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Children’s pensions should not be seen nor heard
Google Children’s Pensions and you’ll get a consistent result with Virgin Money at the top. Now before I go any further let me state for the record I love the Virgin brand, I love Virgin Trains and Virgin Atlantic and have sincere respect for Virgin Money. I recall that they were one of the early adopters of passive versus active fund management and played a great role in calling into question the value added by so-called active fund managers.
Which is why I can’t see the logic in them tarnishing their brand with the flawed concept of children’s pensions.
I can see why they’ve gone for it. It’s almost virgin territory (see what I did there) so it gives them a place in the market. It’s also an interesting concept to play with from a PR point of view; using tax relief and the magic of compound interest over 60 years. it’s possible to show how “easy” it is to set up a child as a pension millionaire.
Yes it’s flawed and how much will a million quid be worth in 60 years time? Indeed how much of a pension will a million quid buy you in 60 years time? But hey who is counting, it gets you cheap headlines and there is nothing better on a slow news day.
But that’s the point, with children’s pensions it’s cheap but in my view it’s also nasty. A popular consumer brand should not spend its time trying to pretend that this is anything other than a highly niche product.
Why in God’s name would anyone invest for a child in a pension pot when there are far better alternatives.
Firstly pension benefits are going to be locked away for up to 55 years (on current legislation). Who knows what the legislative landscape will look like by 2067! That million quid in pension benefits may all be means tested away meaning that all that hard invested money has gone to waste. Indeed you may not make it that far, who is to say that pensions may be subject to a tax raid by the government, it’s happened before. So would you trust the government with your kids money for nearly two life sentences?!
Secondly even if you are fixated with the concept of getting a pension set up for your kids the ISA first strategy screams at you to invest their money in a JISA. You can then switch that money to a Pension when the child is a higher rate taxpayer, or at least leave things until the last minute (before the “child’s” retirement) before switching to a pension – at least then they’ll be able to do so in the light of the legislative landscape at the time and work out whether it is worth switching to a pension.
Even if the JISA route has been exhausted, and at a £3,600 a year limit we are talking about wealthy individuals now, there are simple enough trust routes that can be used to incubate investments for children allowing them to be switched to a pension in later life if the ISA first strategy so dictates.
Children’s pensions are an exceptionally niche product. If Virgin are going to advertise them it should be in the same places that they advertise Virgin upper class flights. Come on, you are starting a new relationship with money, why not show it by turning your back on a cheap bit of PR and a dreadful product.
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 insurancehas 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…
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.
Junior Individual Savings accounts – know the facts
In this article Scottish Friendly looks at Junior ISA facts. If you’re uncertain about how to set up a Junior Individual Savings Account for your child – don’t be: the good news is that the process is straightforward and it can be a great way to save or invest money, tax-free.
The Junior ISA is often confused with the Child Trust Fund – but as of 1st November 2011, the CTF was discontinued and replaced by the JISA. If your child already has a CTF they will be unable to hold a JISA at the same time. If you haven’t yet opened a JISA for your child, and are looking for information, take some time to read our guide.
The Basics:
- Eligibility: any child that is a UK resident and who isn’t eligible for a CTF may hold a Junior ISA. Children born on or after the 3rd January, 2011 are eligible for a JISA. Those still under the age of 18 who were born before September 2002 are also eligible.
- Age limit: you can invest on behalf of a child under 16. The JISA is held on behalf of the child, until they reach their 18th birthday. At that point, they may withdraw their money – the money in the account can only be taken out by the child – or allow the JISA to turn into a full adult ISA.
- Save or invest: the JISA, like the adult ISA, can be held in two categories – a ‘Cash’ savings product or a ‘Stocks and Shares’ investment product. A child may hold both types of account, subject to the annual subscription limit. Money within a cash JISA is protected and you’ll get out exactly what you put in (plus any interest due). A Stocks and Shares JISA, like any investment product, involves risk – stock market investments can rise and fall and the child could get back less than you have paid in.
- Tax free wrapper: the interest or returns a JISA generates are free from income or capital gains tax (tax is deducted from UK share dividends). This means the money you invest within a JISA could work hard for your child and not the tax man. Tax treatment depends on individual circumstances and tax law may change in the future.
