slides pre retirement

Pre-Retirement

Financial Planning

Making sense of your financial future

Presentation by …

One of the UK’s foremost financial commentators

• Your concerns

• Money management/Pension issues

• Threats to capital

• Guide to Taxation and Inheritance Tax

• Investments and investing

• The way forward

Agenda

Income? Growth? Family Protection?

Taxation? Advice? Investments?

Inflation? Pension Shortfall? Long Term Care?

Quality of life? Costs? Inheritance Tax?

Your Concerns

Money Management

• Our experience shows that by reviewing your personal financial situation most people can continue to meet day-to-day living expenses

Money Management – Our Belief

Example: Figures are based on 40/80 final salary (contracted-out) with pension contribution of 6.00% of earnings. Based on 2009/10 Tax Year.

Retirement Pension (Pre 65 – assuming 40 years service)Pre-retirement Salary

Money Management

£25,000 Gross Income £12,500 (50%)

£6,475 Personal Allowance £6,475

£3,043 Tax Payable £1,205

£1,812 National Insurance £0

£1,500 Pension Contribution 6%

£0

£18,645 Net Income £11,295

Plus ………. £30,000

Money Management

Question: Do you wish to continue these outgoings in retirement?NB: The amounts quoted are for illustrative purposes only

What course of action?

Mortgage Approximately £250 per month

Loan / Credit Card Approximately £80 per month

Savings (Bank) Approximately £150 per month

Savings (Endowment) Approximately £50 per month

• Review all your regular outgoings

• Review mortgage

• Consider repaying loans

• Re-appraise your regular savings account and policies

Your guide to planning retirement income

Pay Off?• Consider Life Policies?

• Reduce your outgoings?

• Comfort factor

Retain?• Access to capital

• Investment Potential

• Re-negotiate

• Low interest rates

Your Mortgage Guide

• Loans tend to be shorter term 3 – 5 years

• Credit cards can be expensive

• Check high APR

• Check surrender/penalties on loan

Your Guide to Loans and Debts

• Savings to Bank – Don’t Rob Peter….!

• Mortgage Endowment – see it through to maturity for best results

“To find out more about any of these issues, please tick the coloured priority

form”

Your Guide to Savings

Up to half final salary as pension and a lump

sum

• Index Linked Pension• Cash can be invested• Lump sum is tax free• Surviving Spouse’s pension

This is dependent on number of years pensionable service in the scheme

Pension Issues – What will you receive

• Check if your pension scheme will exchange for added years, or enhanced rates

• Ask whether you qualify for enhanced rates or impaired life annuity rates

• Open Market Options (OMO)

• From “A-Day” (6th April 2006) up to 25% of your AVC/FSAVC fund may be available as tax-free cash

• Seek Advice

Your Guide to AVC or FSAVC

Interest Rates – where are they heading?

Threats to your capital and income

Is Inflation still a threat?

Inflation rates displayed are for illustration purposes only and should not be viewed as proposed past or future inflation values. Figures are based on the value of £1,000

18935854420

4345997381065977485859209509701 8%5%3%

Annual Rate of Inflation

Year

s Ah

ead

Source: Office for National Statistics - ‘Focus on CPI February 2010’

Guide to Goods and Services

Prices: 1980 vs Today

Average Price 1980’s

Average Price Feb 10

Increase Source

Pint of Lager 83p £2.89 248% ONS 1987*

Pint of Milk 17p 44p 159% ONS

Litre of Petrol 38.46p £1.12 191% ONS

Loaf of Bread 30p £1.21 303% ONS

* Average beer prices not recorded prior to this date

Source: Office of National Statistics website April 10

Guide to Commodity Prices

July 1985 March 2010 Increase

95.23 217.09 128%

RPI

Your Guide to Taxation

“I believe we should all pay our taxes with a smile – I tried, but they wanted cash!”

- Anon

Your Guide to Taxation

Personal Allowances based on tax year 2010/11

Your Guide to Taxation

Under 65 £6,475

65-74 £9,490

75 £9,640

Your personal allowance is the amount you can earn each year before paying any tax.

Tax is then payable as follows:

£0 - £37,400 20%

£37,401 – 150,000 40%

Over £150,001 50%

Taxable income based on tax year 10/11

Tax on Capital Assets on Death

Inheritance Tax

What does this mean?

40%

Is it a voluntary tax?

What is the current rate of tax?

What is the Nil Rate Band?

Inheritance Tax

£325,000

Some would say YES!

IHT

Levels and bases of, and reliefs from taxation are subject to change

Your Guide to Estate Planning

• Tax on capital assets on death

• First £325,000 of estate - 0% tax • Balance of estate - 40% tax

Inheritance Tax - based on tax year 10/11

Worldwide assets• House• Savings• Investments• Cars• Caravans• Holiday homes (UK and Abroad)• House contents• Capital value of life interest trusts• Some pension funds

What is Inheritance Tax payable on?

