Critical Decisions With Illness Cover

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Buying critical illness cover can be a minefield so we are offering a few tips to make the process easier.

Don’t just go for the cheapest plan – in most cases you will get what you pay for. Comparison sites may offer you a so-called ‘best buy’ table but they will rarely show you the ‘best for you’ option.

The cheapest plan will often be the policy stripped down to the essentials, which is why it is that price. While it may be right for you, in most instances just a few pounds more will get you a whole host of other benefits that will save you money in the long run.

Don’t take out a policy that is beyond your means. If you are on a limited budget it is unnecessary to go for a policy that covers every illness going.

Look for a policy that covers you for partial payments and early stages. To highlight how important this, we will use a case where doctors catch a patient’s breast cancer in its early stages. Following an operation, only a small part of the breast was removed to stop the cancer spreading.

The insurer can refuse to pay out because the cancer wasn’t in their words ‘serious’ enough. But the patient will still be out of work and in for a long recovery and in need of the money. Avoid a similar situation by making sure the policy covers early stages.

Check the small print of your critical illness policy to see if your premiums are fixed. Fixed premiums mean that the amount you pay for the cost of cover will stay the same throughout the life of your policy.

This means that you can budget accordingly and will not face premiums rising. Unfortunately, many critical illness policies do not have fixed premiums and they are likely to rise at some point, especially as you get older and become a higher risk for certain health problems.

• Look out for a policy that also covers your children. You’ll have peace of mind that your family are also protected should the worst happen.

And finally, it is always prudent to see an adviser who knows this industry inside out. Often, not seeking independent and professional advice can prove an expensive mistake if you’re stuck on an ineffective policy.

Our team of advisers at Platinum are on hand to help.

Size Matters When It Comes To Your Pension Pot

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A study by Fidelity Worldwide Investment found that around 25% or workers do not know the size of their retirement pot, while 42% have no idea how much income their current retirement savings could provide.

The poll of more than 2,000 UK adults revealed that pre-retirees expect their retirement savings (around £13,972 a year) will fall far short of the actual £21,734 they believe they will need.

It also found that almost two thirds (63%) of pre-retirees would like to achieve more than just basic living in retirement, equating to £11,876 a year. The wish list included:

* 31% who wanted a two week holiday each year (31%) which would cost around £2,000.

* 30% would like to still regularly dine out with friends (£2,200 per year)

* 26% would like four weeks holiday a year (£3,750)

* 25% would like to make home improvements (£2,000).

However, of those who want more than just a basic living, 39% consider this overly ambitious and actually think they won’t be able to afford any luxuries.

Chris Davies, head of Fidelity Wealth, said: “Retirement is something to look forward to and whether it seems like a long way off or you are hoping to retire soon, there is nothing more important than being prepared. It is disappointing that so many people have no idea what lifestyle to expect when they retire. It is easy to put off thinking about tomorrow, but the sooner control is taken the better the outcome could be.”

We are pleased to say the majority of Platinum’s clients are kept abreast of the current values of their investments.  That said, if you are concerned about your income when you retire, we would be happy to review your plans with you, to ensure they are on target.

Premium Bonds – What Are They Worth?

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NS&I, the organisation that runs the range of National Savings products, has recently announced further dramatic cuts in the prize funds used for Premium Bonds.

Whilst the reduction equates to 0.2%pa it has lengthened odds of winning any prize at all from 24,000-to-one to 26,000-to-one.

This means it is more unlikely people will win.

When you remove ERNIE’s highest value prizes, the likelihood of winning prizes in line with the advertised interest rate drop further.

The cut in prize fund ties in with further cuts in interest rates to their Income Bonds, Direct ISA and Savings Accounts, which take effect from 12th September 2013.

All in all, the case for Premium Bonds and National Savings is less attractive – however in certain circumstances they can still be a useful holding.

If you are considering Premium Bonds or are unsure as to whether your existing holdings continue to represent good value then get in touch with Platinum – the chances are, we’ll be able to advise you properly.

The Top 3 Investment Mistakes We Make

“To err is human” said Alexander Pope – but in investment, to err can also be expensive. You need to look at the mistakes of others then try to avoid the most obvious pitfalls.

