Q. I am 53, and I have elected for Fixed Protection as my Pension fund is likely to exceed the Lifetime Allowance without the need for any further contributions. What other ways can I save in a tax-efficient manner?

A. This is becoming a much more common question for higher earners, as the Lifetime Allowance for pension savings is reduced. The New Individual Savings Account (NISA) allows you to save up to £15,000 in each tax year with full accessibility and protection from tax on the growth or income generated, but without any tax relief on contributions. Alternatively, Enterprise Investment Schemes(EIS) offer tax incentives to encourage investment in small companies satisfying certain criteria. You can reclaim up to 30% of the amount invested in income tax relief, and if you have a capital gains tax liability this can be postponed for the duration of the investment. EIS investments do require you to commit your investment for at least three years, however, in order to retain the income tax relief, and because the investment must be into small companies, they do require you to accept a higher degree of investment risk. This does mean, however, that the rewards can also be attractive if things go to plan. For more information, I would recommend consulting a Chartered Financial Planner able to offer independent advice in this area.

Q. I am being made redundant and I believe I am only going to be paid statutory redundancy pay, can you tell me how much I should get?

A. You’ll normally be entitled to statutory redundancy pay if you’re an employee and you’ve been working for your current employer for 2 years or more. You are entitled to: half a week’s pay for each full year you were under 22, 1 week’s pay for each full year you were 22 or older, but under 41, 1 and half week’s pay for each full year you were 41 or older. Pay is capped at £464 per week and Length of service is capped at 20 years. Redundancy pay (including any severance pay) under £30,000 isn’t taxable.

A word of warning though, you’re not entitled to statutory redundancy pay if you fall into one or more of the following categories:

merchant seamen, former registered dock workers (covered by other arrangements) or share fishermen;

crown servants, members of the armed forces or police services;

apprentices who are not employees at the end of their training;

a domestic servant who is a member of the employer’s immediate family.

Q. I will be retiring in December when I will be 65 and receive my State Pension and two pensions from companies I have worked for over the years both of which are final salary schemes. My wife has already retired and is in receipt of her State Pension and a small company pension. Overall I expect our total pension  income to cover our normal day to day living expenses. I will get reasonable tax free lump sums from my pensions. I plan to put some of this money on deposit and then look at some longer term investments for which we will be seeking advice. Having brought up a family and helped out with our children’s weddings and other things we have never really had a great deal to invest in the past so have not taken a great interest in investments. Over the past week I have been looking at deposit rates and it seems that even if the money is tied up for a few years the rates are quite appalling. Have you any suggestions about finding a decent return for some money on deposit and the process for taking advice for the longer term with some of the lump sums I will be receiving from my pensions in December?

A. The starting point for constructing an investment portfolio is to first consider how much you need to set aside as a contingency fund for emergencies which is accessible immediately. Generally speaking having instant access means a very poor rate of interest though. Some banks have become a little innovative such as Santander who will pay 3% gross on balances between £3,000 and £20,000 but there are conditions such as a monthly fee of £2 and a minimum deposit  of £500 per month such as your pension being paid in. Conveniently as your pension lump sums arrive in December you and your wife if she is 65 or older could look to invest some money into the new Bonds which are to become available through National Savings in January2015. These were announced in the budget in March and although it should be confirmed later this year what the interest rates are going to be it was indicated in March that it could be 2.8% gross for a one year bond and 4% gross for a three year bond. The maximum investment into each bond is to be  £10,000 per person.

As for taking investment advice for the longer term I suggest that you should consult with a Chartered Independent Financial Adviser. Most of our new clients come by way of recommendation so talk to friends or family to see if they have dealt with anyone that they could recommend.  Really as your pension lump sums will be available in December you should be starting this process in the near future so that an adviser can help you to formulate a long term investment strategy.

 

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