Q. I am 57. Last November I took out an Income Drawdown plan. After the changes in the budget, can I now cash in the entire fund?
A. The answer is possibly. The full flexibility is due to come in from April next year, allowing time for consultation on the exact rules. In the meantime, there are some interim rules. The one relevant to your situation relates to “Flexible Drawdown”. This enables you to draw down the full fund whenever you wish, subject to satisfying a “Minimum Income Requirement”. This is secure income from either an annuity, final salary pension or state pension, and the level required was reduced from £20,000pa to £12,000pa in the budget. Electing flexible drawdown means opting out of making further pension contributions, but is the only one of the measures introduced with immediate effect which applies to your plan immediately. From your next plan anniversary in November the limit on the amount you can withdraw each year is increased by a fifth. The other facilities available immediately are only relevant if you are over 60, and have funds from which no benefits have been taken yet.
Q. I and my husband have some savings which we have in various Bank and Building society accounts but both of us are appalled by the seemingly ever decreasing level of interest rates being received. We both use our Cash ISA limit each year and are aware that these can be increased to £15,000 each from 1 July. As we are now both in our 70’s we do not want to take any risks with our capital but we do want it to make money in real terms.
A. You are in the same position as millions of investors with cash on deposit particularly if you just have it in variable accounts as in the majority of cases the rate of interest received will be less than the rate of inflation (even if held in Cash ISA’s). For example CPI (Consumer Prices Index) was 1.7% in February and RPI (Retail Prices Index) was 2.8%. If your capital does not grow (after tax) by at least the rate of inflation then in real terms it is falling in value. Remember your personal inflation rate could be higher or lower than these government statistics depending on what you spend your money on.
There is some good news on the horizon though. For people aged 65 or over, the Chancellor in the March Budget announced that National Savings and Investments (NS&I) will launch a choice of two Fixed Rate Savings Bonds with very attractive interest rates which will be available from January 2015. They are expected to pay interest rates that are currently above what you can receive from Banks and Building Societies. While the exact details of the Bonds will be announced later in the year, the government’s current assumption is that NS&I will offer products which would pay rates of 2.8% gross/annual equivalent rate (AER) on a one year bond and 4.0% gross/AER on a three year bond under current market conditions, which is good news. The bad news is that it is intended to limit the amount you can invest to £10,000 per Bond for each person. These accounts will be subject to income tax though unless any interest earned falls with your income tax personal allowance.
Q. My wife and I have been talking about making wills but I am reluctant to do so as solicitors seem to be so expensive and I think she will get everything anyway. Am I wrong to take this approach?
A. If you do not leave a valid will your estate will pass in accordance with the intestacy rules which set out who is entitled to inherit from your estate.
As you are married (or had you been in a civil partnership), the first person entitled to your estate under the intestacy rules is your spouse, but she will not necessarily inherit the whole of your estate, this depends on how much is in your estate and if any other blood relatives survive you.
Having a will ensures your estate passes exactly to who you would want to benefit from it. The cost of a will is really quite cheap compared with the time and expertise that a solicitor can bring to it, and can avoid significant legal costs being incurred by your estate after death.
I recommend all of my clients have wills and at the same time consider Enduring Powers of Attorney.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
