Ask the experts - your questions answered - November 2006

Paul White, Belgravia Insurance Consultants
A. The Abbey National Unit Trust Managers Stockmarket 100 Tracker Growth Fund has grown by 13 percent over the last year, according to the Trustnet website. The reason why your valuation is showing at less than your original investment is due to a variety of factors.
January 2006 was a volatile month on the Stockmarket, so it is difficult to establish exactly at what price you bought. Your Fund does not track the FTSE very efficiently and fails to keep up with its peers. Indeed, you have to go back five years before it is ahead of its competitors. As a result of this underperformance, you did not actually buy in at 5200, but at a lower value and the fund does not reflect the 6135 at time of writing accurately either. Not only does this fund fail to match its peer group in good times, it tends to go down more in bad times as well.
If you are still convinced by the case for Tracker Funds, the HSBC FTSE 250 Index Fund offers much more upside, with a wider universe of stocks for no initial cost. This fund has much better performance over one and three year time periods, at the expense of higher volatility, than the Abbey one.

Jason Witcombe, Evolve Financial Planning
That is very strange and I can't offer much of an explanation for this other than that there may be an error somewhere. If you have invested in a UK Index Tracker Fund and haven't withdrawn money then this should have tracked the market upwards. I suggest that you double check exactly what "tracker investment" you have, check what market you are tracking and then call Abbey for clarification. Perhaps there are some early surrender penalties but I doubt it.

Q I have been poorly served by Coop Insurance Services and intend to cancel all the business I have with them. If I take equivalent policies for home, contents and car cover with another company, will I qualify for discounts?

Anna Sofat, AJS Wealth Management
A. Discounts depend on type of insurance, location, age and your claims history etc. For example with car insurance you may have a protected no claims discount which you maybe able to take with you. In addition, certain types of drivers are able to get discounts from certain companies - women and Diamond, over 50's with Saga etc.
Discounts for home and contents will basically depend on where you live, what security you have in place (locks, alarms etc) and whether you have made any claims over the past 5 years or not.

Paul White, Belgravia Insurance Consultants
A. Your approach of buying everything "under one roof" with the Co-op has shown its flaw, because one area of not meeting your expectations has led to you moving your entire portfolio to another Company.
As it is unlikely that one Company could offer you the best terms on each of your car, home and contents insurances, I would recommend that you source each of these separately and get your discount that way. Any General Insurance Broker will be able to find and compare competitive products for you and, in terms of Customer Service, sort out any issues you may have.

Jason Witcombe, Evolve Financial Planning
I assume by "discounts" that you mean no claims bonuses. If this is the case, you may well be able to benefit from these depending on the new provider(s). You should be careful to ensure that the start date on your new policies coincides with the cancellation date of the existing ones so as not to find yourself without insurance cover, even if only for a few days.

Q. Which account and where to invest £25K for 12-18 months for the maximum return?

Anna Sofat, AJS Wealth Management
A. For such a short period, only cash deposit accounts would be suitable, probably a 1 year fixed account. There are some good rate offers at present - Britannia has a 1 year bond with a fixed rate of 5.9 percent gross or the Anglo Irish at 5.85 percent. Both can be accessed on line.

Paul White, Belgravia Insurance Consultants
A. As you are uncertain about exactly how long you are prepared to commit the money, I would go for an account paying monthly, rather than annually. The Citibank Flexible Saver Issue 2 includes a 0.56 percent bonus for six months giving a gross rate of 5.45 percent. With no notice required and a Cash Card, this account also allows you to add further funds, if desired. The interest must be compounded, so your brief of the "maximum return" means that you would get the best return by not touching the account. Access to the Account can be through a Branch, by post, telephone and the internet, so this one offers real flexibility.

Jason Witcombe, Evolve Financial Planning
It depends whether or not you want instant access but the new Icesave account from Landsbanki looks good, with a gross Annual Equivalent Rate of Interest guaranteed to exceed the Bank of England Base Rate by at least 0.25% until 1 October 2009.
If you haven't used your ISA allowance, you could put ££3,000 into a cash ISA and then do the same again next tax-year.
Also, if you have a partner, make sure the cash is held tax-efficiently. For example, if you are a higher rate taxpayer and your partner is a nil, 10 percent or basic rate taxpayer, it would be more tax-efficient to hold the cash in your partner's name.

Q.I have a pension which was frozen when I was made redundant in 1991. I only have three years to retirement, is there any way I can enhance my pension in the time left?

Anna Sofat, AJS Wealth Management
A. It's never too late to improve your pension provision. You can now pay up to 100 percent of your earnings into a pension each year (up to a maximum of £215,000). Whatever payment you make, you will get at least basic rate tax relief and 40 percent if you are a higher rate tax payer. You should look at stakeholder pensions to keep your costs down - Scottish Widows offer a good stakeholder contract with access to some decent funds as does Legal and General.
As your retirement is only 3 years away, the key thing you will need to consider is what you invest in - I would suggest a gilt or cash fund. If you invest in a gilt fund, you should look to disinvest and switch to a cash fund at least 12 months prior to your retirement. This way, you benefit from the tax relief without taking big risk over what is a relatively short term.
However, please note that if you earn less than £15,000 per annum, you will need to also consider the impact additional savings might have on any means tested pension and benefits in retirement.

