Invest like Pension Doctor Rockefeller £1m dilemma Pension & Isas The all-time master Our reader’s pension Special Report of putting capital to has breached the work lifetime allowance Eight pages of help and advice on page 6 page 5 investing, saving and making the most of the new pension freedoms

INVESTI NG ADVI CE ROUTES T O INCOME I SA I NHERITANCE P ENSIONS D O CTOR ASK AN E XPE R T YOUR MONEY In a tax-free world, Isas will still be the best bet

From April 2016 most people won’t be taxed on savings income. But Isas will still remain invaluable, says Kate Palmer igher-rate taxpayers remain permanently free from tax. Nor will be able to earn do Isas lose their precious ability to £500 savings interest shield investors from capital gains tax. before tax is due, and For investors holding shares and funds basic-rate taxpayers – the best investments for beating £1,000 from next infation over longer periods – this tax April. There will be a separate perk remains extremely valuable. H £5,000 allowance for dividends. The changes – which will take many What’s changing? people’s savings outside of the tax net The new “personal savings allowance” altogether – have been portrayed as will, from April, take most people’s the “death knell for Isas”. But that savings interest out of the reach of the conclusion would be wrong. taxman. Basic-rate taxpayers will be Further, much-needed changes to able to earn £1,000 in interest with no Britain’s creaking Isa system mean tax to pay, under the change next year could be a better time than announced in the Budget in March. ever to save in the tax-free accounts. Higher-rate (40pc) taxpayers will be New “fexible” Isas mean savers able to earn £500 interest with no tax. will be free to take money in and out From 2016, a basic-rate taxpayer of their Isa within the tax year up to would need to save a total of £60,606 the value of their allowance. This will before they are taxed on their interest, ARRS

enable far more fexibility for savers M

and allow more of their assets to Continued overleaf TIM * * * * * * * * * 2 * * * Tuesday 10 November 2015 The Daily Telegraph YOUR MONEY PENSIONS AND ISAS SPECIAL REPORT

including how long the personal savings allowance will be Escape the tax net and keep your interest available for.”

CONTINUED FROM PAGE 1 Isa allowance at the beginning of Isas’ real attraction is that And don’t forget Isas’ other the tax year, you were deemed to have they shield assets from tax positive perks used your full allowance – even if in the long term And for the 150,000 married Isa assuming that they get today’s best you made withdrawals from your Hundreds of people have already savers who die each year, another easy-access rate of 1.65pc. account again that same year. saved more than £1m in their Isas. recent reform means they can pass If you’re on a fxed deal, you’d need “It’s a stupid rule,” said Anna Bowes They will have made most of their the tax-free wrapper to their partner. to save a total of £32,154 before tax of the rate-comparison website gains through growth-oriented Before December 2014, if an Isa is payable on the best fve-year 3.11pc Savings Champion. “Before, if your investments, but they could easily holder died they could not pass this fxed rate account, where interest is circumstances changed and you switch holdings to income-producing on to their spouse. The rule also paid annually. needed to access that money the assets if, for example, they need to applies to civil partners. Even those who are in the higher taxman said, ‘tough – you can’t draw an income later in life. A spouse inheriting savings their (40pc) tax band would need to save put it back in your Isa.’” And because their assets are all partner held that were sheltered from £30,303 before paying tax on the But there are limits. Savers can’t safely within the tax-proofng tax under the “personal savings easy-access account. There would withdraw money held in Isas from wrapper of an Isa, that income will be allowance”, however, would not be be tax to pay above £16,077 on the previous tax years without losing its paid tax-free. An individual’s savings given this tax perk, unless they did longer, fve-year fx. tax-free status for ever. and dividend allowance will still exist, not already earn enough interest to Separately, a new £5,000 dividend Some commentators say fexible and can be applied to any additional reach the full allowance. allowance is being introduced. Isas will be an “administrative investments outside the Isa. And from Aptril 2016 an Isa will This would enable investors in nightmare” for providers, and cause For long-term investments, capital be the only way to grab a £3,000 shares or funds to receive up to further confusion about the rules gains tax remains a threat. Investors government bonus for people buying £5,000 in divi payments before tax around tax-free savings. paid a total of £5.5bn in capital gains their frst home. Among those savers is due. With FTSE blue-chip shares But savers are expected to use tax (CGT) in 2013-14, the last year for are Britain’s nine million private currently yielding under 4pc, this the new freedoms. One in seven which data is available – an increase renters who may opt for a “Help to would mean an investor could Isa savers will treat their Isas like of an astonishing 43pc from the Buy” Isa which pays a £50 bonus for hold approximately £130,000 a bank account by withdrawing previous tax year’s fgure of 3.4pc. the face of it won’t need to utilise an every £200 a person saves. outside an Isa before having to money and reinvesting without Isas enable investments held within ‘A crucial change Isa. But we can’t predict what rates Savers will have access to their own pay tax on dividends. afecting their tax-free allowance them to grow free of CGT. Although is the increased will be like in the future.” money and will be able to withdraw from next year, according to recent for the moment cash Isas pay lower If the Bank Rate was increased to funds from their account if they need So doesn’t that change research. And interest rates on rates than taxable accounts – fexibility of Isas’ 2pc, then the above-mentioned easy- them for another purpose, but the mean Isas are bound to cash Isas may rise as a result. something that could make taxable access account could increase from bonus will only be made available for lose their attraction? Andy Caton from the Yorkshire accounts seem more immediately 1.65pc to 3.65pc, meaning that home purchase. Far from it. One crucial change Building Society, which conducted attractive for cash savers – this basic-rate taxpayers would be able “Banks have been told by the will be in the increased fexibility the research, said the changes could situation could change. to save a total of £27,397 before they Government to ofer competitive rates of Isa accounts. This will enable lead to more money being saved in “We’re in an environment where had to pay tax, and higher-rate on these Isas,” said Ms Bowes. savers to put money into an Isa, Isas: “The new Isa fexibilities are interest rates are incredibly low, taxpayers £13,698. “What’s more, banks and building withdraw it, and replace it again likely to prove popular, with many partly due to a government policy “You should think very carefully societies are keen to tempt frst-time within the same tax year up to the savers being able to use these new that has kept lending cheap,” said before taking all of your savings out buyers because they make money full year’s allowance, which is freedoms to their advantage. The Ms Bowes. “Using today’s rates, of a cash Isa and moving them into from selling them mortgages. So (£15,240 for this year). changes will incentivise existing Isa most people are going to earn ordinary savings,” warned Ms Bowes. they might be compelled to ofer a Before, if you deposited the full savers to put away more, not less.” interest tax-free on savings and so on “There are just too many unknowns – better rate,” she added.

