Long the preserve of pensioners and retirees, downsizing property is contrary to the social and cultural concept of moving up the property ladder. However, with property prices, the housing market, and the current state of the economy, downsizing is becoming increasingly popular and relevant.
There can be many reasons for surrendering the family or marital home – however, overall the main reason is the desire to unlock capital in the value of the property. Either that, or maintaining that home either is or will be a financial burden. With grandparents increasingly supporting children and even grandchildren financially, unlocking the capital in your home by selling and downsizing is quite an attractive options.
Despite the positives of downsizing (and the stress of moving being counterbalanced with the excitement of a new start), there are some pitfalls, and areas of concern.
For starters, more people are downsizing than are buying bigger properties- making finding a smaller, affordable home that more challenging. This is not helped with fewer homes bring built, and increasing competition to get onto the property ladder. Much effort has been put by policymakers into building ‘affordable housing’ for the youth, and efforts to make house buying a serious option for young families, and indeed to make getting a mortgage more affordable for those starting out. However, little thought has been given to those who have a foothold in the property ladder already, and are seeking to downsize. Measures designed to encourage new homeowners do not necessarily work in the favour of those downsizing. Another concern is that, over time, homeowners often gather an impressive collection of antiques, possessions, furniture, or items of extreme sentimental and symbolic significance. When downsizing, the question often bceomes, what to do with all that? As antiques experts and other advisers suggest, the key is often to find a good home for such items, either temporarily or permanently. Indeed, there might be serious financia lvalue in some items.
Despite the many pitfalls, it can be a sound financial move. The money saved, or released by a house sale, can ease financial concerns and burdens for those downsizing, and their families. If thought through, properly planned and handled well, downsizing can bring financial benefits. Furthermore, if desired, it is possible later on to climb up the property ladder again, if desired.
Selling your family home, and downsizing to another property is a hard (and often very emotive) matter to consider – but is well worth considering. However, it is worth remembering that downsizing does come with its own perils and pitfalls. In today’s housing market, uncertainty and high prices are king. To best look after your finances and home, and that of your family, all and every measure needs to be considered. In many cases, downsizing could be welcome move for all concerned.
April saw the Treasury introduce reforms to pensions. Those reforms essentially gave pensioners more choice and freedom regarding how to best utilise their pensions, and getting access to their pension funds.
Despite the reforms and greater choice for pensioners, not everyone was thrilled with the changes. Martin Wheatley, the chief Executive of the financial regulator and watchdog the Financial Conduct Authority (FCA), warned that the reforms could give rise to greater scope for pension fraud.
Commenting on the reforms earlier this year, Mr Wheatley stated that he expected con artists (who often target pensioners due to the money that they have available, and their sometimes lack of financial knowledge) to attempt to con pensioners whilst the reforms were still new, and whilst pensioners, banks and financial advisers alike are getting used to the reforms. According to Mr Wheatley, “scams and fraud, we know, tend to proliferate at the moment of maximum uncertainty.”
Previously, pension fraud has revolved mainly around getting people to “liberate” their pension funds prior to turning 55. Whilst considering that this was likely to continue, according to the FCA, fraudster would probably be trying alternative means in the light of the pension reforms; “a particular risk, given that many of those approaching retirement today will – unlike their parents’ generation – be carrying debts with them.” Those debts might well be their own – or that of children or even grandchildren.
As such, fraudsters and con artists might attempt to trick pensioners into drawing down most or even all of their pensions, according to the FCA, and other bodies. These agencies fear that, with the reforms giving greater freedom and choice over pensions, that pensioners will become increasingly vulnerable. Indeed, those approaching 55 have already reported being “bombarded” with people contacting them about lucrative schemes and similar for their pension funds, or otherwise attempting to scam pensioners.
In efforts to tackle this, local police forces, and specialist financial crime squads nationwide (including the Serious Fraud Office) are available if a pensioner fears that they have been targeted. Citizen’s Advice offers guidance regarding pensions via the Pension Wise service. The City of London Police has their own service, Action Fraud – which has reported that cases of pension liberation fraud have tripled in the months following the reforms.
