TIPS FOR THE MATURE AMONGST US!

If you are 65 or older, you can still get a mortgage. Most lenders have become very cautious about lending past the normal State retirement age, but there are still a number of smaller lenders who are willing to help and who can arrange borrowing even into a person’s 80s – where the pension or other guaranteed income can justify it, of course. We can assist you to find out what options would be available. Using the equity in your property may be a last resort but it is important to understand the options open to you. There are basically three approaches that are included under the term “Equity Release”.


– an Interest-Only Mortgage where you pay only the interest each month with no end date;

– a Life-Time Mortgage where the interest is added to the amount borrowed so no payment at all needs to be made;

– a Home Reversion Schemes whereby you give up ownership on part or all of the property in exchange for a lump sum and the right to live in the property indefinitely.


Equity Release options start to become available from age 55 onwards. Here, too, we can help you find out what is available for you to see if it helps you with what you want to achieve. Equity Release can, in some circumstances, provide a short-term solution to a financial problem. One of our clients who was selling his house to buy another decided to use Equity Release as a bridging loan.

PERSONAL TAX CHANGES

There were some useful improvements to individual tax benefits – although some of these were just future promises. The following were the immediate changes, which we felt were most significant for individuals:


• The increase in the Personal Allowance from 6 April 2013 to £9,440. This represents the amount an individual can earn before he starts paying any tax and is the largest ever such increase in one tax year. The current level is £8,105.

• The increase in the Individual Savings Account (ISA) from £10,680 per year to £11,280 from 6 April 2013. Half of this (£5,640) can be put into a Cash ISA.

• The reduction in the maximum rate of income tax from 50% to 45% from 6 April 2013 (for those earning in excess of £150,000).

• The increase in the Basic State Pension from £107.45 per week to £110.14 per week.

• Corporation Tax for smaller businesses does not change this year but it does remain very low at 20% and Corporation Tax for larger businesses will reduce from 24% to 23% in the new Tax Year.

There was also an announcement that will help many older people who have private Drawdown Pensions. The Government is reversing its previous position announced two years ago. This will allow individuals to draw a higher income from their Drawdown Pensions than before. This should mean that those with such pensions will be able to access approximately 20% more income than they can take currently. However, the Government has not yet announced a date from which this change is to apply so it is likely to take some months before we know when people will be able to take this higher income from their pension.

SUGGESTIONS FOR THE NEW YEAR

Review your mortgage interest rate. If you find that you are on the Standard Variable Rate with your lender (4.25% to 5.0%), contact us for quotes as you should be able to save 1% to 2% and that can mean quite a bit of savings each month. Lenders are having to compete more for business now and that means a better deal for the borrower. 3 and 5 year fixed rates are looking very competitive. As independent mortgage brokers we can help you find the best deal.


Review your pension. By survey almost half of the working population have never reviewed their pension plans, even though the majority of those contacted did say that they considered it important to know how their pension funds were invested. A failure to review your pension can leave you exposed to inappropriate investments and also prevent effective planning for your retirement income when you reach your 60s and 70s. It is also valuable to get a State Pension Forecast. We are available to help with this.

Get rid of any credit card debts that are hanging around. The temptation to pay just the minimum payment is intense and the credit card balances then do not go away. It is much better to organise a loan over a few years with fixed payments and pay off the credit cards. That is not to say that a credit card cannot be a useful tool, but you need to be disciplined and pay the full balance off each month.

If you are a 40% taxpayer. Do take the maximum advantage of your pension contributions to reduce how much you pay in tax.

Take advantage of your Individual Savings Account Allowance – Particularly the Cash ISA, so that you build up a cash cushion (and generally get a better rate of interest on your savings).

If you have an interest-only mortgage - Review it carefully to ensure that it will not become a problem when you reach the end of the mortgage term. It is wise to act early rather than ignore the problem until it is close upon you.

Review your insurances. If your circumstances have changed since you last took out life assurance, you may need more, or less, life assurance to meet your needs. One immediate benefit, however, is that the minimum technical requirement for those advising on investment, pensions and annuity has been increased. While examinations are not necessarily a true measure of understanding and ability, they can have value. Another change is that investment, pensions and annuity advice will now be charged for on a fee basis, rather than being paid by commission, as was generally the case before.

The intention is to bring the profession in line with other professions such as solicitors and accountants. We will need to see how the public responds to this major change. Advisers in 2013 will also be split into two groups –those who provide independent advice from across the market and those who provide advice restricted to certain parts of the market. Sovereign will continue to provide independent advice.