Paul White, Belgravia Insurance Consultants
A. I presume that you had an Occupational Pension Scheme with your former Employer, which was most likely on a Defined Benefits basis, seeing that the redundancy was in 1991. DB pensions take your years served with the Company and apply a formula to them to arrive at a proportion of your salary at date of leaving the Scheme, which may or may not have been increased in line with inflation. Therefore, I recommend that you visit an Independent Financial Adviser specialising in pensions with the details of your scheme, to investigate your best course of action, as this is a complex area. He or she should give you a free half-hour consultation, which should establish whether the answer is something you can do for yourself with the pension scheme administrators, or if more work is needed. You can then choose, whether to proceed on a commission of fee-paying basis.

Jason Witcombe, Evolve Financial Planning
Yes. If you are currently employed, check to see if your employer offers a pension scheme and will pay into it for you. Otherwise consider setting up a personal pension plan. If you are a higher rate taxpayer this would be very valuable. If you are not, then saving into an ISA might make more sense.

Q. I was left some shares and want to know how I go about selling them?

Anna Sofat, AJS Wealth Management
A. All high streets banks have a share dealing service - you simply pop in with your share certificate and ask them to sell. However, the cost can be high specially if there shares are of a modest value - there is usually a minimum cost of £25 plus.
A cost effective alternative is on an line or phone based service such as TD Waterhouse who charge £12.50 or idealing for £9.90. The downside to these is that you have to open an account which might be cumbersome.
Another option is Moneyextra who have a postal service for one off sales at a fixed cost of £20 - you complete a form which you can obtain from its website, send it in with your share certificate and its done.

Paul White, Belgravia Insurance Consultants
A. As the shares are a legacy through a Will, I assume that the Estate has been granted Probate and all taxes have been paid, so that you are now free to dispose of them in your own name, as you wish. I would establish if now is the best time to sell them, by checking the Broker Consensus, as to whether they are thought of as "Buys", "Sells" or "Holds". It is also worth establishing if these shares are being sold with or without the dividend.
The Interactive Investor Share Dealing Service was voted "Best Online Share Dealing Provider" for 2006. Their £10 per stock flat fee, irrespective of the size of the deal, with free "dematerialisation" of any Share Certificates and free Transfers In, this web-based platform is geared towards simplicity and transparency of charges.

Jason Witcombe, Evolve Financial Planning
It depends if you want advice or not. If you do, then you should speak to a stockbroker. If you simply want to sell them you can also do this through a stockbroker (many of the online ones have very low charges) or you may be able to sell these through the registrar. A quick internet search will tell you who the registrars are for the shares that you hold. Most offer in-house share dealing services.

Q. I have £20,000 to invest - should I put it into my mortgage, my pension or invest it in shares or buy a buy-to-let property?

Anna Sofat, AJS Wealth Management
A. A lot will depend on what you want to achieve with your £20,000 and what type of person you are. In economic terms, it makes sense to use the fund to repay your mortgage unless you can get a better return than what you are paying on your mortgage - if your mortgage rate is 5 percent for example, you would need to earn 5 percent after charges and tax to be better off. This option might also be best if you are rather cautious by nature as it's the least riskiest.
On the other hand, if you are not so good at regular saving or if you are attracted to an idea of a nest egg in future then putting it in your pension or shares/unit trust might be a better option. Which option (pension or shares) would be best will depend on if you can afford not to have access to the funds until you retire. If you feel you may need over the medium term 5-15 years then a pension is unlikely to be suitable.
Finally, I would not consider a buy to let unless : a) you know what you are doing i.e. you know about location, the hassle attached to renting etc and are prepared for some hand on in put.
b) you can afford to pay the mortgage for at least 2-3 months each year. If you do not have the spare capacity to do this, then do not consider a buy to let as any increase in mortgage rate or a void period (where the property is not let out) will put pressure on your finances.

Paul White, Belgravia Insurance Consultants
A. Assuming that there are no Early Redemption Penalties on your mortgage, I would make a lump sum contribution to your Lender, once you have checked that any contributions are credited to your Account immediately. This will have the effect of reducing the remaining term of your mortgage, perhaps dramatically, if you are on a Capital and Interest basis.
If you want to keep your options open, you could choose an Offset Mortgage, where the £20,000 would reduce your interest payments, whilst still being able to draw down that money for some other project. First Direct's Offset Mortgage has a competitive variable rate of 5.19 percent for 18 months, then Base plus 0.75 percent for another 18 months, then Base plus 1 percent for the remaining term. The Arrangement Fee is low at £299, but there would be a Valuation and legal costs to think of.

Jason Witcombe, Evolve Financial Planning
That's the 64,000 dollar question! It's impossible to answer because it depends on your circumstances but here are some thoughts.
Paying down your mortgage is usually a very good idea. If you are a higher rate taxpayer and have a mortgage interest rate of say 5.5 percent you would need to generate a risk free return of over 9 percent p.a. to beat paying off a mortgage. That’s pretty unlikely!
If you are a higher rate taxpayer, tax-relief on pension contributions is excellent so well worth considering. It is less attractive for basic rate taxpayers for whom saving into ISAs often makes more sense. You already have a mortgage, so therefore have a lot of exposure to the property market. You should think very carefully before making further investment into property as it's not wise to have all of your eggs in one basket.