From all the various agencies and advisory bodies, the advice is the same. Avoid people or companies offering the following popular scams:
- Unspecified financial products. Fraudsters often offer to invest pension funds in alternative financial products, without explaining what they are
- Free pension reviews. Fraudsters often posing as independent financial advisers, and offer to visit pensioners at home to conduct a free review, in order to access their pension details
- Investment schemes. Pensioners are increasingly being offered the opportunity to invest their pensions in supposedly lucrative investment schemes. Indeed, this method is becoming so widespread, that new legal reforms have classified this form of pension fraud as an investment fraud, to enable police and legal action to be swifter, firmer, and fines and sentences heftier.
Citizen’s Advice, the FCA and others have all recommended, amongst other measures, the following guidelines. Indeed, such guidelines are not just for pensioners:
- Check whether the investment scheme, company, or financial services provider referred to is registered with the FCA.
- Consider carefully any proposed investment scheme, and do your own research. Be particularly wary of any scheme promising lucrative returns.
- Never give personal financial details to a cold caller
- Seek third party, independent advice before agreeing to any pension transfer
- Carefully consider any proposals, and never do anything in a hurry
- If a company or scheme seems wrong, or if you suspect wrongdoing or a fraud, contact the police or the FCA immediately.
Your pension is your hard earned savings for your retirement. Do not allow yourself to be a victim of fraud. The police suggest that the activities of such con artists and fraudsters might be on the rise; as such, be vigilant and vary, and take the necessary steps to protect your hard earned pension. Do not allow yourself to be pressured into any financial decision; after all, it is your money, and your choice.
Recent changes to pensions have made them more flexible than ever before. Since government and financial reforms introduced in April, many now have greater freedoms and choices regarding their pensions than ever before.
Essentially, pensioners can choose to withdraw more money from their pension pots, and at a time to suit you. Indeed, financial advisers report dealing with pensioners who want to withdraw pension money to fund purchases including Bentleys, a second home, speedboats, and children’s’ weddings, amongst other queries. Alternatively, the pension arrangements can be left as they are. Or the pensioner can you can (within limits and reason) do both.
If seeking to withdraw from your pension funds, you can draw down he funds, or use UFPLUS. If you draw down, effectively you withdraw a large amount- but leave the remaining lump sum invested. However the money is withdrawn, the first 35% is tax free, with subsequent withdrawals taxed at your marginal tax rate.
The alternative is the Uncrystallised Funds Pension Lump Sum route, or UFPLUS. With UFPLUS, your money stays invested in your pension plan, and can be taken directly out of the pension pot. Essentially, UFPLUS allows you to use your pension plan lie a bank account. Despite the apparent ease- withdrawals from the UFPLUS ‘account’ are not necessarily easy, and are taxed each time. Additionally, once you start making withdrawals using UFPLUS, the money you are allowed to pay into your pension fund annually falls from £40,000 to £10,000.
UFPLUS is recommended for those who want to make smaller but regulator withdrawals from their pension fund, below the 25% tax free limit. According to Chris Noon, a partner at actuaries Hymans Robertson, using “Ufplus to withdraw money is the best option for those paying £10,000 or less into their pension each year and paying basic rate tax… It has fee advantages – these will be lower than on drawdown – as well as tax benefits.”
Alternatively, you can use annuities, or continue to invest the whole pension fund. Recent reforms give pensioners that freedom, flexibility and more choice regarding their pensions and retirement planning.
Financial advisers have seen a record number of pensioners getting in touch, and asking such questions, as they get more choice, and power over their retirement funds. However, with such freedom and choice comes responsibility. Taking charge of your retirement finances in such a way, and setting up your pension arrangements to suit you, comes with inherent financial risks. Also, there is a risk of fraud, as people seek to take advantage of pensioners and such arrangements.
Essentially, April’s reforms gave more power to you, the pensioner. This is but one of government moves concerning pensions. Aside from the popular Pensioner Bonds, employers now have to set up and provide pension arrangements for their employees.
