Retirement Article

Professional Financial Centre Exeter is part of a national network and provides independent financial advice. We are able to assist with any financial need you may have - pensions, mortgages, equity release, inheritance tax planning, long term care planning, life cover, and investments, including reviewing the performance of your existing investments. We also take into consideration your current tax situation. Our main objective is to deliver the highest level of personal service to our clients combined with expert financial planning advice and regular reviews ensuring our clients best interests are taken into consideration at all times.  It is also important to review your current situation when your circumstances change. When was the last time you had a complete financial review?  

Retirement Planning

Retirement is one of the most significant changes that you will ever experience and it will be the longest holiday of your life.  Therefore it is important to ensure you are able to make the most of your retirement.

When nearing retirement/ or already retired, it is important to have a full financial review to ensure you are able to achieve your overall financial objectives and maintain your desired standard of living throughout your lifetime.

Reviewing your existing investments to maximise income in retirement and maintaining your purchasing power

Is the ‘real' value of your life savings being eroded?

The recent rise in inflation to its highest since Labour came to power in 1997 has affected savers, pensioners and homebuyers.  For many, the ‘real' value of their life savings is being eroded, because after tax their earnings are increasing by less than even the Government's lower measure of inflation - the consumer price index (CPI)

The purchasing power of pensioners could be gradually eaten away.  The retail price index (RPI) inflation figure, which is the measure used to adjust index-linked pensions for inflation, recently hit its highest level since July 1991, as a result not just of higher oil prices but also rising food costs. 

However, the ‘true' rate of inflation for pensioners increased to nearer double the official figure - so many people in retirement may see their spending power dwindle year after year as even inflation-proofed pensions fail to keep pace with the actual increases in pensioners' costs of living.

7 Ways to Maintain your Purchasing Power

» Check the interest on your savings accounts.  Consider opting for a tax-efficient Individual Savings Account (ISA) and index-linked   investments.

» You could use income-generating shares in the hope of both capital growth and inflation busting dividend increases. 

» Protect your mortgage against rising rates with a fixed-rate loan.

» Switch high-interest borrowing to zero per cent deals or low-cost loans.

» Lower your expenses by switching energy suppliers.

» Inflation-proof your pension and life cover by index-linking contributions and cover.

» Don't let your standard of living dwindle in retirement -opt for an index-linked annuity or use a portfolio of income-generating investments to help keep on track.

Inheritance Tax Planning

"IHT is very complicated and while it is vital to plan for it, it is only one aspect of your finances that can be helped by understanding your true worth".

If your estate is worth more than £300,000 for the 2007/08 tax year (the amount you can leave behind before your beneficiaries pay any IHT), then everything above that level will be taxed at 40 per cent.  Some people become higher-rate taxpayers for the first time after they have died.

The first time many people actually have to assess their assets and liabilities is when they make a Will.  To ensure that you do not omit any of your assets, you could use an "asset-schedule", which would include data about everything you own - and owe.  Both will be relevant for the executors of your estate, and will also remind you to include items that are easily forgotten. 

For inheritance tax purposes, it is also important to remember to factor back in any gifts of capital that exceed the annual gift allowance, currently £3,000 per person for each financial year.  Gifts that exceed this allowance are potentially included within your estate should you die within seven years of making the gift.  Once the seven years have elapsed, the gift falls outside the IHT assessment.

IHT is very complicated, and while it is vital to plan for it, it is only one aspect of your finances that can be helped by understanding your true worth.  Insuring your assets adequately while you are alive is equally important, and is becoming more so as people rely on their houses to fund retirement.

Inheritance Tax Checklist

» Work out the total value of your assets and who owns what.

» Remember that each of you can leave assets in your estate worth up to £300,000 before IHT starts to bite (2007/08) tax year.

» Split your assets between you to take maximum advantage of the IHT nil-rate band of £300,000 (2007/08) tax year.

» Structure your Wills correctly so that the spouse who dies first can transfer wealth out of your combined estate.

» Do not simply leave it all to the surviving spouse, as this will result in a bigger IHT bill when the second spouse dies.

» Make full use of the gifts you can make free of IHT.  These include one or more gifts up to £3,000, plus as many gifts of £250 as you like to different individuals.

» You can also make gifts of any amount with no IHT to pay, provided that you survive for seven years after making the gift.

» Less well known is the option to make gifts from income provided that they are regular and do not adversely affect your standard of living.

» Consider building a portfolio of assets that enjoy favourable treatment for IHT purposes, such as farmland, family-owned businesses and some shares listed on the Alternative Investment Market.

» Some investments have the advantage of being an efficient IHT planning tool if set up under a suitable Trust.

» Life Assurance used properly in conjunction with a Trust is another option available to cover an IHT liability.

Equity Release

An increasing number of people are considering home equity release plans as a way of unlocking the equity/capital in their property.

You will see many advertisements for equity release and these schemes can be attractive to many people.  With soaring house prices many are now asset rich and cash poor.  Therefore many people are now looking to release equity from their properties to provide a cash lump sum, additional income or both.

What you use the finance for is up to you.  You may want to take that holiday of a lifetime, home improvements, buy a new car, simply enjoy a better standard of living in retirement or give some to your beneficiaries.  The choice is yours.  It can also help reduce your IHT liability.

What is Equity Release?

Equity Release enables you to benefit from the value of your property with the right to remain in your home for as long as you wish - if you are married, until the death of the second partner.

The two main types of equity release are Lifetime Mortgages and Home Reversion Plans.

Lifetime Mortgages

Lifetime mortgages are loans secured against the value of your home.  The main types are roll up, interest only, fixed repayment and home income plans.

Home Reversion Plans

You sell part or all of the financial interest in your home.  The amount you receive will be less than the current market value and will also be dependent on your age and gender.  You know what proportion of your property has been sold and what proportion you have left to raise further money on, or leave as an inheritance.  When you die the house is sold and the home reversion provider receives the sale proceeds for the share you have sold.

How long the homeowner lives is also key to the relative attractions of these vehicles.  Because the interest is normally rolled up into a lifetime mortgage, the longer the homeowner lives, the greater the accumulated debt.  At worst, this can eat up the property's full value - although most mortgages now carry a "no negative equity guarantee" which means that there is never the risk of having to repay more than the value of the home at the time it is sold.  This rolling-up of interest also has the effect of reducing the value of an estate for IHT purposes.

The new Financial Services Authority consumer protections for reversions bring their regulation into line with lifetime mortgages, which should boost consumer confidence for potential customers.

In addition an organisation called SHIP - Safe Home Income Plans was established in 1991.  SHIP provides extra re-assurance for customers through a code of practice that all providers must observe.  We only recommend SHIP approved schemes.

Our message is simple, seek independent financial advice as addressing any financial need can be complex.  Not all Financial Advisers are independent, we are.

If you would like to review your current situation or discuss any of the above topics then please contact Debra Tricker, Managing Executive (IFA) on 01392 285035 for a free initial consultation or speak to a member of her team.

Professional Financial Centre (Exeter) Limited
22 Southernhay East, Exeter, Devon, EX1 1QU
Telephone : 01392 285035
Fax : 01392 285036
Email : mail@pfcexeter.co.uk

Authorised and Regulated by the Financial Services Authority.  The value of your investments can go down as well as up, as can the income derived from them.  You should remember that past performance does not guarantee future growth or income and you may not get back the full amount invested.

Your home is at risk if you do not keep up your mortgage payments.