How does the additional customers. Nationwide, paying 1.5pc, allowance work? will accept new deposits after it is ‘Secret’ for too long: From April, surviving spouses or civil satisfed the existing provider has partners of individuals who died on or been notifed of the death and no after 3 December 2014 can enjoy an other additional permitted additional Isa allowance equivalent to subscription account has been extra Isa allowance the sum their loved one had sheltered opened. Other providers ofering on the day they died. accounts include Santander (paying They should be able to open a cash 0.5pc) and (1.35pc on distribution of estates and potential or stocks and shares Isa account easy access or 1.5pc fxed for a year). Complex rules blamed inheritance tax bills can seem equivalent to this amount, whether or Some banks and building societies tortuous. The Government attempted not they expect to be inheriting the do not have special arrangements but as spouses lose inherited to sidestep all this by allowing a nest egg, provided they have an will still consider applications. survivor to inherit an Isa allowance, equivalent cash sum. This allowance However, they all have diferent perk, says Teresa Hunter even where they are not bequeathed must be used within three years, or in policies. The Leeds Building Society, the Isa assets. the case of drawn- out estates, within for example, is one organisation not ens of thousands are missing Danny Cox, an adviser with broker 180 days after distribution of assets. ofering this facility. out on a big boost to their Hargreaves Lansdown, said: “This is a Virgin Money will only allow its Tsavings via an extra Isa complex area which can be What about the will? instant access Isa to be used to inherit allowance – simply because they are bewildering for individuals and staf. Some institutions and platforms will an allowance, and only where one of unaware of it. Banks. building Some providers aren’t co-operating allow relatively small accounts to be the spouses is already a customer. societies and other Isa providers are while others are unaware this closed prior to probate being granted, Similarly, at HSBC only existing Isa also failing to point out the new perk. additional allowance exists. This can and the money passed to a spouse. customers can transfer across an From April, bereaved spouses and cause distress at a very sensitive time.” Otherwise, some survivors may have inherited Isa allowance. civil partners have been able to David Smith, a fnancial planner at to await the distribution of a will At Lloyds, existing customers can inherit an Isa allowance, equivalent Tilney Bestinvest, said that the before they have sufcient assets to open an account to receive an to their loved one’s Isa holdings on Government made the process too exploit the additional allowance fully. inherited allowance, but only where death. Otherwise, the wrapper complicated. “All they had to do was the lump sum is less than £25,000.

automatically comes of and the nest let the Isa wrapper remain after death GETTY Why is the system not working? Above that, the bank requires the will egg is immediately liable to tax. and allow the whole thing to be Institutions are nervous that suddenly to be fully settled. It will only accept When Chancellor George Osborne inheritable. Taking the wrapper of rules governing cash deposits, and to know that institutions are granting large Isa allowances to cash from non-customers via the announced this last December, he opened a can of worms.” transfers of equity portfolios – all of thwarting instructions that would new customers could potentially normal Isa transfer system. estimated that 150,000 survivors of In an attempt to simplify the which adds to the confusion. beneft their spouses fnancially.” embroil them in tax evasion or The Yorkshire Building Society Isa savers should beneft each year. process, a handful of organisations Where death is unexpected, an money-laundering irregularities. So accepts inherited Isa allowances from But banks and building societies launched “inheritance Isa” accounts. additional Isa allowance may be the What will happen to your unless both spouses were already either new or existing customers. admit the number to have successfully But these can have restrictions. For last thing on survivors’ minds. But in spouse’s Isa should they die? customers, they can be obstructive. claimed this “additional permitted example, the Coventry, which pays an many other situations individuals Isas were launched in 1999 and some Portfolios of shares and funds subscription” is tiny. The Nationwide attractive 2.15pc on its Additional spend months laying detailed individuals have now accumulated Special ‘inherited’ Isa accounts Where an individual wishes to is running acampaign to highlight its Allowance Isa, only allows spouses to inheritance plans, often to spare their portfolios of more than £1m. Some of the new Isa accounts transfer an equity Isa portfolio, they existence. A spokesman said: “We open this account where it already partner further anxieties. However, the tax break on Isas will accept applications from non must wait for the will to be believe many people are unaware this holds the original Isa. Mr Cox added: “Many people leave ends with death, at which point account-holders. Skipton’s Legacy distributed. The new inherited Isa extra allowance exists, and the rules But the way institutions and very detailed instructions about how portfolios become taxable and Account and National Savings & allowance must be opened with the governing it are not easy.” platforms deal with these requests can they wish their afairs to be conducted are included in your estate for Investments Inherited Isa Allowance, existing Isa provider, within 180 days Anything involving wills, the difer wildly. There are also diferent after death. They would be very upset inheritance tax purposes. both paying 1.50pc, will accept new of the will being distributed. * * * * * * * * * The Daily Telegraph Tuesday 10 November 2015 * * * 3 YOUR MONEY PENSIONS AND ISAS SPECIAL REPORT