It is always advised to consider your pension plans early. With recent government changes, pensions are more complicated than ever, and require more thought and choice, even at a younger age. As such, government rules are forcing people to do just that. Although the reforms themselves might attract criticism from pensioners, savers, employers, financial advisers and commentators, and the financial sector, all would agree that forcing people to consider pension arrangements early is only a good thing.
Keeping a promise made at the last Budget, and in response to lobbying from some pressure groups, January 2015 finally saw the launch of the so called Pensioner Bonds by the Treasury.
The government backed 65+ Pensioner Bond are available from National Savings & Investments, and only those over 65 are eligible to invest in the bonds. Investment is limited to £10,000 in each type of bond (making a maximum investment per individual being £20,000), and will be available in one year’s bonds with a 2.8% interest rate, and three year bonds with a rate of 4%. Despite savings rates having fallen since the bonds were announced last March, the Treasury has kept to the interest rates it predicted at that time.
The financial sector has praised the Pensioner Bonds, which have a market leading interest rate. Indeed, comparisons with similar, private bonds (or indeed other public bonds) show this clearly. The returns are very favourable. Those investing the maximum amount will get a return of £280 from the one-year bond pre-tax, £95 more than from the best equivalent bond currently available elsewhere. Investing the maximum in the three-year bond will see a pre-tax return of £1248, £480 more than from the best equivalent bond elsewhere.
However, despite the hype and capital gains, there are warnings and points for pensioners to consider. Indeed, some financial commentators have criticised the bonds, claiming that the government has prioritised pensioners over workers amidst other concerns. Additionally, and crucially, investors will be taxed on the significant yields from the bonds. For example, those on a basic rate tax will have 20% deducted from the interest they earn, therefore reducing the returns; a one-year bond will yield £224 after tax, and a three-year bond £991.
Despite that, and other caveats, the Pensioner Bonds have proved very popular. When they were first launched, demand caused problems with the N&SI servers. Within hours of the bonds going on sale, NS&I reported problems with their servers, and potential investors reported long waits trying to contact NS&I. This led to great frustrations from would be investors, who simply could not invest. Difficulties were compounded by uncertainty as to when the bonds actually did go on sale, and that over one million people had registered to receive information about the bonds. However, N&SI and the Treasury have advised not to panic, and apologised. Although there are a finite number of 65+ Pensioner Bonds, (£10 bn were put on sale) predictions were that it would take few weeks to sell out, not a few days.
The success of the launch and initial sale was evident immediately. Figures showed that 26,000 bonds had been sold in the first afternoon, raising £270m. After being launched on a Thursday, the Saturday saw £1.5 bn of the bonds sold already. Citing a probable rise in interest rates, Danny Cox, from investment firm Hargreaves Lansdown said that “back in 2011, the popular NS&I index-linked certificates sold £5bn in four months before being closed. This year’s bonds are a different product, but I would be highly surprised if the £10bn allocation lasts until the new tax year in April… these new bonds [are very] attractive and I expect them to sell like hotcakes.”
The bonds certainly have proved very popular, and have been warmly welcomed by savers and financial advisers alike. A good way to start the year as regards personal finances- and this an election year.
After several years of economic gloom, turmoil, and bad news- finally some good news for the British worker and employee.
Recently released Office of National Statistics (ONS) figures from 2014 indicate a growth in real earnings.
According to the ONS data, the growth in average pay taken home by British workers overtook inflation for the first time in five years. Excluding bonuses, wages rose by 1.3% from January to September, beating the Consumer Prices Index inflation rate of 1.2%. Including bonuses, real earnings rose by 1% from 2013. Further figures show that unemployment from July to September was down 115,000 on the previous quarter- lowering the total unemployed to 1.96m.
Indeed, since the global financial crash, pay has lagged behind inflation and the cost of living. This has led to calls to a rise in National Minimum Wage (NMW- which has now increased to £6.50 per hour), and indeed a Living Wage. Those living in London have faced the worst such problems. However, the ONS figures indicate, for the first time, that real earnings were catching up with inflation. Essentially, growth has slowed, resulting in earnings and inflation catching up with each other.
