THE ADVISER.Spring 2009

Welcome to the Spring 2009 edition of The Adviser. The latest budget has caused confusion and disarray to those who have tried to plan ahead, so for independent advice on Savings/Investments; Pensions; Inheritance Tax; Long Term Care and/& Lifetime Mortgages, please get in touch.

Anyone hitting retirement with a substantial pension pot can often feel like the job is done and their comfortable retirement secured. But low interest rates mean low annuity rates and retirees may therefore wish to consider other options to maximise their income. One solution is to defer your pension payments, which, as your age increases (and assuming interest rates do not fall further), could result in higher payments.

There are three main reasons why retirees might defer payments from their pension: One, because interest rates are low and waiting a few years may help them secure a more favourable annuity rate, particularly if interest rates rise in the meantime; Two, retirees may chose to continue some form of paid employment, which can support them in the short-term without the need for their pension; Three, a pensioner may want to buy a joint life annuity, but have a younger partner. Waiting until that partner is older will secure a better rate on the annuity.

On retirement, you can take a tax free lump sum of up to 25% of the value of your pension pot. The rest is used to buy an annuity, but taking any or all of these benefits can be deferred until as late as age 75 (when your situation must be reviewed). There is also a deferment option for the state pension scheme. For every year you defer taking that income, you get 10.4% extra income which could be worth over £470 per year on a full state pension (based on 2008/09). Sometimes it pays to wait.

Putting it off

A delicate balance

As long ago as January

2008, the Bank of England

acknowledged that last

year could be a tough one

for the UK economy. They

had forecast a consumer

slowdown as people cut

back on spending, leading

to expectations of an

interest rate cut - but high

fuel and food prices

stopped any short term

moves, with inflation at

one point passing 5%. The

Bank’s dilemma was that

lowering rates would heat

up inflation – but steady or

higher rates would

suppress growth. For

months, the Bank chose

the former course but then

markets came crashing and

the prospects of recession

took hold. About turn and

rates are now just 0.5%.

The question now is

whether rates can actually

go down any further.

Contact Us: 2plan Wealth Management , Bridgewater Place , Water Lane , Leeds , LS11 5BZ , W: www.wealthifa.com , E: kieron@wealthifa.com , T: 01892 570 675 , M: 07711 329 256

What to do about PropertyAfter three years of startling returns for commercial property, the bottom began to fall out of the market towards the end of 2007. Thanks to the credit crunch this malaise has continued and some are now sitting on losses of up to 40%. So what now for investors who still have property holdings?

Much ordinary investors put their money into commercial property funds. As commercial property values started to fall, nervous investors scrambled to get their money out. Because direct property is illiquid - that is, if demand is not there it can be difficult to sell - many providers kept a holding of cash and property shares to manage such redemptions. However, for some, this money ran out and they became forced sellers of buildings in their portfolio.

Forced sale risks a lower selling price which penalises existing fund holders. So, to protect values, some funds imposed exit restrictions - including six-month notice periods, allowing them time either to accumulate more cash or at least sell on property at a decent price.

But what now? If you have forgotten in all the turmoil, it is time to remember why you hold property investments in the first place. Its diversification properties have not changed and there is no reason why it should not get back to its return profile of providing rising long-term yields once this phase is over. Over the long-term, well diversified investors are generally best placed to weather any short-term storm.

The best of the bunchThere are now over 2,000 UK domiciled funds available to investors, plus an array of offshore funds. Few of these funds' managers are going to deliver good returns consistently so how do you increase your chances of choosing the best ones?

Multi-managers are experts in fund selection. They meet managers individually and quiz them on their ability to achieve long-term performance. They research the whole market and should also be able to discover hidden gems that may not even be available to private investors. Multi-managers will also be experts in combining funds to minimise risk and maximise returns. The two main types are fund of funds and manager of managers. Fund of funds managers build portfolios based on their research and will then buy or sell funds based on changing performance potential and market conditions. Typically these portfolios will be split into cautious, balanced or aggressive, with different weightings in different assets. Manager of managers funds invest allocations of a portfolio with pre-selected managers. They give that manager a pot of money and set specific guidelines as to how that money should be run.

Multi-manager funds can be a useful one-stop-shop solution for use as a ‘core’ investment where they can form the bedrock of your wider portfolio. Alternatively, for beginners or the more cautious investor, they are an ideal route into the world of market and equity investment.

Investing for income

Investors looking for a regular income stream often turn to bonds. However, the UK Equity Income sector also caters for such investors, if you are prepared to take a long-term view. The value of any market investment can fall as well as rise, but with equities, this risk is generally higher.

The Investment Management Association defines the UK Equity Income sector as comprising funds with at least 80% of their assets in UK equities, aiming for a yield in excess of 110% of the FTSE All Share yield (net of tax). These funds tend to concentrate on the income generation and therefore look just to maintain capital values - rather than targeting capital growth as well.