Beat the cuts in pension tax relief

Investing in your spouse’s name may be the right option for some higher-rate taxpayers, says Nicole Blackmore

enerous pension tax If your spouse is a non-taxpayer, or reliefs for high earners pays basic-rate tax now but will be a are on the chopping non-taxpayer when the time comes block and savers are to take a retirement income, you being encouraged to could be better of investing the same put as much as they can £100 into their pension pot. into their pots before the knife falls. They will get the same basic rate G The Treasury is to limit or remove relief, so a £100 contribution only the reliefs ofered to high earners, costs £80. But when they eventually which account for £35bn of its £50bn take the income, the payments will annual pension tax relief bill. George be tax-free if they fall within the Osborne said that the results of personal allowance. The allowance consultation on the subject would be is £10,600 this tax year and will rise announced in next year’s Budget – to a total of £11,000 in 2016-17. leading commentators to conclude that a substantial overhaul of the Diference in returns system is on the way. The table below shows a £100 That is likely to mean cuts in tax contribution being paid into a pension relief for higher earners, who are and then immediately and completely rushing to maximise their pension cashed in. It highlights the diference contributions while they can still in returns based on the tax rates paid. beneft from 40pc relief on their The non-taxpayer would receive £10 contributions. It’s easy to see why – more income from the same £100 those earning more than £42,386 can contribution than a higher-rate save £1 into their pension for every taxpayer. 60p they contribute. As many as fve Be aware, however, that you won’t million people beneft from this by an be able to save as much into your average of £5,000 every year. spouse’s pension as you could into your own. The most you can put into a pension for a non-taxpayer is £2,880 a ‘The benefts could year, which rises to £3,600 once tax far outweigh the risks relief worth £720 is applied. But putting the maximum into your for many couples’ spouse’s pension each year would still give you an additional £360 worth of

But paying into a pension in your income, compared to putting the same GETTY own name may not actually be the money into your own pot. best way to increase your net income Anything above this amount should How tax relief afects your pension income revealed that the Treasury plans attracting a penalty tax rate of up to in retirement. If you have a spouse be saved into your own pot to beneft to limit the government top-ups 55pc on the excess. in a lower tax band, you might from higher-rate tax relief while it is Higher-rate Basic-rate Non- available to future contributions The lifetime limit refers to the total achieve a higher income by investing still available. taxpayer taxpayer taxpayer into such pension schemes. value of pension entitlements in a pension in their name. Instead of being able to claim (excluding state pension) that any one Contribution £80 £80 £80 This does come with additional How tax reliefs could change higher-rate tax relief on contributions person can build during their life. It risks. If the marriage breaks down, for Danny Cox, of advice frm Hargreaves Basic rate tax relief £20 £20 £20 at 40pc, the relief could be limited to currently stands at £1.25m and will example, disputes over the money Lansdown, said changes to higher-rate Total pension pot £100 £100 £100 the basic 20pc rate. fall to £1m in April 2016. could result. But the benefts could far tax relief were “a virtual certainty”. This could mean a 22-year-old As the value of fnal salary scheme outweigh the risks for many couples. All higher-rate taxpayers are at risk Higher rate relief £20 - - graduate starting on a salary of members’ pots is expressed as a yearly of losing the generous reliefs they £27,000 today would pay an income, they must multiply this by How it works currently enjoy. But insiders say that Benefts taken extra £130,000 in tax over their 20 to test it against the annual limit. As a higher-rate taxpayer, you the Treasury is particularly focused Tax-free cash (25pc) £25 £25 £25 lifetime. Experts predict that this A guaranteed income of £50,000 in should receive higher rate relief on savers with valuable “fnal salary” change alone would save the retirement, for example, works out as on your contributions – due to or defned beneft schemes. Taxable income £75 £75 £75 Treasury around £7bn a year. a total fund value of £1m. basic rate tax relief, a £100 These have largely disappeared Income tax £30 £15 - However, this calculation could pension contribution only costs in the private sector but many be revised so that it is less generous. Net income £45 £60 £75 Lifetime limit curb? you £80, plus you can reclaim a workers in the public sector including It is understood that ministers are also If the standard measure moved further £20 via self-assessment. MPs, civil servants, NHS workers, Tax relief reclaimed £40 £20 £20 considering reducing the lifetime to multiplying annual income by However, when you come to draw teachers and others would be heavily Income after tax £110 £105 £120 pensions limit for fnal salary savers 29, instead of 20, for example, your pension, after allowing for 25pc afected. Altogether more than two by as much as 25pc. This would savers would have their fnal of the fund being tax-free, you will million workers could be hit. Source: Hargreaves Lansdown mean that more employees’ pension salary benefts capped at around pay 40pc tax on the resulting income. Last month, Telegraph Money pots would drift above the allowance, £35,000 a year. * * * * * * * * * 4 * * * Tuesday 10 November 2015 The Daily Telegraph YOUR MONEY PENSIONS AND ISAS SPECIAL REPORT GETTY By the book: picking a portfolio of investments that pay dividends at diferent times of year can give you a regular income ways to earn a 3monthly income

dividends at diferent times of the year. One What’s the best way to approach could be to look frst toward funds with the longest track records for increasing pay yourself a ‘wage’ their dividends year in, year out. The next step is to look at the months each investment trust pays dividends (see table, below). As it from your investments? shows, most of the 15 funds that have increased income payments for at least 30 Kyle Caldwell reports years return cash to shareholders quarterly. So you can construct a monthly income t is a challenge many savers face: portfolio by selecting holdings in part securing a reliable, frequent income according to payment dates. from their investments. Many want to One possible portfolio combination could use their assets to “pay them a wage”. be City of London, Witan and Foreign & But how? Until recently, building such Colonial. Or alternatively , a portfolio would have proved difcult, JP Morgan Claverhouse and Murray Income. as the norm was for investment funds and Just because trusts have long histories of Icompanies themselves to pay investors and paying an increasing dividend is not a shareholders just twice a year. But fund guarantee they will continue to do so. managers are now moving to a more frequent Investment trusts have better records of payout. A third of investment trusts now pay increasing payments each year than unit dividends quarterly, compared with 17pc fve trusts because they can hold some of their years ago. Unit trusts and OEICs have also income in reserve each year. This gives them moved in the same direction. greater control over how they distribute the income received and is why most were able to Monthly income funds weather the storm in the fnancial crisis. No As with any fund, the income varies unit trust or OEIC has been able to grow the according to the returns but the diference dividend each year over the past decade. 1is that the fund manager ensures 12 equal payments are made. Data supplied to Regular income from cash Telegraph Money by FE Trustnet identifed A third of In the frst two strategies, savers’ capital only 14 monthly-paying funds with a investment is at risk. But there are monthly three-year track record. The 8pc yield the 3income-paying accounts for cash deposits, Insight Equity Booster fund ofers stands out. trusts too. Spreading money between various But experts warn this type of fund, which types of high-interest current accounts is uses a complex strategy to magnify income now pay seen as the best approach to maximise returns, should not be bought in isolation. generally paltry returns on cash. The To achieve high income, capital growth is dividends trouble is, savers are severely restricted sacrifced. In a severe downturn these funds quarterly by the amount they can stash away. may struggle to meet their promises. The top rate is 4.89pc per year, paid Darius McDermott, of Chelsea Financial monthly, ofered by TSB and Nationwide. Services, the broker, prefers the more But the maximum threshold for each account straightforward monthly income funds. is £2,000 and £2,500 respectively. The Mr McDermott tipped Invesco Perpetual Club Lloyds Current Account, paying Monthly Income Plus (5pc yield), a fund that 3.93pc, takes third place in the best-buy mainly buys bonds issued by companies. tables. Up to £5,000 can be held. Another fund Mr McDermott likes is Premier Susan Hannums of Savings Champion, the Multi Asset Income (4.5pc), which invests in rate-monitoring website, said: “By opening both shares and bonds. multiple high-interest-paying current Other experts’ favourites include Fidelity accounts, these small increments can mount Moneybuilder Income (3.3pc), Jupiter up and every little can help. Although these Monthly Income (4.7pc) and Threadneedle rates are substantially higher than many Monthly Extra Income (4.4pc). The three standard savings accounts, the rates are funds mainly buy shares. For savers who variable so are also subject to change.” prefer the relative safety of bonds, Alliance The other option – for savers who want Trust Monthly Income (5.8pc) and Kames income returns near 3pc – is fxed-rate High Yield Bond (4.4pc), are popular with bonds. But savers will have their capital advisers. locked up until 2018 at the very earliest. The top monthly income-payers are Build your own portfolio RCI Bank 3 Year Fixed Term Savings Account The second option is to build your own (2.67pc), Charter Savings Bank 4 Year Fixed monthly income portfolio by buying Rate Bond (2.72pc) and United Bank UK 2half a dozen investments trusts that pay 5 Year Fixed Term Deposit (3pc).