1. Investors can make many mistakes but one of the most common is to follow the herd. When markets are high, they can scramble to invest, thinking they might miss out. When markets are falling, they often sell out. One of the more well known examples of this sentiment driven investing was the ‘dot.com’ boom. Millions of investors parted with their savings, thinking they were missing out on a chance to make ‘easy’ money. Unsurprisingly, the bubble then burst and many scrambled to get out without a thought about what might happen next.

2. Don’t get carried away in the moment – either to invest or to sell. Stories of large falls in markets can make investors nervous – but this is the nature of equity investment and selling on a short-term dip simply crystallises a loss. It can also mean missing out on both the eventual return to normality and the longer-term benefits. Markets will always go down as well as up, so if you are scared by such volatility, take advice. Perhaps equities are not for you.

3. Don’t believe you can time markets – experts agree this is a near-impossibility. Investment should never be gone into lightly. Be clear about your objectives, your timelines and the risks – and make sure your portfolio is run accordingly.

Numerous studies have proven how people who have attempted to avoid stock market losses have in fact missed out on some of the largest stock market gains. You cannot predict the future, especially in the short term, so it is important to have a clear strategy over a reasonable timescale accepting that volatility is part of the ride.

By focusing on ‘value’ when investing and having clear objectives over the medium to long term, clients continue to see their investment returns grow and have ridden out much of the recent stock market instability created by the global debt crisis.

Contact us if you want to ensure your investments are positioned appropriately for the future.

Investment Bonds Made Easy

When you buy an investment fund, you may choose to do so via a wrapper which helps convey certain tax benefits on the income and capital gains which you receive. An investment bond is one of these wrappers you can choose.

Investment bonds are generally available for single premiums – which is a one-off, lump sum. You can choose how that money is invested from a range of options. Traditionally, the most popular have been with-profits, managed and distribution funds. These combine a variety of different asset classes within the one fund and therefore offer diversification all under one roof. More recently, the range of options has become much greater, with both diverse and specialist funds now being offered alongside through fund management houses.

Funds within an investment bond pay tax equivalent to the basic rate so there is no specific benefit to help such investors save tax. However for higher rate taxpayers, it does offer the chance to defer any liability incurred on gains – and potentially reduce them in the process.

For example, under income tax deferral rules, you can withdraw up to 5% of your initial investment each year, without becoming immediately liable for tax on it. This amount can be withdrawn every year for up to 20 years and it’s not until you cash in the entire investment bond that you are assessed and have to pay that additional tax on any gains.

This postponement of the tax liability can be particularly advantageous if you are a higher rate taxpayer now but expect to become a basic rate taxpayer in future, perhaps after retirement. The tax charge applies at the rate you are paying when the bond is encashed, not when the income was taken. As the bond has already been paying the equivalent of basic rate tax during its term, in this example, you would end up owing nothing more.

The structure of investment bonds means they can also offer facilities that some mutual funds cannot. Phased switching, to and from cash funds, for example, can help you dip into or out of a volatile fund. And as life assurance products, they also carry life cover which guarantees your original capital should the worst happen. However, you should be aware that if your main objective is growth, particularly for higher rater tax payers, there may be other more tax advantageous ways to invest.

Before making any decision, make sure you consider all the investment options, your current and future outlook. Make sure you take some professional advice.

As always we are here to help.

Income Generation For The 21st Century

 

Investing to generate an income used to fall into the ‘straightforward and dull’ camp. Investors would focus primarily on cash and UK government bonds or ‘gilts’ – so-called ‘safe-haven’ options that promised a relatively high income, albeit with little chance of capital growth or protection from inflation.

However these more traditional asset classes are generating increasingly disappointing returns for income seekers. Four years of exceptionally low interest rates have crushed yields on cash deposits, as interest rates have fallen woefully below inflation.

Meanwhile, there are signs the bond market’s extended period of popularity could be starting to lose momentum. Although UK interest rates will at some point start to rise – thereby increasing cash yields and providing support for bond yields – there is no evidence to suggest Bank of England policymakers are in any hurry to increase rates. In fact the Bank of England’s new governor, Mark Carney, made a recent announcement telling the market not to expect an interest rate any time soon.

