Tuesday 12 April 2016 telegraph.co.uk Isa ideas Rich & famous Pensions & Isas Why property Our experts Special Report has a place in offer advice Eight pages of help and advice on investing, saving and making the your portfolio to celebrities most of the new pension freedoms page 3 page 6

Pensions doctor Brexit and money a sk an exP ert investing advice c omment Your moneY My choice of Isa vs Lisa

investing The new Lifetime Isa is an attractive and flexible home for long-term savings

After a bit of thought, ’ve devised my plan for how I’ll use the tax-free options to save for my retirement. Here I explain my thinking. A new way to boost your saving My saving until now has been simple. I maximise the benefits of my company pension scheme – which invests in global “tracker” funds – and then save what I can into a stocks-and-shares Isa. I have ring-fenced cash savings By ed Monk equal to two months’ salary and investment editor contribute to savings accounts beyond that. I look forward (career progress permitting) to putting eporting on the more aside, specifically inside a nation’s personal self-invested personal pension (Sipp) finances, you grow that I’ll run alongside my used to being asked investing Isa. for informal advice My earnings mean contributions about money. I’ve will get the benefit of higher-rate tax learnt to boil it down to a handful relief. This relief has made a pension rof rules that I know will do some the best place for very long-term good, and then explain that the saving – until now. complicated stuff is best handled by an independent financial adviser. Tax relief vs top-up A recent change announced in the Like a pension, Lifetime Isas boost the Budget, however, has made me value of the money you contribute reassess my tips. In fact, it has made but the two work in different ways. me question how I will arrange my Pension contributions can be made own finances in the years ahead. from pre-taxed earnings. The boost The introduction of the “Lifetime this gives pension savings is highly Isa” has created a new home for long- valuable. A higher-rate taxpayer like term savings beyond the existing

Isa and pension tax “wrappers”. Continued on page 2 jones sarah * * * * * * * * * * * * * * * * * *  * * * Tuesday 12 April 2016 The Daily Telegraph Tuesday 12 April 2016 * * *  Your MoneY Your MoneY InvestIng Ideas

Editor Your Money Investment & Pension Email [email protected] Andrew Oxlade Special Reports will be published on Tel 020 7931 3532 Designer Tuesdays throughout 2016 at intervals telegraph.co.uk/money Elma Aquino of about once a month.

