07.09.03 Saving and Investing Wps.Rtf

THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE.

MONEY BOX LIVE

Presenter: VINCENT DUGGLEBY

TRANSMISSION: 3rd SEPTEMBER 2007 3.00-3.30 RADIO 4

DUGGLEBY: Good afternoon and welcome to Money Box Live going into its eighteenth year responding to your questions on how to manage your savings and get to grips with other aspects of personal finance. I know only a small proportion of callers get on air, but often we can use your first hand experience for features on Saturday’s Money Box, so a call isn’t wasted and of course your emails are welcome any time. As soon as we set up the programme, the details will be on the website, bbc.co.uk/moneybox. As usual for the first programme of a new series, we’re covering investment. Stock markets around the world had a very bumpy ride in August, triggered by worries over US mortgage debt - so-called sub prime mortgages - and the impact on financial institutions, which stand to lose a great deal of money. It’s a moot point how far they should be propped up, but markets run scared at the merest hint of recession and a fall in consumer spending. And in the UK of course there’s still concern about inflation and the question will interest rates have to go up again? The Bank of England Monetary Policy Committee are meeting in a couple of days time, but no-one expects a change this soon. There’s no doubt that investors have been very jittery with three figure rises and falls in the 100 share index. It briefly fell below 5900 and is now hovering around the 6300 mark, around the same level as it ended last year. But even if you don’t feel like committing yourself now, it would pay to have a shopping list ready of funds which have established good long- term records or maybe shares which have temporarily been oversold. There are also some tempting fixed rate bonds available from banks and building societies, some

yielding more than 6%. What you choose depends on your attitude to risk, how long you can tie the money up and whether you’re a basic or higher rate taxpayer. Remember Individual Savings Accounts are tax free, pension contributions are tax deductible. With me in the studio to answer your questions, I have Amanda Davidson, Director of Baigrie Davies and Alan Warner from Duncan Lawrie. 08700 100 444 is the Money Box Live number. And David in Heaton Moor, you’ve got the first question.

DAVID: Hello.

DUGGLEBY: Hello.

DAVID: I’m a small investor. I hold shares in various banks and utility stocks. I was wondering after the recent turbulence, is it alright to think about going back into the market and buying some more shares or not?

DUGGLEBY: I would hope you’d got a bit more of a spread in shares than just those two sectors. Is that really all you’ve got?

DAVID: (over) I have, yeah. I’ve got other things too.

DUGGLEBY: Oh right, I mean because it would be a very narrow based portofolio. But I take your point. I mean bank shares, Alan Warner, were pretty hard hit.

DAVID: They were, yes.

WARNER: They have indeed been very hard hit and some are down 20% so far this year. HBOS down 20%. But I think that after the fall we’ve seen, there’s now some very good value to be had amongst bank shares. We’re talking about forward price earnings multiples of no more than 7 or 8. The overseas banks rather more expensive - HSBC and Standard Chartered - but they look attractive. And I think for those who have had to take the view that the sub prime problems are discounted in share prices, which I think they are to a large extent, I would suggest the

Royal Bank of Scotland looks a good bet - 5% yield, 7½% forward price earnings ratio. So we’re talking about price earnings multiples that we haven’t seen for a long time, very low multiples.

DUGGLEBY: It doesn’t seem very clear I think to many people as to why we should have got bound up with this sub prime. Was it people saying that British banks were just as exposed to some of the American lending institutions?

WARNER: Well I think the answer to that is that British banks have lent on a large scale to third parties, principally hedge funds …

DUGGLEBY: And bought packages of them?

WARNER: … and bought packages. And of course they’re left with some of those packages on their books now, they can’t get rid of them; but they’ve got big loans to hedge funds who have bought this kind of product - sub prime mortgages, packaged sub prime mortgages - that have turned into something toxic.

DUGGLEBY: Amanda, I’ve noticed the newspapers have been recently tipping some of the financial funds. Presumably they are specialists in bank shares and other financial shares exclusively, so they would be focused on that sector?

DAVIDSON: That’s right. If you are thinking of going back into the market, it might be wiser to go into a fund rather than individual shares, obviously depending on how much you’ve got to invest, because at least then you’ve got a spread of investments. And, as Vincent was saying earlier, make sure that you have got a portfolio that’s well spread. I think now could be a good time to go back into the market generally, and if you’re cautious about it you might like to invest some money now and perhaps a little bit of money later.

DUGGLEBY: Shirley, I think you’re on a similar tack looking at bank shares?

SHIRLEY: Yes I am. Am I allowed to say which bank?

DUGGLEBY: I don’t see why not.

SHIRLEY: Lloyds TSB. I sold them about a year ago and the stock market has dropped considerably now, so I was wondering if it’s a good time to buy them back?

DUGGLEBY: Lloyds TSB of course have traditionally had a very high yield which has remained intact, Alan.

WARNER: That’s right, Vincent. The market was always wondering when Lloyds was going to cut its dividend, but it never did, confounded the analysts. I think that for anybody wanting income, a premium yield, then Lloyds is a good bet at current prices. Bear in mind though that the dividend is not particularly well covered. Other banks with lower yields have better dividend cover.

DUGGLEBY: Yes, I mean you say you sold them a year ago. What did you sell them for?

SHIRLEY: I think nearly 600. They were at the top of the market.

DUGGLEBY: They are below that now, I think.

WARNER: They’re well below, so you timed your exit extremely well. No, I think now would be a good moment to go back in.

SHIRLEY: Thank you very much.

DUGGLEBY: Okay. And we were just talking about the funds, Amanda. Any particular funds that catch your fancy?

SHIRLEY: Well Jupiter Financial is one to be looking at in terms of financial markets, and Jupiter’s a good house so you could look at that particular fund.

DUGGLEBY: Okay. We’ll move on now to another subject. Premium bonds are being raised by Eileen in Aberdeen.

EILEEN: Hi, good afternoon.

DUGGLEBY: Hello.

EILEEN: I have acquired over the years £3,500 worth of premium bonds in mine and my children’s names. I was kind of partially hooked with the five £1 million wins in June and I just feel at the moment is it a poor investment? It’s a rainy day fund and I can’t really go for high returns if it’s going to be risky.

DUGGLEBY: Okay. Well before we take your specific point, Jean in Farnborough’s also concerned about her premium portfolio.

JEAN: Yes, thank you. Well I only really put my money, which was a totally unexpected amount of money, £30,000, into premium bonds as equal to putting it under the bed, but at least I was earning some interest on it, which if I put it anywhere else where could I put it to earn a little bit more because £30,000 is not going to earn that much amount of money for me?

DUGGLEBY: Well you say that, but actually the world’s just changed in the last year, Amanda, because we used to sort of say oh well you know you get 3%, or after tax maybe only 2%. But it’s a little different now. I wonder whether the premium bond prizes have kept up with the sort of returns available in building societies?

DAVIDSON: Well, yes, if you’re averagely lucky you should get a 4% return on your premium bonds.

DUGGLEBY: But you could get 6½% in a building society.

DAVIDSON: Exactly.

DUGGLEBY: And you will get that.

DAVIDSON: Yes, exactly, and I mean the 4% return is if you’re averagely lucky and you may be below averagely lucky.

DUGGLEBY: Jean, have you been lucky?

JEAN: Well I’ve won £50 every month since Christmas.

DAVIDSON: So that’s £600, isn’t it?

DUGGLEBY: That’s not very good.

DAVIDSON: It’s not as much as you should have been winning on the basis of the 4% being if you like an average return.

JEAN: Well I worked it out that it was about 3.2 or something.

DUGGLEBY: Which tax free is okay if you’re a higher rate taxpayer, I suppose.

JEAN: Well yes because I’m a pensioner but I’m also working, so you know I’m paying quite a whack of tax.

DUGGLEBY: Eileen, have you won anything recently?

EILEEN: I’ve won a total of 2 £50’s (£250?), which I thought I would win one and a half times a year on the odds.

DUGGLEBY: Well that’s actually - you see you’ve done slightly better. But on the other hand too, you know in your place Eileen one could almost regard the £3,000 as sort of almost a little bit of gambling money but it’s safe. I’m a little more concerned about having £30,000 in it, Alan.

WARNER: I rather agree.

