Financial Planning
This is the basis for helping smart people make smarter decisions.
Simply, this is where we start, it is the most important part, it is thinking about what your money is supposed to do for you. While you’re working it’s easy – it’s to pay the bills, and what’s left over has to be put to the most efficient use for when it is needed, either to pay down a mortgage, pay future education costs or pay for future retirement income.
First you have to work out what expenses you and your family have, only after they have all been covered can you know what investable money is available to you. Your lifestyle is what’s important and that lifestyle is governed by the amount of financial independence you have – it’s our role in planning to help ensure there is enough money to meet those lifestyle expenses as they occur, and, importantly for as long as they occur.
If the bottom line in retirement planning is to ensure the money doesn’t run out, then we have to know how much is being spent each year.
With income needs identified (i.e. expenses) only then can you assess how much investment you need to generate that income, and how aggressive you need to be in investing for income.
A (your expenses/your capital) = your % return needed
B then (Your % return needed / cash rates): if >1, you either have to invest your money or cut your expense aspirations, or you'll run down your capital.
Tax is a big item here – if your expenditure is £100 and you are a higher rate taxpayer then you need to generate £166 from your capital to be able to keep £100 in your pocket. If you can invest tax free, however, you only need to generate £100 from your money, which means you can use much less riskier investments, which means your returns will become more predictable.
De-stress yourself, create much more confidence in where you are going in your financial life, plan what you do. Retirement is no more than the holy grail of financial independence, it's not about being a certain age, it's about being self-sufficient in income, and knowing the How and the When means you take back control, ditch the treadmill and start to enjoy life more.
Pensions
We check, then we double check, then just to be sure we check again. Welcome to pension regulations, 2020’s-style.
We are technical specialists in regard to pensions – what started out as a simple idea to help people save for their retirement has now been overtaken by layers and layers of complexities and, worse, tax pitfalls for the unwary.
Current pension legislation, rules, penalties and taxes are simply too severe and unclear to be left to either a DIY or amateur pension planner.
We have recently been asked to help a person with a £77,000 tax bill, whilst still being employed. The tax bill was almost half the PAYE salary.
This is an area where even the specialists double and triple check and we are constantly having to refer back to Finance Act 2004 (Part 4 if you want a look), to ensure clients are in the right areas. A sizeable part of our work over the past years has been to sort out some significant problems that clients have, either from trying to muddle through, or thinking they can second guess HMRC interpretations, or, most commonly, trying to find a 'cleverer way' to invest their pension funds.
Trying to be 'clever' with pension investments is something we see creating huge financial losses for people, normally male and with excellent university education - the curse of overconfidence?
It's important to ensure you're not missing out on real financial benefits, or worse, walking into a tax problem just because you took the wrong steps.
Mr L.O. in Hampshire came to us concerned that he had a transfer penalty in his scheme. We handled the investigation for him, which included successfully 'overturning' a Financial Ombudsman decision, and got £148,000 put back into his pension pot. (That's a lot of money).
Mr A.S. in Edinburgh came to us as his previous arrangement had involvement mid-Atlantic off-plan leisure property that had inevitable turned his pension money to fresh air, and we got the maximum £50,000 back for him from the compensation scheme.
Mr H.A. in Surrey runs a successful business, asked us to caretake a small part of his SIPP, he'd look after the bulk of the £1.8m SIPP himself. Something didn't look right in the history of this SIPP, six months later we got him £50,000 back via the FSCS he didn't know anything about. Now he's handed over to us responsibility over all the investments he holds.
There's a lot of puddles in the pension field, some very deep - here's five quick things to check (or double check)
1 Don't lose your tax free cash
The most recent legislation changes means that without action you could very easily lose the ability to draw an extra £62,500 tax free via your Pension Commencement Lump Sum (i.e. your tax free cash). Is it 25% you're entitled to or not? If you don't feel that's worth gambling on your knowledge then call us - it's your money to lose, or not. Be safe, doublecheck, take advice.
Successive governments have churned over their pension promises at will, attempting to balance their own books with the massive problems of unfunded public sector schemes. You must register now to ensure you can continue to retain the full PCLS amount of tax free cash, otherwise you will lose it.
If you're not sure, call for a meeting on 0207 440 6250 or email us at IncomeWizards@masteradviser.co.uk
2 If you're over 50 and have an old style scheme, just how much tax free cash are you entitled to?
If you have been in an old style Executive Pension Plan, you could have a right to materially more than 25% as tax free cash. Typically these policies were used by larger employers instead of final salary schemes for senior staff (or alongside), then during the 1990's they were very common with smaller businesses.
In some cases we have seen contracts where the tax free entitlement was 100% of the money - if you were thinking about transferring across an old scheme into a new drawdown arrangement, perhaps, isn't it worth checking out the tax free position? If you make an error, it's gone.
