Investment product charges, fund charges. Are you being ripped off. This report highlights some of the of the truth.
It’s a bit wordy, stick with the summary.
The Truth About Planning For Care Fees and Inheritance Tax.
The Ugly Truth About Care Fees Planning
Five Things You Need To Know About Care Fees
My parents hit their mid 70’s with no formal plans in place, their pensions kicked in at 65 and they have had a very happy and healthy life, still living in the family home and still very much in love. Of course health wise I never expected them to start getting frail so quickly, and as is normal it was Dad who got worse first.
None of us are ever sure which one it’s going to happen to first, but we must try and plan for every possible outcome. I know it’s difficult, and it’s an even harder subject to bring up with our family – but bring up we must.
Nothing prepares you for it when it does come, and there is little truthful information out to there to help much like you, my wife and I were muddling through piles of information when it happened to us.
It also doesn’t help when you read some of the specialist websites because many of these report different things, and then there are the conflicts from Adult Social services who often seem determined not to help you.
We have personally found that Social Services are not helpful at all; indeed have been told that “they are not advisors or consultants and are not concerned about preserving any funds” it’s only the care of the person needing the care.
And then you could spend days looking for the right answer only to miss one or more important points which then means any tentative plan you have, fails.
When we made the first calls to Social Services, they made some sense, but actually getting them to take action was damn difficult– with at least three departments involved it was proving to be a frustrating exercise.
Despite my twenty eight years of financial services bureaucracy I was not prepared for what was coming next, confusion and complexity faced us.
This is one of reasons I started to tour the South East with a series of workshops outlining the truth about what really happens when parents need more than a bit of shopping and a cleaner and when there is an industry waiting to convince you that they have the solutions – when they don’t.
You are never sure which one it’s going to happen to first, but you must plan for every possible outcome. I know it’s difficult, and it’s an even harder subject to bring up – but bring it up you must. Inheritance tax and care fees should be on the tip of your tongue until you understand and know how they will affect you and your family.
These are your major considerations..
What happens if one or both of your parents needs long term care, either in a nursing home or just care because they are frail. Simple things like cooking and cleaning can be a real problem.
Is there anything that can be done to reduce a liability? What are your options.
Also, what happens to the things they own, their pensions, their house and other investments if they do die or if they live for longer than expected.
These Are Difficult subjects.The main considerations are care fees and inheritance tax – who pays and who doesn’t and how can you legally reduce a liability to them without falling foul of the law, and without being accused of deliberate deprivation.
Beware Of The Snake Oil Salesman and The Shiny Suited Liars. One of the big problems is that there are plenty of ‘scammers’ out there offering solutions that will never work (at best) or at the very worst are plain scams, they base their scams on complexity and deceit, which is why I have spent the last four years providing education and knowledge instead of selling products.
You require a slightly different structure and a forward plan, and not most definitely not a one size fits all product.
The sooner you get started on this problem, the easier it will be. Knowing what your options are now will ensure that when the time comes, you can have a stress free move in plan a or b. Whatever you decide based on what you know.
Below is part of a press release I sent to Horsham, Crawley and East Grinstead Elderly Groups earlier on the year, when there is was a highly targeted campaign by two firms. Both were offering plans that could never work and charging a small fortune for them.
It’s clear that with record house prices in the South East, and the Government collecting more and more inheritance tax, and it’s insistence of changing the rules every so often (2014 Care Act) this problem is not going away soon.
Like you I was concerned for my parents, and I am a qualified financial consultant with over twenty eight years experience in this area of personal planning. It’s for that reason I have been managing an education program with everyone I have met over the last couple of months.
I have been presenting this information at over 50’s groups across the county, and here is what they said.
You and I both know that death is not an option, and nor are the taxes that arrive with it, and the 2014 Care Act brings a similar threat when half dead or at least not coping.
Problems arrive when you consider what to do. Which is where I can help. I have no products to sell you, just simple face to face consultancy for a fixed fee – and a complete money back guarantee.
You may be looking for a magic wand to help solve some of the problems for you and I can’t promise that, but I can help you with a number of proven solutions – and the sooner these are discussed the easier/more efficient things will be for you.
You and I can look at exactly what can be done, what’s safe to do and what is tested. You are then free to set things up by choice, on your own terms.
But, and this is a big but. You have to act on this. If your parents [or you] have assets in the form of a house that is worth more than £30,000 (thirty thousand pounds) and are still alive, and if you are remotely concerned about making sure the maximum amount of money is passed down then you need to consider this today – before it’s too late.
As I mentioned above, no magic wand, just honest and truthful help without having to sell you something.
I don’t even want you to make a decision today, all you need do is send me your email address using the box below, and some more information will be sent. I’ll follow this up via email (no one will call you) over the coming couple of days – when you are ready we can arrange to meet or you can pop along to one of the open events being held in September/October (there is nothing to buy at these events).
Whatever you decide, doing nothing is not an option. If you own your own home or if your parents own their home; then at least one of these things will be of concern.
Even if you decide to act on this but not through me, that’s fine and I fully accept that. But you do need to act, and you need to do it today.
I know that some of you have been enjoying the weekly meetup at the Arora Hotel in Crawley for the last few months, and I have decided to move the meetings to varied spots around the county (Sussex) so the travelling time is reduced for some of you.
At the same time I have moved the group from Meetup.com to our own email newsgroup. There are a couple of reasons for this, cost is one. There is a membership fee for meetup, and the other is control. By having our own group, it’s possible to manage and hold group discussions far easier if it’s on website space that’s controlled buy you and I.
We’ll still be meeting weekly at a number of venues (to be advised) and these meetings will still be free of charge.
For those of you wanting to accelerate your move to true financial independence, and want to learn how to manage your own money, this meetup is for you.
There is nothing to buy, so there is no chance of you being sold something. It is a safe environment to learn about money, how it works, what makes sense. Send me your details below and I’ll get the first emails out to you.
Just so you know, you’ll need to confirm your email address by clicking on the link in the email that’s sent, and your email address is not loaned or lent to any third party.
Richard – Money Trainers – Making Money Make Sense.
You have this nice job at the council, everything is ticking along quite nicely. You are looking forward to a happy and stable retirement and boom.
A problem with most (if not all) of the Government supported pension schemes may end up shocking you when it’s announced that they may not do what you think they are going to do.
Local Government (LGPS) pension scheme is currently underfunded – does not have sufficient investments to cover it’s liabilities [pensions due to be paid at a future date] the present amount it needs is £57bn LGPS Shortfall
The NHS Pension Scheme is also in difficulty with some £500m needing in the coming few years and some £1.2 b needed to be found in the very short term according to the HSJ, worse than the shortfall that’s looming is the longer term and very painful problem of the £500bn shortfall that’s expected.
Teachers Scheme don’t think for one minute you’re safe if you teach. In 2012 the Governments’s own actuary was talking about the scheme needing £15b to ensure all benefits could be paid.
With just these three schemes alone someone needs to find some £572b in the coming years if benefits are not going to be reduced.
The public no longer has access to the same gilt edged pensions – called that because they seemingly are not able to fail and provide guaranteed benefits at retirement [Final Salary Pensions]; it is unlikely that the public will want to pick up the tab for this shortfall via increased taxation.
The Government has a couple of options.
There are a couple of problems with these Government sponsored schemes that will not go away. It’s also clear that these existing pensioners or those shortly to retire will have really had it all, “there is no money left’ as one of the Brown Government Civil Servants stated on leaving his desk.
So it looks like, those under 30 currently members of these schemes will be facing the problem head on, longer working life, reduced pensions and state support, increased cost of housing, increased levels of taxation to pay for an ageing population. And very soon having to stump up more hard earned to cover the mistakes and promises of the past.
Listen now millennials, if you don’t start taking this very seriously and stop relying on the State Pension Promise you are going to be in for a surprise. Pensions as you and I understand them are fatally flawed. Government promises are unlikely to be fulfilled.
If you don’t think you need to make your own plan b, then you are mistaken. Genuinely taking control of your own future financial security has never been more important.