For speedy, impartial advice, contact us on 01342 313302.

Gender equality in retirement

From 21 December 2012, the practice of using gender to calculate insurance contracts and annuity rates will be outlawed. In future, women who opt to receive drawdown pension income will find that their maximum amount of available income is determined using the same calculations as those used for men.


In March 2011, the European Court of Justice ruled that the practice of considering gender when calculating insurance contracts and annuities contravened discrimination laws. More recently, HM Revenue & Customs issued new guidance for pension providers, ordering them to use the same rates for women as men when calculating their maximum drawdown pension from 21 December 2012. Income drawdown allows the individual to withdraw income from their pension fund while leaving the fund invested, thereby allowing it to benefit from any further growth. The amount of income that can be withdrawn from the fund is capped in order to ensure the pension pot cannot be drained. Traditionally, income drawdown rates for men and women have been calculated using two different tables – one for women and one for men. Because the life expectancy of the average British man is shorter than that of the average British woman, the amount of income a man has been able to withdraw from his pension fund has been higher than for a woman. However, the new rules will ban this practice, allowing women who opt for income drawdown to draw an increased level of income, while men’s entitlement will remain unchanged.

A shake-up for UK pensions

2012 could well come to be seen as a watershed year for UK pensions thanks to the introduction of auto-enrolment. The scheme, which is intended to provide wider access to pension savings, has been described as "the biggest shake-up" in UK pensions for more than a century. According to the Department of Work & Pensions (DWP), approximately 13.5 million workers did not contribute to a pension during 2011 – the vast majority of them in the private sector. Pension saving has declined across all age groups, but the drop among 20-somethings has been particularly marked. People working in industries such as construction, distribution, hotels and agriculture are the least likely to have a workplace pension. Even pension saving in financial sectors has declined sharply. The DWP estimates up to 11 million people will qualify for auto-enrolment. From 1 October 2012, those between 22 and state-pensionable age, who earn more than £8,105 a year and who are not already enrolled in a qualifying pension scheme, will be enrolled in their workplace pension scheme. The worker and the employer will contribute to the scheme unless the worker decides to opt out. Eventually, workers will contribute 4% of earnings and the employer will contribute 3%, with a further 1% in the form of tax relief. The largest companies will start auto-enrolment first, with the whole process having to be completed by April 2017. Around 600,000 people are expected to be enrolled by the end of 2012 and as many as 4.3 million by May 2015.

Taking with one hand

When it came to personal investments in his Autumn Statement on 5 December, Chancellor George Osborne gave with one hand and took away with the other. He extended the Isa allowance for the 2013/14 tax year to £11,520 – up from £11,280 in 2012/13 – and the government is consulting on whether to allow Aim shares to form part of an Isa. The Chancellor also raised the child trust fund and junior Isa limits – from £3,600 to £3,720 a year. Equally, he made a small extension to the capital gains tax allowance – from £11,000 in 2014/15 to £11,100 in 2015/16. However, pensions were subjected to a raid. The annual contribution limit was reduced from £50,000 to £40,000 for the 2014/15 tax year. This was mitigated to some extent by some changes in the carry forward rules, which mean that investors are now able to carry forward any unused allowance from the previous three years to the current tax year. Meanwhile the lifetime allowance is to be reduced from £1.5m to £1.25m from 2014/15. That said, the Chancellor was more generous with drawdown limits, which are to be increased from 100% of the value of an equivalent annuity to 120%. Some commentators suggested the basis for the calculation should move away from the 15-year gilt yield and, until this happens, income levels were likely to remain low and fluctuate over time. Osborne also made some changes to business tax rates, including extending the temporary doubling of the Small Business Rate Relief scheme until April 2014.

WORKPLACE PENSION

The Government is trying to force us to make more pension savings. Starting in 2012 and coming in over the next several years is the Workplace Pension. With few exceptions everyone who is employed on PAYE will be automatically enrolled into a pension scheme his employer must provide. The employee and employer will be required to both make payments into a pension for the employee. It will phase in over several years starting with both employee and employer contributing 1% of their pay and building up until finally from October 2017 the employer must contribute 3% while the employee must put in 5% of his pay. Where an employer already has a pension scheme in place that provides benefits at least as good as the Workplace Pension, no changes will be required. The employee does have the right to Opt Out of the pension arrangements simply by notifying his employer. While we understand the Government’s wish to try to help people increase their savings for retirement, we do not believe that an effort to force people into saving will succeed in the long term. But we would encourage anyone who is not yet contributing into a pension to take advantage of any employee contributions on offer!