Investment trusts: what they buy and when they pay Company What it buys Dividend dates Number of consecutive years of dividend increases City of London British shares January, April, July, October 49 Bankers Investment Trust Global shares March, June, September, December 48 Alliance Trust Global shares January, April, July, October 48 Global shares May, November 48 F&C Global Smaller Companies Global shares June, December 45 Foreign & Colonial Investment Trust Global shares March, June, September, December 44 Brunner Investment Trust Global shares March, June, September, December 43 JP Morgan Claverhouse Investment Trust British shares February, May, July, October 42 Murray Income British shares March, June, September, December 42 Global shares February, May, July, October 40 Scottish American Global shares January, April, July, October 35 Merchants Trust British shares January, April, July, October 33 Scottish Mortgage Investment Trust Global shares May, November 32 Scottish Investment Trust Global shares June, December 31 Temple Bar British shares January, July 31

Source: Association of Investment Companies * * * * * * * * * The Daily Telegraph Tuesday 10 November 2015 * * * 5 PENSIONS DOCTOR

‘My sacrifce has Is work made me no better of in retirement’ worth it if accrues £50,000 more of beneft this will reduce to £30,000 with an annual allowance charge, and then Katie Morley to £13,500 with a lifetime allowance charge. Instead, she should think I can’t about using her personal illian Rose has worked contributions and paying into full time as a doctor in other tax-efcient wrappers such the NHS since 1986. She as an Isa, in which she can save save more holds the position of £15,150 for this year. senior mental health She could also gift her husband a consultant. Gillian is 53 sum of money each year up to and married with two children, aged the level of his earnings. This into my G19 and 22. Both are at university. could come from the taxable With just two years to go until her pension income. Assuming this is minimum retirement age (55), having taxed at 40pc, her husband could had the beneft of the generous salary- pay this into his pension and get pension? linked NHS scheme, Gillian has 20pc relief on it. She could repeat broken through the £1.25m maximum this exercise and pay £2,880 net lifetime pension allowance. Anyone for each of her children and they whose pension is valued at beyond will receive 20pc tax relief each that sum (which falls to £1m next on this contribution. April) faces penal tax. Like thousands of other higher Alistair Cunningham, earners, changes to pension taxation fnancial planning director – such as the cut in the annual and lifetime limits – have caused Dr Rose at Wingate Financial to reassess her retirement plans. Planning, said: She said: “I have been loyal to the NHS for 29 years and have worked I totally empathise with Gillian’s day shifts and night shifts since 1996 feelings of disillusionment. In many – alongside trying to be a mother and ways this tax is retrospective, as wife. I only took one year’s maternity pensions are just deferred pay. leave because fnancially it made On balance it would seem sensible complete sense at the time. Now to sit tight until 55, when she gets her that’s changed. To know the sacrifce full service pension. There may be has made me no better of in annual allowance charges, retirement is hard. depending on any unused “Despite my best plans I now fnd allowances from previous years, but that a signifcant proportion of my the scheme can pay these normally. pension is being taxed. This lifetime When she reaches 55 she should allowance may afect only a small reassess her options. proportion of the population but I The worst case would be that she feel it is dishonest and unfair. I paid could take benefts up to her in to the pension in good faith and protected lifetime allowance remained in the NHS partly because (“individual protection 2014”) paying of the pension benefts.” a 55pc charge on the excess, Because Dr Rose has “mental health which would ordinarily be best ofcer status”, her annual benefts as a lump sum. However, she may be are doubled, which complicates her able to purchase ancillary benefts at decision on whether to remain in the the point of retiring, for example pension scheme. further spouse’s pensions, which She isn’t sure when she should could reduce the size of the pot for retire in order to maximise her money the purposes of being tested against and pay the least tax. She feels the the lifetime limit. way that her pension is now taxed is The decision on the level of encouraging her to take early tax-free lump sum should be retirement at 55, even though this reviewed at this stage as well. We may not be what she wishes to do. can hope that, given the restrictions She is thus facing a dilemma. on annual contributions, the lifetime allowance may be abolished by the Sebastian Hurst, chartered time Gillian retires. fnancial planner at Plutus Her state pension age is likely to be 67, so there will be 12 years from Wealth Management, said: 55 to 67 that she may need to top up her income. This might be the most My advice to Gillian would be to only costly, as she has children in their take the benefts as and when she early twenties, and with her and her needs them. Usually pension husband probably wanting to do the schemes apply an early retirement things they’ve not done when they

factor and reduce the salary ofered O’MALLEY HEATHCLIFF were younger. by around 0.5pc for each month of A cashfow plan would be very early retirement taken, but as she up becoming an additional-rate level of contribution that is required, Healthy income: NHS consultant Gillian useful in helping to achieve this goal; has NHS 1995 mental health ofcer taxpayer. If she retires and doesn’t take she is probably better of stopping Rose has a tough decision to make on can she realistically expect to have status, she is in the unique position the benefts, then the value of the now. Efectively the use of pensions as when to take her salary-linked pension enough to provide an income of being able to take benefts from 55 pension will be index-linked, and she a further savings vehicle has ended for throughout her life? Gillian has a without reduction. won’t have to worry about any extra her, as it has with many other senior big pension but she does need to She is right to assess whether charges. While this would mean a NHS staf members. consider her lifestyle in retirement. taking an income now is right for her slightly larger tax bill when testing her Gillian is only one year of from What things would take up her circumstances. If she is to continue to pension above the lifetime limit, in accruing her full pensionable service time and money? She has a very work and doesn’t need the income, monetary terms this won’t be as large for which she can receive double healthy level of guaranteed income, then there may be little point as her as accruing further years of pension. benefts, and this is likely to lead to an but if she doesn’t return to work pensionable income will be taxed at When it comes to paying into the annual allowance charge and a lifetime what would she do? Would she her marginal rate and she could end scheme, however, depending on the allowance charge. For example, if she spend more than now? * * * * * * * * * 6 * * * Tuesday 10 November 2015 The Daily Telegraph YOUR MONEY