and the fact that pension withdrawals – which all experience tells me want to draw on retirement savings basis. Beyond this, the uplift from are paid 25pc tax-free. will not happen. before that. The current rules will current levels of pension tax Isa vs Lisa – my choice Calculations by Fidelity show that Pension tax relief in its current allow pension savings to be accessed relief means the bulk of my other I’ll still gain the most from pensions, form survived a rumoured cut in the from the age of 57, three years ahead long-term savings will still go but only if my tax rate is lower in recent Budget and the Government of the age-60 entry point for Lifetime here – for now. Living as a basic-rate Is commercial property safe as houses? Continued from Page 1 and the top-up combined. retirement than in my working life. As has consulted on changing the Isa savings. taxpayer in retirement means that To be eligible for the top-up, though, a 40pc taxpayer now, the net boost in system to make it “sustainable”. A Pension withdrawals in this period money contributed is boosted by me sees a £100 contribution turn you must withdraw money either to retirement from tax relief is 41.7pc, cut in tax relief for people like me is that take me above the higher–rate 41.7pc – far better than the 25pc into £167. Money contributed can buy your first home or, after the age of so long as I pay basic-rate 20pc tax not merely possible, but probable. threshold would face more tax, from a Lifetime Isa. Around £150 a It’s also worth noting that sales of then grow tax-free until I retire. 60, as retirement income. If so, the when withdrawing money. Were that to happen, a Lifetime Isa whereas Lifetime Isa savings month will go into a Sipp. It’s popular as a bond substitute property funds dipped recently with Once I get there, however, there money comes tax-free. would be tax free. This would be I will, however, be opening one uncertainty about the Brexit vote and Annual total returns from commercial property SouRcE: IPD uK PRoPERty INDEX is income tax to pay at whatever The money is accessible sooner The value of flexibility particularly valuable if I needed a of the new products while I have the and as a way to spread risk. how the outcome in June might affect rate my earnings and pension and does not have to be spent on a If I were lucky enough to remain in ‘Lifetime isas give a large amount all at once. chance and paying in each month. demand for building space. income take me to. property, but this triggers a 25pc the 40pc bracket in retirement, the Contributions will be set far below Kyle Caldwell looks at the options Lifetime Isas will work differently. tax charge. This wipes out the original pension boost would fall to 16.7pc 20pc boost to what How my plan will work what I pay into pensions – around How much, and where? Here the boost to saving is a 25pc top-up, all the growth on the top-up – below the 25pc boost I would enjoy I will continue to pay in enough to £50 a month – but I’ll stand ready The proportion of your money top-up to anything you have and another 5pc of your fund. from a Lifetime Isa. you’ve contributed’ company pension schemes to to increase them if pension tax relief nvestors have been piling that should be sunk into property contributed, applied once a year. As I have already bought a property, If my earnings fall in my working maximise the advantage of matched should be cut. into property – and not depends on timescales and what you A total of £4,000 can be paid in each I would need to leave a Lifetime Isa life so that I once again pay 20pc tax, becomes more attractive. contributions. This accounts for about I value the flexibility that Lifetime just Britain’s overheated want to achieve. Financial planners year, meaning a maximum boost untouched until age 60 to benefit. and I continue to pay that rate in As well as rule changes, I must also £350 of take-home pay each month. Isas add to my savings. If my housing market. In the say the average investor’s portfolio of £1,000. You can open a Lifetime retirement, then the Lifetime Isa deal with the uncertainty of my own Beyond this, I hope to set aside earnings are higher in retirement, past year, £2.2bn has been should dedicate between 5pc and Isa up to age 40 – which means that The tax calculation again becomes even more retirement, including when I will be around £500 each month, or more or lower in my working life, than I invested in property funds, 15pc. Chase de Vere’s models suggest I’ll still have a few years to get one The answer depends on the level of advantageous – the 25pc boost easily able to retire and my level of income if future earnings permit. plan for, the benefits are better according to the Investment a medium-risk investor should have after they launch next year – and the tax I pay, both in working life and beating a 6.3pc gain from pensions. as I approach that point. With my cash savings already than a pension. And it gives me Association, the trade body. 50pc in shares, 40pc in bonds and contribution builds until age 60. retirement. You need to compare the The financial benefits of each route My state pension age is 32 years accounted for, around £300 of options if I wish to withdraw some The vast majority of these 10pc in commercial property. For The money can be invested Lifetime Isa boost versus pension tax depend substantially on the current away, when I’ll be 67 – although 68 this will go into a stocks-and-shares money while I’m still working. funds invest in commercial property, a high risk investor, this swings to and savers get the value of any relief for each type of taxpayer, taking rules and rates for each system or 69 is more likely – and a fall in Isa, where money is available with buying actual buildings such as 75pc, 20pc and 5pc. growth on their own contributions into account tax relief at current levels remaining the same until I retire salary could mean that I would no strings attached on a continuing [email protected] Ioffices, retail parks and student Ms Gee tipped M&G Property accommodation. The other fund type (yielding 3.3pc) and L&G UK Property owns shares in property companies, (2.9pc). These are two of the biggest such as Land Securities. trusts, holding £4.7bn and £2.5bn The attraction is simple: respectively. Another big fund in the investment returns from commercial sector is Aberdeen Property Trust, property were in double digits in with assets standing at £3.4bn. The Another twist in the ‘lifetime allowance’ trap 2013, 2014 and 2015. The other reason yield is lower, at 1.8pc, as it places a for renewed interest is diversification: greater emphasis on growing capital. with share and bond prices driven Most of its money is in shops and higher, commercial property offers offices. Its top holding is a building on “Fixed Protection” could also lose an alternative and with the added Oxford Street. Your family could face a big tax bill if death-in-service this if they move jobs and get a new incentive of decent income. Mr Connolly likes Henderson UK death-in-service benefits package But is it wise to invest today? Property, which is also a member of benefits push you over the £1m limit, says Jessica Bown viewed by the tax authorities as an the Telegraph 25 list of our favourite addition to their pension fund. Why property funds are funds (see telegraph.co.uk/25). He “Receiving new death-in-service booming described the fund as a “consistent illions of Home truths: rise every year. However, since hitting benefits can invalidate ‘Fixed Savers are suffering from an performer”. employees are at asking your a high of £1.8m in 2010-11 and 2011-12, Protection’ because one of the rules income famine, thanks to seven risk of exceeding employer to fund the allowance has fallen steadily and is is that you cannot add any further years of record low interest rates. But a warning from history… the new £1m a life assurance now at its lowest ever level of £1m. So money to your pot,” Mr Long said. The best easy-access cash Isa As the funds own property directly, pension lifetime policy could solve anyone with pension benefits of more offers a miserable 1.45pc. To get which they cannot necessarily sell allowance the problem than £1m must pay tax on the excess. Talk to your employer higher returns, savers have been quickly, there may be restrictions on because of their death-in-service Money taken as a lump sum is taxed There are a number of ways to avoid pouring money into stock market withdrawing money during difficult benefits.M But very few realise that at 55pc, while pension income is taxed being caught in the death-in-service investments, putting capital at risk. periods, in a scenario where investors death-in-service benefits count at 25pc (on top of income tax at the benefits lifetime allowance trap. In normal circumstances, rush to the exits all at once. This towards the allowance, which fell relevant rate). This is the case whether You can, for example, ask your bonds would be viewed as a good happened with some funds during from £1.25m to £1m on 6 April. the benefits are taken in retirement or employer – or prospective employer alternative for savers, but after an the financial crisis. Nathan Long, pension analyst at paid out to the family members of – to provide death-in-service exceptional run they are arguably Investment trusts, however, do adviser Hargreaves Lansdown, said: people who die before retirement age. benefits through an “excepted overvalued, and bond values suffer not come with this “liquidity risk”, “Most employers provide death-in- group life policy” so that they do not when rates rise, which is likely in the because they issue their own shares. service benefits through pension Protection is available count towards your allowance. next few years. If investors want their money back, schemes, which means they would The only exception is when people Ms Holgate said: “Employers may Commercial property funds have they simply sell their shares on the count towards your allowance if you take out so-called lifetime allowance consider providing life assurance become a “bond substitute”. Like stock market. die before retiring. Millions could protection to set their allowance at a benefits through an excepted bonds, property has historically For the past couple of years be affected. But it is something higher level. You can, for example, group life policy rather than a had little correlation with the stock commercial property investment hardly anybody understands.” apply for ‘‘Individual Protection 2014’’, pension scheme. As a result of market. This is one of the attractions. trusts have been considered too Say you earn £100,000 and have with which you can have a maximum the reduction in the lifetime As part of a diversified portfolio, expensive to buy, trading on double- death-in-service benefits worth four allowance of £1.5m and continue allowance, a number of our commercial property reduces risk digit premiums, meaning that times your salary. If you die before making contributions to your fund, clients are considering offering and, when economic growth is investors are paying more than the you retire, the £400,000 payment until April 2017. death-in-service benefits this way.” strong, it offers a comparatively safe underlying assets are worth. would count towards your lifetime To qualify, the value of your pension Or you could ask your employer to source of steady income. But these premiums have