You can find out more about your options by getting the 30 Day Money Course. There is no charge for it, and you will find it helps with your bigger picture planning, it also tells you the truth.
The Right Honourable George Osborne
11 Downing Street
14th March 2016
Budget 2016 – Some Important Additions Needed For Your Budget
Those currently aged 20 – 35 have never had it so hard; forced to pay for further education, increasing travel, living costs and unfairness in taxes like Insurance Premium Tax are conspiring to reduce their disposable income. Once you factor in mandatory pension contributions and a reduction in State Pensions – you’ll see that a generation is being forced to pay the price for a system that they are unlikely to benefit from in the same way their parents and grandparents have.
Substantial wealth has being built up and held by these baby boomers and this is causing a considerable amount of financial and emotional pain for the grandchildren and great grandchildren of these boomers.
I urge you to consider at least some of these points in your Budget or at least think about making changes, ready for the Autumn Statement.
There is currently a clear shortage of homes to rent and to purchase. Much of what has been introduced in recent years has left supply and building of homes in the firm control of developers that are not building enough.
It is also clear that we have to build mixed housing for rental and sale. It is possible to build houses very cheaply without a commercial developer involved which means the total cost for a for two bed flat could be as low as £80,000 plus the price of the land.
It is possible for these rentals to be built using Government money initially, and then sold off as crowdfunded investments once complete. With rental yields of 4% (easily achievable) these would be a very attractive investment for pension and Individual Savings Accounts (ISA) where there is a lot of money tied up doing nothing for the population at large.
By using a larger quantity of apprentice labour, build costs will be reduced and skills will be improved. Local councils have large tracts of land that could be used for this kind of build, and with the latest in prefabricated building technology these buildings go up in months.
The net cost to the UK government will be small.
Those not living in Social Housing should also be given the same treatment as those that qualify for the ‘Right To Buy’. This could be a simple one off grant made on the purchase of a first home, limited to £103,900 in London. Council/Social housing were all built with taxpayers money so it seems fair that all taxpayers are treated equally.
Fair Tax Treatment For Those Renting
There are more and more people renting, more so now than ever. Yet there are obvious tax benefits to owning your own home.
Private Residence Relief (PRR) allows couples and individuals to benefit from the gain in value of their main home without any tax burden on sale. These gains are worth many thousands of pounds to those selling property, there is no income or capital gains tax payable on these proceeds.
Tax Relief On Rent
Making things equal would mean that basic and higher rate tax relief on rent paid should be allowed, in the same way as buy to let investors were always treated and to balance out the PRR, making home renting as fair as buying.
One way of funding this could be to restrict rather than end Private Residence Relief.
Growing Family Individual Savings Accounts (FISA)
Childcare costs are prohibitive and historically increase higher than wages.
Focusing on young families and providing some help to them via a FISA, these will allow young couples to invest in their future family.
A FISA will allow an investment along similar rules as the current ISA’s, with a couple of important differences. It will allow tax relief on the investments at the couple’s marginal rate in the same way as pension contributions are made now.
The proceeds of the fund built up could be used to:-
Young families need help in this area, and this would encourage long term savings and provide a reasonable tax break to those who still need to work.
Obviously you may want to make some tweaks before implementing some or all of these things, please don’t hesitate to get in touch if you need some real world and practical help.
0774 007 6226
1995 and the Pensions Act of the same year gave us a number of changes, one of which was the equalisation of State Pension ages – making boys and girls retire at the same age, eventually.
This post is available as a download – State Pension Changes 2016
Of course the changes were blamed on EU law, but the truth is everyone knew that there was not enough money to keep the pension system afloat, and the Government of the time was helped through the changes by simply stating – it’s not our fault, the EU made us do it.
Not sure about you, but I was 34 at the time. Heavily into building my career as a financial adviser, and was about to add my first child to the family – and of course any increase to the State Pension would not affect me for some 31 (thirty one years) so nothing to worry about.
More change arrived a few years later in 2007 when the State Pension Age was further increased to 68 (not sure about you but I can see a trend coming here), and again in 2011 in the Pensions Bill there were further changes made.