On the brighter side, as times have changed investors are no longer forced to sacrifice the long-term value of their capital in order to achieve an income. Over the years, for those comfortable enough to move further up the risk ladder, investment-grade corporate bonds and UK equities have proved fruitful strategies for income-seeking investors. In particular, an equity income approach can offered the welcome potential for capital growth as well as a sustainable income stream.

That said, although yields on UK equities continue to run well ahead of gilts, the yields offered by both asset classes have fallen over the past year. As of the end of April 2013, the UK equity market yielded 3.2%, compared with the benchmark gilt yield of 1.68% . However, a year earlier, UK equities had yielded 3.4%, while gilts yielded 2.1% .

Looking ahead, some investors may need to consider reassessing their ideas about income generation. A number of options are available, ranging from traditionally lower-risk considerations, such as cash and gilts, through UK equities and investment- grade corporate bonds, to still more speculative asset classes, such as overseas equities, high-yield bonds and property.

Taking a step up the risk ladder might sound daunting but it does not necessarily have to involve a wholesale change of approach. A controlled and well-thought-out income strategy with a robust core portfolio of relatively mainstream assets – such as investment-grade corporate bonds, property and high-quality equities – can be boosted by an element of exposure to more speculative income-generating investments such as high-yield bonds, say, or emerging-market equity income. As ever, diversification to spread risk across different assets remains vital.

As always, the team at Platinum are happy to discuss any of your plans to ensure income generation in the future.

Market Update – Looking Ahead…

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With the holidays approaching, now is an excellent time to reflect on the previous six months and look ahead to what the summer may bring.

The majority of global stock markets continued to forge ahead in May, showing a consistent growth that has been missing from markets in recent years.  A significant reason for this was the relaxed monetary policy of the world’s central bankers, alongside signs that the various global economies were starting to show signs of coming out of the recession.

We also saw markets have a few jitters as they caught their breath after a brief but meteoric climb in stock market indices in May.  Ironically the blip in the stock market was caused in part by the US Federal Reserve commenting how things were looking more positive and that they will be looking to cut back on Quantitive Easing (QE) as the economy continues its recovery – maybe sometimes you just have to keep quiet when things are going well!

The most encouraging news for investors was how the markets recovered from this and quickly settled down to resume their steady progress in a similar fashion to earlier in the year.

From a UK perspective there is also a certain amount of optimism as the new Bank of England Governor, Mark Carney, settles into his role.  His fresh approach may well encourage the UK’s economic recovery.

Looking ahead, here at Platinum we have recently carried out an in-depth analysis and review of our overall investment strategy, considering everything from asset allocation through to individual investment fund selection.

We have largely left our tactical strategy unchanged.  Whilst we continue to have reservations on assets such as sovereign debt, such as gilts and gold, we are quite positive on other investment areas.  Equities remain good value and offer good prospects with the US and UK markets as well as increasingly attractive newer markets such as Japan.

For those clients who hold investments, our focus always remains in the medium to long term and it is over this timescale that we feel confident that returns will be positive.  Whilst there will occasionally be periods of uncertainty, the ability to look beyond the short term will reap rewards.

As always, if you would like to discuss your investments in more detail or have any queries do not hesitate to contact us.

Personal Insurance: What you need and when you need it…

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As you pop open the champagne to celebrate the birth of your child or the start of your retirement, insurance is unlikely to be on your mind. However, life-changing events are the times when you need protection more than ever.

The number of products on the market can be overwhelming, leaving some people confused about what cover they actually need – and what they don’t.

We unravel the personal insurance minefield;

 

“I’m buying a house with my partner”

If you’re taking the plunge and buying a property with your partner, there are two main priorities from an insurance point of view: making sure the mortgage debt is cleared in the event one of you dies and being able to continue mortgage payments if either of you can’t work due to long-term illness.

The debt only needs to be paid once so a life insurance policy in both your names, tailored to the level of the mortgage and decreasing in line with the debt, will be needed for the life cover and is very cost effective.

You could also include cover to clear the debt should either of you suffer a critical illness.  Although the premiums will increase quite a bit, the cover can be invaluable as any lump sum payout enables you to adjust your lifestyle, whether or not you return to work.

Another option is to buy two single life plans. With a joint policy, you and a partner are covered by the same plan but if you take out two single policies they are completely separate plans, meaning you can get double the cover. You can also be insured for different amounts.