Investment truths from richest man of all time

John D Rockefeller frst put his money to work at 14. His approach has lessons for today’s investors, says Richard Evans ow would you like to rise he felt he deserved. It was at this invest like the richest point, at the age of 19, that he went into man who ever lived? business for himself, in partnership John D Rockefeller with an Englishman named Maurice Snr had modest origins Clark. “We were prosperous from the but, as the driving beginning,” Rockefeller said later. force behind the spectacular growth “We did business of $450,000 the ofH the Standard Oil company, became frst year. Our proft was not large – I the world’s frst billionaire and by the think about $4,400.” The frm grew time of his death in 1937 his assets rapidly, but Rockefeller began to fear worth about 1.5pc of America’s total it would fall prey to one of the great economic output. The equivalent changes in the American economy in today’s money would be about – the rise of the railways. His frm $340bn, many times the wealth of fourished partly because of its location Warren Bufett or Bill Gates. in Cleveland, on the shores of Lake His frst taste of business came at Erie, ideal for transporting produce by the age of seven, as he recounted later a combination of ship and cart. in his book Random Reminiscences But other cities were better of Men and Events: “I engaged in my placed in an agricultural transport frst business enterprise with the system dominated by the railways. assistance of my mother. I owned Rockefeller began to look for other some turkeys, and she presented me opportunities – and found them in oil. with the curds from the milk to feed Oil was discovered in Pennsylvania them. I took care of the birds myself in 1859 and Rockefeller went into and sold them all in businesslike the oil business in 1862, again in fashion. My receipts were all profts, as partnership with Clark. This venture I had nothing to do with the expense was not a success and the partnership account, and my receipts were kept as was dissolved. But Rockefeller bought carefully as I knew how.” its plant at auction for $72,500, He learnt another lesson – the borrowing most of the money. value of putting his money to work by This business, via a long series of investing it – at the age of just 14. By mergers and acquisitions, eventually that time he had saved $50 (equivalent become the giant Standard Oil, to roughly $1,500 today) from his which had operations not only across turkey sales and from carrying out America but across the globe. Rockefeller believed in efciency and avoiding waste. He devised ‘At home we were processes and products to ensure that taught to work, to every part of crude oil, when refned, had a useful purpose. He also believed save and to give’ in economies of scale, and bought up competitors to the point that Standard chores for his family and neighbours. Oil became a virtual monopoly (it was At his mother’s suggestion he lent this later broken up by the authorities on money to a local farmer for a one-year those grounds, spawning an array term at 7pc interest. When the year of smaller companies including had passed he duly received his $50 Chevron and ExxonMobil; the original back plus £3.50 in interest. company of the Standard Oil empire is At about the same time he received now part of BP). $1.12 in payment for three days of To fund this extraordinary digging potatoes for a neighbour. “On expansion, Rockefeller reinvested the entering the two transactions in his frm’s profts but also had to borrow ledger,” The New York Times recorded – in fact he described himself as “a in his obituary, “he realised that his great borrower”. The New York Times pay for this hard work was less than obituary noted: “He kept expanding one-third the annual interest on his his business and borrowed large sums $50 and resolved to make as much to fnance it. His reputation for work money work for him as he could.” and economy, as well as his regular Rockefeller said in later life: “I habits and church attendance, gave his had a peculiar training in my home. credit a high rating at the banks.