According to Howard Archer, chief economist at HIS Global Insight, the news would be of relief to consumers and households. Despite that, he added that “this is still really more to do with low inflation than markedly improving earnings. However, earnings growth did take a much-needed decent step in the right direction in September.”
This is one of the few instances where the UK’s shaky but steady economic growth and recovery has been of benefit. The impact of the slower recovery and growth has, ironically, now become of benefit to consumers and households in this regard.
A further assessment of the figures puts this rise down to increased productivity. According to Martin Beck, senior economic adviser to the EY Item Club, “the surprise rise in pay growth may be in part stemming from signs that the productivity of the workforce is improving… While GDP grew by 0.7% in Q3, hours worked rose by only 0.1%. This left the quarterly rise in output per hour at 0.6%, the best performance since the middle of 2011.”
The Bank of England, usually better known for its caution as regards such predictions, stated that it expects earnings to continue outpacing inflation well into 2015. The Bank went further, with the Deputy Governor considering that the rate of inflation could fall below 1% in 2015, with earnings growth rising to around 3% at the same time.
The ONS figures also brought good tidings as regards employment. The figures show that those claiming Jobseeker’s Allowance was 931,700 in October. This was 20,400 less than in September, and a cut in numbers for the 24th consecutive month cut. Similarly, the last quarter showed employment rising by 112,000 to 30.7 million- the highest since employment figures were first compiled in 1971. According to the ONS figures, 4.5 million are self-employed (14.7% of workers); this is down by 88,000 on the quarter, but an overall rise of 279,000 on 2013’s figures. However, the number of part time workers stubbornly remained the same, at around 1.3 million.
These same and similar sources, whilst praising these figures, and seeing growth and economic development, are at the same time sceptical. Many economic institutions, analysts and commentators, are all also advocating caution as regards the 2015 UK economy, and revival overall. There are still serious issues, worries and concerns as regards the economy (youth unemployment and the housing market, to name but two)- and a lot of hard work to be done before the growth and faltering start becomes a recovery overall.
However, after the last few years of austerity, and households and consumers increasingly feeling the pinch, it is great to end 2014 with such encouraging news for such consumers and households- and a welcome economic change for the better.
Few people think too carefully about their pensions and savings for retirement. However, the Treasury and the government always seem to be thinking about those for the average citizen (and not always to the pensioner’s advantage). Indeed, Chancellor George Osborne only recently announced further changes to the current pension system.
Under proposals which will come into effect in 2015 (providing the necessary legislation becomes law), pensioners will have more freedom and choice as regards their pension arrangements. Or will they?
Previously, pensioners have always been able to take 25% of their pension in a tax free lump sum. However, usually that has involved buying an annuity with the remainder. Under the Chancellor’s proposals, from next April, those over 55 will be given the choice to take a series of smaller lump sums, as opposed to one; for both options, though, the first 25% will be tax free. Essentially, more freedom and choice will be given to savers. In a further spirit of generosity, under the Chancellor’s plans, the rule that you have to be 55 or older to get your pension has been relaxed- to an extent. If savers try to get to their pension before 55, the old tax rules will apply, with a minimum of 55% being taxed. Further to that, financial advisers and analysts are warning younger workers that the current trend will that 55 age limit being raised over the coming decade.
Additionally, you do not have to be retired to take the money. Those still working will be allowed access to their pension funds, be they public or private. People will be able to take small lump sums from their private, employer pension fund even while still contributing to it. However, the same taxation threshold (the first 25% of each drawdown being tax free) will still apply. Further to this, there is also no minimum income needed to be able to take the drawdowns, the Treasury has confirmed.
