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Each month we ask different Independent Financial Advisers (IFAs) to give us their solutions to issues facing those who take an interest in their money. Expert opinions each and every month.
It is easy to contact an independent financial adviser in your local area, call 0800 085 3250
1. Mr H Wordsworth asks: My wife and I are moving to the Turkish Republic of Northern Cyprus. Can you advise on the best way to have our state pensions transfered out there?
Graham Jones of Independent Financial Adviser, Siddalls (www.siddalls.net) says:
Your UK pension cannot be paid direct into a Northern Cypress bank account by The Pensions Services.
You can have your pension paid into a UK bank account and make arrangements for currency exchange and electronic transfers using foreign exchange companies such as HiFX or TTT Moneycorps. Various services are available and you can choose how regularly you want the transfers to be made.
2. James Gary Dean asks: I'm thinking about selling my home and retiring to Spain on the Costa Blance. I'm 50 years old. Will this effect my Government pension? I've worked full-time for 33 years s a motor mechanic.
Graham Jones and IFA at Siddalls says:
At present you would require at least 44 qualifying years national insurance contributions to receive a full UK state pension and women would require 39 years contributions.
However, since you do not reach state retirement age until 2022, you will qualify for a full state pension with only 30 years service, which you already have earned. Everyone reaching state pension age after April 2010 will qualify for a full state pension with just 30 qualifying years. This change is in the Pensions Act 2007.
3. Elisabeth O'Brien in Banbury asks: I am due to receive my state pension in November but at this time I do not need to cash it either weekly/monthly so I would like it paid into a savings account with high interest for approx 5 years. Can you suggest a good account or a good way to save this money until it is required?
Donna Bradshaw, Financial Planning Strategist at IFG (www.ifg.co.uk) says:
In addition to the option of putting your state pension into a savings account, you could also consider putting off claiming it and then, when you need it, either taking it as an extra lump sum or as extra state pension.
The interest rate for the lump sum is always 2% above the Bank of England's base rate, at today's rates that would mean interest of 7.75% (base rate is currently 5.75%).
Whilst the rate is very attractive, do bear in mind that when you finally take the lump sum it is taxable and you should therefore take into consideration your income at that time and whether income and lump sum combined push you into the higher rate tax bracket.
If decide to take your pension now, remember it is taxable so effectively the money put into savings comes from net income and any interest is paid net of tax, unless of course you are a non tax payer.
To make your money work harder, make the most of your cash ISA allowance (£3,000 for this tax year and increasing to £3,600 for the tax year 2008/2009) - interest on cash ISAs is tax free.
You have the option of a fixed rate or variable interest rates; depending on whether you think interest rates will go down and/or you like the guarantee of a set return on your savings. Whilst the interest rate available on deferring is very attractive, tax plays a part; for many people the difference will be marginal but that may not be the case for you.
For further information on deferring your State Pension go to http://www.thepensionservice.gov.uk/statepensiondeferral/choices.asp and for details of the best rates on savings accounts and cash ISAs check out www.moneyfacts.co.uk.
4. J Zamen in Manchester asks: I currently own 3 properties - 1 residential and 2 Buy-to-Lets (BTLs). There is about £100K equity in the BTLs.
My dilema is whether to sell the BTLs and pay off some of my residential mortgage with the £100K equity from the BTLs (which would reduce the residential from £300 - £200K), or whether to hang on to all 3 in the hope that they will ultimately provide a better return.
And if I opted to sell up, what type of mortgage is best - repayment or a One Account? I am favouring the latter as we would have more monies to offset per month.
Paul White, Consultant, Belgravia Insurance Consultants says:
Any Independent Financial Adviser would have to be careful in answering your question, because he or she is effectively giving you investment advice on your two BTL properties, which are not collective investments, like a Unit Trust for example.As property is an illiquid asset (difficult to get out of), it's asking the IFA whether No. 1, Acacia Avenue is a 'good investment', which is very specific. You really have to decide for yourself after answering the following questions:
• Does the rent more than cover the mortgages or does it break even? If they are roughly equal, then you are investing for a Capital Gain in the future. If there is a surplus, then it helps with your monthly income. Which do you prefer?
• Have the rented properties grown in value and are they likely to do so in the future?
• The Halifax Property Index suggests that property grows by around 7% per year. Using a spreadsheet, you should be able to model when the capital values of the investment properties match the outstanding mortgage on your home. Roughly, when will that happen? Are you prepared to wait that long?
• If you do decide to sell, try to stagger the sales over different Tax Years, so that you get two lots of Capital Gains Tax Allowance (£9,200 for 2007-2008).
There a quite a few Offset Mortgages around at the moment and they can be run in conjunction with a repayment mortgage, so you can have both. Visit a Mortgage Broker for exclusive deals from your own Lender, which you are not told about, compared to others.
5. James Finch in peterborough: I have an initial £1000 to invest for my new born son, to give him the best start in life, I would like to know what would be the best medium risk, long term investment for him? I have heard the bonds are the probably the best idea, but what do they offer above high interest savings?
Would I be better investing for him in my own name, as the majority of investments seem to require a minimum age.
Paul White, Consultant, Belgravia Insurance Consultants says:
Luckily these days, you do not have to pick just one asset class, like bonds, for your investment.
You can now have a variety of different categories all in one fund, which are not correlated to each other. That is, each asset does not move as much, or in the same direction as the other.
The HSBC Open Global Return Fund is a Fund of Funds investment, where the Manager has 24 Underlying Funds from different Investment Houses and the amount invested in each is constantly monitored and switched, if deemed necessary. It invests in a variety of different types of asset.
With an 18 year investment horizon, there will be times when shares look better than bonds and vice-versa, so you can delegate those sorts of decision to the Manager.
While HSBC aims to preserve Capital, there is no guarantee against a fall in value, which you do get from a High Interest Deposit Account. However, recent events have shown that all types of invetsment carry varying degrees of risk.
6. Eddie Burney in Manchester: Is it the right time to buy shares in Northern Rock?
Donna Bradshaw, Financial Planning Strategist at IFG (www.ifg.co.uk)says:
The jury is out on this and the position still looks uncertain. RAB Capital's boss has increased his stake; however, others do not share his view and even if a buyer was found it is unlikely they will pay a premium for the troubled bank.
Speculating on share price movements is high risk and unless you are spending money you can afford to lose, I would avoid it.