• Gifts to spouse

Main Exemptions

• First £3,000 each year – annual exemption• “Normal expenditure”• Potentially Exempt Transfers (PETs)

Inheritance Tax - based on tax year 10/11

• Donations To Charity

• Donations To Political Parties

Other exemptions

Inheritance Tax - based on tax year 10/11

On consideration of marriage• Child (for each parent) £5,000• Grandchild £2,500• Other £1,000

Small gifts £250

Levels and bases of, and reliefs from taxation are subject to change

Inheritance Tax - based on tax year 10/11

• All gifts other than exemptions and chargeable lifetime transfers are known as PETs

• After 7 years asset does not form part of estate

• Possible Tax relief on a sliding scale (rules apply however)

Potentially exempt transfers

Early Planning!

• Making a gift but still retaining an interest in it

• Inland Revenue will treat the asset as still belonging to you

Gifts with reservation

Gifts out of income?

• Gifts from excess income could be used in the same way as annual allowances

But watch out where income comes from*

* Surplus income should be shown to be able to come from normal income-producing assets such as pensions, deposit-based accounts, annuities and certain other types of investments.

• Do Nothing

• Spend It/Give it away!

• Make lifetime gifts

• Plan to mitigate it

What can you do?

Alleviation for Middle England

On death Mr Smith passes all of his estate (plus jointly owned assets) to his wife free from IHT. However, this wastes 100% of his Nil Rate Band.Nil Rate Band £325,000 (As of April 2010)

Mrs Smith total Sole Estate = £650,000

Mr & Mrs Smith’s total joint Estate £650,000.

A transferable Nil Rate Band now arises when one party to a marriage/civil partnership dies and the amount of their estate chargeable to IHT does not use up all of the Nil Rate Band. Where this happens, the unused part can now be transferred to the surviving spouse/civil partner when they die.

Assuming Mrs Smith dies after 9 October 2007, her executors may also utilise the late Mr Smith’s Nil Rate Band which he wasted by leaving everything to his widow.

Less 2 x Nil Rate Bands = £650,000

Taxable Estate = £0

Personal representatives will need to ensure that the surviving spouse/civil partner has sufficient documents and information about the transferable Nil Rate Band when first death occur.

The surviving spouse should therefore receive:

• A copy of the HMRC return (IHT200 or 205)

• Copy of the deceased’s Will

• Important documents e.g. deed of variation

• Valuation of assets that did not pass to the survivor etc

A claim must be made within 24 months from the end of the month in which the surviving spouse/civil partner dies.

It is the relevant percentage of the unused historic nil rate band that is carried forward – not the nil rate band itself. The appropriate percentage is then applied to the prevailing nil rate band in the year of second death.

The Unused Nil Rate Band

Levels and bases of, and reliefs from taxation are subject to change.

Inheritance Tax Solution

Mr Smith’s Estate

£325,000

Mrs Smith’s Estate

£325,000

Mr Smith leaves the £325,000 in a Discretionary Will Trust.

Total Estate = £325,000

TAX DUE @ 40%

NIL

Taxable Estate = Nil

Nil Rate Band £325,000 (As of April 2010)

If the potential growth in value of an asset is likely to outstrip future increases in the Nil Rate Band, tax planned Wills on first death leaving an amount up to £325,000 [2010/11] to a trust should still be considered.

TAX DUE @ 40% = NIL

Year 2010 value of trust - £390,000 (available NRB - £325,000 had asset passed to surviving spouse on first

death.)

Levels and bases of, and reliefs from taxation are subject to change

IHT savings may still be made via tax planned wills in the medium/long term even where the combined estate is <=£650,000.

Couples with existing Pre-Budget wills should revisit them. A simple codicil may suffice for required changes.

The ideal solution may be to always use a first death discretionary nil rate band trust and let the trustees decide the right action to take when death occurs.

Outcome

Your Guide to Wills and Estate Planning

• To ensure your wishes are carried out after your death

• To ensure the right people get the right assets

• To speed up the transfer of assets (via Probate)

• To reduce Inheritance Tax through Will Trusts

Why make a Will?

• Laws of Intestacy – the State determines who gets your estate

• Loss of absolute control over your assets

• Unmarried partners may suffer financially

• Long delays in transferring

• £250,000 to spouse plus a life interest in 50% of residue

• The remaining 50% interest for children (in trust under 18)

What happens without a Will?

• Review it regularly

• Marriage will annul a Will

• Divorce will affect a Will

• Have you appointed Guardians?