- Subscription limit: at present, the limit on the amount of money you may save or invest tax free in a JISA each tax year for a child is £3,600. This amount may be split across the Stocks and Shares or Cash JISAs a child holds.
Why a JISA?
A Junior ISA is a way of building up a fund for your child to use at a time when they may need it most. At 18, children may be thinking about university, travelling or becoming more independent. A JISA could give them a head start in whatever direction they choose to go.
Once set up, anyone can contribute to a JISA: friends, grandparents and family. A contribution towards a child’s future could be an ideal birthday or graduation gift and one which will be all the more appreciated when the child turns 18 Sit down with your child in mind and think about what your savings or investment goals might be for their future. A JISA is a long-term plan and could be a useful way of demonstrating good financial practice. It’s never too early to get your child thinking about financial responsibility and, with a Junior Individual Savings Account, they have the option to be involved in planning for their own future when they turn 16.
Scottish Friendly has provided no advice in relation to these 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.
Pensions: It’s just a rich man’s world
OK, OK, OK before Stan corrects me for starting off with a masculine reference, this could easily have been titled it’s a rich woman’s world but then how would I have forced in the obvious ABBA link.
I think that following the budget’s non-event over pensions it’s time that I returned to one of my biggest gripes about the financial services industry. The question of using an ISA over a pension.
I’ve got form on this subject indeed in financial services terms it’s probably as close as I ever get to religion, but in this analogy I’m certainly viewed as the outlandish nut job preaching against orthodox thinking.
So what’s my great heresy, well simple Pensions are totally unsuitable for the vast majority of the UK population as their main means of long term savings. Pension as a first port of call for investors should be confined to the rich and wealthy, the rest of us should use an ISA first strategy.
It’s not a case of this being an unfortunate technical failure I’m convinced this is part of a grand conspiracy by the vested interests of the industry to make life and earnings easier for themselves at the expense of their clients. Furthermore it lies at the root of many of the evils abroad in the UK financial services arena such as the appalling savings gap. Thankfully I suspect these vested interests are finally beginning to break down.
The failure of the industry (and I include the FSA and the financial media in that definition) in not adopting an ISA first strategy is something that should bring great shame on us all.
I did warn you it was a religion for me!
The ISA first strategy
Ask any focus group what’s the main problem with pensions and it all boils down to locking your money away. Now clearly when it comes to long term savings locking your money away can be a good thing, but when trust in the financial sector is at an all time low (according to the CEO of the FSA), it’s a recipe for ensuring that the last thing a client will want to do is legally lock their money away for 30 years.
And yet there is a simple solution to all this – let the client invest in an ISA. At least then they know that their money isn’t locked away for 30 years, it’s portable, accessible and just as tax-free.
So what is an ISA first strategy? Simple, when it comes to saving for your retirement customers should be encouraged to use their ISA allowance first. Whilst about half of the population use their cash ISA allowance, very few people (hat tip to Scottish Widows) use their stocks and shares ISA allowance, so every year this tax allowance goes down the plughole for about 9 out of 10 of the UK population.
Before anyone from the nanny state brigade comes along to argue that the problem with this is that clients can’t be trusted not to raid their savings, well if you truly believe that then you can still set up an ISA and make access hard, complicate and financially painful for the client that you so distrust.
More importantly the nanny state school have to look at the practical consequences of their decision to legally lock up client’s money, investors are voting with their purses and wallets and just not bothering to save. I’d rather a client tried to save and dipped into those savings when times get tough, rather than not bother at all. Those who know better than the muggles would clearly prefer the latter state of affairs!
ISA first then pension (if you want to)
Let me be clear here. I’m not against pensions far from it, I just feel that the vast majority of the population are better off investing in an ISA first and then – at the time of their choosing – they can tip their ISA bucket into a pension when they are closer to retirement.
This has several beneficial effects – firstly and rather obviously by moving the money into a pension later in life it’s locked up for a much shorter period of time.
Secondly, when you move your money into pension much closer to retirement you will have a much better idea of the tax landscape at the time. For example you may be able to identify that switching to a pension will provide you with an income in retirement that will be means tested away, in those circumstances you may well be better continuing to shelter your assets in an ISA which may well not have the same issues, it’s certainly a strategy that some investors prefer.