Like you, I was not concerned about these increases then; far too young and with a range of other priorities like a mortgage and getting my two children through their education, at the same time trying to hold a marriage together – pensions could wait.
As I hit my mid fifties, the pressures changed as they do for us all. It’s more about planning a few more weeks away from the office, rather than concentrating on the hussle and bussle of business life. This of course has given me some more thinking time, and I have realised this, I have been royally shafted and it doesn’t feel nice.
Here’s The Story.
Despite the politicians of all colours telling us we have never had it so good and with the changes made [by them] everything is great, so here are the facts. Ready..
State Pension Age Changes – have cost me over £15,000 in lost income and my wife over £12,000 as they have moved my pension age to 68 with no compensation, for us it’s a £27,000 grab. How much have they cost you?
Obviously, something had to give as there is not enough National Insurance coming in to pay pensions, we are living longer and now retiring later. This was spotted in the late 1980’s.
Expect this trend to continue.[emaillocker id=”1367″] [/emaillocker]
If you are reliant on your State Promise (Pension) expect it to be reduced even further. It’s been on it’s way down for the last thirty years or so, a fair bet is that this trend will continue. Something about one of Isaac Newton’s Laws springs to mind.
At roughly the same time Pension Freedom arrived – another little gift for advisers and the pension industry. Of course if you are are pension provider, you want more pensions and they have certainly got that.
No matter what you try and do with your pension pot, someone else maintains control of it and charges you for the privilege. If you have what they call ‘safeguarded’ benefits of more than £30,000 it’s another nice gift to the industry because you are forced by law to take advice from a suitably authorised adviser – and there are not enough to go around. The industry has collapsed in recent years.
This special breed of adviser, that you are forced to use can charge what they like. I have recently been quoted 5% of my fund in order for one of these advisers to give me some advice. Given that you can do nothing about it, if you want the ‘freedom’ you have to pay it does seem a little unfair.
Ongoing Charges – with modern investment management tools making changes to your pension investments is simple – point and click in the main. Despite that advisers get a favourable treatment in relation to VAT on their services (exempt) and chunk of your pension fund every year for what they call – ongoing management.
It’s a bit like using a Solicitor to purchase your house (still far more complex than the setting up of a pension) and the firm coming back every year to take a small slice of the current value – and you not being fully aware of it being taken and the Solicitor not having to raise an invoice for it. I doubt you get a pension statement every year that shows in big letters on the front of the statement – ACME ADVISERS HAVE BEEN PAID £x FOR THEIR SERVICES.
What you do get is a paragraph on page seven of eleven stating the charge.
Auto Enrolment, another gift for the industry “Mandatory Pension Contributions” with fixed charges and no guarantees of anything. No matter how bad the investment returns are, no matter how bad the administration standards are, the provider still gets paid. And they make you jump through ‘burning admin hoops’ if you dare want to move YOUR cash.
And still the industry crows on about the efficiency of pensions which is a myth.
It was Steve Webb – the only pensions minister to really tell the truth about pensions, he stated that “pensions are tax deferred savings” not tax free. Of course there maybe some tax breaks, but they are just that breaks. Eventually someone has to pay tax on pension benefits drawn from any pension. If not now then whenever. This of course guarantees a return of at least some pension to the Government via income tax, in return for the tax breaks they are rewarded very nicely. No risk and close to a guaranteed return, without even having to cover any of the costs of the investment
What Else? Well, our man in the Treasury has been on rant for a few months about charges.
Indeed George Osbourne has announced reviews into Pension Charges. The way he talks it seems like something may happen. However another of Newton’s Laws is in play here, if there is no force on an object it doesn’t move. It’s a law.
Nothing has changed yet, no force on it. The providers retort is simple – there are contractual obligations. Something every regulator has known since regulation. Don’t expect things to change anytime soon.
I set up MoneyTrainers to teach non financial people some of these truths – as a qualified and experienced financial consultant I know a little about how these things work.
I have never met anyone who thought that locking hard earned cash away for 40 years or more was a good plan to become rich, and certainly not one that was dipped for charges every few days.