I cannot remember when hard work “Once a bank president warned GETTY was new or strange to me. We were him that he had borrowed almost all taught to work, to save and to give the money in the bank and that the Sitting pretty: a quick proft. His determination to favours assets that are “intangible [he was to become a hugely generous directors wished to see him right John D Rockefeller make Standard Oil the pre-eminent and difcult to replicate”, including philanthropist]. Ours seemed to be a away. ‘All right,’ he replied. ‘I’ll go helped create the – or even the only – business in “dominant market share”. business training from the beginning.” right over to see them. I want to giant Standard Oil, its sector also fnds an echo in the Mark Dampier, a fund expert at But he didn’t embark on an borrow a great deal more.’” which became a strategy of some fund managers who Hargreaves Lansdown, the investment entrepreneurial career right away. Rockefeller’s life sounds like the virtual monopoly buy shares only in companies that shop, also named Nick Train of the After secondary school, where he ultimate proof of the theory that the and was broken up dominate their markets. Lindsell Train Global Equity fund and excelled at maths – especially mental only way to get seriously wealthy is to by the authorities Another of Rockefeller’s rules was Finsbury Growth & Income investment arithmetic – and debating, he spent start your own business. The purpose always to invest profts back into his trust, David Dudding of Threadneedle 10 weeks at a commercial college of this section, by contrast, is to help business. Firms that can reinvest European Select and Rory Powe, who where he learnt about book-keeping, you grow your wealth by investing in profts and continue to make high manages the GLG Continental Europe business customs and banking. shares and funds, leaving others to run returns on the reinvested money are fund. Mr Powe, who Mr Dampier He then gained practical experience the businesses concerned. able to deliver strong compounded described as “a top manager in the of business at Hewitt & Tuttle, an But there are some aspects of gains to investors. Nineties making a return”, said in agricultural produce brokerage. He Rockefeller’s approach that hold Many fund managers aim to invest January that 80pc of his fund consisted impressed his bosses by his hard work lessons for ordinary investors. It goes in frms that take the Rockefeller of “established leaders”. and determination, and soon arranged without saying that he was a “buy and approach. For example, Terry Smith, Alternatively, investors who prefer complex deals on the company’s behalf. hold” investor in the companies he who runs the Fundsmith Equity fund, to buy shares could consider those However, he left a couple of years bought, using them to strengthen his seeks businesses that can proftably successors of Standard Oil, Chevron later when he was refused the pay own frm rather than selling on for reinvest their earnings. He also and ExxonMobil. When the dust settles: how you can proft from volatile markets easoned investors take market aim of producing an above-average is 5.64pc, which is larger than hiring a fund manager to choose money-printing in major economies Join Neil Woodford and falls and panic in their stride income thanks to dividends. its longer-term average of 3.1pc. companies. It won’t be suitable for could also harm their fortunes. Yet back peer-to-peer S– in fact, they actively seek the Investment trusts spread your Of particular interest to income all investors as there are traditional the case for emerging markets over opportunities that these apparently money between companies, like investors is that Murray Income has funds that will do the same job for the long term remains compelling One of the major trends in fnancial destructive forces can create. a traditional fund would, but one of the longest unbroken records a lower charge. The cheapest UK and the price falls have added to the services is peer-to-peer – the various Those who take a systematic investment trusts are themselves for increasing the cash dividend it tracker can be bought for an ongoing appeal. A popular way of valuing models for matching those with approach tend to frst identify companies in which you buy shares. pays – 42 years and counting. At the charge of just 0.06pc versus 0.32pc markets is by their “Cape ratio” – or money to those in need of it. investments or areas where they The value of your investment is current share price, investors could for Aberdeen UK Tracker. cyclically adjusted price-to earnings. Diferent platforms have sprung want to add exposure, taking into dictated by the trust’s share price. get a yield of 4.6pc if the dividend is Right now, however, the Aberdeen This takes the price of shares up, each ofering a version of peer- account their existing holdings, Over time, the price should refect maintained in the future. trust is trading at a 3.1pc discount. In and divides it by the average of 10 to-peer, and a recently launched objectives and risk tolerance. All the performance of the underlying The performance of the assets has other words, you’ll be getting £1 of years of earnings. On this measure, investment trust, P2P Global they are then watching for is the assets, but in the short term it can struggled this year but those buying the FTSE All Share for 97p. emerging markets are trading at Investments, takes stakes in these. “buy” trigger that results from a rise and fall with the whims of to hold stand to beneft from steady In other words, you’ll be getting £1 Cape of 22.6 times versus a long-term Renowned investor Neil Woodford sudden fall in price. the market. income payments and a closing of of the FTSE All Share for 95p. average on the ratio of 20.8. was an early backer, buying the shares Recent stock market volatility This means that, for short the discount. For those happy with the volatility at launch in early 2014. has thrown up several such periods of time, a trust can become Murray Income had an ongoing Three ways to buy of these markets, First State Since then the trust has traded at opportunities. Here are fve “expensive”, or “cheap”, versus the charge of 0.73pc last year. As you are emerging markets Pacifc Leaders (ongoing charge a consistent premium, but recent investments that merit a place in value of assets it holds. As such, they buying shares, you may also have 0.9pc) and JP Morgan Emerging bad news has harmed the fedgling most portfolios, and which are can trade as a discount or a premium. to pay a trading fee applied by your Investors in fast-growing economies Markets (OCF 0.93pc) are liked by industry, including the failure of especially attractively priced today. A trust can be cheap for a reason broker or investing platform. know that the ride can be bumpy, fnancial advisers. one platform, TrustBuddy, which and some will continue to trade at a but this year has tested nerves more Fundsmith Emerging Equities halted trading amid accusations of Lock into a 4.6pc yield discount for years at a time. Compare Track the FTSE All Share than most. is an investment trust that’s misconduct and lost investor money. at a discount a trust’s discount to its longer-term with 3pc of Concerns persist that the slowdown managed by Terry Smith. The trust This has pushed the P2P share average, however, and you can spot in China will be long-lasting, sapping is in demand and rarely moves price lower and the usual 10.4pc The frst of a number of investment opportunities. Aberdeen UK Tracker is the only demand for the resources that to a discount. At time of writing, average premium has given way to a trusts on our list, Murray Income In the case of Murray Income, investment trust that tracks an index emerging economies are often built however, the premium has narrowed discount of 1.9pc. invests in UK companies with the the discount at time of writing – the FTSE All Share – rather than on, while an end to low rates and from an average of 5.3pc to 3.6pc. Ed Monk * * * * * * * * * The Daily Telegraph Tuesday 10 November 2015 * * * 7 ASK AN EXPERT How can I best meet university fees?

