From 1st November this year Junior ISA’s (Junior Individual Savings Accounts) are to become available. These will offer a simple and transparent way to save for your child or grandchild’s future.  A Tax Free Junior ISA has all the benefits of a regular ISA in that your child will not pay any income tax on any return / interest earned by the savings account.  Junior Individual Savings Accounts are a great way to create a nest egg & help provide some financial backup for your child when they reach adulthood and can be used to pay for their university fee’s or even help them set a foot on the property ladder.

The same limitations, benefits and rules that apply to a regular ISA also apply to a Junior ISA’s for children which include:

• Once you have deposited money into a Junior ISA and provided it stays there, it will be tax free year upon year.

• Once your child has reached adulthood (currently 18 years of age) they are able to withdraw their cash whenever they want without losing any tax benefits. Management of the account will pass onto the child once they reach 16 years of age.

• Tax Free Junior ISA’s are covered by the FSCS / Financial Services Compensation Scheme so you can be sure your investment is safe.

• The annual Junior ISA Tax Allowance will be £3,600 per year.

• Parents, grandparents, friends and anyone else with an interest in the child’s financial future can contribute to their Junior ISA (provided the total amount is no more than the annual limit).

There are two types of Junior ISA: A cash Junior ISA and an Investment Junior ISA (in effect a Stocks and shares Junior ISA) and each child will be able to hold one of each account with different providers should they wish but the total combined investment allowance between the two accounts remains at £3600 per tax year.

Junior ISAs are available to any child born on or after 3rd January 2011 and any child under 18 years of age born before September 2002.

For more information on this or any other investment or financial planning matter, contact us at honeysuckle Cottage on 01768 840000.

You can hardly pick up a paper or turn on the TV at the moment and not be aware that we are in the midst of, what seems to be, an element of financial turmoil.

A mixture of low growth, high unemployment and sizeable debt (to name but a few) in the Eurozone (particularly Greece and Italy) and in America is unnerving the markets which sees the financial markets literally move up and down on an hourly basis.

However we have seen these times before and whilst market conditions are challenging, it can be easy to lose sight of long term investment goals. It would be easy to jump out of markets but you should :

Stay invested for the long term

• When market conditions look uncertain it is important to remember that equity investing is for the long term
• Always review your investments in the context of your financial goals, not short-term performance
• Stay committed to your personal financial plan

Time not timing is key

• Don’t let uncertainty affect your investment strategy
• It is usually better to stay invested through good times and bad – history and time are on your side
• Market timing is a high risk strategy and too easy to miss the gains

Benefit from diversification

• Spread your money across different types of investment such as cash, bonds and shares
• Invest in a range of different countries outside your home market
• Invest in small, medium-sized and large companies
• Consider investing in a range of sectors or industries

Why cash can be a risk

• Cash may not be a good option for long-term investing
• The purchasing power of cash is eroded over the years by inflation
• Investing in cash ISAs for many years could mean your portfolio is overweight in cash and unbalanced

See the opportunity in volatility

• Regular savings plans and drip feeding your investment can help smooth out the effects of a volatile market

For clients of Profile Financial Management, you would have heard us ‘banging on’ about these messages before but they are as pertinent now as they have always been.

Don’t lose sight of your long term goals – we are here to support you in this regard, now, and into the future.

However, for clients of Profile, if you do have concerns about your investments please free to contact us.

Richard Utting (Director)

From new figures issued by the Office for National Statistics (ONS) it is the banks who are largely to blame.  The ONS figures show, for the 2.8% fall in the size of the UK economy since it peaked in March 2008, banks are responsible for 1% of this GDP contraction.  The impact of the banking sector on this economic fall is disproportionate to the size of the banking sector as a whole.

Whilst the banking sector is responsible for 5.1% of economic output in the UK, they are responsible for around 35% of the economic decline since March 2008.  This analysis excludes the impact of tighter lending criteria from banks on the contribution to economic growth from small businesses and consumers.

The banking sector has already shrunk by 2.6% this year, following a 5.1% slump last year and 7% drop in 2009.  As we all know the banking sector has become something of a national whipping boy in recent years, with taxpayers having to bailout the sector following the global financial crisis.  Reports say members of the British Banking Association feel victimised by tighter regulations for the sector expected to be proposed by the Independent Commission on Banking are unlikely to be met with much sympathy.