However, this is by no means compulsory; the changes are merely another choice for pensioners. Whether they want to drawdown their pension immediately, carefully over time, or keep it as it is, is entirely up to them. Those pensioners and savers who do want a guaranteed income for life will still be able to buy annuities. However, those annuities will be on their own terms, rather than being forced down that particular savings route. To consider these matters from a different perspective, insurance companies have for many years found selling annuities as profitable; as such, any drastic changes to that would not be welcomed by the big insurer or annuity providers. The fear from banking regulators are that the annuity providers might seek to miss sell such annuities. Regulators such as the FCA will be examining this matter closely, and ensuring consumer protection in this matter.
These proposals will essentially give pensioners more control and say over their hard earned pension funds. However, savers should be reminded that with such freedom and choice comes responsibility- in this case, the responsibility to take charge carefully and prudently of their savings.
Whether you’re just setting up as a self-employed sole trader or starting a limited company complete with a workforce on your payroll, starting a business is an exciting time. But it is also a time that will usually involve a lot of costs, and keeping these costs down can be a big factor in making sure you succeed.
There are a number of ways you can make the process of starting a business more affordable. Some key points to consider are:
One thing to consider is where your business will be housed. This has the potential to be one of your biggest expenses, but some businesses can benefit from much more affordable options. Perhaps the most obvious is to work from home if possible, ideally in a spare room used as a dedicated office. This will not only provide an effectively free working space, but allow you to offset a portion of your bills against tax. If this is not an option, then you may be able to use a workspace – a public space available for people who want a place to come and carry out their business activities on a pay-as-you-go or membership basis.
If you are not working from home because you have employees, then consider whether it would be possible for them to work from home as well. With phones, email and Skype it may be possible to keep in touch and coordinate everyone without being in the same place, and you can still meet up in a coffee shop or hired meeting space from time to time.
Equipment is another of the big expenses that will often face a new business. Depending on the type of business you are operating, you may need anything from a single computer – for which your home computer may suffice – to a workshop full of specialist machinery.
Whatever the case, buying second hand or refurbished equipment can result in big potential savings. Alternatively, hiring equipment may be a more financially manageable, at least until your business has an established, reliable income stream. If you need basic or moderately advanced software tools for some of your activities, you may want to find out if any suitable free software is available.
In the early days, it is likely your business will need some kind of external service provider. For example, you may need to have a website built, and then seek help from a specialist in putting together a marketing campaign. You may also need things such as accountancy services.
For most of these services, there is no reason you need a provider who is geographically close to you. Some services such as web design could be outsourced to overseas businesses for comparatively big savings, without compromising on quality. Others, such as accounting services, will likely need to come from a UK provider but by casting your net nationwide you will have a better chance of finding the most competitive prices.
Public borrowing in May was higher than forecast, and this fact left its mark on the efforts of the chancellor to cut the deficit. Overall, the month of May saw government borrowing pass £13 billion. This puts it almost 9% above the level seen at this point last year.
According to the Office of National Statistics, net borrowing activity by the public sector ultimately reached £13.4 billion in May of this year. Economists forecast much lower levels of borrowing, with the figure expected to only stand at around £9.35 billion. This puts the total deficit at £24.2 billion, which is up by 8.7% compared to twelve months ago.
According to the forecast of public sector borrowing from the Office of Budgetary Responsibility, public sector borrowing through the course of the 2014/2015 financial year was expected to stand at £96 billion. Some experts are questioning whether May’s figures might leave the treasury struggling to stick to its targets this year as it managed to do last year. A spokesperson, however, insisted that the figures for May were still “in line with the budget forecast.”
However, some experts remain sceptical. According to Samuel Tombs of Capital Economics: “May’s public borrowing figures contain tentative signs that the coalition may be beginning to struggle to bring down the deficit in line with the fiscal plans.” Tombs went on to say that the economic recovery, while “fairly strong,” is still “struggling to have much of an impact on the borrowing numbers.”
In attempting to explain borrowing figures that so far exceeded the expectations of experts, the Treasury in part blamed unusual receipts during the course of the month. In particular, they pointed to the Bank of England’s decision to transfer £3.9 billion of payments that due as interest on government bonds.
Government takings from income tax and national insurance receipts were also somewhat disappointing. In the month of May specifically, they were up by 0.3% compared to the same month in 2013. However, this was small consolation for the fact that total receipts for the year so far in terms of income tax and national insurance were overall down by 0.8%.