JEAN: Well so am I! (Laughs)

WARNER: A notional return of 4%. No, I think for non-taxpayers it’s a no-brainer, not the right thing. For 40% taxpayers, possibly. I think you’ve implied that you’re a basic rate taxpayer. Personally in your position, I’d rather switch my cash to something which pays - y+ou know a building society, a bank deposit account paying 5%, 6%.

DUGGLEBY: But by all means you know maybe keep £5,000 in because you never know, the big one might turn up.

JEAN: That’s right. So just to put it in a bank. I have a bank savings account which pays 6.5% or about at the moment. It would be better to put it in there really then?

DUGGLEBY: Well that’s a good rate.

DAVIDSON: Well based on the luck you’ve had so far, Jean, then yes you’re getting a better rate from your bank account at the moment rather than premium bonds.

JEAN: Yes, you’ve convinced me. (Laughing) I sort of knew deep down that that’s what I was doing.

WARNER: It won’t be as much fun Jean though.

DAVIDSON: No, it won’t.

DUGGLEBY: You won’t be waiting for the envelopes to arrive.

JEAN: No, the regular cheque. Thank you very much. Thank you.

DUGGLEBY: Yeah. It’s the envelope that arrives on … I think is it the 2nd of the or the 3rd of the month and you know that has to be a big one? But most of them don’t arrive until the 19th or the 20th and then you know it’s only £50 if you’re lucky. Thank you both and now to Ted in Royston. Ted?

TED: Hello. I have a lump sum to invest, which has appeared suddenly, and I was planning to invest it in property but I am no longer convinced that property will give me a significantly better return than other ways to invest. The sum is £65,000 and I’m looking for the panel’s advice on where to spread this. I’ve never been particularly diligent at saving and I’m not particularly aware of how I can do this best, so over to you.

DUGGLEBY: Can I just ask you - this £65,000, I mean it wouldn’t have bought a property. I mean it would have given you a decent deposit, but that’s about it.

TED: Yes, it would have been to change the house I live in now. I didn’t fancy dealing with the issues of buy to let and capital gains and so on.

DUGGLEBY: Yeah, but that means you’d have invested it to improve your main residence. Is that the idea?

TED: That’s right. But looking at the house price rises over the last year …

DUGGLEBY: You don’t think it would be a good investment to do that?

TED: I think they’re looking at around say 6½%. And I know you can be sophisticated and say that the market is very, is fragmented, but I don’t really want to go down that route.

DUGGLEBY: I just want to get this absolutely clear. You’ve rejected the idea of investing in property, but if you were to invest in property you’ve got various

choices - you’ve got property shares, you’ve got property unit trusts, you’ve got REITs, Real Estate Investment Trusts. You’ve got a variety of things, but you’re rejecting those completely and saying no we don’t want that, I want something else.

TED: I don’t really know about these. My initial idea was to look at putting some of the money into ISA’s and perhaps putting some in a higher risk investment.

DUGGLEBY: Okay, well you’ve given us an idea. I mean ISA’s certainly, obviously tax efficient Amanda?

DAVIDSON: Yes they are. Any growth in income within the ISA you’re not going to pay any additional taxes on that, so that will tax shelter from that point of view. Ted, can I ask you in terms of timescale for the £65,000, is this a fairly long- term investment? Are you looking for capital growth? Are you looking for some income on it?

TED: I’m not looking for income on it. I think in the long run, it may be that I’d like to put it into my own property, but at the moment I’ve put it into a savings account, the sort of thing that you can open online with my normal bank. That’s an immediate landing place for it, but certainly in sort of 2 to 3 or maybe up to 5 years I’m looking at what I can do best with it to maximise its value but I’m not looking for income from it.

DAVIDSON: Okay. Do you have a mortgage, Ted?

TED: I do. I’ve got about £120,000, I think, something like that.

DAVIDSON: Okay. Well you may want to consider, providing you’ve got no penalties for so doing, repaying your mortgage or at least part of it from that legacy because that will mean that you will save on the monthly amounts in terms of the mortgage servicing, and those monthly amounts you could put into a separate savings plan and build up some capital for the long-term.

DUGGLEBY: So it’s going to be quite difficult, Alan, to achieve a return with certainty above the level of the mortgage interest?