We all might dislike the banks but perhaps harsher regulation should be temporarily postponed until we see better economic recovery and the sector is able to do less damage to the state of the national finances.  What we do need to do is have a less risky banking sector which will not expose taxpayers to the sorts of costs they have already experienced to rescue this troubled industry.

Balancing the need for economic recovery with the need to properly regulate the banks will be a real challenge for government when the Independent Commission on Banking publishes its final recommendations this autumn.

With low interest rates, high price inflation and low wage inflation, there is, without doubt, growing pressure on household budgets.  New research from financial information company Markit has found that nearly 40% of households saw their finances deteriorate between July and August this year.  In essence this means that finances worsened at their fastest pace since the middle of the last recession in February 2009.  Only 6% of households experienced an improvement in their finances during this time.  The Household Finances Index monitored by Markit had fallen for the third month in succession and now stands at its lowest level since it was created at the start of 2009.

With the UK economy struggling to recover, consumer sentiment is likely to remain poor for some time given this continued squeeze on household budgets.  Financial Planning can help to identify areas for savings and steer a path through an uncertain economic environment.

From new figures issued by the Office for National Statistics (ONS) it is the banks who are largely to blame.  The ONS figures show, for the 2.8% fall in the size of the UK economy since it peaked in March 2008, banks are responsible for 1% of this GDP contraction.  The impact of the banking sector on this economic fall is disproportionate to the size of the banking sector as a whole.  Whilst the banking sector is responsible for 5.1% of economic output in the UK, they are responsible for around 35% of the economic decline since March 2008.

This analysis excludes the impact of tighter lending criteria from banks on the contribution to economic growth from small businesses and consumers.  The banking sector has already shrunk by 2.6% this year, following a 5.1% slump last year and 7% drop in 2009.  As we all know the banking sector has become something of a national whipping boy in recent years, with taxpayers having to bailout the sector following the global financial crisis.  Reports over the weekend that members of the British Banking Association feel victimised by tighter regulations for the sector expected to be proposed by the Independent Commission on Banking are unlikely to be met with much sympathy.

We all might dislike the banks but perhaps harsher regulation should be temporarily postponed until we see better economic recovery and the sector is able to do less damage to the state of the national finances.  What we do need to do is have a less risky banking sector which will not expose taxpayers to the sorts of costs they have already experienced to rescue this troubled industry.  Balancing the need for economic recovery with the need to properly regulate the banks will be a real challenge for government when the Independent Commission on Banking publishes its final recommendations this autumn.

New Government analysis forecasting a dramatic rise in the number of people living to 100 is increasing the need for innovation and flexibility in retirement income planning, a report by MetLife says.

Analysis by the Department of Work & Pensions* forecasts that the number of centenarians will pass 500,000 by 2066 and that 20-year-olds today are three times more likely to reach 100 than their grandparents. Girls born this year have a one in three chance of living to 100 while boys have a one in four chance.

Pensions Minister Steve Webb says the UK needs to “radically rethink our perceptions about our later lives. We simply can’t look to our grandparents’ experience of retirement as a model for our own. We will live longer and we will have to save more.”

Met Life are looking for pension reforms which will allow for more flexibility on assets held within drawdown plans, and also for the easing of rules on using pension funds to pay for long-term care. It also highlights OECD research** predicting that the UK will need to spend £50 billion on services for the elderly such as pensions, long-term care and health care.

The proposals form part of a wider campaign by MetLife for pension reforms aimed at increasing total pension savings, engaging younger savers, and improving the standard of living of retirees.

Peter Carter, Product Marketing Director at MetLife UK said: “It is entirely correct that retirement income planning needs a radical rethink and that people need to save more if they are going to live longer.”

“Retirees with defined contribution pensions need to make the most efficient use of their savings, whether in the form of regular income, or lump sums for expenditure on necessities such as long term care.

“Longevity insurance is available in the US and can provide peace of mind that income will be assured in later life while allowing greater certainty and control over current income.”

MetLife believes deferred annuities held within pension plans would enable savers to plan ahead for the risk of living longer than expected, and potentially exhausting their retirement savings. Deferred annuities protect against this risk by guaranteeing an income at a fixed age while allowing individuals to continue to draw an income from their existing fund.

For example, someone with a fund of £250,000*** could decide at 60 to buy a deferred annuity for £30,000 to pay out a guaranteed income of £26,065 per annum at age 85. The remainder of their fund could then be used to provide the maximum income until the age of 85.