According to the Treasury, this was a result of individuals choosing to delay their bonus payments in 2013 until the tax cut for top rate payers took effect. As these people began taking their bonuses after the start of the new tax year, when the top rate fell from 50% to 40%, this resulted in higher tax receipts for April and May 2014.
Buy-to-let is a popular and potentially profitable way to invest funds. With the property market’s reputation for relative security, more and more people are choosing buy-to-let over other investment options such as stocks and shares. Of course, getting the best out of an investment involves a mixture of maximising returns and minimising outlay. There are several steps you can take to reduce spending on your buy-to-let investment.
Review Insurance and Utilities
It is often possible to save money on regular expenses such as landlord’s insurance and, if you are responsible for them rather than your tenants, utilities. Every time you come to renew or reach the end of a contract, research the market and see if you can get a better deal with another provider. The best deals are often reserved for new customers, so never automatically renew.
This area is particularly notable because if you transfer to an equivalent plan, you are not compromising or losing out in any way. You will receive exactly the same utilities or insurance cover, but will spend less. Price comparison sites are a great way both to find the best deal and to ensure it really is equivalent.
Watch Your Spending
Simply taking a close look at your spending can reveal expenses that would otherwise go unnoticed. Small costs, in particular, can frequently go ignored but can soon mount up. Look closely at your bank statement each month, and run through each individual item. See if you can identify any areas where spending could be reduced or eliminated altogether.
If you ever pay for any expenses relating to your property with cash, you will find this a bit harder to keep track of. Nonetheless, it is worth trying to keep an eye on where money goes and thinking about whether these costs can be reduced.
Maintain the Property Thoroughly
Both landlords and tenants find it easy to ignore minor repairs that a property might need. However, doing this can result in problems worsening. A bigger problem will cost more to fix, and if it ends up with an emergency call-out this can be even more expensive.
Make sure that the property is kept well-maintained and that all necessary jobs are completed promptly even if there does not seem to be a rush. This type of preventative maintenance can prevent costs from soaring. It can also, in extreme cases, prevent a property from becoming temporarily uninhabitable, in which case you would have to refund rent.
Despite a drop in the number of complaints relating to missold payment protection insurance (PPI) through the latter half of 2013, the Financial Ombudsman Service continues to receive more than 1,000 complaints every day.
According to chief ombudsman Tony Boorman: “The extraordinary volumes of financial complaints we saw in 2013 now look as if they are starting to level off at last… But we’re still a long way from being able to say that PPI is sorted once and for all.”
Lloyds TSB has lately been the organisation that the most complaints have been levelled against, according to the ombudsman. Runners-up included HSBC, Barclays and the Bank of Scotland. Lloyds, however, claimed that when the number of complaints was considered against the number of customers it had, they were proportionally lower than those of most other institutions.
For the past couple of years, the Financial Ombudsman Service has more than doubled its staff, and those making claims for missold PPI have faced significant delays. While the numbers remain high, the fact that they are levelling off means that those making PPI claims should hopefully see timescales for adjudication improve noticeably. In spite of the levelling off in claim numbers, with still more than 1,000 to deal with every day the ombudsman has claimed that there are no plans to lay off any staff. Furthermore, the service has said that most of its staff are on three year contracts, suggesting that their jobs will remain secure at least until the end of this period.
When it comes to the adjudications, there are massive differences between banks. Barclays was the subject of just over 36,500 complaints, and in 77% of these the ombudsman found in favour of the customer. By contrast, less than 6,436 complaints were aimed at Nationwide, and only 10% of those were upheld.
Furthermore, the number of cases being upheld overall is falling. Around 75% of complaints were upheld in the first half of 2013, but only 56% in the second half of the year. Around half of complaints are being made through a claims management company. In the wake of the scandal when the large scale of PPI misspelling was revealed, these companies were set up to guide the masses of customers through the process of lodging a complaint and making a claim for the money to be repaid.