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Get the most from your finances in 2013
2:48pm Monday 14th January 2013 in Lifestyle
Question: Can I still get a decent return on my savings - or has that time long since gone?
Answer: With the returns on cash at an all-time low, and bank interest rates forecast to stay very low for the next few years, it is possible that you could get a better return elsewhere. As such, you should make a resolution to review your other investment options in full. There are some really interesting products that have a 'guaranteed' income built in to them by the insurance company that provides the product. You must just bear in mind that the guarantee is only as good as the insurance company's strength. So before you press ahead on this, ensure that you get some good advice to help you make the correct decision.
Any such advice should mean that you look at the potential returns offered by the different asset classes. The most compelling asset class appears to be equities as the yield that they offer is high on a comparable basis, both historic and with the other assets. So if this is something that you’re interested in, a product that has a guarantee will provide some comfort to the often volatile investment journey that investing in the stock market offers.
The final bit of advice is to ensure that you invest for the long-term and allocate in to asset classes and geographic areas. Finding a good adviser to help do this for you will really help.
Question: I am retired and in ‘drawdown’, can I do anything this year to help increase my income?
Answer: If you’re male, the answer could well be that you need to ask for an interim GAD review when the rates get increased back to 120 per cent later this year. You should ensure that this is on the agenda for the next annual review later in the year.
If you are female, the chances are that the new gender directive could also affect the amount of money you might receive from an annuity so be sure to take a look at annuity options as well as the GAD review.
Question: I have received a letter from HM Revenue & Customs saying I might lose some of my child benefit. Is there any way I can hold on to it?
Answer: Yes, it might be possible as you can legally reduce your earnings so as to keep your child benefit.
One of the simplest ways to reduce your income is to increase your pension contributions. Take somebody with three kids earning £60,000, and claiming roughly £2,500 in child benefit. If they pay £10,000 into their pension, they reduce their income to £50,000, so they don't have to pay the child benefit tax charge.
However, thanks to tax relief, investing £10,000 in your pension only costs higher-rate taxpayers £6,000. So they paid in £8,000 and get it topped up by £2,000 in tax relief straightaway and can then claim a further £2,000 back through their tax return.
Upping pension contributions may be painful in the short term but it does at least mean the income you miss every month goes into your retirement savings rather than government coffers. "In this case, it will cost £3,500 [£6,000 minus £2,500]. So you end up with £3,500 less in the bank but £10,000 in your pension in return! How is that for a New Year double whammy?
If you don't already use childcare vouchers this could be another clever way of getting your income down and clawing back your child benefit. Currently, higher-rate taxpayers can sacrifice £124 a month or £1,488 a year to buy childcare vouchers free of tax and NI.
- Mitch Hopkinson is a managing partner of deVere United Kingdom, part of the deVere Group, the world’s largest independent financial advisory firm.