Despite a good a good run at things successive governments have not made pensions work for the masses, of course a few years ago they made sense as a planning exercise
If you are a teacher, work in local government or are an MP your situation is a bit different.
Under the Principal Civil Service Pension Scheme (PCSPS) The taxpayer picks up the cost of your valuable guaranteed pension. The current liability (to be funded by you and I) is £194,838 million based on the last accounts (14/15) and it’s running costs are in the region of £61 million for the same year.
The Teachers Pension Scheme is also an interesting one. With an unfunded liability of some £200b (that’s right billion) according to the accounts in 2012 (can’t find any later ones). It’s clear that money to fund all of this has to come from somewhere, just don’t delude yourself it won’t be you, the probability is that it will.
Pensions Four Things You Should Do Today
Since I left the industry in 2010 things have changed a lot, but the industry really doesn’t want you to know that.
More on Pension Charges – PDF
I have a Pension Resource Pack available (free of charge) if you want uncover the truth about your pensions. Get in touch >>Contact<<
You can download this post here Personal Investment Planning 2016
As is traditional I have shown below my top financial planning tips for 2016 and shown how my tips for last year have fared.
Just about the only thing you can predict when investing your hard earned is the level of charges within the investment wrapper.
Based on my (internally collected) stats average industry charges on an annual basis are still well over 2.5% per annum. This equates to 25% of your investment every ten years; using the MoneyTrainers list of providers you could reduce this by at least half to 1.25% (probably more). Given that all Financial Advisers have the old style commissions removed in April 2017 you can expect them to review any plans they manage for you.
Just don’t rely on them doing it. You should take charge and review all of your investment plans today.
Those of you that follow me will know the approach we teach over at Moneytrainers:
Those of you that follow me will know the approach we teach over at Moneytrainers:
So how did that fare in 2016
The returns from the Vanguard range are linked below note the level of charges within these funds. The highest is .25% which is considerably less than you will get from most of the market places.
As predicted last year the returns from the European market has been good, thanks to the quantitive easing introduced.
With fund managers still not delivering returns anywhere near where those you would expect it’s time to consider carefully if you should continue to or ever invest in managed investment funds.
According to Trustnet (link below) only half of the funds listed managed to get a positive return in 2015, and a good number managing to lose over 20% of your investment, oh and they charged you for that.
The MoneyTrainers approach has been a winning one for 2015.
Investing For Income
A direct investment into the FTSE 100 index (Vanguard) from Jan – December 2015 would have shown a small loss, however with an of roughly 3% pa and low charges (.09%) you may have seen a small profit over the year.
Some of the specialist funds have performed at a better rate, however, the charges would have been slightly higher.
No sign of returns from cash increase yet. But with the MoneyTrainers ‘spread it around’ strategy you could have been around 8 times better off (that’s a yield of 4%).
These still look like poor value, given charges and the very long term nature of these funds.
If you have credit card debt, personal loans or mortgages; then pensions look even poorer value when compared with clearing debt. Importantly, with some of the further options for alternative investments pensions seem to be even more user unfriendly. Bear in mind that pensions are not tax-free, just tax-deferred; and because of charges are more a gift to the provider/adviser than they are to you (subject to a comparison)
Review your existing investments and pensions, find out how they did last year. Work out what you paid in charges. If you they did well and the charges overall were lower than 1.5% you are doing well please make sure you share the strategy with us. If it’s a good one we’ll publish it.
With effect from April 2016 you can benefit from the new ‘dividend’ allowance, which means you could own around £140k in shares and investments outside of a tax-free wrapper (Pension/ISA) and very little tax, provided of course you are basic rate taxpayer.
Combined with the £1,000 tax-free ‘interest’ amount and some of the other changes making some longer term plans with your investment has never been more attractive.
Pension Freedoms and the associated advice charges are still a problem, however, the MoneyTrainers guidance is available (link below) it could be worth several thousands to you.
Don’t forget, you can get the Free – Money Course at no charge below. I don’t share your data or your personal data. It remains with us and no other.