Thirdly, and more importantly, using the ISA first strategy you can hold off investing your money into a pension until such time as you are a higher rate taxpayer. That way you will capture higher rather than basic rate tax relief.
Meaning you can be significantly better off! Indeed on current difference between basic and higher rate relief you could be up to 33% better off using a ISA first strategy. In practice it’s unlikely to be that high and tax treatment of any plan, pension or ISA depends on your individual circumstances and can change in the future, however even capturing half that amount can make all the difference between a mediocre and a comfortable retirement.
FSA rules on projections make it decidedly impractical for me to from demonstrate this with detailed numbers but it’s covered in more detail in the Telegraph article.
A x B = B x A
So why don’t clients use their ISA allowance? Some say it is because clients are terrified of the stock market (and hence a stocks and shares ISA) where they are not guaranteed to get back all of their original investment? I can understand that, especially given the market over the last decade, but the argument doesn’t hold water as these very same clients are normally investing in funds that would qualify for a stocks and shares ISA through their pension. So it can’t be risk that’s the problem.
The argument generally proceeds along the lines of “ahh but with pensions you get tax relief on your payments and the sooner you get it the more you earn”. At this point I usually lose it (the argument and my temper) and respond like Hugh Laurie playing House.
Let me be clear it’s a mathematical truism (if tax rates stay the same) that it makes no difference if you get the tax relief now or on the day before retirement. As long as you are getting tax free growth (which, other than taxes on dividends, you are in a pension and an ISA,) then you will it makes no difference when you get tax relief.
So if you use your ISA first you can have access, flexibility in retirement and you can be significantly better off. This isn’t a debate about pension versus ISA it’s game set and match to ISAs.
Locking-in
So why doesn’t the ISA first strategy prevail in the industry?
It all boils down to the same reason that I’m typing this blog on a QWERTY keyboard – Ken Arrow’s first mover advanatge. The current layout of a standard western keyboard is not the most efficient. The most commonly used letters (the vowels for instance) are not exactly placed in the ideal spots for speedy typing. However we tolerate this inefficiency as we are locked-in to the QWERTY method of typing and no one can be bothered to learn how to type all over again, even though in the long run it will make us faster and better at putting words on screen.
So too it is with the financial services industry. Pensions have been locked-in to life company and pension provider’s systems. After A-day in 2006 when the ISA first strategy effectively became unanswerable, the cost and effort involved in switching from pension to ISA first became a difficult business case for an organisation to justify.
Surely with such intransigence from the industry we could rely on the independent advice sector to pull the providers into an ISA first strategy. It was after all clearly in their client’s best interests? But no: There was silence.
The commission conspiracy
I’ve heard the answer that advisers were not interested in the ISA first strategy because it was too complicated. Please, are you telling me that pensions are simple! More importantly guiding a client through complication towards their best interest is what an adviser is paid for!
No, there is something else going on here. Pension first survived because it locks the client into their plan, and with a lock-in comes upfront commission to the adviser. You can’t go paying out large amounts of upfront commission if the client might just up a leave the next day. The latter is quite possible with an ISA, but a pension, that’s a different story it’s much stickier and less likely to move.
So the industry has locked itself in to a pension first strategy, at the financial expense of investors themselves, for entirely self-serving reasons.
The media were sold a pass by their own admirable need to offer balance to any story, especially one that bucked conventional thinking. So when looking at the ISA first strategy they would get a range of opinions from advisers and providers who, remarkably, would all give the same answer and pour cold water on the idea, it wasn’t balance they were getting but a common vested interest.
How the regulators tolerated this I really don’t know. The Financial Service Authority brought in RU65 to rightly force advisers to justify if they were not recommending a stakeholder pension, but where was the equivalent requirement to justify an ISA as opposed to a pension?
But let’s be thankful for the abolition of commission for financial advice, that at least will break the unholy alignment of interests between the providers and advisers. And as if by magic the industry is suddenly warming to the idea of an ISA first strategy – now called a corporate wrap. There’s no legislative change in favour of ISA first but the end of commission is breaking the unholy alliance that kept clients locked in to pensions unnecessarily.
