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Q1. I am age 51 and am considering taking a lump sum out of my personal pension plan. I have been told that I need to do this before April 2010. Is this correct?
Answer: Individuals can take benefits from their personal pension plans from age 50. Up to 25% of the fund value can be taken as a tax free lump sum. However the government is raising the minimum age for accessing a pension to 55 from 6th April 2010. Therefore if you want to take your lump sum now you need to do it by 5th April 2010. After this date you will need to wait until age 55.
When you take your 25% tax free lump sum you also need to make decisions regarding what to do with the other 75% of the pension fund. You should take independent financial advice regarding this because there are a wide range of options available to you and the decisions made at the outset can affect your income for the rest of your life.
Gordon Bowden, Quainton Hills Financial Planning Ltd: Answers supplied by Unbiased.co.uk’s Media IFAs. To find an IFA near you click here
Q2: I am a working lady aged 44 and looking to retire at age 63 along with my husband, who is due to retire at the same time. Can you clarify how the State Pension will be paid.
Answer:In your circumstances the State Pension will not be paid until 66. This is initially due to the changes affecting all women who were born between April 1950 and March 1955. As you were born after 1955 this means that the State Pension would not be paid until 65 which is in line with the current age for men.
The government have also confirmed that the state pension age will rise again by one year periods from 2024/2026 to 66, and from 2034/2036 to 67, and from 2044/2046 to 68. Given your current age you will be caught in the initial increase to 66. It would therefore seem logical to try and make other provision to bridge the gap between your intended retirement, and the period when the State Pension will commence.
Kenneth McLachlan, Gilliland Neilson Brown: Answers supplied by Unbiased.co.uk’s Media IFAs. To find an IFA near you click here
Q3: If I wanted to invest into commercial property at the bottom of the market, what's the best way to do that?
Answer: Property shares normally react six to nine months earlier than the underlying asset so foresight is everything.
A real estate investment trust (Reit) is an excellent way to tap into this growth and make more than the actual asset growth itself. In 2007 Reits came into existence. The investment is a collective of property related investments which, in exchange for significant tax concessions, a company could convert to a Reit as long as it paid a 2% conversion tax, followed by generating at least 75% of its income from property rental, and distributing 90% of profit as a dividend.
So where is the opportunity for the investor? Consider with a Reit you are buying shares in a fund that invests in property shares. These underlying assets they are invested into will have a value. The share price of the overall Reit fluctuates wildly on the grounds of a number of factors but irrational exuberance and pessimism are two main contributors.
Hence the share price will trade at either a discount or premium to the value of the underlying assets. So if a share purchaser is very positive, the shares are in demand and are at a premium.
The last two years have been negative, capital values have been battered, and shares have been oversold. Most Reits are now trading at a considerable discount to the value of their underlying assets and therein lies the opportunity. For example Hammerson traded in February at a discount to its net asset value of an amazing 56%. To explain what that means to you, if the total assets in Hammerson were realised they would be worth 127% more than the shares are currently valuing them at.
There lies a double opportunity to make excellent gains as sentiment returns so the discount will narrow. Even if the underlying assets don’t increase in price, you can gain from that discount to net asset value narrowing.
All that aside, consider that although property used to be classed as a balance to equities, reits and property shares, despite what others say, are very closely correlated to equities - in other words you are closely correlated and not diversified.
Peter McGahan, Worldwide Financial Planning: Answers supplied by Unbiased.co.uk’s Media IFAs. To find an IFA near you click here
Q4. My wife and I have just had our first baby and I am keen to start a trust for her as quickly as possible.
Ideally, it would be money none of us would be able to touch until she is at least 18, but needs to be accessed sooner if she needs it, to go to university, for example.
I have read there is government schemes available for trust funds, would this be the best bet or can you advise something better?
Answer: You should have received a voucher from the Government for £250 for your baby daughter as part of your child benefits pack. On your daughters 7th birthday the Government will again make a voucher payment of £250. In each case you will have up to a year to present the voucher into a Child Trust Fund (CTF) of your choice.
You will have the option of investing in deposit or equity accounts. Given the long term nature of these type of savings for your daughter (i.e. 18 years) then it would make sense to consider the equity investment options due to their considerable outperformance compared to deposit accounts over the longer term. However it is important to understand what the investment risks are and what they mean to you.
Therefore may I suggest that you read up on the subject or seek some independent financial advice before you make a decision. CTF’s have other investment options, features and benefits that are too numerous to go into here such as stakeholder plans, regular contributions from grandparents, etc.
However there is one drawback that concerns parents with CTF’s – and that is control of when the money is drawn. After all we all remember being 18 and buying that ‘must have’ car or gadget only to regret it later.
Remember that this account is in the child’s name and cannot be accessed until the 18th birthday by you or the child. Even then at 18 the money belongs to the child and not you the parent. Therefore it may be more beneficial to open a savings account in your name separately that you can contribute to and more importantly, control.
This will allow you greater investment options such as deposit accounts, OEIC’s, unit trusts or investment trusts but again there is a wide range of geographical and economic details to consider. Again impartial advice is the best way forward. You could create a separate legal trust, however in my experience of these matters the cost versus the benefit are limited unless the investments are quite large.
Greg Heath, Derbyshire Booth Financial Management Limited. Answers supplied by Unbiased.co.uk’s Media IFAs. To find an IFA near you click here
Q5. I am currently aged 58 and have been working in local government for the past 18 years during which I have been a member of the local government superannuation scheme. I do also have a personal pension plan that I set up when I was self employed and have requested an immediate benefits quotation from my pension provider.
I want to gain access to the tax free cash element of my pension plan which is currently valued at £12,300 because I have credit card balances of just over £3,000 that I have no other realistic prospect of paying off in the next few years.
My pension company has sent me a benefits package that suggests I can take a quarter of my fund as tax free cash and the balance as a lump sum although some tax will be paid on this amount. Should I do this and are there any pitfalls of which I need to be aware?
Answer: There are a couple of points that need to be addressed immediately, the first of which is your age. The minimum age under which the option to take a lump sum under ‘trivial pensions’ rules is age 60 and as you are 58 you do not currently qualify.
The second is the value of your local government pension benefits. If you have been a member of the local government scheme for 18 years and have a personal pension plan valued at £12,300 the option to surrender your plan under the ’trivial pension’ rules may well not apply leaving aside the age issue.
This is because although your personal pension fund is worth less than the current triviality limit (£17,500) it is the capitalised value of all your pension benefits that determines whether the trivial pensions route can be taken.
You need to take account of the value of your local government scheme benefits on the basis of a multiple of 20 x the annual value of your pension and then add this to the value of your pension fund. If as is probable this exceeds the ‘triviality’ limit you will not be able to take your personal pension fund as a lump sum.
You can however still gain access to the tax fee lump sum element of your personal plan by taking ordinary retirement benefits under which 25% of your fund can be take as a tax free lump sum. The balance of your fund will then provide ongoing income through either an annuity or other form of ongoing pension payments. Specific advice will be needed as to the most appropriate route but there are pro’s and con’s of each.
Importantly you need to remember that once you have taken the lump sum under your personal pension, no further lump sum can be taken however if the cost of repayment under your loan is high, this may be worth the sacrifice as the debt will otherwise continue, possibly into retirement at a rate that is higher than can be achieved by delaying taking the lump sum now and repaying the loan.
Duncan Carter, Clearwater Financial Planning: Answers supplied by Unbiased.co.uk’s Media IFAs. To find an IFA near you click here