WARNER: Absolutely. If the mortgage is costing you 6%, 6½% - that would be quite a competitive variable rate - that means that you’ve got an opportunity cost of at least 7% if investing elsewhere. So after the strong you know market of the last 3 or 4 years, we can’t really expect much in the way of super growth in the next 2 or 3, 4 or 5 years. I think Amanda’s absolutely right: you should look first at reducing your mortgage.

TED: That’s a very interesting take on it actually. Looking at the graph of the FTSE and the FTSE 100, I’ve noticed that there’s been a significant drop in growth over a sort of 3 to 6 month period and I’m interested that you said you don’t expect much higher growth over a considerable period.

WARNER: No, I think we’ve had the easy gains.

DUGGLEBY: Yeah, the FTSE’s had a very big rise in the last 3 or 4 years. I mean you’re not going to double your money in the FTSE in the next 5 years, I’m pretty certain of that - not as things stand at the moment anyway - so you would be taking quite a risk. And with the debt as well there, paying down debt is usually the best advice.

DAVIDSON: Especially over a shorter period of time - 2, 3, 5 years.

DUGGLEBY: 5 years. It’s just not long enough to be sure. Although I mean that said, one should obviously look at other aspects of your financial planning, notably your pension arrangements. For example that would be something … I don’t know how good they are. I don’t want to go down that route too much, but you should certainly make sure that perhaps some of the money went into your pension bearing in mind that you now, if you wish, can pay the equivalent of the whole of your salary into the pension if you’ve got a lump sum with which you could do that, your annual salary, so replicating your annual salary. You could put £20,000 into a pension plan if that was thought suitable. Perhaps best to go and see a financial

adviser to discuss it in a little bit more detail. And I just want to bring in an email from Nigel. Similar story about investing in property except he’s actually got rid of most of his property portfolio, which seems like smart timing. He’s raised £400,000, got it on deposit, might well go back in again in the not too distant future, but wonders whether it’s better to lock into a fixed rate bond say for 1 or 2 years because he thinks 6% plus is a rather attractive rate of return. What do you think?

WARNER: I think that makes very good sense. If you can get 6, 6½%, a fraction more than that, 1 or 2 year view, then he should be well placed to go back into the property market. Of course if he needed money at very short notice, then he could use the security both of the property he’s buying and his deposit to get loan finance.

DUGGLEBY: So in this case, it is worth in fact locking in because he’d have to lock in for a year or two rather than just stay on a day to day instant access?

WARNER: If he’s unlikely to buy the next property …

DUGGLEBY: (over) I don’t think he’s going to buy.

WARNER: … then I think it’s perfectly sensible to lock up for a year or two.

DUGGLEBY: Okay, Paul in Brighton, your call now.

PAUL: Yes, good afternoon. I’ve had an ISA, £14,000 worth of ISA for about 6 years, and initially it behaved quite well, enabling me to draw £4,500 out for some roof repairs 2 or 3 years ago. But in the last 6 months on a value of £15,500, it produced £133. Admittedly, prior to that it was £572 the previous 6 months, but £150 the previous … should I get out of there and put it in something with a 5 or 6% rate of interest?

DUGGLEBY: What do you think, Amanda?

DAVIDSON: Well the markets have been very rocky over the last 6 months and I think it’s a little harsh to judge it over that particular period of time.

PAUL: I thought the markets had been going up until last month or so.

DAVIDSON: Well if you look over a 6 month period, there may not be too much difference with the price that things are at the moment, and if the fund has done well for you over the last few years I’d be inclined to give it a little bit more space if you like to recover some of the money it hasn’t in a sense made. Could we ask you where the money’s invested?

PAUL: It’s in a high yield corporate bond with M&G.

DAVIDSON: So it’s fairly reasonably cautiously invested, isn’t it?

PAUL: I would have thought so, yeah.

DAVIDSON: Yeah. I mean is that the only fund that you’ve got or do you have other investments?

PAUL: No, no, that’s it.

DAVIDSON: Well I would be inclined to look to spread your investments a little bit more on the basis of not having all of your investments in one particular fund and maybe look at some equity funds to balance out the corporate bonds.

PAUL: Yeah, I mean I have got quite a lot of money in a bank account, but …

DUGGLEBY: Alan?

WARNER: Yes, I think you’ve got to accept that high yield corporate bond funds haven’t done very well in the last few months. Unlike gilts, which of course are risk free, high yield corporate bonds have fallen in value and that is

obviously reflected in the fund in which you’re invested. Long-term I believe that fund’s got a pretty good track record. I would expect M&G to navigate their way out of this one and I would not sell on the basis of what’s happened in the last few months.

PAUL: Okay, thank you.

DUGGLEBY: Thank you. And Eve in Manchester, your call now.

EVE: Hello, yes. I’ve recently had a PEP mature, so I’ve got about £20,000. They’ve offered me an alternative investment, but I didn’t like it all that much and I am wondering what to do with it. I’m a standard rate taxpayer and I like investments that protect my principle.

DUGGLEBY: I’m not quite sure whether people will understand when you say your PEP has matured. A PEP doesn’t mature. It’s a Personal Equity Plan, which was the precursor of the Individual Savings Account. But it doesn’t mature. You cash it in. Is that what you did?

EVE: No, I didn’t, but they wrote to me and they said that the duration of - I thought they said to me that it had matured. In some way, shape or form, I have to move it to another investment.

DAVIDSON: Yes, but you can keep it within a PEP. It’s the underlying investment that has matured, isn’t it, Eve? It’s not the actual PEP itself.

DUGGLEBY: I’m just worried that you don’t take the PEP … what we know as the PEP wrapper off it. You know it’s the tax free wrapper. That you keep it there and you don’t actually ask for the money back …

EVE: Oh, I see.

DUGGLEBY: … because once it comes out of the PEP - and incidentally there is a point here, Amanda. Thank goodness, we soon shall not have to refer to

PEP’s and ISA’s because they’re all going to be the same as from next April, isn’t it?

DAVIDSON: I think that’s right and it’s going to be much more simplified because it is quite complicated at the moment.

DUGGLEBY: (over) Yeah, they’re going to merge the two. But anyway you’ve got a tax free wrapper round an investment and you’ve got an investment that obviously has matured for some reason or other, so you need to consider what you’re going to do with it. £20,000 is a good sum to play with in a PEP, Alan?

WARNER: It’s a good sum to play with within a PEP. My suggestion would be to transfer the funds to another plan provider. And as you don’t want to take too much risk, you’ve told us that you’d only put a small amount of risk, I would suggest keeping up to £10,000 in a corporate bond fund, yields 5% to 6%, and perhaps the balance could go into relatively cautious equity funds - funds like those offered by Artemis or Fidelity. So go to a financial adviser. Ask them to arrange to transfer the entire fund to a new plan and then invest from there.

EVE: Right.

DUGGLEBY: There would be a possibility though, since this is the old style PEP, you could take enough money out - have you got an ISA at all, an Individual Saving Account?

EVE: Yes, I do.

DUGGLEBY: You’ve got one. So you’ve subscribed for this year’s ISA, have you?

EVE: No, I haven’t.

DUGGLEBY: Ah …

EVE: Not this year’s.

DUGGLEBY: … well it might possibly, Amanda, be worthwhile keeping just a bit out of that PEP and then putting it into a new ISA because there’s some good rates available on anybody who starts a fresh ISA this year.

EVE: Oh right.

DAVIDSON: Yes, there could be. Also I would say to you, Eve, that in terms of the investments, I mean there are from time to time issues of investments within PEP’s and ISA’s that do protect the capital. So you might want to look out for those, but you need to be careful because there are some that are good and there’s others that are too complex and not so good. But again you will need some advice on that. So you could either adopt what Alan’s saying of mixing the investments, but there is still a risk to the capital, or signing up for another similar investment to what you’ve got over perhaps a 5 or 6 year period but where the capital is protected and there is some potential upside.

EVE: Right, but basically I need to take some advice on this?

DAVIDSON: I think it would be wise if you did just to make sure that you got exactly what you felt comfortable with and what you wanted.

EVE: Oh super, that’s good to know. Thank you very much indeed.

DUGGLEBY: Thanks. We’ll take a couple of emails now. This is from Simon in Lincoln and he’s paid off one mortgage, which he’s had for many years, and he did it through an endowment, so he had an endowment policy to pay it off. Very disappointing, he said. Didn’t perform at all well. Now starting again, another mortgage - £115,000. At the moment it’s interest only and he’s saying look, come on, let me have some decent investments this time so that I’m not going to be disappointed on my second mortgage. I think that’s a very interesting question. Would you advise him to try and as it were beat the odds by investing, Alan?

WARNER: Well I think we’ve already touched on this during this

programme. The stock market has had a very strong period the last 3 or 4 years. I don’t expect to see the same sort of growth within the next 4 or 5 years as we’ve seen in the recent past. So my advice to somebody in this position would be to say the mortgage is costing 6% or 7% a year. You are unlikely to beat that rate of return in any relatively low risk, low to medium risk investments, therefore just make repayments or save from month to month, and then occasionally, every 6 months, pay off part of the capital of the loan.

DUGGLEBY: So in other words don’t have anything to do with these plans to pay off your mortgage and make a profit?

DAVIDSON: Well I think it’s interesting that he’s prepared to take another investment plan having had one that didn’t do very well, so I mean there is a danger …

DUGGLEBY: He blames the insurance company.

DAVIDSON: Well, yes, but then the fund manager may not perform so well; he might blame the fund manager. So I think there is a question of the degrees of risk and he might have to take quite a high degree of risk in order to get over if you like the interest rate from this mortgage and make it worthwhile. But if he wants to be fairly certain of paying off the mortgage, then paying off bits of capital. And, again, the monthly savings could either again be recycled to repay more of the mortgage or into a savings plan to build up capital for the future.

DUGGLEBY: Okay. And we have an email from Barry in Beckenham who says he reached 60 6 months ago. He planned to retire, but found he was continuing to work. In the meantime he’d done absolutely the right thing - his pension fund had been transferred from equities to cash, which 6 months ago was quite a good decision I think - but now he finds himself with £250,000 in cash with a pension fund he doesn’t know when he’s going to need. Is he sensible just to leave it in cash, Alan, or should he perhaps go into bonds?

WARNER: Well I think he’s got to come off the fence and decide. He’s

got to decide because he’s going to be retiring in a year’s time, 2 years time. If he’s likely to retire within the next 12 to 18 months, I think I would simply sit it out in cash, but if we’re taking a long-term view then I would suggest partly bonds, partly equities, but retain a certain amount of cash.

DUGGLEBY: But get your act together, Barry. You’ve got to make a decision about retirement. Amanda?

DAVIDSON: You have indeed. I think he’s also got to make a further decision as to what he’s actually going to do with that pension pot come retirement. If he’s going to buy an annuity, yes he wants to keep it quite safe; but he might go into a draw down or unsecured income, as it’s now called, where he’s got an investment pot and just simply draws an income down. Now if he’s looking at that latter route, he’s looking at a much longer term arrangement and he’s looking at a life span perhaps up to age 75 when he might buy an annuity …

DUGGLEBY: (over) So income draw down might be a good idea.

DAVIDSON: … so income draw down, now called unsecured income, might be the route. In which case there’s arguments that he should keep a large portion of it invested for the long-term growth.

DUGGLEBY: Exactly. And those income draw down plans or alternative secured income or whatever it is, they run up to 75 …

DAVIDSON: 75, unsecured income.

DUGGLEBY: … so there’s a 15 year possible investment …

DAVIDSON: There is a horizon in which case you’re going to have some equities and you know some property. It is a very different exercise … and not so much in cash. So that decision needs to be made first.

DUGGLEBY: Right, Margaret, you’re ringing us from Germany.

MARGARET: Yes. Hello, thank you. Well we have an endowment policy which basically matures next June.

DUGGLEBY: Who with?

MARGARET: Actually it was one that’s now gone to Resolution and Phoenix from Royal Sun Alliance.

DUGGLEBY: Yes.

MARGARET: And basically it’s a question of the total benefits have now gone down in September. Should we cash it in now and put the money on deposit or keep it for the rest of the year?

DUGGLEBY: With a year to go, Alan? Do you know if Resolution has policy on these sort of things?

WARNER: Well it depends on the underlying funds and how the underlying funds are invested, but, all other things being equal, with such a short period of time to go - what are we talking about, 9 months? - I would wait until maturity. I think you’d have to be very pessimistic to think that you’d be better off surrendering subject to penalty now. I think you should sit tight till next June.

DUGGLEBY: What do you think, Amanda?

DAVIDSON: I think that’s probably right. It may be worth looking at it to see what the values would be in terms of the surrender value. It may be looking to see whether you could perhaps sell the policy rather than actually cashing it in, but that sort of analysis would need to be done. But it is a very short period of time and the chances are it’s probably best to keep it going till June.

DUGGLEBY: Okay. A quick email. This one from Alan in Allendale says ‘Can you please give me the relative advantages and disadvantages of choosing an

accumulation or distribution trust?’

WARNER: Well I think it comes down to a question of whether you want income or growth. Clearly if you want income, you must have distribution units. Then your income is paid out to you twice, yearly, quarterly, whatever. If you have accumulation units, no income is paid out to you and you get either extra units added to your holding or the unit price rises to reflect the addition of income. So for growth, accumulation units; for income, distribution units.

DUGGLEBY: No tax advantages either way then?

WARNER: No tax advantages. Either way, if you’re exposed to higher rate tax, you pay your higher rate tax.

DUGGLEBY: Okay. And a final question coming in from Tom in Warrington. Tom?

TOM: Oh good afternoon. We’re saving for our grandson in an account which we’re allowed to save up to £5,000 tax free. It’s almost at that point now and we’re wondering what the best thing to do is for the best sort of return.

DUGGLEBY: So you’ve got to get the money out of this particular organisation, have you?

TOM: Well we just don’t know what to do really. It’s almost at £5,000, so it’s tax free up to that stage, so we wonder whether or not we should transfer it to some sort of account which is similar.

DUGGLEBY: Or indeed take perhaps a little more risk because he’s got some time before he’s 18.

TOM: It’s up to 16 apparently.

DUGGLEBY: Well still 7 years.

DAVIDSON: It is 7 years. I would be tempted to put it in some form of investment because for children you can take a longer term view and at least some of that £5,000 could go into a unit trust. You could designate it for your grandson and he would be then entitled to the money at age 18. If you wanted him to have the money earlier, then you could cash it earlier.

DUGGLEBY: Of course he won’t have had the children’s bond because he was too old.

DAVIDSON: Yes, he’s a bit too old for that even at 9.

DUGGLEBY: That’s right. But, nonetheless, it’s a matter of really saying this is going to be quite a nice sum for a young man coming in at 16 and finding there’s a little nest egg for him, particularly useful if he goes to university.

DAVIDSON: It’s a very useful sum and you’re a wonderful grandfather to be doing this for your grandson and giving him this very good financial start. I’m sure it will be extremely useful for further education of some sort or some money for perhaps buying a car or whatever he might want to do in the future.

DUGGLEBY: It really doesn’t matter whether you’re 9 or 90, Alan; it still comes down to risk, doesn’t it?

WARNER: It still comes down to risk and if you want a risk free investment then I’m afraid you’ll have to stay with a boring old deposit account or something similar.

DUGGLEBY: Alright, Tom, well best of luck and I gather you’ve got some other grandchildren you’re saving for as well?

TOM: Three of them. (Laughs)

DUGGLEBY: Three others. Hopefully all going to get £5,000. Jolly good. Well thanks for calling us and thanks to all of you who’ve called this first edition of the new series of Money Box Live. We’ve run out of time, I’m afraid, but you’ve been hearing from Amanda Davidson from Baigrie Davies and Alan Warner from Duncan Lawrie and you can get more information on the points we’ve raised during the programme by ringing 0800 044 044 or you can log onto the website, bbc.co.uk/moneybox, where there are contacts and links to other related financial websites. And you can also sign up for a podcast. Now I have to confess my own lack of knowledge on this issue, but I gather podcasts will be delivered to whatever it is, your computer, and then you can listen to it on all these funny gadgets you can carry around. It’s wonderful. You can sign on for it on our website. Paul Lewis will be here with the next edition of Money Box on Saturday and I’ll be back with Money Box Live same time next Monday afternoon when we’ll be talking about tax.