The main way of doing this is to invest in well established companies offering stable, growing dividends. More of these are found at the blue-chip end of the market, which means the funds can have a bias towards larger capitalisation stocks. High dividends tend to suggest a company that is cash-generative, which also acts to mitigate risk.

Historically, partly due to the tax regulations, the UK market has had a higher dividend yield than other markets, which accounts for the maturity of the equity income sector. However, the number of businesses in Europe awarding dividends is growing and even the US is beginning to follow suit – leading to a growing number of overseas

income products as well.

Your options for long term care

The need for long-term care can range from simple help around the home a couple of days a week through to around-the-clock care in a full service nursing facility. To pay for this, an individual can buy an insurance product, use and reallocate their accumulated investments, sell their house to liquidate any spare equity - or perhaps take out equity release or lifetime mortgage plan instead*.

Among the available insurance products are immediate care and deferred care plans, both of which pay you an assured level of income in exchange, usually, for a lump sum. An immediate care plan pays out straightaway, whilst a deferred plan is more applicable to those who can fund their short term needs but will need something to take over when those savings run out.

Alternatively, for those who have been running significant investments, an allocation of those resources between an annuity, investment bonds and/or collective investments may be sufficient to provide the income they require. Leaving some money in the stockmarket can also, unlike an insurance product, provide the potential for continued capital growth, although this is a risk as those investments could also go down in value.

For some, however, the only option for funding care might be the equity they have built up in their house. Many, therefore consider selling up completely and using the proceeds to fund one of the above plans. Others consider an equity release product and these have increasingly popular as a way of using equity in your house without having to necessarily give up its entire value*. The different plans available mean you could choose to receive either a cash lump sum or a monthly income and still retain some ownership of the home and thereby benefit from any future increase in house prices.

Individuals who have not prepared for the costs of long-term care, or who can not afford it, are entitled to some state help. Local authorities will pay for care in these circumstances, but in most cases you will have little or no choice over the details. For example, authorities are entitled to select your care home for you and might even decide that care at home is a more appropriate option.

*YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Reaching your goalsInvestors can be divided into two broad groups: income-seekers and growth-seekers, and whichever you are, it is important to establish goals from the outset. This helps to work out your tolerance for risk and thereby help your selection of the most appropriate investments.

Risk tolerance is one of the most important factors as there has traditionally been a direct relationship between the amount of risk you take and the amount of potential return. For example, a 30-year-old, with no financial obligations other than rent and savings in a deposit account, may look to invest in a pension for later in life. With this long-term investment horizon – 35 years or so – it may be appropriate to take on more risk as they could ride out any short-term ups and downs in favour of potentially higher long-term gains.

However, a 30-year-old receiving an inheritance payment, with which they plan to buy a house in five years, needs to be more cautious. Over this short period, they would be more vulnerable to the ups and downs of the market cycle.

It is important to bear this relationship in mind when making investment decisions. One recognised technique is the core/satellite approach. A range of less volatile investments such as cash, UK bonds and maybe UK equities form a ‘core’ stable base, onto which riskier options can be added. These riskier options, the ‘satellite’ portfolio, can then be shifted around as market conditions change.

Seek independent adviceSecuring your financial future is now more important than ever. We are continually being told about the pressures on state benefits, particularly pensions, as the welfare state has to adapt to an expanding and ageing population. As a result, more responsibility is being placed on you, individually, to make the most of your income and investments.

At the same time, however, making these decisions is becoming ever more complicated. There are hundreds of providers offering thousands of products, all with different benefits for different needs at different prices.

As independent financial advisers, we can take a close look at your particular circumstances and match the most suitable products to help you meet your goals. We are regulated by the Financial Services Authority and can therefore offer you solutions from across the market place - we are not limited to just one or small handful of providers. We can therefore match the most suitable products to your particular circumstances to help you meet your goals.

If you have any questions about your financial situation, would like a review of your options or simply wish to get an assessment of what is possible so that you can consider what to do next in more detail, please do not hesitate to contact us to organise an initial consultation.

What is the...

...difference between a unit trust and an OEIC? Both are collective investments that invest in a wide range of asset classes depending on their specific objective. However, a unit trust is unitised - that is, new units are created for new investors and cancelled when sold. An OEIC (open-ended investment company) is set up as a limited company and investors buy shares rather than units. Most OEICs operate as umbrella funds, allowing the creation of different sub-funds, each with different aims, charges and investment requirements within the one structure. When all are run by the same group, this can make switching between those funds easier.

Issued by 2plan Wealth Management which is authorised and regulated by the Financial Services Authority. The contents of this newsletter do not constitute advice and should not be taken as a recommendation to purchase or invest in any of the products mentioned. Before taking any decisions, we suggest you seek advice from a professional financial adviser. All figures and data contained within this document were correct at time of writing. The FSA do not regulate tax advice.