allowance – leaving you a tax-free savings must have been more than help you fund a stand-alone life Philippa Gee, a financial adviser, tty narrowed over the past couple of

limit of just £600,000. Your heirs £1.25m on April 5 2014. A new round Lifetime allowance levels since 2006 insurance policy rather than offering said: “Property funds are a very G E months, and some trusts can now be would therefore pay tax on any of “Fixed Protection” is also expected death-in-service benefits. useful way of spreading risk, purchased at a discount. savings above this amount. this summer, offering a maximum “It is worth discussing the options particularly at a time when bond doing well, there are more tenants TOP FIVE planner at adviser Chase de Vere, said: Favoured options include F&C Gabrielle Holgate, a senior allowance of £1.25m. Protection of this with your employer if your death- funds represent considerable risk. seeking space for their shops, office “There is relatively little value left Commercial Property Trust (4pc associate at law firm Stevens & kind is invalidated if you make further in-service benefits would push you “But I would avoid most funds that and warehouses, so property owners INVESTMENT TRUST 3 yr return % in the best quality prime properties, discount), which makes monthly Bolton, said: “Death-in-service contributions to your fund. over the lifetime allowance,” Mr invest in shares instead of bricks and feel more comfortable about charging Sirius Real Estate 168 particularly in central London, which income payments. The trust has a benefits provided through a If your death-in-service benefits are Long said. “Life insurance policies mortar as these will fluctuate in line them more rent. This then boosts Workspace 140 have been in great demand, pushing yield of 4.6pc. Another is Standard registered pension scheme have provided via a pension scheme, the that are not held under a pensions with the wider stock market, so you capital values. Schroder European Real Estate 132 up prices. Fund managers have seen Life Investments Property Income always formed part of the lifetime amount paid out on your death counts trust will not count towards it.” are not actually removing the risk Returns on commercial property New Europe Property Investments 109 large inflows, meaning their fund Trust (4pc premium), yielding 5.4pc. allowance. But with most firms towards the lifetime allowance along If you are concerned about the you have set out to.” comprise both income, in the form Picton Property Income 108 sizes have grown. With lots of money The portfolio is skewed away from offering around four times your with all your other pension savings. impact exceeding the lifetime of rent, and potential gains in the chasing property investments it prime property locations. Only 8pc of salary, it has become a potential Should you die before retirement allowance would have on any What next for returns? value of those properties. Over the TOP FIVE becomes even more difficult for them its investments are in the South East. problem for more people now that age, your family may therefore receive payouts to your family in the event It has been a stellar couple of past couple of years, the majority of to find real value. The tables, left, capture the best the allowance has fallen to just £1m.” a lot less money than you expect. If of your death, Mr Long also years, as the chart from the widely the returns have been derived from FUND 3 yr return % “So, while we do expect positive performing funds. Investment trusts The lifetime allowance, or total your death triggered a death-in- recommended saving into a separate followed IPD UK Property Index fast-rising property prices. But experts Premier Pan European Property 64 returns, this asset class certainly have offered better rewards than value your pension can reach before service payout of £400,000, but your scheme to ensure that they are shows. The index measures the total warn that this trend is coming to an Aberdeen Property 49 is not without its risks and, with it conventional funds, in the second you have to pay tax on it, was pension savings were already £1m or protected. “If the tax charge could returns of direct UK commercial Building a portfolio: end, replaced by an increased focus on Aberdeen European Property 47 becoming harder to find value, it table, largely because the latter have introduced in April 2006 at the level more, then the death-in-service leave your family short, you may property investments. A rise in property is a good rents. This could mean lower, but more Schroder uK Real Estate 47 could be that returns will be lower, been forced to keep some money of £1.4m. At the time, the payment would be taxed at a Source: Prudential want to start paying into a separate economic growth has helped drive bet in a booming stable returns. Henderson uK Property 44 with most coming from income rather back in case they need to repay

