Could one of you clever people answer a quite straight forward question for me? I must add that I have absolutely no idea regarding investments apart from the basics.
If I invested 300k over four to five years, what sort of growth could I expect? Would 12k per year be achievable or is that figure way off the mark?
The money would have to go somewhere safe or very low risk as I would need the initial 300k back intact. This is not spare money that I can afford to lose.
Cheers
It really depends on your attitude to risk - a highly speculative portfolio could give 10%+ pa or a very cautious one 4%.
If its money you can't afford to lose then investing is not for you. No one can guarantee not to lose your initial capital, although with a 4-5 year time horizon I would say its a decent bet you'd get your money back (and some).
There are a couple of "products" that could give you some degree of certainty - with-profit Bonds being one and deposit based Structured Products another. But both would really require the services of a Financial Advisor and would probably cost you at least £2k in fees. Clients of mine in said "products" have been getting back c5% over the past 5 years, although past performance is no guide to the future.
Edit. Thinking about it, the fees are likely to be much higher than that. I usually charge 3% of the investment amount, although for sizable sums then this can be negotiated down. For fellow Lifers there is a special rate, but saying that I don't think I would do a £300k investment for less than £3k with £5k being the norm.
The thing about structured products is that the capital is only really guaranteed if you leave the money to the full term of the product (e.g. 4 or 5 years). That's because the 'guarantee' comes from an underlying bond, which is only guaranteed to be worth the same as you pay for it when it matures.
So, if there's any reason why you might want to access it before that, it's not a good idea, IMO, particularly with expected inflation, which is very bad for bonds. Of course, you can chop it up and lock up some proportion and/or for shorter term periods.
Quite - but I wasn't giving personalised advice merely stating that there are products/ investments that can have a capital guarantee. If a client came to me saying that they wanted x,y or z then I would tailor my advice accordingly.
The only structured product I ever invested in, which was supposed to have intial capital guaranteed, ended up losing me a lot of money. I don't know if they all are, but this one included a derivative (which effectively underwrote the guarantee). However linked within the derivative structure was Leman's. Need I say more! So beware and only invest in a structured product if you FULLY understand the mechanics and the risks YOURSELF.
There are Deposit based Structured Products that guarantee your initial capital and are FSCS protected up to £85k.
You just need to take advice from a Financial Adviser
I own1/3rd of a successful company for around 20 years, but if I took the true value of my share holding out of the company in one hit, it could damage its long term future. I was wondering if say I took 10% of the agreed value of the share every year for 10 years, could I claim entrepreneurs tax relief every year until I reached my personnel limit?
I know there’s an obvious risk with doing it this way, as the company could fold, the tax could be withdrawn or the limit reduced, no doubt there’s plenty of other risks as well, but it would also allow me to continue to draw dividends (admittedly dwindling as time progress).
Could one of you clever people answer a quite straight forward question for me? I must add that I have absolutely no idea regarding investments apart from the basics.
If I invested 300k over four to five years, what sort of growth could I expect? Would 12k per year be achievable or is that figure way off the mark?
The money would have to go somewhere safe or very low risk as I would need the initial 300k back intact. This is not spare money that I can afford to lose.
Cheers
It really depends on your attitude to risk - a highly speculative portfolio could give 10%+ pa or a very cautious one 4%.
If its money you can't afford to lose then investing is not for you. No one can guarantee not to lose your initial capital, although with a 4-5 year time horizon I would say its a decent bet you'd get your money back (and some).
There are a couple of "products" that could give you some degree of certainty - with-profit Bonds being one and deposit based Structured Products another. But both would really require the services of a Financial Advisor and would probably cost you at least £2k in fees. Clients of mine in said "products" have been getting back c5% over the past 5 years, although past performance is no guide to the future.
Edit. Thinking about it, the fees are likely to be much higher than that. I usually charge 3% of the investment amount, although for sizable sums then this can be negotiated down. For fellow Lifers there is a special rate, but saying that I don't think I would do a £300k investment for less than £3k with £5k being the norm.