Double check, in such areas a competent adviser is always value for money so call us on 0207 440 6250, or email us at IncomeWizards@masteradviser.co.uk
3 Do you have guarantees attaching to your pension?
Given that contracts with guarantees are normally decades old, the devil is buried deep in the small print - speak to us, we check that small print for all our clients, such as:
a guaranteed annuity rate, only applicable at the 65th birthday
only applicable if requested one working week either side of the the actual birth day
only applicable if it is paid annually....in arrears (! - we kid you not)
only applicable if it dies with you (ignoring your spouse's needs)
only applicable if it remains level and never increases no matter how long you live.
If you think you might be unsure of the small print, then you can call us on 0207 440 6250 or email us at IncomeWizards@masteradviser.co.uk
4 And if you're a higher rate tax payer...
Year after year the press and loose-lipped MPs comment that tax relief on premiums paid by higher rate tax payers is going to be withdrawn - we have no idea what fiendish plots HMRC and the Treasury have to cut their cost of your pension, however there is no downside to maximum funding your premiums now, and there could be material upsides later. If higher rate relief is cut, then it will cost a higher rate payer up to £8,000 in lost tax relief with current allowances.
5 If your pension started when M*A*S*H was on the first time round...
We think all personal pensions should be SIPPs - that's not to say people need to start doing exotic investments it just means that we believe the world is better served by not having a pension company restrict what investments you can hold. Remember, the 'PP' in SIPP stands for Personal Pension, and even though the SI stands for Self Invested very few people actually do it on their own.
SIPPs are mainly absolutely transparent in fees - the pension wrapper should cost you no more than 0.2% - 0.3% per annum (on a £350,000 SIPP that's £700-£1,050 per year for an awful lot of admin they do).
A SIPP should/will never have an exit charge - if yours does that normally means your adviser is not independent, and/or a large up front fee or commission was taken when your scheme was set up.
Old schemes are both expensive and inflexible, they were designed when commission was rife in the industry and when you were expected to do nothing other than buy an annuity at retirement.
The big advantage of a SIPP is that the admin and the investment are separated, each can be done by a specialist.
Many pension have simply been sold/bought then left for years and years - if you're not getting decent returns from yours then now is the time to get that fixed, LATER IS ALWAYS TOO LATE, and it's important that you don't roll up to retirement only to find there's something that you should have done years ago.
Even if you've already moved into drawdown, if it's worrying you, if you're unsure of how secure your income is, then call us on 0207 440 6250, or email IncomeWizards@masteradviser.co.uk
If it's your money, it's worth double checking.
Belt & braces, don't gamble with your old age income.
Investments
People can put their money in cash at the bank, and at the other end of the spectrum they can buy a simple tracker linked to the market. For anything in between there has to be a pretty good reason why. We help you answer the why.
Our investment method can be summed up as following the Russia versus NASA solution to providing to astronauts something that would write in space: NASA spent $millions developing a pen to function in weightlessness, the Russians provided a pencil.
We like the investment equivalent of pencils: they can be understood and it’s easy to work out what the expectations should be (and there's much less chance that we, or any adviser, will get it wrong). Past performance may not be a reliable indicator of future returns, but most folk will agree it’s a lot more useful than a crystal ball and a cup full of tea leaves.
The most important question to ask your adviser (or yourself if DIY):
"Please outline for me HOW you will make my investment grow for me."
The problem of investment for most folk is they try to pick market returns, and this chart below is what the markets actually deliver. Anyone taking a pot shot on how much 'asset allocation' to the FTSE for this year (perhaps at your annual review) is just taking a 'best guess' - most asset allocation by advisers is no more than working out how much to bet on all 10 horses in a 10 horse race.
If your returns are not delivering what you had hoped, or if you think your adviser is just a little bit woolly in explaining your investments to you, then you should speak to us.
You can see from here that there is simply no pattern of market returns, it is all quite random.
If your investments are not performing for you as you had hoped, or if you don't know what to expect from your money then you should speak with us. If you think your current advisers are quicker to take money from you than spend time on your annual update, or if you feel you are just one tiny wheel in your adviser's multi £billion discretionary fund business, then you'll find us very different.
If you've already run into a 'spot of bother' with an investment, we are experienced in handling complaints for folk, whether it's advice that was simply wrong or an investment that has not turned out how you expected:
Mr C.R. of Surrey came to us after his bank had recommended an insurance bond that suddenly 'locked up' and froze his money. For this client and his daughter we recovered all £500,000 that the bank had robustly argued was no fault of theirs (well they would say that, wouldn't they). That's a lot of money.
We don’t try to pick markets, we think that's a mugs game, mainly driven by the marketing departments of fund managers. We prefer to invest in companies, not markets, and the way we do that is via investment trusts and ETFs, always based on the cash income being manufactured by the companies we buy. To find out why, click on 72 at the top of our website, to find out how give us a call on 0207 440 6250, or email us at ClientCare@masteradviser.co.uk