you may wish to consider, but take Contact us Readers’ questions on advice frst and make sure that you understand the risks involved.” Do you have a a U-turn, university fnancial question Saving for child’s education and need an answer? Email us costs and passing on How much do I need to save into a stocks at: moneyexpert@ and shares Isa every month in order to telegraph.co.uk a pension. Edited by pay for my child to go to university in or write to: 18 years’ time? Telegraph Ask Nicole Blackmore JP, VIA EMAIL an Expert, 111 Buckingham I cashed in my entire pension pot, but now I University fees in England have almost Palace Road, regret it and want to reinstate my pension. tripled from £3,290 a year to up to London, Can I do that? £9,000 and are likely to rise further SW1W 0DT. MD, VIA EMAIL in the future. In this year’s summer If you have any Budget, Chancellor George Osborne other questions Statistics so far suggest most pensioners said he plans to lift the £9,000 fee cap, or feedback have not – as had been feared – rushed to allowing institutions that “can show about Your cash in their pension pots in order to that they ofer high-quality teaching” Money, email: splash out on luxury cars, fabulous trips to charge students more. andrew.oxlade@ or other indulgences. Living expenses also quickly mount telegraph.co.uk But some people, for whatever reasons, up. Some estimates suggest students need may have chosen to access their money – up to £8,000 a year, or more if they’re and subsequently regret the decision. It is studying in London. So new parents not an easy one to reverse. If you cash in today are facing hefty bills if they want your pension, you cannot subsequently to cover their child’s costs. go back to your provider and ask them to Analysis by the online investment reinstate it. The rules do not allow it. platform Rplan.co.uk shows that parents You will also fnd that the normal would need to invest up to £228 a month £40,000 annual allowance for further to send their child to university for a pension contributions – even if you had three-year course in 18 years’ time. the capital or income from which to make It assumed the amount needed in 2033 the savings – is no longer available. would be £74,307, if current fees and Dennis Hall, of Yellowtail Financial living expenses rise in line with annual Planning, said if you started taking infation at 2pc. The calculation is based pension benefts after 5 April this year, on annualised returns of 4pc a year after the annual allowance reduces to charges, with funds invested in a medium- £10,000, but even this is only available risk portfolio that is designed to produce if you have sufcient earned income to returns that beat infation over the justify the contribution. medium- to long-term. A higher risk “If not, a £3,600 limit applies, which is portfolio would ofer the potential for the amount that can be contributed to a higher returns, lowering contributions, pension regardless of your earnings,” he but the risk of losses would be greater. said. “If you withdrew a large pension If instead you saved into a cash Isa or fund it may take many years to reinvest easy access account, rather than the money back into a pension.” investing, the returns are likely to be However, all is not lost. Isas also ofer far lower over the period. The average a range of tax advantages. While there is easy-access cash Isa rate is currently no relief available on Isa contributions, 1.11pc, while the best easy-access unlike pensions any withdrawals from savings account pays 1.65pc. an Isa are tax-free. These rates will change over the With an annual Isa allowance of period, but based on the current levels £15,240, they ofer the ability to parents would have to save £311 and George move pension money back into a £296 a month respectively to reach the Osborne tax-advantaged fund quicker than same £74,307 target by 2033. reinvesting into a pension. Thanks to compound interest, the says he Another option is to look at the earlier you start saving the better. tax position of your spouse, and Parents investing to send a child to plans to whether there may be greater scope to university in 2024 would need a total lift the use their pension or Isa allowances pot of £62,177 in nine years’ time. The (see article on page 3). Assets can be required monthly contributions would £9,000 transferred between spouses without be £440, assuming returns of 4pc. any tax penalty, and if they have a An even shorter timeframe would cap on greater ability to make pension push costs up further. A degree contributions then it may make sense starting in 2020 would cost around university

to look at this option. £57,442, requiring monthly investments GETTY fees If you are prepared to take more risk of up to £736. with your money, you could look at other Price of learning: you can leave your unused pot to any to the lump sum death benefts charge of as tax relief on a pension contribution. investment options, such as enterprise Passing on a private pension parents will have benefciary you choose free of tax. 45pc. This will change from April next But there are alternatives worth investment schemes (EISs) and venture to invest up to £228 You must nominate who you would year, however, when it will be taxable at considering, such as taking the fund capital trusts (VCTs). I have a small private pension worth about a month to send a like to receive the death benefts and their marginal rate of income tax instead. now and gifting it to your children. “The underlying investments are £80,000 which is surplus to my needs. I child to university this is done via documentation lodged Shannon Currie, of the advice frm “You may wish to stagger the generally higher risk than most pension am 75 and I plan to leave the pot untouched 18 years from now with your pension provider, rather Perceptive Planning, said that you could withdrawal over a few years to reduce funds, investing in smaller companies to my children in my will. Can they add this than in your will. accept the 45pc tax charge, taking the the income tax payable by yourself,” and early stage companies,” Mr Hall said. money to their pensions without attracting However, if you die on or after age 75, pragmatic view that as you don’t need Ms Currie said. “The exact tax take “But there are very generous tax breaks any tax? then tax will apply. If your children the £80,000 pension and it’s a gift for will depend on your current level of for investors – 30pc tax relief is available KR, VIA EMAIL take the death benefts as pension your children, then £44,000 after tax taxation, whether you have already – to encourage investment into Britain’s income, it will be taxed at their is still a decent sum. And if your taken your 25pc tax-free entitlement enterprise economy.’’ The rules on passing pension wealth to marginal rate of income tax. children reinvest the gift into a and whether you live for seven years He added: “If you already have a benefciaries changed in April this year. If they take the money as a lump sum pension, then they could reclaim after making the gift so that no well-balanced portfolio, this is an area Now, if you die before your 75th birthday, before April 2016, then it will be subject between 20pc and 40pc of the lost tax inheritance tax is applied.” * * * * * * * * * 8 * * * Tuesday 10 November 2015 The Daily Telegraph