Ask the experts - your questions answered - October 2006

Jo Roberts ACoI, APFS, Director Online IFA of the Year 2004, 2005, 2006 Need An Adviser.com, ww.needanadviser.com, 01543 677444

2. Ann in Nottingham asks: Is there a government scheme which gives over 60s a discount on replacing a boiler?

There are a number of options depending on a person,s circumstances.If you are on benefits then your local council may be able to help you. There is also a Government funded project called Warm Front (www.warmfront.co.uk) that aims to make homes warmer, healthier and more energy efficient by offering a package of insulation and heating improvements to the value of around £2,700.

The scheme is aimed at homeowners and those renting from private landlords. To find out if you qualify, visit the website or call Warm Front on 0800 316 2805. You can also email enquiry@eaga.com.

You might also be interested in visiting your local council web site for their brochure on services for older people. Their web address is www.nottinghamcity.gov.uk/sitemap/services_for_older_people.pdf.

Jo Roberts ACoI, APFS, Director Online IFA of the Year 2004, 2005, 2006 Need An Adviser.com, www.needanadviser.com, 01543 677444

3. Matt in Chelmsford asks: I have a very poor endowment with eagle star/zurich, it's got 10 years to go and was ment to pay out just over £40000. I've been offered £10355 for it by the Life Company and have tried to sell it with not much luck.

I've worked out that on maturity it will be £16350 aprox if the bonus rate still is 1/4 % but of course the terminal bonus is? Not sure whether to cash up and put into my endowment?

Before cashing in your endowment, think about what you are giving up. For example, the life insurance element that would pay out over £40,000 if you were to die. Consider how much it would cost you to replace that cover now, especially as you are older.

If you decide to cash in the endowment you could use the proceeds to reduce your mortgage and increase your monthly payments. If you move from interest only to repayment, the monthly payment is likely to rise.

Consider the risk elements. For example, with an interest only mortgage, you could reach the end of your mortgage term without being able to repay the mortgage balance. If you had converted to a repayment mortgage, the balance will be repaid by the end of the term if you make repayments when they fall due.

Consider how likely the endowment is to give back more than you have paid in. Work out the premiums between now and the maturity date of your endowment and consider whether they would be better used as increased mortgage payments or to build up the value in the endowment (taking into account any replacement life cover costs).

The annual bonus is very poor at 0.25% and there is no indication it will get better. This makes you very reliant on terminal bonus, which is a complete unknown.

My advice is that you need to make a choice – do you definitely want your mortgage cleared by the end of the term (if so, get rid of the endowment and opt for repayment) or are you happy to gamble on the terminal bonus making up a lot of your maturity value (if so, stick with the endowment and make arrangements to make up any shortfall not covered by the endowment).

Jo Roberts ACoI, APFS, Director Online IFA of the Year 2004, 2005, 2006 Need An Adviser.com, www.needanadviser.com, 01543 677444

4. John in Surrey asks: I have recently had some ordinary shares relaced with Bshares, what's the difference please and are they worth the same value and lastly what's the reasons for change?

It is hard to be specific without knowing more details. One possible explanation is that the issue of B shares by a company is a tax efficient way of paying a dividend. Shareholders receive this payment in the form of shares, which are therefore subject to CGT, as opposed to dividends which are subject to Income Tax.

One course of action for the holder would be to instantly redeem these shares and therefore receive the cash immediately, unless this would cause a CGT declaration.

The company will have published information detailing the changes - the investor relations section of their website may well be a good place to get more details of the restructuring and what it means for existing shareholders.

Tom McPhail
Head of Pensions Research
Hargreaves Lansdown
Office: 0117 988 9949 Mobile: 07957 273627

5. Andrew in Montpellier, Bristol asks: My credit cards are all maxed out and i owe around £8,000 on them. I earn £25,000 a year and have a mortgage of £100,000, which is interest only, but i'd like to start paying some of it off (I dont have any repayment vehicle in place).

I'm not sure if I should pay off the credit card debt first, or just service that while I put a repayment plan in place for the mortgage, or both, or focus solely on the card debt first. could you advise plse?

The most sensible thing for Andrew to do is to firstly work out how much he can affordably put to one side for debt reduction.

Credit Cards should not be used to carry debt; they should be paid of immediately or as soon as possible thereafter.

Thus when you know how he can afford, after making sacrifices in terms of luxuries, Andrew should commit to repay this from the credit card each and every month.

Fix the payment and this will have the effect of reducing the balance in the most cost-effective way to suit his needs. When the credit card balance is removed, then he should re-visit the idea of repaying the mortgage, which he will find much easier as the habit of removing small "lump-sums" from his debit will have been be bedded in.