Government indicated that it would crippling 55pc. Anyone who took out getty life insurance policy,” he said. the boom. When the economy is economy Patrick Connolly, a certified financial than capital gains.” investors in a rush. * * * * * * * * * * * * * * * * * *  * * * Tuesday 12 April 2016 The Daily Telegraph The Daily Telegraph Tuesday 12 April 2016 * * *  pensions and isas special report Pensions doctor

eraint Lewis, Thinking ahead: Geraint Lewis 35, recently needs a strategy that’s Will the EU vote became self- tax‑efficient to retire at 60 employed, running a successful company making and selling Gwedding invitations. He is married with a four-year-old cost you money? daughter, Esme. Mr Lewis has been paying for his reading of the big himself a £11,000-a-year economic picture and ability salary and also a tax-free to pick successful firms. dividend of about £45,000 There can be few better a year. But the rules have candidates for a long-term changed, meaning tax is due custodian of your savings. Investors are taking on the dividends, reducing This fund provides income, Katie Morley helps his income. He wants to which is reinvested in the a cautious approach the owner of a small know how he should pay pension to boost the growth. himself in order to be tax- He could also invest business plan for efficient. His wife is a part- 25pc in the Marlborough as the referendum time nurse, earning around UK Micro-Cap Growth retirement, given £12,000 a year. fund. Smaller companies approaches, says Their only debt is a are higher risk than equity the new tax rules on £133,000 mortgage on a income but can provide Teresa Hunter five-bedroom home, which better long-term returns. dividends is worth around £330,000. Share prices of smaller hen it comes Until recently Mr Lewis firms are often driven more to casting drove a Porsche 911 but by what’s going on in their votes in in an attempt to reduce businesses than by wider the EU spending he recently sold it economic conditions. This referendum for £12,000 and now shares gives managers a chance to on June 23, a Honda Civic with his wife. pick companies that grow for most people it will come down Their goal is to pay off their in challenging economic Wto money. Will their mortgage mortgage, then accrue conditions. Giles Hargreave, repayments be higher or lower? Will enough wealth to have a who runs this fund, is one pensions and other investments good standard of living to rise or fall? What will happen to the retire at around 60. value of sterling and the cost of their When it comes to ‘Investing holidays overseas? pensions and investing Unfortunately there are no certain however, Mr Lewis says through a answers to these questions, only a he has been “paralysed firm is usually great deal of sound and fury. The AA by indecision”. Although warned that family fuel bills would his wife has a small NHS a bad idea’

rise by £500 a year. Amber Rudd, pension, Mr Lewis has no Philli P s Gareth the Energy Secretary, said energy pension. He describes his of the most experienced costs could soar. appetite for risk as “middle and successful smaller- Sterling will collapse by of the road”. companies investors. 20pc according to analysts at He has cash savings of Another 25pc could be Goldman Sachs, while stock £40,000 and profits ready invested in the Stewart markets are tipped to slide by up to extract from his business Investors Asia Pacific to 30pc, savaging pension and worth £140,000. He saves Leaders fund. Asia is an Isa investments. nothing now but could unloved area of the world But is the gloom overdone? afford to save £1,000 a now and this normally Jason Hollands, a spokesman for month if he finds the right means it’s a good time to the investment adviser Tilney investment plan. One idea is National Insurance, 15.8pc in split equally. With the new continued to 60, he would to being paid as a dividend, invest. It is also likely to Bestinvest, believes so. He said: to invest in a rental property total, plus 40pc income tax. dividend rules this would have nearly £1.5m, enough where he would pay £3,900 achieve higher economic “The UK stock market is dominated through his company but His wife will only just only incur £1,125 tax a year. to provide an annual in income tax over the year, growth than most of the by large international companies, he’s not sure what the tax be using up her tax- The same dividend he paid withdrawal after tax of receiving £8,100 (and his developed world, albeit

whose performance is not closely Getty consequences would be. free personal allowance last year would attract more £48,000. company would have paid with some ups and downs. linked to domestic UK issues. Day of destiny: some experts predict market volatility in the run-up to the vote (£11,000) and there could than £6,000 of tax. In terms of funds, if he up to 20pc or £2,400). If he The Stewart team is a class Markets don’t like uncertainty and Alistair Cunningham, be scope to give her 50pc Having cut the payments wants low-cost passively then paid this £8,100 into outfit and has a conservative there are real risks around. But the by a knee-jerk further sell-off in stockbroker, stressed the need to financial planner at Wingate of the shares, so 50pc of the out of the business, and managed funds, he could his pension, with 20pc tax investment approach. Chinese economy, US interest rates sterling. However, this may not be internationalise a portfolio. He said: Financial Planning, said: dividends. This makes sense their total tax liability, while look at portfolio ranges relief he would end up with Mr Lewis is considering and oil-price movements are more all bad. While it pushes up the cost “We are not encouraging investors It’s encouraging to see as she pays tax at just 20pc. having an affordable budget, offered by Standard Life £10,125 invested and would buy-to-let and channelling it significant risk factors.” of foreign holidays, it also makes the with global portfolios to significantly that Mr Lewis is building As dividends are investment Mr Lewis should set up a Myfolio, 7IM or Architas. receive £2,531 higher-rate through his company could Laith Khalaf, a spokesman UK a cheaper destination for overseas change exposure to the UK, but a successful business, income there is not usually pension from the business. These are managed to relief via self assessment. work. But the firm will still for Hargreaves Lansdown, the visitors and makes our exports more rather just to remind investors and I sincerely hope this a need for her to be active in It may be disconcerting for control risk and need In this case, paying into be liable for tax on the rental investment shop, added: “There may competitive. There are two sides to who are solely exposed to the UK continues; but fortunes can the business to do this. his wife that this means all little involvement. There a pension via the company income and profits when be some volatility in the lead-up to every coin.” that there are a number of benefits change and it’s sensible to Investing through a the savings are in his name, are some good but more could mean £1,875 more it is sold, and when profits the vote. But if you are happy to be to international diversification, leave cash in the business company is usually a bad but there are significant costly funds from the likes invested and less income are paid to Mr Lewis, these invested in the stock market you 2. Will markets fall? especially in this time of high to help tide the firm over idea: profits are taxed and protections on death, of Jupiter, Henderson or and corporation tax paid. will be liable to personal tax. must be prepared to accept some Based on the experience of the currency volatility.” during “rainy days”. you pay a further 10pc tax divorce and bankruptcy; Schroders. Be aware that Mr Lewis has 25 years Diversifying to the stock volatility. If you can’t, then you Scottish referendum, markets largely For US exposure, Killik The first step is to try to on the value of the business the key is tax-efficiency and these can go out of favour to save before age 60, or market and in a tax-efficient shouldn’t be invested.” ignore the chatter around the vote recommends Findlay Park American, stick to a budget. Mr Lewis when it’s sold or wound up. contributions are tax-free if and need more monitoring. 30 years before age 65, pension makes more sense. So far there has been little cause until the date gets closer or a credible although this widely praised fund is will be paying in effect 40pc An “investment company” exclusively for the business. so he can afford to take He should ensure that to panic. Stock markets have not poll shows a change to the status quo. not widely available. tax on his income and the would normally pay 28pc in With such a profitable Danny Cox, a financial stock-market risk with the he uses his Isa allowance gone into freefall since the date of Billions were wiped off the value changes to dividend tax next this circumstance. business, he could target the planner at Hargreaves aim of getting good longer- and shelters the £40,000 the referendum was announced. of Scottish firms after a YouGov 3. How safe will my money be? year would push this rate They have been spending maximum annual allowance Lansdown, said: term returns. Splitting he has in savings in a cash Quite the reverse. The FTSE index of poll predicted a narrow win for the The Financial Services to 47.5pc. Once corporation about £5,000 per month of £40,000 gross. If Mr Lewis paid £1,000 his investment initially Isa between himself and Britain’s top 100 companies has risen independence campaign. Compensation Scheme (FSCS) and personal income tax is after tax and if he can save If he saves £1,000 a a month into a pension as into three, the following his wife. They should also from 5500 on 11 February and now So what should investors do? Mr protects deposits of up to £75,000 paid, this will still be better £1,000 a month it would month, in 20 years, with an employer contribution investments would provide have up-to-date wills and hovers around 6096. Khalaf said they should carry on per banking licence and £50,000 than the equivalent salary, be a good idea to work on a growth at 3pc above instead of as a dividend, there a good foundation for sufficient life and income But investors are cautious. as usual while making sure their at investment and mortgage firms. which would ordinarily £4,000-a-month/£48,000- inflation, he would hit the would be no personal or his retirement savings. protection insurance to Research from The Share Centre investments were spread globally. However, compensation limits are be allowable against a-year budget. This could pensions lifetime allowance company taxes and he would Woodford Equity Income, meet their family’s needs found that a quarter of 1,500 Isa “After the vote, investors will still harmonised across the EU. corporation tax, but incur be their salaries and a joint of £1m, five years before have £12,000 in his pension the core holding of 50pc. in the event of death or investors quizzed were opting for have the same need to invest for their If the UK voted to leave, it is likely personal and employer dividend of around £25,000 retiring at 60. If savings over a year. Compare this Neil Woodford is known long-term illness. lower-risk investments, pointing to retirement, for university fees for these limits would continue for the the uncertainties triggered by the their children, and for the many other time being. But over time they could EU referendum as their reason. reasons they save now,” he said. be higher or lower than elsewhere But is their caution justified? We Actively run funds can help in Europe. examine the risks. minimise any near-term impact with the fund manager fine-tuning 4. Taxes, Isas and pensions 1. Impact on sterling portfolios in a way funds that track the UK taxes and state pensions are set Sterling has fallen by 12.5pc against market will not be able to. by the UK Government so no change the euro, 6.8pc against the US dollar “Absolute return” funds, in is anticipated. Isas, too, are an and 11.4pc against the Australian particular, aim to smooth market exclusively UK product. dollar since the debate took off volatility. They sometimes use “short last December. But economists’ selling”, betting on falling shares, 5. How will expats fare? expectations that interest rates will to achieve real returns each year, Expats who rely on UK income stay on hold until the middle of 2017, although many fail. such as pensions will be affected by even if the UK remains in the EU, are Tilney Bestinvest recommends any currency swings. For example, also partly responsible for pushing a mix of funds, including some £1,000 would have bought 2,100 the pound lower. absolute return funds. Its tips include Australian dollars last December, but Peter O’Flanagan, head of foreign Threadneedle European Select, FP is now worth only A$1,800. exchange at specialist risk firm Clear Argonaut Absolute Return fund, The bigger worry for more than Treasury, is bracing for a sterling JPM Global Macro Opportunities, a million pensioners living in Spain shock if Britain votes to leave the EU. Threadneedle Dynamic Real Return is whether their state pensions will He said: “UK trade will be affected in and Invesco Perpetual Global continue to be uprated annually. the short term, because we will have Targeted Returns. The UK Government pays annual to renegotiate trade deals not only Fundsmith Equity is a favourite cost-of-living rises to all pensioners with EU countries but with other pick for a number of advisers, living in European Economic Area countries where we rely on EU trade including The Share Centre, which countries, so this should continue. deals. This will take time. Everything also tips Woodford Equity Income But the Government recently made will stabilise in due course, but there and Old Mutual Global Equity clear it did not intend to enter any could be short-term pain.” Absolute Return. new reciprocal agreements, so if a Mr Hollands agreed, saying: “A Nicolas Ziegelasch, head of new arrangement was required then vote to leave would be accompanied equity research at Killik & Co, the the upratings could be at risk. FTSE 100

The value of the pound vs euro * * * * * * * * * * * * * * * * * *  * * * Tuesday 12 April 2016 The Daily Telegraph The Daily Telegraph Tuesday 12 April 2016 * * *  Pensions and isas sPecial rePort pensions and isas special report ask an expert interest, at 20pc, 40pc and Tracker dividends 45pc, depending on your Fame, fortune and financial planning In Your Money on Saturday income, is higher than the 26 March, there were several tax on dividends, at 7.5pc, mentions of trackers. Do 32.5pc and 38.1pc. they pay dividends? If so, So when considering what size of dividend could what to put into an Isa, I expect on a FTSE 100 as a rule it makes sense tracker? to shelter cash and It’s easy to assume raChel riley GB, via email investments that pay interest before shares, celebrities don’t Trackers are a good low- which pay dividends. Rachel Riley, 30, a maths graduate of cost way to invest in the need to worry Oriel College, Oxford, rose to fame stock market without after replacing as paying a higher fee for Extra tax relief? too much about co-presenter on . a fund manager. Some Can my husband contribute She said: “[I don’t have a pension] Olivia Rudgard finds trackers pay dividends, but to my stakeholder pension money, says James but I’m planning to set one up this you need to pick the right and then claim back extra year. I definitely think it’s important version of the fund to be tax relief as he is a higher- to save for a pension – I know people answers for readers’ paid the dividend in cash. rate taxpayer? Connington. But who haven’t and they’re in a bit of a Mark Dunne, head of DT, via email pickle. Plus, you get good tax relief. questions on tracker research at investment irregular incomes But it’s quite daunting when you’re platform AJ Bell, said: Unfortunately not. If you self-employed and there isn’t a funds, the personal “Tracker funds can be are a basic-rate taxpayer can make preparing workplace scheme. It’s something I extremely cost-effective, then anyone contributing to need to discuss with an expert.” savings allowance which ultimately has a your pension can only claim financially for later Ms Riley was comfortable investing positive impact on returns tax relief at the basic rate her money but risk-averse: “I think and stakeholder generated from a portfolio. – and since your pension life difficult. Here, you can get a good return on your “Most funds will offer provider will claim this investments, so long as you’re pensions an ‘accumulation’ and directly from HMRC, there we look at some of sensible.” She would eventually like an ‘income’ version. The will be no direct benefit to to own property for security but now accumulation version your husband. Telegraph Money’s “it makes more sense for me to rent, automatically reinvests However, he can use your with the market as it is … I’m renting the dividends paid to the pension allowance, and Fame & Fortune a one-bed flat in west London, which fund into more shares. should consider doing this is very, very expensive”. The income unit pays the if he has exhausted his own interviews from the But she added: “My yearly rent is dividends received out to tax-free allowances. well under the stamp duty I would the investor as cash.” Jason Hollands, of Tilney have to pay to buy the same kind of Look for a factsheet or Bestinvest, the fund shop, past year, and property in the area, and I might not information document on said: “The level of tax relief want to live here in two years’ time.” the website of the provider on a pension contribution is gather expert or investment platform, based on the tax position of What the expert says which will tell you the the individual who owns the opinion on whether level of dividend the fund pension. Mark Dunne of AJ Bell, the investment pays, otherwise known as “Couples where the they are investing shop, advised starting a pension the yield. main earner has exhausted “as soon as possible” as delaying by The exact dividend you their ability to further fund the right way even a few years can have significant can expect depends on the their pension scheme, for consequences. “For example, if a level of the stock market example if from the next tax

30-year-old female with a good salary at the time you buy, but Getty year they will be restricted started contributing a healthy £1,000 at current levels the in making contributions per month they could build a pension FTSE 100 yields about 4pc. taxpayers and zero for government gilts and is treated as interest or because they earn over fund of £517,000 by the time they Individual funds should Income from PSA additional-rate taxpayers. peer-to-peer loans already dividend.” For example, £150,000 a year and will get to their state retirement age of also advertise their current I have money in funds that Generally speaking, savings pay interest gross. This is the Invesco Perpetual face new rules ‘tapering’ 67 [under existing legislation]. But annual yields on their are outside Isas, some in income includes interest taxable unless in an Isa or Corporate Bond fund, down their annual pension delaying starting contributions by factsheets, but the yield of equity funds, some in bond from savings accounts, Sipp, and will count towards which largely buys bonds, allowances, should consider just five years would reduce this sum a cheap, well run tracker funds and some in multi- taxable NS&I products, such your personal allowance. pays interest, whereas the using their spouse’s or by a quarter to £386,000.” fund should be very close asset funds. as the Investment Account UK corporate bond funds Schroder Balanced Managed civil partner’s pension Mr Dunne explained that starting to that of the index itself. I have heard that some of and Income Bonds, interest will continue to pay interest fund, which has both bonds allowances. a pension was straightforward, and The cheapest FTSE 100 the income can now be taken from corporate bonds and net, after 20pc tax is taken, and shares, pays a dividend. “But someone who pays possible with or without advice. tracker fund is the Legal tax-free as part of my new gilts, and interest from until April 2017, when they Mr Cox advised that you no income tax, such as a He said: “If you don’t want to do & General UK 100 Index personal savings allowance P2P loans. Following the will start to pay gross. should make full use of non-earning spouse or it yourself you can use a financial fund at 0.06pc a year, but (PSA), rather than just using introduction of the personal So the tax you pay on the personal allowance of a child, can invest up to adviser who can recommend an this is available only via my new dividend allowance. savings allowance, bank and the interest on these funds £11,000, personal savings £2,880 a year in a pension appropriate provider and investment Hargreaves Lansdown. Is this true? building society accounts, should be reclaimed via self- allowance, up to £1,000, and get a top-up from the strategy aligned with your needs. Elsewhere the tracker PR, via email assessment until this date and dividend allowance, of Government of £720 at the There are online tools such as costs 0.1pc. – so long as your combined £5,000. This gives a couple basic rate of tax relief, to unbiased.co.uk that make it easy to BlackRock’s 100 UK Yes, some funds can count ‘Funds that savings income is less than the potential to have income make a gross contribution of find an adviser near you and to check Equity fund costs 0.07pc as part of the personal your allowance. of £34,000 a year before £3,600.” what services they offer and the and is available widely. savings allowance so long as invest in bonds The dividend allowance paying any tax, without Mr Hollands highlighted they pay interest as opposed qualifications they have. Contact us If you are primarily and taxation system is including any Isa income. another option: “If your “If you would prefer to set up a interested in income, you to dividends, as defined by pay interest’ separate to the personal He said: “For example, husband’s primary objective pension yourself, there are online Do you have a financial question can prioritise a certain HMRC. savings allowance, but a basic-rate taxpayer with is to mitigate an income tax investment platforms that enable and need an answer? Email us at type of “smart” tracker, Which one they pay which had been paying your investments could £60,000 in a savings liability, rather than build a you to apply for a pension in under [email protected] or added Mr Dunne. will depend on the type interest after deducting contribute to both – it’s account giving 1.5pc interest retirement fund, he might 10 minutes. Of course, you then need write to Telegraph Ask an Expert, 111 “The iShares UK of security they invest in. 20pc tax, will now all pay a good idea to make sure will see the £900-a-year also consider investing in a to select the investments yourself Buckingham Palace Road, London, Dividend ETF, for example, Generally speaking, funds interest gross. that they do. Danny Cox, of income fall within their PSA. venture capital trust (VCT) but again there is plenty of guidance SW1W 0DT. tracks the performance of that invest more in bonds This interest is still Hargreaves Lansdown, the But £60,000 in a corporate share issue as these provide available if you need it. Many will If you would like a more in- the FTSE Dividend Plus pay interest, while funds taxable, so if your combined fund shop, said: “Generally, bond fund yielding 4pc a 30pc income tax credit even offer ready-made portfolios that depth analysis of your whole index, which contains the that invest more in shares savings income exceeds funds that are made up of would see income of provided that the shares are cater for different risk levels and can financial situation, please write 50 highest-yielding stocks pay dividends. your personal savings at least 60pc fixed interest £2,400, exceeding the PSA held for at least five years. be purchased with a few clicks of to the above addresses marking within the FTSE 350. Under the personal allowance, you will pay [bonds] pay interest, and by £1,400 and costing a total “But it is important to the mouse.” Mr Dunne pointed out your correspondence as “Pensions “It currently offers a savings allowance, the first tax on this at your highest funds which are made up of of £280 in tax.” understand that VCTs that if Ms Riley went down this route, Doctor”, if you would like a pensions yield of 5.66pc, although £1,000 of savings income marginal rate – of 20pc, less than this pay dividends. So planning how you split invest in small, illiquid it would be important to carry out plan, or “Money Makeover” for a full it has a higher annual will be tax-free for basic- 40pc or 45pc, depending “The individual fund your cash between these UK companies and should Numbers game: Countdown co-host independent research considering money plan. management charge of rate taxpayers. This falls on your income. Most factsheet will set out for two would save on tax. Bear therefore be regarded as

Rachel Riley plans to set up a pension rex feature Getty, service, price and investment options. 0.4pc,” he said. to £500 for higher-rate individual corporate bonds, you whether the income in mind that the tax due on higher-risk investments.”

Claire Sweeney Toby young louiSe JameSon

Claire Sweeney, 44, Toby Young, 52, a former Louise Jameson, 64, started singing at 14 contributing editor at played Leela in Doctor and made her television Vanity Fair, is the author Who in the Seventies debut in Brookside in of How to Lose Friends opposite Tom Baker. 1989. She starred in hits and Alienate People, She later starred in such as Chicago, Guys which was made into a Tenko, Bergerac and and Dolls, Educating Hollywood film starring EastEnders, and has Rita and her first self- Simon Pegg in 2008. many other television, written play, Sex in In 2011 he co-founded theatre and film credits Suburbia. the first free school in to her name. Sweeney’s plan for the country. Jameson told retirement is heavily He has four children Telegraph Money she property-focused. She and is the sole earner. had “the tiniest pension said: “I’ve a house and With an outstanding in the world” with flat in London, a flat in mortgage of £500,000, Aviva, paying £17.50 a Liverpool, one in New Young said his main month, plus the state Brighton, a house in aim was “to keep up the pension, which she’s Turkey and another in mortgage payments”. He drawn since age 62. Majorca. My London would also like to help She is a spender, flat is a nest-egg for his children on to the and doesn’t use Isas or Jaxon [her son] and it property ladder. invest her money. She represents his He told Telegraph said: “I like to spend on education. I’m relatively Money: “I’m a spender. holidays, city breaks. sensible with money as My main indulgence is When I am feeling flush I’ve a lot of outgoings Apple products … it’s I will take taxis instead with property.” not rational, it’s because of public transport. If I She doesn’t invest in I’m an idiot. I have zero have excess funds, I buy the stock market. “My recommended for those Sweeney to have a savings.’’ poses some investment sounds complicated but Premium Bonds.” benefits was becoming use the new personal investment is property in regular jobs), and financial plan Young is a member of risk. Diversification is a allows critical illness She has just switched increasingly common. savings allowance, and how I’m saving for some investment in the constructed by a the Local Government key part of any financial cover to be held for the her mortgage to a “It is still important depending on what my retirement.” stock market. certified planner to Pension Scheme, which planning. With a spouse person suffering, and capital repayment however, to think long tax bracket she falls “Property investment “futureproof herself ”. he joined in 2014, and family, no savings, the life cover held in option, aiming to be term and be realistic into, and beyond that What the expert says is not that tax-efficient, With her existing contributing 8.5pc of and money tied up in a trust for the surviving mortgage-free by 2019. about your earning should consider saving it is highly illiquid and portfolio, Ms Sofat his gross salary from house, he should also spouse or children.” She then plans to “buy potential in later years,” into an Isa. Anna Sofat, founder of the cost of further recommended looking working part-time consider some form of Ms Griffin said a tiny little property in he said. “It is never too “Isas also offer Addidi Wealth, said: investment [in England at which properties for an educational protection for them.” Young’s pension scheme the south of France’’. late to start saving. access to a wider range “It’s never wise to be and Wales] has could be sold, to fit an charitable trust. The first thing would offer death- She added: “If I had “If you are retired of investments if you invested all in one asset increased through overall strategy to “I’ve always lived a to consider is the in-service benefits of any money to invest, I and likely to need the wanted to take more class. Property, higher stamp duty and maintain an income fairly hand-to-mouth ownership of the three times pensionable would invest in friends’ money in the next five risk in the hope of a especially in London, tax on rental income.” stream into retirement. existence, spending house, to ensure that salary. But she added: film or theatre projects.” years you are unlikely better return. Investing has had a good run but Ms Sofat said If the financial plan most of what I earned. if anything happens “His pension provision to want to take a huge in unproven ventures that does not mean it Sweeney could use her identifies savings above I thought the best to him, the property is is very limited, with What the expert says risk. That suggests with friends and family will continue to do well. own Isa allowance and her needs, she place to put any spare disposed of properly just one year’s worth getting the highest rate carries significant risk Remember what her son’s Junior Isa suggested considering cash is into my home, and any inheritance of contributions. He Mark Dunne of possible on cash savings and should probably be happened in 1990-93 … allowance to build tax- higher-risk investment because that’s likely tax taken care of. ‘‘He should fully utilise his investment broker AJ will be the priority and avoided unless it’s cash property has longer free income for herself in growth companies, to appreciate in value should also make pension contribution Bell, said: “Switching ensuring you do not pay you can afford to lose.” cycles than, say, the later on, and a offering tax relief via more than any other sure an appropriate capability.” to a capital repayment any unnecessary tax on He added: “If you stock market.” university fund or EIS and SEIS (enterprise investment vehicle.’’ (and valid) will is in Helping his children mortgage to provide the interest.” have money you will Ms Sofat would house deposit for her schemes). place,” Ms Griffin said. on to the property light at the end of the The effective interest not need for at least five recommend a more son. She also suggested “Although high risk, What the expert says Next, she suggested ladder would ‘‘be mortgage tunnel was rate on Premium Bonds, years then you could balanced approach, starting a pension, as it it can also reap high a protection policy, difficult to do with sensible. This means all which Jameson likes, consider investing in with emergency cash is tax-efficient: “If she benefit so long as she Rachael Griffin, a in the form of a “joint his money all tied income can be saved or is not the best and will a fund that tracks the savings to cover a doesn’t need the takes a diversified financial planning life first death” critical up in property”, and spent, rather than given be cut again in June. stock market and will planned three to five pension for herself she approach and expert at Old Mutual illness with life cover Ms Griffin suggested to a bank.” The “prize fund rate” pay dividends each years of spending (more can leave it for her son.” undertakes good Wealth, said: “Having plan, written in a split funding a Help to Buy Mr Dunne pointed will fall from 1.35pc year. The FTSE 100 is than the usual six Ms Sofat said she due diligence,” Ms all his eggs in the one discretionary trust. Isa for any children who out that working while to 1.25pc. Mr Dunne forecast to deliver a months to a year would encourage Sofat said. property basket clearly She said: “This are over 16. drawing pension suggested that she yield of 4pc this year.” * * * * * * * * * 8 * * * Tuesday 12 April 2016 The Daily Telegraph