Easing of existing capped drawdown rules to enable investors to use funds to help pay for nursing home care, with any money left subject to 55% tax, should also be considered, MetLife says.   The proposals form part of a wider campaign by MetLife for pension reforms aimed at increasing total pension savings, engaging younger savers, and improving the standard of living of retirees. MetLife plans to launch its full proposals for pension reform in September.

Notes to Editors
* http://www.bbc.co.uk/news/uk-14398140
** Help Wanted? Providing and paying for long-term care’ OECD, May 2011
*** MetLife based upon similar US product r

Over the past few days, it has been possible to conclude that the world was coming to an end!!!  Stock market levels have fallen sharply over the past week and London has been the subject of days of rioting and looting.  However it’s not all bad news on the investment front…the FTSE 100 index of leading UK company shares has closed at 5,007 (10-8-11).

Andrew Wells, Global Chief Investment Officer (Fixed Income) at Fidelity International commented today:
“While there will be continued volatility, there is a growing sense that the ECB have introduced some core stability to European bond markets by purchasing the government bonds of Spain and Italy.”
He went on to add:
“The other supportive factor is that Standard & Poor’s has reaffirmed the AAA sovereign credit ratings of France and the UK in the wake of the US downgrade.”

In the US, it should have come as little surprise that Standard & Poor’s decided to cut the sovereign debt rating from AAA to AA last week.  Whilst in other countries such a rating cut would have resulted in investors dumping government bonds, the US situation is arguably very different.  The US has over $14 trillion of bonds issued whilst the next biggest issuers of AAA-debt have less than $2 trillion. It is important not to underestimate the sheer size of the US economy and debt market.  Japan, Russia and the UK have all reaffirmed their confidence in the US debt market since the rating cut. Whilst it could be argued there is an element of self-preservation in their supportive comments, it does underline just how important the US has become on the world financial stage.  What we might now witness is a gentle repositioning of the US economy away from borrowing and budget deficits, potentially losing its place as the world economic leader in the process, but this process is likely to be slow and orderly.  We can continue to expect volatility in world markets pending further stabilisation of the Euro based countries currently under pressure and the USA looking to re-structure its longer term debt.

So it’s not the end of the world, despite what some market and social indicators might have you believe.  And for those who invest in our investment portfolio’s we don’t intend to make any changes at this time but if you do have any concerns or questions about this spell of volatility in world markets please do not hesitate to get in touch.

Richard Utting

At Profile we consider ourselves to be ‘alternative’ – we like to tell our clients, whether they are private individuals or small business owners, the truth about money.
It is not about selling products like many advisers do.

It is about:

• Focussing our attention on our clients
• Understanding their aims and aspirations
• Ensuring that they can always enjoyed their desired lifestyle
• Ensuring that they never ever run out of money, and finally
• Ensuring that their families are totally financially secure

Your Goals/Our aims

What can we do for You?

In essence we are ‘Lifestyle Financial Planners’, helping clients achieve their financial goals in life through:

• Becoming financially better organised
• Consolidating financial arrangements, thus simplifying life
• Managing financial risk
• Reducing tax liabilities

We are committed to long term relationships. This is further demonstrated by the fact that, as part of our process, we review our client’s position annually, as a minimum. We are not commission or product driven.

Our service is designed to look after clients, provide quality advice, keep them informed about the progress towards their goals and objectives and the growth of their investments. We devote a lot of time and care to looking after each client.

At Profile we also enjoy what we do; we believe that this comes across in the way we deal with clients. Believe it or not financial planning can be fun!!

And finally, as well as offering a full financial planning service we also provide a range of focussed advice services to satisfy particular financial events in client’s lives.

National Savings & Investments are reintroducing one of their most popular savings products – Index-linked Savings Certificates. These products, which are backed by HM Treasury, offer savers protection against price inflation.

The new issue will pay inflation, as measured by the Retail Prices Index (RPI) plus 0.5%. Returns are tax-free. They are a five year bond with a maximum investment of £15,000.

NS&I Index-linked Savings Certificates were withdrawn from sale in July 2010 due to exceptional levels of demand in an inflationary environment where savers were disappointed by low interest rates.

We expect the level of demand for this new issue of Index-linked Certificates to be very high.

Savers are continuing to suffer from the combination of high inflation and low interest rates, resulting in an erosion of the ‘real’ value of their savings.However, we urge caution before savers take up this new issue. Whilst inflation is high and interest rates are low today, this situation is likely to look very different within the next twelve months. The latest Bank of England inflation report is forecasting a peak in price inflation later this year before it starts falling back.

