Wealth Management Update – May 2019
Everything you need to know about LISAs …
As many of you already know, the Lifetime ISA (LISA) is a new type of ISA that allows individuals to save tax free. It was introduced in 2017 and has been designed specifically to help those who wish to save for their first home or build savings for when they retire in addition to a traditional pension. Whilst LISAs have not been a huge hit with the public to date, they do provide a valuable opportunity to receive £1,000 of free bonus cash.
The maximum contribution that can be invested into a LISA is £4,000 per year and, in addition to this, the government will pay a bonus of 25%, capped at £1,000 per year, to every contribution you make.
Of course, there is no such thing as a free lunch and there are certain criteria you must meet in order to be eligible for a LISA. You must be between the ages of 18 and 39, and the government bonus is only paid every year until you turn 50. For withdrawals to be tax free the funds must be used for a deposit on a first property worth up to £450,000 or taken from the age of 60 for retirement. If you withdraw the money for any other reason you will pay a penalty charge of 25%.
You can open as many LISAs as you like, provided that you pay into only one in each tax year. You also have the freedom to transfer between different LISAs if you see a better rate.
Important Note: One of the rules about using the LISA for a property purchase is that 12 months must have passed since the first payment into the LISA. This becomes more complicated if you transfer your LISA. In these circumstances, the ISA manager’s guidance confirms that the 12-month rule applies from the date that the original account was opened. Whilst this seems straightforward, the situation can be more problematic if the investor already holds a LISA with the receiving provider. In these circumstances, the date of the first payment for the receiving provider’s LISA will always be the date that the first payment was made into this LISA. This will be the case even if the transferred LISA has an earlier start date
As the younger generation are finding it so hard to get into the property market, and are also not really in the habit of saving for their retirement, this may be a great way for yourself, or your children and their children, to start saving for their future.
We have existing clients who are looking to the future and have LISAs for their children and grandchildren, so if this sounds like something you think your family could benefit from then just get in touch.
Part 1 of 4 – ISAs: Cash ISA versus Stocks & Shares ISA
Stocks & Shares ISAs are becoming more popular as people increasingly ditch their cash holdings as returns from the banks are so minimal. It is not a good idea to ditch cash altogether – everyone needs some easy access to emergency funds – but if you are holding most of your savings in cash ISAs you are missing a trick.
An ISA is an ‘Individual Savings Account’ – a type of wrapper that allows you to take advantage of tax breaks while you save or invest. There are different ISA options available and finding the best one for you is important. Your goals, budget, risk tolerance and capacity for loss are all important factors when considering your best ISA option and should be discussed with a financial adviser.
You have a £20,000 allowance that can be spread over a number of different ISA vehicles.
A Stocks & Shares ISA might be preferable if:
- you already have an emergency fund
- you have long-terms goals and can wait for results
- you won’t need to access your money for at least three years
- you are willing to accept short-term losses for the chance of greater long-term growth
To help you, here is a basic comparison:
| Cash ISA | Stocks & Shares ISA | |
| Who can open an ISA? | 16+
UK residents |
18+
UK residents |
| How much do you need to get started? | You can start saving with any amount of cash | You need enough to diversify your investments |
| How much can you save tax free? | £20,000
In the 2019/2020 tax year |
£20,000
In the 2019/2020 tax year |
| What time period is it recommended for? | 1–3 years
Over longer periods inflation could erode the value of your savings |
3+ years
You need enough time to ride out market fluctuations |
| What is the potential for growth? | Very low
Low interest rates mean you will get back about what you put in |
Low–very high
Different strategies have different growth potential |
| What is the level of risk? | Very low
You will only really lose money to fees or value to inflation |
Low–very high
There is always a risk you could get back less than you put in |
| How quickly can you access your money? | Instantly
Unless you lock money away in a fixed-rate ISA, usually for 1–5 years |
Within 10–15 days
But withdrawing at the wrong time could mean you get back less than you put in |
Source: https://beta.clickandinvest.com/our-blog/isas/cash-isa-vs-stocks-and-shares-isa
If your focus is on returns over the longer term and you are not discouraged by market fluctuations, then a Stocks & Shares ISA is likely to be more suitable for you, but until we discuss your complete financial situation we cannot know. So, if you have a lot of money in cash or have family members who need help understanding investing – get in touch and we can discuss how we can help make your money work for you.
DWP spends £800,000 on advertising
In an attempt to promote the benefits of saving for retirement, the Department for Work & Pensions has partnered with Gogglebox to produce specific adverts to be communicated in a more relatable way.
The stars of the popular show discuss their own pension savings as well as reviewing a previous DWP advert. Along with advertising on social media platforms such as Facebook, Twitter and others, this would seem to be an attempt to access a much younger and much wider audience.
As the average retiree is unlikely to receive an income that meets their expenditure in retirement, and as many people do not have a private pension at all, there is a pensions crisis potentially on the horizon.
