 3rd of January – February seems like a safer bet.
The Plan
Now to the crux of the matter.
The master-plan is: Get through February spending as little actual cash as possible.
I will attempt to restrict myself solely to debit card purchases.
The benefits of this, hopefully, would be as follows:
- Won’t be able to buy any snacks on the way into work in the morning.
- Less likely to make other unnecessary purchases of under £5 (due to many retailers not accepting debit cards for smaller transactions).
- I won’t have any loose change rattling around in my pocket just waiting to be squandered.
- Just generally not having cash in my wallet means I may be less likely to impulse buy.
I will surely have to visit the hole-in-the-wall at some point, for example occasional nights out, office whip-rounds, school breakfast club money etc, but I plan to piggy-bank the change from any cash machine visits at the end of the day and tally this on 28th February.
I’ve heard quite a bit about people trying to restrict themselves solely to cash such as in this article, but the thought of being stranded somewhere with only a few pounds in my pocket and zero access to money is not very appealing.
How to measure
The best way I can figure out of measuring this is to compare total cash machine expenditure and total debit card expenditure for January. Then do the same at the end of February. The idea is that the cash machine total should be way down. The debit card total will obviously be up, but hopefully not so much that it obliterates any savings made on the cash machine totals. I can also factor in any piggy bank savings from the previously said cash machine transactions.
So there you have it. That’s the idea. I will report back in one month’s time with my findings.
Scottish Friendly has provided no advice in relation to any investment plans. If you are in any doubt as to whether a plan is suitable for you, you should contact a financial advisor for advice.
If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand. Scottish Friendly is not responsible for the accuracy of the information displayed on externally linked third party websites.
Scottish Friendly’s Guide to Life Insurance for the Over 50s – What Are Your Options?
Whether you’re planning to spend time with your family, travel round the world or simply enjoy your retirement in peace and quiet, it’s important to make sure your loved ones are taken care of should the worst happen so you can get on with enjoying life.
If you’re looking ahead, it’s never too early to prepare for a time when you’re no longer around – having a plan in place means the people you care about could be protected financially when you die. It’s a misconception that life insurance has to be expensive or complicated. Many financial organisations offer competitive plans and when you start looking you might find yourself spoilt for choice…
Life Insurance choices…
Think about what type of cover you and your family may need. The market is competitive and there is a great range of products out there. Do you need fixed term assurance – which covers a pre-determined length of time? Or are you looking for ‘whole of life’ cover – which protects you until you die? Do you want the policy to include cover for medical expenses or funeral costs?
If you are 50 to 75 years of age, you may want to consider a type of life cover designed specifically for you…
Over 50s Plans: the basics
Lots of companies offer insurance plans designed specifically for the over 50s and if you take the time to browse the market, you should find a policy which offers great cover and value for money. When you’re selecting an over 50s Insurance plan, keep these basics in mind:
- Eligibility: Over 50s plans involve no medical history check and no awkward questions will be asked to determine eligibility – if you are old enough, you qualify for the plan.
- Premiums: you’ll pay a fixed monthly premium for the duration of the policy. You’ll know exactly how much you need to pay every month. When you reach a certain age (usually around 85) your premiums will cease – but your cover continues in full.
- Cash Sum: after 2 years payments have been made, when you die the policy pays out a fixed cash sum to your beneficiaries provided you keep up your premiums. Bear in mind, inflation may reduce the value of the eventual pay out. Before 2 years, a return of premiums is paid.
The details…
It’s important to keep various details in mind with any Over 50s plan. Depending on how long you live, you may pay more in premiums than the plan eventually pays out. The pay-out may also be subject to inheritance tax (depending on the size of your estate). Tax treatment depends on individual circumstances and tax law may change in future.
Make sure you’re comfortable with the monthly premiums of your Over 50s plan. The price of premiums varies depending on gender, smoker status and age – men can expect to pay more than women, for example. If you stop paying premiums at any point (before the age cut-off at 85) you’ll lose your cover entirely – there’s no cash-in value in life cover for over 50s.
The Over 50s policy may be an attractive idea and could offer affordable life cover. If you’re concerned about which type of policy may suit you best, it might be worth talking to a financial advisor. An advisor may charge for any advice provided – any costs should be made clear before you meet. Plan ahead now, for peace of mind in the future!
Scottish Friendly has provided no advice in relation to this plan. If you are in any doubt as to whether a plan is suitable for you, you should contact a financial advisor for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk Advisers may charge for providing such advice and should confirm any cost beforehand.