ISA first, at last
With these commission changes in place I’m quite confident (short of another fundamental change in tax legislation) that in 10 years time the ISA first strategy will be the most common way of saving and investing for retirement. Pensions will still be used but they will be used strategically and generally only in later life.
I always thought my tombstone would have “ISAs are better than pensions” carved into it, i’m hoping that soon I’ll be able to upgrade to “I told you so.”
When a tax break dies – follow up
Interesting to note how quickly the industry moves these days when it comes to shutting products down. That’s L&G, Skandia and Transact all removing what were effectively high net worth individual tax dodges.
Whats more interesting however is Skandia’s assertion that they were already planning on pulling MIPs with RDR (banning commission) on the way next year. That does imply, to me, that in the age of commission/adviser fee transparency that at least one provider thought that MIPs wouldn’t survive even as a high net worth tax break.
Does that imply that their real benefit was in generating generous regular premium commission for financial advisers, rather than serving as a top up tax break for those already maxed out on their pension allowances? Makes you think, doesn’t it.
When a tax break dies
The Budget is a funny moment for anyone in the financial services industry. There’s all the parliamentary banter and pantomime or the BBC versus Sky News teams having their “cup final” moment, and sounding a bit too much like David Mitchell on football for my liking.
If you work in financial services you ignore all the artificial sound and fury, and spend hours looking at all the detail. You are looking for opportunities for new products, or more likely to see what headaches you are going to have in a few hours as you start to think about reconfiguring your IT system, customer service process or marketing plans.
One technical nicety that emerged (it was too boring for Osborne to mention in the House) is what the trade press are calling the death of MIPs. Maximum Investment Plans have had a checkered history, covering high charges, mis-selling, and various tax planning strategies depending on the tax free alternatives.
They operated as qualifying endowment plans which is the technical jargon for an investment issued by a life company (this one for example). The organisation accepts regular payments from the customer and the tax is paid by the provider (the cost of which is passed on to the client).
The advantage is that, provided they keep the plan for long enough (usually at least 7 and a half years) they have no tax to pay on any gains, even if they are a higher or basic rate taxpayer. So it can often be better for the tax to be paid by the provider rather than the individual. Of course it all depends on individual circumstances as to whether they were better off.
A condition of the tax break is that the provider also has to package the product with some life cover. So the industry came up with the idea of creating a suite of such products with the minimum amount of life cover. In a blaze of marketing brilliance (yes an example of the lowest form of wit) the industry turned minimum on its head; if there was less for life cover there was the maximum for investment. Hence Maximum Investment Plan.
However as we know tax treatment can change in the future and MIPs began to fade as a mainstream product in the era of TESSAs, PEPs, ISAs and pensions.
But since 2008 MIP started to get mentioned in hushed tones throughout the industry, indeed I was tapped up by a couple of consultants asking if Scottish Friendly would be able to build a MIP for their clients. There were two main reasons behind this: rising tax rates and squeeze on pensions for people with big incomes. It was almost comical how the industry hoped to quietly reinvent this tax break for rich individuals whilst hoping the government wouldn’t notice.
It was interesting to watch the ABI new business statistics which showed a pulse in the once moribund MIP business line, start to blip, blip, blip back into life.
But today the government effectively made MIPs as a rich man’s tax break redundant, and I for one welcome it. In my view high net worth individuals don’t need any more tax breaks to encourage them to invest. Tax breaks should be small, simple and focussed on getting those that don’t normally invest to get into a regular habit. Once that habit takes hold, tax breaks become much less relevant and their job is done.
So farewell MIPs, it’s been nice having you around but your time as a tax loophole for the rich is happily at an end.
Baby boomers hit in the budget
It’s not often I’ll say this but I have to say I admire George Osborne’s guts in taking on the baby boomers. Freezing their tax allowance and effectively ending the age related allowance is a very “brave and courageous“ decision.
Of course the baby boomer and grey vote are already gearing up for a fight and #grannytax was almost immediately trending on twitter.
“When ah were a lad”, they used to say you couldn’t take on the miners and expect to survive through to the next election. These days I reckon the miners are pensioners – remember poor Gordon and his 25p increase – it will be interesting to see if Nick, Dave, George and Danny can hold their nerve.
Hold on boys it’s going to be a very, very rough ride.