His current payment is around £240 per month; if he were to increase this and fix his payment at £350 per month, his balance, assuming a rate of 18% approximately, could be clear within a little over two years.

If she were to continue with the minimum payment, this could continue considerably beyond 10 years as the payment will reduce as the debt reduces. The answer here is to fix payments and stick to them.

Ian Hudson
Hudson Green
Tel: 0800 043 1355
Fax: 0845 869 3026
Email: ian@hudsongreen.co.uk

6. Roger in Ikley asks: I'm coming up to 60 next year and am thinking of selling my house (worth around £300,000 and no mortgage on it) and moving to somewhere in northern france where I believe I can buy a decent home for in the region of £180,000.

This would leave me £120,000 in cash and would help supplement my pension pot (its currently worth £130,000 and I elected to retire at 60 so can start taking income next year. Should I buy an annuity with this, and take the tax free lump sum separately and place that in a high interest account, or not take the lump sum at all and use the whole pot to buy an annuity?

I'm fairly risk averse and can't afford to lose any of my capital. I'm a bit confused as i know the pension laws changed last year and also on how I'd be taxed income wise if I was living in france (I was thinking of registering myself as living at my son's address near london and only haveing the french place down as a 'holiday' home to avoid double taxation. Is that sensible? What income do you think I could achieve with my money?

You have a lot going on here and you should be taking full advice to ensure that you are getting full advantage from you assets. I would recommend that you seek independent financial advice before doing anything first.

A few notes for you to start with. The UK and France have a double taxation agreement. This means that you will only be taxed once. If you do buy in France then make sure you also make a will in France as they have different inheritance laws. Whether you take tax free cash will depend on a few issues.

As examples, this can include what type of pension policy you have. Some have guarantees included in them which are valuable and these should be checked. Also, if you are still working you may want to top up your pension before drawing benefits. There are many issues you should consider here and you should take full advice before proceeding.

Keith G Churchouse BA (Hons), APFS
Director Chartered Financial Planner
Certified Financial Planner
Tel: (01483) 578800 Fax: (01483) 578864

7. Sharon in Edingburgh asks: I'm 38 and have a pension with standard life worth around £55,000 from previous employment. I also have a personal pension with the Standard via the company I'm currently working for, but it's kept separately and I've only just started it.

I'm hoping to retire at 60 and in order to have a pension of around £25,000 (in todays terms) wondering how much i should be paying in each month to achieve this? I currently pay in a total, including employer contributions, of £350 each month.

I have made quite a few assumptions, of which the main one is the attitude you take about the volatility of the pension fund before retirement at 60.

I have assumed that you wish to balance the potential gain against the amount of risk taken to get it. I estimate that you would have to pay in an additional £370 per month after basic rate tax relief to stand a 74% chance of retiring with an index-linked pension in today's money of £25,000. It should also produce Tax Free Cash of around £100,000 in today's equivalent.

As the State Pension would not be available until age 65, I have disregarded it for the purposes of this exercise.

As you might disagree with any of my assumptions, I would recommend that you visit an Independent Financial Adviser. Perhaps you are more conservative or even more adventurous than the norm? You might want to invest in a Socially Responsible manner? There are a number of issues here, but another £370 per month should hit your target. The key question is into which funds? Your choice is a 90% determinant of how big the pension fund is.

Paul White
Belgravia Insurance Consultants

8. Anthony in Ilford asks: Which way are interesting rates going to go in teh next couple of years? K don't know whether to det a discount tracker or a fixed interest mortgage out? I don't want to lose out if rates do start falling which I've read they might.

Anthony, I suggest setting up an Offset Tracker mortgage linked to Bank of England base rates, on interest only terms. However, set out to repay capital also to the extent that you can afford to (there should be no early repayment charges if you do so).

If interest rates increase you can keep your monthly payments unchanged so long as you do not ever pay less than the required interest payments. Being able to adjust the capital repayments will give you a margin of safety and flexibility.

Every so often (say, annually) you will need to get a valuation statement from your lender (via your IFA if you have one) to guide you in how much remains to pay off in the remaining term. This will help you adjust your payments if your income increases over the years and you want to completely repay in a certain timescale (normally 25 years but you could agree a longer term with your lender of it suited you both).

There are several lenders who have attractive offset tracker mortgages and I would be happy to advise in depth when I know your situation in detail.

Michael Britten of Ashley Law Bath
Ashley Law Limited
JenniferDesousa@ashleylaw.co.uk