DWP’s new strategy, whilst not the slickest or upbeat (it is about pensions after all), is a step in the right direction, because to get youngsters investing early means they will be able to have a more comfortable and enjoyable retirement. Whilst this may not seem important to the 18–30 year olds, it is vital that they start thinking about these things now to make sure they do not have a huge retirement deficit.
You may or may not know that for a non-taxpayer, e.g. a child or person who is not earning an income, you can put £2,880 into a pension and the government will add tax relief to this to make it up to £3,600. Of course, you can put more into the pension up to the annual allowance, but you won’t receive any government tax relief.
So, if you want to help your children or grandchildren to get started with their retirement savings, we can help. If you are an existing client their account could sit alongside your own, meaning it is simpler and more efficient to manage.
Changing Lasting Powers of Attorney
You will know how important it is to have Lasting Powers of Attorney (LPAs) in place. They appoint people you trust to make the important decisions for you when you might not be able to – it’s a no-brainer really. But what happens when things change, as they always seem to?
Of course, we always recommend you have reserve attorneys ready to step in if your first attorneys are no longer able to act for you, but what if you want different people to act as your attorneys after you have made the initial appointment?
Unfortunately, there is no way to amend an LPA. The process must be started again from scratch, and so the first step is to create new LPAs; this is obviously something we can help you with as we are well acquainted with the process. Once new LPAs are completed and registered they will sit alongside your existing LPAs and both sets of attorneys would be able to act on your behalf. Naturally, this could cause some conflict.
So, if you want only your new attorneys to act for you, then your old LPAs need to be revoked. This process is relatively simple and uses standard wording within a Deed of Revocation. All you need to do is tell us about your old LPAs and we will arrange for you to sign the Deed. Easy!
If you don’t currently have LPAs, then why not? Get in touch and we can help make sure that the people you trust will protect your assets and protect your wellbeing (or financial future) if you are no longer able to!
TED – Helping others makes us happier
Research shows that helping others makes us happier. But in her ground-breaking work on generosity and joy, social psychologist Elizabeth Dunn found that there is a catch: it matters how we help. Learn how we can make a greater impact – and boost our own happiness along the way – by making one key shift in how we help others. “Let’s stop thinking about giving as just this moral obligation and start thinking of it as a source of pleasure”, Dunn says. Click on the link below to listen to Elizabeth’s inspiring TED talk:
https://www.ted.com/talks/elizabeth_dunn_helping_others_makes_us_happier_but_it_matters_how_we_do_it
Notes on Brexit
The Brexit can has officially been kicked a little further down the road, to 31st October – unless the PM can get MPs to vote for her deal, in which case we can leave the EU earlier. But since her deal has been defeated in Parliament three times now, that doesn’t seem likely.
This means we will almost certainly have to take part in the European Elections at the end of May. It also means a return to politics for Nigel Farage, who has unveiled his new Brexit Party candidates for the EU elections. He is hoping to sweep up the seats held by his former friends at UKIP by distancing the new group from the far-right radicals with whom UKIP are associated.
Meanwhile, ministers are still attempting cross-party talks with Labour to agree some next steps and break the deadlock. Perhaps everyone will be more agreeable now they have had an Easter break?
Bookmakers still have relatively high odds that we will leave the EU this year, but these odds are drifting while the odds of revoking Article 50 and cancelling the whole Brexit thing altogether are climbing ever higher.
New job opening … Governor of the Bank of England
After more than six years in the job, Mark Carney will step down from his current role as Governor of the Bank of England on 31st January 2020.
If you think you could be the person for the role, the government has issued a job description, with an annual salary listed at £480,000 (but in reality Mark received approx. £880,000 last year), and a requirement “to demonstrate the ability to lead a complex and powerful financial institution”. They are hoping to appoint the right person for the job by the Autumn.
There is speculation that the uncertainty about Brexit may mean some potential candidates will pass on the role, but we are sure that discussions with certain individuals are already underway behind closed doors. The government has even employed a head-hunter for the first time to make sure they get the very best replacement possible.
Given the current political situation, it is likely the new Governor will be from outside of the EU. Whoever is appointed, let’s hope that the transition is smooth, and that the economy suffers no ill effects from the changeover.
Book of the month
This month’s book complements Nick Littlehales’ book called Sleep that we recommended last year. In Why We Sleep, by neuroscientist Matthew Walker, we get the “why” to Littlehales’ “how”. Do we need to know these things? After all, we all sleep. Well, that may be the case but how good is your sleep? Is it making your life better? Or is it making your life worse?
We believe both books are required reading for anyone who sleeps! We know that sounds crazy, but if you spend one-third of your life asleep, doesn’t it make sense for it to be worthwhile and for you to get the most from that time? For example, did you know that your memories from the day are stored in the hippocampus, and when you sleep (during NREM sleep cycles) they move to your long-term memory? Therefore, if you don’t reach NREM sleep, you will lose some of those memories. This is why, when you drink alcohol, you often cannot remember what happened because alcohol blocks NREM sleep.
Read this book and make your life better.
| BEST SAVINGS SELECTION |
| Top three Cash ISAs
|
| Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.
Source: Moneyfacts Magazine May 2019 Edition |