Savers who commit their money to these new Index-linked bonds could be very disappointed with the total return over a five year period. Early withdrawals from NS&I Index-linked bonds are possible, but without the addition of index-linking or interest if they are surrendered during the first year.

If interest rates go up towards the end of this year or early next year, to bring inflation under control, receiving 0.5% over the rate of RPI inflation could suddenly look less attractive.
That said, this new issue of Index-linked Savings Certificates could form part of an overall savings strategy for an investor who is concerned about the impact of price inflation.

To find out more about National Savings or about becoming a client of Profile, call us on 01768 840000 or email info@profilefm.co.uk to arrange your meeting.

Your Retirement Income

Will Income Drawdown suit you?
The first statement to make is that income drawdown is complex and anyone utilising this facility must understand the risks involved as well as the very flexible benefits.
What age can you access your benefits?
From age 55.

How much tax free cash is available?
Firstly you are able to access up to 25% of your total pension fund as tax free cash (within the lifetime allowance limit of currently £1.5m or greater if you have enhanced or primary protection benefits granted by HMRC).

Amount to be invested into Income drawdown?
The balance (after taking the tax free cash) can then be utilised in an income drawdown plan. Although there are no set limits on the size of a “pension pot” that is appropriate for income drawdown you really should not consider utilising the facility with a fund of under c£125,000 to invest. A sum lower than this figure will possibly not be able to ride out the turbulence of the risks involved (see below).

What actually happens to the money in the Income drawdown plan?
The underlying pension fund will be invested in a suitable portfolio to provide the level of growth required to maintain the income to be withdrawn from the plan over the years ahead.

This means you will need to assess the risk profile you wish to adopt very carefully as the portfolio will need a mixture of the four main asset classes:

•    Cash
•    Fixed Interest Securities
•    Property
•    Equity

There should be an emphasis on producing income and growth therefore leading the risk profile to between a medium to higher risk. A low to medium risk profile will possibly not provide sufficient growth year on year to maintain your desired income levels.

Effectively this means utilising c60% of the fund at any one time in growth assets i.e. property and equity funds with cash and fixed interest securities utilised to dampen the volatility of the portfolio but still provide growth.

How can withdrawals are paid:
Most providers will allow you to take an income:

•    Monthly
•    Quarterly
•    Annually

paid directly to your bank account.
All withdrawals are subject to income tax (payable at your highest tax rate)

What levels of withdrawals can be paid?
The coalition government introduced changes to how the income level will be calculated publishing the figures by HMRC on 16-2-11 to come in to force on 6-4-11.

The tables setting out the factors to calculate the income are not that much different to that previously set out by the Government Actuary Department (known as the GAD limits).

The new “caped income” will be available throughout a client’s lifetime with the new tables providing age related factors to age 85.

You can take an income of between nil to 100% of your “capped income” level with most plans now flexible enough to let you alter the income taken year on year.

These new capped income limits will be reviewed every three years and not every five years as was previously the case.

So what are some of the risks:
Investment risk:
A fairly large percentage of your pension monies will still need to be invested through the stock market and therefore subject to market conditions and volatility. You will have to be happy with the level or investment risk taken  to produce the income/growth required by you plan to match your income requirements.

Mortality risk:
As you get older you will need to consider mortality drag. Your pension pot may reduce in size due to withdrawals and you will need greater investment returns to provide the same income.

Charges:
The charges on income drawdown plans are usually higher than conventional annuities or the pension arrangements the money originated from.

Ongoing maintenance:
The plan should be reviewed on a regular basis (at least annually in detail).

As becomes apparent from the above these vehicles are complex carry risk however they are highly flexible for the right level of fund and client who is not relying solely on the pension pot via income drawdown to provide their incomes.

It is a highly effective way of accessing your pension benefits dependent on your:

•    Overall capital and liquid assets at retirement
•    Sources of income in retirement

The complexity can put people off and independent financial planning advice should always be taken before preceding with Income Drawdown to ensure your circumstances and risk profile make the plan the best way to drawdown your pension benefits, as oppose to taking a less flexible annuity arrangement.

So if you are currently utilising an income drawdown plan and have not reviewed it recently we would be pleased to provide professional help to review it to check it is still the best route to take your pension benefits.