RETIREMENT
KNOW WHAT IT MEANS

So you've worked hard all your life, paid all your taxes and National Insurance. Now is the time to stop and smell the flowers and have an interesting and varied retirement. But what is this - the taxman is still there to haunt you even though you are having to subsist on far less and far more time to pay for things that cost. Unless you are very well-off it is imperative that you plan ahead to avoid having a drastic income reduction. So how do you plan and what are the options? ALLOWANCES & BEREAVEMENT Unfortunately the only two certain aspects in this world are death and taxes. And unfortunately these two ill-fitting bed fellows come to-gether. If a husband passes away, the wife will get her own personal allowance, and any part of the married couple's allowance for that year's which cannot be used up against the husband's income, up to the date of death. However if the wife is getting all or half of the married couple's allowance in the year of the husband's death, as much as possible must be transferred back and set against the late husband's income The wife will also receive the widow's bereavement allowance during the the year of the husband's death and for the following year, unless she remarries before the commencement of the second year. Similar to the married couple's allowance this reduces the tax bill by a certain amount. The allowances the wife gets in the tax year in which the husband dies can be set against any income the wife may have in that year. If the wife dies, the husband will get both the personal allowance and the married couple's allowance, less any part that the wife used against her income. In the following year the husband will just get the personal allowance unless he remarries in that year. ( Further details are available from tax offices on leaflet IR91) TAXABLE INCOME FOR THE PENSIONER The following is taxable:   State pension Pensions from previous employment Invalid care allowance and invalidity addition paid with a retirement pension Widow's pension Widowed mother's allowance incapacity benefit- all benefit paid in respect of new claims from 13 April 1996 ( except benefit paid during the first 28 weeks of incapacity) gross interest from a bank, building society or local authority interest from National Savings Certificates ( except National Savings Certificates and the first £70 of interest from ordinary accounts with the National Savings Bank) dividends on shares and income from unit trusts any earnings from a job or business income from property taxable gains on life assurance policies a share of any joint income The following DO NOT attract taxation: widow's payment incapacity benefit paid for the first 28 weeks of sickness incapacity benefit paid to someone who was receiving invalidity benefits before 13 april 1995, provided there has not been a break of more than eight weeks in the claim attendance allowance and mobility allowance.

war widow's pension income support paid for reason's other than unemployment, strikes, temporary lay-offs or short-time working. income from tax-free National Savings investments such as Savings Certificates, Yearly Plan or the first £70 of interest on an ordinary account with the National Savings Bank. interest, dividends and bonuses from a Tax Exempt Special Savings Account (TESSA) interest and terminal bonuses under Save As You Earn schemes dividends and other income from a Personal Equity Plan (PEP), or interest from a PEP ( unless you withdraw more that £180 interest) Premium Bonds, National Lottery and gambling prizes. TAXATION OF PENSIONS If a Pensioner has paid enough National Insurance Contributions during his/her working life they are entitled to the full basic state pension. Men can start claiming at 65 and woman at aged 60. However State Pensions are paid without tax deducted and depending on other income tax may have to be paid on them. The taking of the state pension may be deferred for up to 5 years in which instance a higher basic pension is paid. In the case of married women who receive a state pension it is considered as their own income for tax purposes even though it may have been obtained as a result of her husband's contributions. She can set her own tax allowances against it. In addition to the basic state pension a Pensioner may qualify for the State Earnings Related Pension Scheme ( SERPS). SERPS is a supplement to the basic state pension and is based on average earnings made since April 1978 as long as full National Insurance Contributions have been made. There was also a scheme known as graduated pensions available between April 1961 and April 1975. A Pensioner qualifies under this as well as long as he/she was employed during that period and paid NI contributions under the scheme. This may be taxable under what is known as the non-contributory retirement pension. This is a top-up pension for those aged 80 or over who either have no pension or whose pension is less than the normal state pension. Employer's pensions are different. This pension comes from a former employer, the tax usually being collected under PAYE. This means the tax has already been collected from the pension. Some UK pensioners may get an overseas pension. Usually normal tax is paid on nine/tenths of any pension from abroad regardless as to whether the proceeds are brought into the UK. No tax is payable on pensions paid by the governments of Germany and Austria to UK victims of Nazi persecution. TAX ON INVESTMENTS Most pensioners top-up their pension income with income or capital from savings that they have built up over their lifetime or inherited. However keeping down taxable income is the main object of ensuring better returns. A Pensioner may lose his/her age-related allowances if their taxable income exceeds their total income for the year. The pensioner must therefore tailor his/her investments to combat this. The preferred route is to invest in to tax-free investments- However there is a caveat that some investment schemes are riskier than others and the value of the capital can go down as well as up.

It is here that we at The Informed Investor usually disagree with most professional commentators. The reason is that in many cases the product which is usually getting the greatest amount of sales  is usually the worst value for the buyer. Why you ask: a) A larger than usual amount of money may have been spent on advertising it. ( Who pays but the purchaser). This may be paying more to professional advisers to sell it. b) Products sold under the Financial Services Act are subject to rigid control but also to a very high cost of compliance. That cost of compliance is passed on to the consumer. And in the case of mutual companies any fines for non-compliance etc. are also paid by the Investor. c) The market sees certain large chunks of monies becoming available through the introduction of a product and raises its values to meet it. This means that the buying public are really paying too much for the underlying investment. d) Many institutions can create above average returns on smaller funds but cannot continue to create those returns with larger amounts of money. It is therefore in certain instances dangerous to follow success, it may be like closing the stable door after the horse has bolted. e) You have to keep your eyes open for sharp practices on behalf of financial institutions especially in creating higher running costs for so-called tax-free investments. For instance look at PEPS. Stopped by the government in 1999 you will find the overall value of PEPS under management dropping year by year as people withdraw and no new ones are sold. However the institution still has to pay for the administration of the remaining funds at a higher burden for the remaining investors. f) Watch out for Investment Companies arbitrarily switching your investments from one type of investment to another. This can happen because of take-over, amalgamations or just cost-saving excercises. If you went into a shop for a piece of fish and were given a leg of lamb you would take it back. However its not that easy when dealing with financial institutions. g) DO NOT BE PUT OFF BY PROFESSIONAL CRETINS WHO WILL SAY " It's not under the Financial Services Act so I won't touch it".  Basically these cretins do not understand the Financial Services Act. The Act was set up to protect investors from rogues. If you go into a shop and buy gold, diamonds, wines, antiques, art etc. you take the whole article home with you.  However in the case of shares, stocks, unit trusts, options, futures etc. you only get a piece of paper saying you have a share of something with a lot of other people. It is that share which is regulated not the whole it represents. The Financial Services Authority has to ensure that the companies issuing the paper are doing so properly and that they have purchased what they say they have. So the FSA is  a stamp of Authority NOT APPROVAL and beware cretins telling you that it is. For TAX-FREE INVESTMENTS . The following can be considered: Individual Savings Accounts (ISA) National Savings Premium Bonds Friendly Society Plans British Films Enterprise Investment Trusts Venture Capital Trusts Fine Wines

It can also be a simple form of annuity income for those with a shorter life expectancy.
The shareholders of the insurance company are prepared to share the profits attributable to its long term annuity business with its pension annuity holders. This means that on the demise of the client even after they have converted the Personal Pension
to a Compulsory Purchase Annuity that the monies left over in the account which could include any bonuses that the client elected not to take can revert back to the named beneficiaries of the client free of Inheritance Tax.
It is an exceptional product where your clients could be: