1 BFAWUMONEYTALK AUTUMN 2016

BFAWUMONEYTALKThe personal finance newsletter for BFAWU members published by Lighthouse Financial Advice Autumn 2016

While Lighthouse Financial Advice endeavours to provide correct information, it cannot guarantee the accuracy of any information contained in this newsletter and no action should be taken or not taken solely based on the information contained in it. Professional financial advice should be sought before taking any action. Threshold, percentages, rates and tax legislation may change in the future. Lighthouse Financial Advice is a trading style of Lighthouse Financial Advice Limited. Registered in England No. 04795080. Registered Office: 26 Throgmorton Street, London, EC2N 2AN. Lighthouse Financial Advice Limited is an appointed representative of Lighthouse Advisory Services Limited, which is authorised and regulated by the Financial Conduct Authority. Both are wholly-owned subsidiaries of Lighthouse Group plc. 2016-08-09 16.2482

Also in this issue

Dispelling the myths about annuities 2

It’s a family affair 3

Options for making your savings work harder

Recently, the Bank of England cut UK interest rates from 0.5% to 0.25% – a record low. With interest rates on savings accounts already low, this change may

further reduce the return investors can get on their savings.

This raises a number of key questions for savers. Getting good financial advice could be more important than ever. A qualified financial adviser can help you establish your attitude to risk. If you have a low-to-medium attitude to risk then you may wish to explore flexible savings options with the potential to offer better returns than deposit accounts whilst offering some level of security.

What are your options? One product to consider is the NISA. This is available in cash and stocks & shares versions. NISAs also offer tax advantages; you won’t have to pay personal income tax or capital gains tax on income or growth within your NISA or the fund in which it invests.

Cash ISAs have been seen as a flexible, low-risk option. However, due to low interest rates they don’t always provide the returns you may be looking for. At Kingston Unity we offer an Investment NISA that, whilst being a stocks & shares NISA, aims to provide a smoother return than a conventional stocks & shares NISA.

This NISA is invested in our With Profits Fund. With Profits funds aim to provide capital growth over a medium to long term period by investing in a range of types of investments to spread the risk. This can help to avoid fluctuations that might occur when funds invest solely in stock markets.

Our NISA could provide a viable alternative to banks and building society accounts, as it aims to minimise sharp rises and falls by ‘smoothing’ the returns over the period of the plan.

With Profits funds may appeal to savers looking to de-risk their investment portfolio from purely equity based investments. They may also appeal to savers who are prepared to take a bit more risk and move from purely cash based products.

Our Investment NISA has the potential for annual bonuses to be added. The amount of bonus added depends on the performance of the With Profits fund and may fluctuate from year to year. It is normally considered a longer term investment but can be accessed earlier. We offer fixed dates on which your investment will be guaranteed, regardless of market conditions.

It’s easy to transfer your savings or NISAs (cash or stocks & shares) into our Investment NISA. You can top up your NISA whenever you like, so long as you remain within your annual allowance.

Who is Kingston Unity? We are a Friendly Society, and have been around since 1840. We have no share-holders and are a mutual organisation owned by our members. This means that we share any distributable profits among our members.

Good financial advice is paramount. Speak to your financial advisor before considering alternative savings plans and products. Whilst the NISA is currently tax-free this may be subject to change in the future and your own tax position should always be considered when taking out a savings product.

With interest rates at just 0.25%, what are the options for savers? Peter Ridley, Head of Sales at Kingston Unity Friendly Society, explains.

Withdrawing on non-guaranteed dates may incur a charge which might mean you could get back less than you invested

LIGHTHOUSEFINANCIAL ADVICE Making your money work harder

2 BFAWUMONEYTALK AUTUMN 2016

If a male lives to age 90, based on the best standard annuity rate of 5.5%, this will provide a return of 137.5% of their original investment. If they’re female and one of the 25% who live to age 98 this will increase to 181.5%.

Dispelling the myths about annuities

“Let me be clear: no one will ever have to buy an annuity again.” So said George Osborne in his budget speech in March 2014. Now from the age of 55 we are able to draw down

as much as we want from our pension pot. Mr Osborne perhaps thought no one really wanted to buy an annuity. But they provide certainty – which is what many people want when they retire.

Seeking out best rates really makes a difference!Sure, poor value annuities provide certainty, but this is at a significant cost. For example a male purchasing an income with £50,000 on a single life basis and guaranteed for five years, has a gap of 16% between the worst and best standard rates. When you also consider their health and lifestyle, for example based on moderate health conditions, this increases to nearly 21%.

You may live longer than you think!Longevity is about how long people might live. Let’s take 65 year-olds –they might for example be a little overweight and/or their blood pressure may be higher than their doctor would like it to be, or perhaps they might be suffering from high cholesterol and taking medication, but it’s still likely they will live until 90 if they’re male, and 93 if they’re female. And 50% of people will live longer than this! There’s actually a 25% chance of a man living to 96 and for a woman to reach 98.

What does this mean? If a male lives to age 90, based on the best standard annuity rate of 5.5%, this will provide a return of 137.5% of their original investment. If they’re female and one of the 25% who live to age 98 this will increase to 181.5%.

Or they might be one of the 25% who only live to 83 if they’re male and 86 if they’re female, but who’s prepared to take this chance? An annuity provides an insurance against your longevity.

Drastic growth in life expectancy alleviates impact of lower annuity rates. In other words the annuity provider will probably have to pay you for longer and so pays you less each year than they would

have done a decade or so ago. An annuity is providing a lower rate of income than 20-30 years ago, but for a much longer time period.

An annuity doesn’t need to die with youWith Just Retirement, it’s now possible to guarantee that the income will be paid for 30 years should the annuitant die. You can also protect the value of your annuity by opting for the Value Protection feature which provides a tax-free payment if you die before age 75, and taxed at your beneficiary’s marginal rate thereafter.

The value of poolingAnnuities deliver value because of the number of people who purchase them. The annuity provider assumes that some people will die sooner than expected, and this helps support people who live longer than expected.

Drawing an income directly from your pensionIf you draw down your income directly from your pension pot you have no certainty that your income will last for the rest of your life. The value of your pension pot could fall, for instance because the stock markets go down or because you have taken too much money out. Are you willing to take the risk of running out of money in retirement?

If you want a secure income to meet your essential expenditure and don’t want to take any risk with stock market investment, an annuity is still an attractive option.† George Osborne’s Budget 2014 speech Example from 21.04.2016 based on single life basis; age 65; annuity purchase price 50k; RH2 7RT postcode; no escalation; 5 year guarantee period, average adviser charge 2%. Moderate health conditions apply: Diabetes Type 2 diagnosed 5 years ago, supplied HbA1c readings and takes 1 med daily, 25 units of alcohol weekly. 2Just Retirement longevity calculator page: www.justadviser.com/financial-planning/calculators/longevity/ 3£50K purchase price, RH2 7RT post code, no escalation, 5 year guarantee period, paid monthly in advance – rate as of 13/01/2016 4Life expectancy Office for National Statistics website release 4 November 2015: www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/lifeexpectancyatbirthand atage65bylocalareasinenglandandwales/2015-11-04 Mortality cross-subsidy and mortality drag sales aid: www.justadviser.com/documents/mortality-cross-subsidy-sales-aid-1311733.1.pdf

With pension freedoms, many people are deciding not to buy an annuity. Yet, they are still worth considering when you are choosing your retirement income, especially as one of the benefits is that your income will never run out.

Income from an annuity will never run out, no matter how long you live.

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LIGHTHOUSEFINANCIAL ADVICE Making your money work harder

It’s a family affair

It’s no surprise these days that more and more Dads are taking a hands-on role in the home, with Mums taking on greater responsibilities in the workplace. Gender stereotypes are

disappearing - quite rightly too. So, are you a working Mum or Dad with a family and financial responsibilities?

Families looking after families Help and support from your family is key, as is taking good care of yourself so that you can take care of everyone else. And if you can also spend some quality time with your youngsters as well during the week, then, well, you’re in a fortunate position.

Not everyone manages it, and most working parents have to consider childcare costs of some kind along the way. Louise Colley knows that. She’s Mum to 7-year old twins so she has first hand experience, working hard here with Aviva, and working hard with her family at home too.

“Childcare doesn’t come cheap. I know that. I’m really lucky, I get a lot of help and support from my other half but it’s a fine balancing act between us. He collects the twins after school as he starts at 6am – I do the morning drop at our child minder, which is a massive help otherwise we wouldn’t be able to both work.

“But I also know that some parents aren’t so fortunate, and that childcare costs have risen dramatically over the last five years. According to the Family and Childcare Trust, some parents are paying £1,214 more today than they did in 2009. That seems like so much money, but some Mums and Dads are paying thousands of pounds every year … it really can be frightening, how it all mounts up.”

Your family, your needsUnderstandably, every family wants to do things their way. Everyone’s circumstances are different, and what works for you may not work for everyone. But what’s true for every family is that a secure income can make a big difference to the child care

you choose – and it may be hard to imagine how you’d cope if that income disappeared.

Recently Aviva launched their latest bi-annual Family Finances report. They discovered most of the parents they spoke to felt fortunate to be able to combine their family life with working, but it also meant someone had to – quite literally – hold the baby.

As Louise says, “I’ve been lucky. I’ve been able to juggle working and having a family, but if I put both my ‘mum’ and ‘work’ hats on together for a moment, one thing is crystal clear: it’s never been more important for dual-income families to think about how they’d manage if their finances changed overnight.

Looking at life insurance, looking after your familyIt’s well worth taking a few minutes to talk about life insurance as soon as you can with a professional financial adviser. In fact, it may take you less time to raise the subject with them than it’s taken you to read this article – which shows just how easy we can make it to find out what a life insurance policy may cost today.

Juggling work and family life can be challenging, but what would happen if your family’s income fell –or even stopped – overnight?

One thing is crystal clear: it’s never been more important for dual-income families to think about how they’d manage if their finances changed overnight.