• Do you have stepchildren?

• Is your Will tax-efficient?

Existing Will

• Lasting Powers of Attorney

• Trustees must take financial advice

• Where to keep your Will

Other Legal Matters

• Specialist financial advice needed to ensure your estate is equalised so that each can use nil rate bands.

• Possibly need to review life assurance and place in trust

• Need to look at death in service benefits and rules in connection with their payment

• Need to look at the value of your home and ensure that it is split 50/50. This may require severance of tenancy options

Why would I need a Financial Adviser?

Your Guide to Investment

• Security

• Income: now or later?

• Capital growth

• Tax efficiency

• Access to capital

• Rate of return

What are your aims and objectives?

Interest earning deposits • Bank/Building Society/National Savings

Fixed-interest securities• Corporate Bonds/Gilts

Asset-backed investments• Shares and Share-based Funds/Property

Developing a balanced strategy

Honister Scale – Investment Risk

Venture Capital Trusts Emerging Markets

Far East / JapanUK Smaller Co’s

Global & UK Equity Growth / Income Funds Tracker and Manager Funds

Cautious Managed / Distribution Commercial Property or With Profit Funds

Individual Gilts and Fixed Interest / CashBanks/Building Societies / National Savings

Single Company

Shares

Futures/Options

High

Low

• GiltsGovernment Stock

• Corporate BondsIOUs issued by companies

Fixed Interest Investments

• Long-term growth prospects

• Potential to beat inflation

• Disadvantages/risk

• Spread your risk

• Stock Market Activity

Past Performance is not a guide to future performance

Equities (Shares)

Cash Bonds SharesSecurity and Accessibility

Income is dependent upon Interest rates set by Bank of England

Returns unlikely to match Inflation

Minimal potential for income growth

Minimal potential for capital growth

Low volatility

Behave differently from shares so can provide differentiation

Relatively high and consistent income

Limited potential for growth of income

Limited potential for growth of capital

Can be volatile

Lower income than bonds

Income can fluctuate

Potential for rising income

Potential for capital growth over long term

Your Guide to Investment

£5,000 invested for 10 years – Invesco Perpetual Income, with NET income re-invested

Your Guide to Investment

Past performance will not necessarily be repeated in the future. Capital held in a deposit account is guaranteed not to fall in value, whereas the value of units and income from an equity- based investment can fall as well as

rise and is not guaranteed. Equity based investments should be considered as medium to long term investments, therefore if you withdraw in the early years you may not get back your original investment.

FTSE 100 vs Halifax House Price Index

Your Guide to Investment

Past performance will not necessarily be repeated in the future. Capital held in a deposit account is guaranteed not to fall in value, whereas the value of units and income from an equity- based investment can fall as well as

rise and is not guaranteed. Equity based investments should be considered as medium to long term investments, therefore if you withdraw in the early years you may not get back your original investment.

Source: Fidelity Total Return 31/01/94 to 30/01/09 excluding charges

Be Invested… Stay Invested…

Market Index Annual & return stayed invested

Best 10 days missed

Best 40 days missed

UK FTSE All Share

4.54% 0.40% -6.14%

• Annual allowance for tax year 2009/10 is £10,200• Two types of ISA - ‘Cash’ or ‘Stocks & Shares’ • Can invest total allowance in Stocks & Shares ISA • Can split the annual allowance across the two ISA types but

maximum allowance of £5,100 in Cash ISA per year• Could choose to invest less than £5,100 in a Cash ISA and place more

in a Stocks & Shares ISA e.g. £2,500 Cash and £7,700 in Stocks & Shares ISA, provided annual allowance not exceeded

ISA Year Subscription Process

• Tax-efficient wrapper

• No minimum savings period

• World-Wide Scope

• Choice of underlying investment is key

Facts about ISAs

• Complete and hand in the Priority Coupon• Book a one-to-one consultation• Contact marketingservices@honistercapital.com• Call us on 0845 013 5600

We wish you good luck!!

The way forward…

Thank You

Honister Partners62 Anchorange RoadSutton ColdfieldWest MidlandsB74 2PG

Telephone: 0845 013 5600 Facsimile: 0121 362 1010Website: www.honisterpartners.com

Honister Partners Ltd is an appointed representative of Sage Financial Services Ltd.

The Financial Services Authority does not regulate taxation advice or will writing. Past performance is not a guide to future performance. The information given is based on our current understanding of Law and Inland Revenue practice. Tax rates and reliefs may change and their value depends on the individual circumstances of the investor.

The information provided in this presentation has been provided as information only and does not represent individual advice.

It is unrealistic to assume that markets/funds or indexes will perform as they have done in the past. Honister Partners offer advice based on the whole of the market.