Popular questions and answers about Investing in an ISA
When it comes to saving and investing money, anyone interested in avoiding the taxman will have heard of the Individual Savings Account. Introduced in 1999, the ISA is a popular, useful way of generating returns within a tax-free wrapper. Many people think taking out and managing an ISA is complicated, but taking the time to familiarise yourself with the details can make the process a lot easier!
Read our list of important basic points for getting the most out of your ISA…
Q: What is an ISA?
A: Anyone who has savings or investments and wants to protect their money from the taxman may wish to consider an ISA. The money you place within your ISA is protected by a ‘tax-free wrapper’, which under current law exempts the account from income and capital gains tax (tax is deducted on UK share dividends). Remember, tax treatment depends on individual circumstances and tax law may change in the future.
You must remember that with any stock market related investments, your investments may fall as well as rise and you could get back less than you have paid in.
Q: How does an ISA work?
There are two different types of ISA: a ‘Cash’ ISA and a ‘Stocks and Shares’ ISA. The Cash category ISA acts like a normal savings account, except the interest you generate isn’t taxed and the money you put into a Cash ISA is secured.
A Stocks and Shares ISA is an investment product. The company managing your ISA will invest your money in the stock market – any returns generated on the growth of your money are protected from income and capital gains tax (remember tax is paid on UK share dividends). The Stocks and Shares ISA is an investment product. As with any stock market investment, your investments can fall as well as rise – there’s no guarantee you’ll get any return on your money and you could get back less than you have paid in.
Tax treatment depends on individual circumstances and tax law may change in the future.
Q: How much can I invest?
The current subscription limit for an ISA, annually, is £10,680. You can hold both Cash and Stocks and Shares ISAs simultaneously and you may split this amount over both accounts – although there is a cash limit, which stands at £5,340. If you wish, you may invest the entire amount in the Stocks and Shares ISA, but be aware that . The subscription limit doesn’t rollover – so if you have money you wish to save or invest, make sure you do so before the end of the tax year. Please remember, tax treatment depends on individual circumstances and tax law may change in the future.
Q: What kind of access to my money will I have with an ISA?
A: It’s a misconception that an ISA restricts access to your money for a pre-determined length of time. You should check the regulations for individual products but most ISAs will allow instant access to the money inside without losing tax benefits. If you do intend to access your money, it’s important to remember your subscription limit won’t change. You won’t be able to re-invest if you’ve maxed out your subscription limit. If you have invested or saved £1000 in your ISAs, you may generate returns and interest tax free – but you’ll only be able to contribute another £9,680 in that tax year. Tax treatment depends on individual circumstances and tax law may change in the future. Stock market investments may fall as well as rise and you could get back less than you have paid in.
Finding the right ISA product is important since you want your money to be working hard for you! Take the time to look through the products offered by different companies and consider your own savings and investment goals before you take the plunge.
Scottish Friendly has provided no advice in relation to these 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.
How to save or invest money tax-free
Saving and investing money is a way to encourage good financial practice and could provide peace of mind for any financial burdens – both expected and unexpected – that you may encounter in the future. Putting something aside regularly can help you prepare you for those big costs: towards your children’s education, medical expenses or even that post-retirement round-the-world trip you’ve been planning!
When you’re trying to save or invest, you’ve got enough to worry about without the taxman taking a chunk of your money. While tax is an important part of our financial system there are ways in which you can save and invest money and benefit from significant tax incentives.
Many savings and investment plans allow you to generate interest and returns exempt from tax – but it can be difficult selecting the right product for you. Take time to familiarise yourself, not only with the different plans on the market, but how each one will function over the short and long term.
Tax free means, under current law, free of income and capital gains tax except for tax on dividends from UK shares. Be aware that tax treatment depends on individual circumstances and tax law may change in the future. You must remember that with any stockmarket related investments, your investments may fall as well as rise and you could get back less than you have paid in.
Tax Free Savings and Investment Plans
You’ll find a variety of tax-free savings and investment plans on offer: each carries its own benefits and drawbacks. Most will require you to invest money regularly over a predetermined period of time (usually over ten years) – and in return, attempt to generate potential long-term growth and provide a tax-free lump sum at the end of that period.
