Coldrey Wealth Management - News Round-Up 16th June 2017

Drawdown results: OK so far

The Telegraph reviewed the results from pension investments in drawdown since the rules changed in 2015. It asked how investors had fared with different strategies assuming the same income withdrawals of 4 per cent of the initial sum. Putting it all  into shares gave a roller-coaster ride where at one point the fund value dipped to just under £89,000 but recovered to £105,000 in May 2017. The best result was from a multi-asset fund whose value only fell to £94,000 and had reached £104,000 by the end of the 23-month period.

Transfer questions

Giving up the secure income from a final salary pension scheme is a big decision, says the Telegraph. Though current transfer values seem huge, they are often compared with the wrong figure: the pension entitlement at the time you left the scheme. Instead, the transfer value should be compared to the revalued income. When you do this, the transfer value may be more like 20 times the future pension rather than over 30 times. The only people for whom a decision is clear cut are those in ill health or with no dependents, for whom the control and inheritability of an independent pension fund are often much more valuable than a lifetime income promise.

Not working, but still paying

A third of people who expect to retire this year are still financially supporting family members, says the Independent. Most commonly, the money - an average of almost £260 per month – is going to children or grandchildren, but some are also supporting parents. Prudential, which did the research, reckoned that on average the payments would mount up to £62,000 over the course of their retirement.

Tax eats into BTL profits​

Changes to the tax rules on mortgage interest will hit individual BTL owners hard, says the Telegraph. This tax year landlords can only offset 75 per cent of their interest against their profits, which will fall to to 50 per cent next year, 25 per cent in 2019 and zero in 2020. Instead, there will be a 20 per cent tax credit for mortgage interest. For a BTL owner and higher-rate taxpayer currently receiving £5,000 in monthly rent and paying £4,000 in mortgage interest, their 2020 tax bill will rise from £400 to £1,200 per month. Owning property via a company avoids the tax charge, but the costs of transfer, including capital gains tax and stamp duty, are putting landlords off making the change.

Switch that CTF now

In 2011, Junior ISAs (JISA) were introduced when the government stopped paying in an initial contribution to Child Trust Funds (CTFs).  And for many of the 6 million or so CTF accounts, says the Sunday Times,  it would make sense to switch an existing CTF plan to a Junior ISA, because it  offers a better choice of investments and lower charges. In most cases, there's no exit fee from the CTF. The annual contribution limit for the JISA is currently £4,128 and once the account is set up anyone can contribute to it.

More pay top tax rate​

In 2015-16, over 364,000 people paid the top rate of income tax of 45 per cent on incomes of over £150,000, up from 311,000 the previous year, says the BBC. A further 4.2 million people, or 13.7 per cent of all taxpayers, pay the 40 per cent rate. The top 1 per cent of taxpayers had 12 per cent of total UK income and paid 27.7 per cent of all the income tax collected by HMRC.

Time to end the copper charade?​

The Financial Times columnist Claer Barrett tried to get rid of the copper coins she had collected – about a kilo of them. She struggled, and discovered that copper coins are only 'legal tender' for items costing under 20p. Supermarket machines charge 9.9 per cent (reduced to 7 per cent for charitable donations) to convert them into real money. Banks insist you bag up 1p and 2p coins and will only take a few bags at a time. Why don't we just get rid of these annoying coins that nobody wants, she asks? But she adds that Metro Bank does have 'magic money machines' (a publicity gimmick for children's savings accounts) that process the coins and don't charge you for converting them into notes.

Best ways to own gold​

The Telegraph reviewed the different ways of owning gold as an investment. It warned against the costs of the 'spread' when buying and selling physical gold bars through dealers, and pointed out that British coins (the sovereign and Britannia) are free of VAT while other gold coins aren't. Exchange Traded Funds, listed on the stock exchange, are the easiest way to own gold, it concluded – annual charges are low and the funds are backed by physical holdings of bullion.

The maintenance tax on parents​

The government should come clean on parental contributions to university education, says Martin Lewis in the Financial Times. Everyone understands about student loans to pay the tuition fees (the loan can cover the whole cost), but what about maintenance? Students are entitled to a maintenance loan to cover living costs, but most don't get the full loan of £11,002 (for new students this year) because it's means-tested and there's a low threshold of parental household income of £25,000 after which it starts to be withdrawn. What that means is that parents are expected to make up the difference, often over £5,000 per year - though there's no legal liability to do so. The government should tell parents the truth about what they're expected to pay, says Lewis.

Make big savings on your mortgage

People whose initial mortgage deals have expired are automatically transferred to the lender's Standard Variable Rate. Usually, this is well above the best rates available elsewhere (the current average is 4.8 per cent) and many people could save thousands each year by switching their loan, says the Mail. Yet surveys show that people are twice as likely to switch energy supplier – for a much smaller saving - than mortgage lender. Current best-buy rates of just over 1 per cent for two-year fixes mean someone with a £150,000 loan could save £500 per month by switching from SVR.

and finally...

Hank Marvin made good money as leader of the band The Shadows in the 1970s, and more when they teamed up with Cliff Richard, including a reunion world tour in 2009-10.  In an interview in the Telegraph he recalled his band's accountant lecturing them soon after the Shadows' first hits:  “Now lads, you’re spending rather a lot of money and this won’t go on forever. You need to tighten your belts.” That, he said, was excellent advice which he took to heart.

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​The information in this publication is produced from multiple sources and does not necessarily reflect the view of Coldrey Wealth Management. Nothing contained in this newsletter constitutes a recommendation or financial advice. You should consult us or another suitably qualified professional before taking action on the basis of the information in this newsletter. While Coldrey Wealth Management makes every reasonable effort to provide information that is as comprehensive, accurate and as clear as possible, it is based on our understanding at the time of publication and is subject to change.

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