Income protection is also a good idea for homebuyers in order to protect mortgage repayments. If your employer provides sick pay, this might not be a requirement. However, if they don’t the level of cover should be for at least your proportion of the mortgage payment and run for at least the term of the mortgage.

It is also possible to provide income protection for people not working, under house person cover which could also be worth considering.

 

“I’m getting married”

Unless you are buying a place together for the first time – in which case the points above are all relevant – your financial dependence upon each other is unlikely to have changed.

 

“I’ve just had a child”

Having a child means you need the most comprehensive insurance but you are least likely to be able to afford it. Your children rely on you for their financial well-being and, on the assumption that one parent will not be working for some time at least, there’s never a greater time to make sure you have comprehensive life insurance in place.

Parents should take out life cover so that they have sufficient capital or income in the event the worst happens, until the child becomes financially independent.

It is essential to have cover on both parents, even if one parent isn’t working.

You should also consider topping up your income protection and critical illness cover beyond just covering the mortgage.”

 

“I’m retiring”

In contrast to starting a family, this is a time when you need the least cover but can afford insurance the most!

If you have no savings, you might want to consider a life insurance funeral plan.

Alternatively, life insurance can be arranged to pay out, in trust, to your estate beneficiaries to offset against inheritance tax liabilities.

 

As always, the team at Platinum are here to help you through all the changes that life can bring!

Keep the taxman away from your life insurance money

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Figures from previous tax years show that families who have lost a loved one face up to 40% inheritance tax (IHT) on life insurance payouts.

However this can easily be avoided by writing any policies into a trust. There are many benefits to this type of planning:

 

  • Final payments will not form part of an individual’s estate when they die, so the money is not liable to IHT.

  • It will be paid out quicker because families will not have to wait for the estate to be settled through Probate. Sometimes life insurance settlements can take months to be completed – a real problem if their estate still has monthly outgoings like mortgage payments.

  • Trusts are really simple to set up as most life insurance companies provide the forms and we can help you complete the paperwork to ensure your loved ones avoid a huge tax liability.

  • You can ring-fence funds and ensure they’re protected for the use and benefit of your loved ones, protecting the assets from any other interested party such as ex-partners.

  • It is also possible to ensure any money from your pension plans also avoid unnecessary Inheritance Tax.

 

We urge clients with life insurance policies in trust to check that the terms of the trust are still relevant to the individual’s personal situation. Often policies will have been written many years ago; people may have remarried or changed relationships in that time but never reviewed their trust. If the trust has not been changed, ex-spouses could be set for unintended windfalls if the paperwork is out of date.

As always we are happy to help clients.  If you, or anyone you know, is unsure of whether to place policies in trust and wants to know how to do it, then get in touch…

Buy-To-Let: Top Tips For Beginners

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With a wave of new mortgage products for landlords that will provide a solid return on investments, there can be opportunities for those looking to become a buy-to-let (BTL) investor.

Over the past year the interest rates have dropped, making a significant difference to potential borrowers.

There are also indications that while the mortgage market is appealing to BTL landlords at present, there are still a number of novice property investors who are making common mistakes with their portfolios and finances.

Having a BTL portfolio does not automatically guarantee financial success and before entering the market, investors would be well advised to prepare a detailed business plan to prevent nasty shocks further down the line.

The following are just a few considerations potential investors should consider:

Tenant demand: the first question to ask is what is the likely level of rental demand for properties? Thorough research on location and type of property which is most in demand needs to be done.

Pricing: research your target market in terms of rental levels and what is realistically achievable, along with any anticipated increase in the future due to the cost of living.

Purchase and ongoing costs: operating costs as well as purchase costs must be allowed for as this is the only way (once your rental income has been factored in) of calculating what your gross and net yields will be.

Remember also to allow for the inevitable times when the property may be empty, and also allow for a separate fund to cover repair and maintenance costs. Don’t forget professional fees and possible legal bills and be aware of the personal tax aspects of renting property too.

Exit strategy: before committing, you should always consider your exit options – for example, will you be able to sell your property easily should you want to? It is worth noting that property is generally regarded as a longer term investment as it is less liquid than, say, equities, securities or commodities.

Our specialist advisers can guide you through all the advantages and disadvantages of being a property owner.