Individual Savings Accounts (ISAs)
Individual Savings Accounts are a popular way of allowing your money to grow within a tax-free wrapper. Depending on your requirements and needs, you may take out a ‘cash’ or Stocks and Shares ISA or hold both simultaneously subject to the annual subscription limit. For the 2011/12-tax year the limit stands at £10,680 and up to £5,340 can be invested in a cash ISA.
Family Savings Plans
Saving and investing money doesn’t just have to be for you – you can get your whole family involved in preparing for the future with products designed specifically for families and plans that allow you to make investments for children. The tax-protection these plans offer often comes in addition to the allowances of any other tax-free plans (such as the ISA) you or other members of the family hold.
Get the Most from Your Savings or Investment Plan
Keep certain factors in mind before you choose a savings or investment plan…
- Subscription Limits: make sure you understand how much the savings or investment plan you’ve chosen allows you to put aside at any given time. Most savings or investment plans involve monthly contributions so it’s worth planning ahead. The ISA involves an annual subscription limit, which stands, at present, at £10,680 per tax year. You may share this amount over both a cash (up to £5,340 can be invested in a cash ISA) and stocks and shares ISA.
- Long-term investment: think about what your savings and investment goals are. Most savings or investment plans should be considered long-term strategies, which deliver their full potential over a pre-arranged period of time.
- Access: find out what kind of access you’ll be allowed to your money. While ISAs may allow a certain level of access, most tax-free savings and investment plans require you leave your money until the end of the plan or risk losing the tax benefits.
On a final note, it can be a good idea to use any kind of savings or investment plan to develop a regular savings habit. If you’re putting money aside regularly, you may find that the process quickly becomes a habit and can be a great way to get the most out of your tax-free savings and investment allowance. It’s never too early to begin investing for the future!
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a 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.
Planning for your Child’s Educational Future
However long off it is, when your children enter secondary or higher education there are going to be costs involved. It’s easy to underestimate how much expense you – and your children – will face and if you want to be able to handle the extra financial burden, having a plan in place could be a great help.
What should I expect?
Even if you’re only planning a family and choosing schools seems a long way off, it pays to begin thinking about your children’s education early. What kind of education do you want for your child? If you’re going to opt for private education, you’ll need to factor in tuition fees which, in some cases, could amount to as much as £200,000. The price of boarding schools may be even higher. Managing the yearly tuition costs should be a big part of any savings or investment plan you put in place to deal with your child’s education.
Whether or not you’re paying tuition, when your child goes to school, you’ll face extra costs – often day to day. School trips, uniforms, sports kits and meals all feature as hidden costs throughout the school year.
If you’re children are older, or if you’re thinking ahead to the rising cost of university tuition fees, you’ll still face significant costs. As of September 2012, universities may charge up to £9,000 in tuition. If your child wants to move away from home to study, accommodation and living expenses will also need to be factored in.
It’s worth sitting down with your child to discuss their choice of university and the costs which may be included: where is their university located? What subjects do they want to study? How long will their degree take to complete? Small consideration of little factors like this might be important to determine your financial goals.
How can I prepare?
Depending on the approach you decide to take towards your children’s education, you’ll need to find a savings and investment plan to suit your family. The most suitable plan may depend on factors such as how old your child is and how long they have before they enter education.
Whether your children are older and thinking about university – or younger, and have a longer time before they enter secondary or higher education, there are plenty of savings and investment plans specifically designed for children and families. Many of these plans allow you to deposit money regularly and generate returns over a pre-determined length of time. These plans often include tax incentives, meaning you’ll maximise your returns as any growth will be protected from income and capital gains tax (tax is deducted from UK share dividends). The tax treatment involved in these plans depends on individual circumstances and the law may change in the future.
Keep in mind what you want your money to do and how long you’ll need to reach your goals. Child and Family plans are long-term strategies and you may need to leave your money within them for a period of time, usually 10 years, to fully benefit from the tax breaks they offer. Remember, if you’re thinking about an investment product, shares can fall in value as well as rise and there’s no guarantee you’ll get back your original investment.
Everyone wants to give their children the best possible start in life: when it comes to education, it’s important to know what your options are. With a little planning, involving your children in the process of saving and investing money is easy – and could be a great way to prepare for the opportunities that lie ahead.
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.