The thing about structured products is that the capital is only really guaranteed if you leave the money to the full term of the product (e.g. 4 or 5 years). That's because the 'guarantee' comes from an underlying bond, which is only guaranteed to be worth the same as you pay for it when it matures.
So, if there's any reason why you might want to access it before that, it's not a good idea, IMO, particularly with expected inflation, which is very bad for bonds. Of course, you can chop it up and lock up some proportion and/or for shorter term periods.
Quite - but I wasn't giving personalised advice merely stating that there are products/ investments that can have a capital guarantee. If a client came to me saying that they wanted x,y or z then I would tailor my advice accordingly.
The only structured product I ever invested in, which was supposed to have intial capital guaranteed, ended up losing me a lot of money. I don't know if they all are, but this one included a derivative (which effectively underwrote the guarantee). However linked within the derivative structure was Leman's. Need I say more! So beware and only invest in a structured product if you FULLY understand the mechanics and the risks YOURSELF.
There are Deposit based Structured Products that guarantee your initial capital and are FSCS protected up to £85k.
You just need to take advice from a Financial Adviser
Pleased to hear. I didn't say don't do it. just make sure as an investor you understand yourself. I'm sure as a good IFA you make sure your clients understand what their investing in. Also agree most people should use an IFA.
I own1/3rd of a successful company for around 20 years, but if I took the true value of my share holding out of the company in one hit, it could damage its long term future. I was wondering if say I took 10% of the agreed value of the share every year for 10 years, could I claim entrepreneurs tax relief every year until I reached my personnel limit?
I know there’s an obvious risk with doing it this way, as the company could fold, the tax could be withdrawn or the limit reduced, no doubt there’s plenty of other risks as well, but it would also allow me to continue to draw dividends (admittedly dwindling as time progress).
I have taken entrepreneurs relief. My advice is speak to an accountant who is used to dealing with the relief. Not all of them are. When I took it my company was being closed down entirely. The Inland Revenue can investigate and challenge matters as they did with me (unsuccessfully). It was the case that any claim over £25K had to also involve an Insolvency Practitioner as well as your accountant so more unnecessary fees as I did most of the work for them!! I have not heard about taking relief spread over a number of years but I am not a tax expert and legislation may have changed. Good luck!
I agree that it's worth seeking proper advice. An alternative to selling the shares in tranches might be to sell all of them immediately but take a proportion of the consideration in loan notes so that the business can manage its cash flow over an agreed timeframe.
Agreed totally re the professional advice, and we would use our company accountant, but I was just trying to find out if it was allowed prior to discussing it with my partner, before seeking professional advice, like the idea of selling in one lump rather than tranches, so it then eases the cash flow, which is my biggest worry. Some of our employees have worked for me for over 20 years and I know there families and kids etc., last thing I want to do is but there livelihood at risk. Thank you for your advice.
Just in case this is of interest to anyone in my position.
Had a word with my accountant yesterday with reference my question on entrepreneurs tax. He stated that you can sell your shares in lump and accept payment over a number of years, but the big disadvantage is that you have to agree the total sum for your shares (no problem), and pay the full amount of entrepreneurs tax (10% at present but could increase / decrease or benefit withdrawn although not being discussed at present) when it becomes due, you have around one tax year before you need to pay, so in my case he said the sales date should be the beginning of the tax year in 6th April 2024 and payment date would be 30th January 2026. He also said get a solicitor involved as I / my wife could die during this period and a legal document would pass the outstanding debt onto my beneficiaries so payment would continue.
Anyone taken a punt (shares) on Poly or EVR, both plummeted upon Putins madness and sanctions but both, particularly Poly recovering very well, I didn’t have the bottle to invest.
Interesting. Any need to involve an insolvency practitioner - I assume not as the company will still continue trading.
Was told no as form is a going concern and has been for over 20 years, the reason I want to do it this way is to prevent insolvency / cash flow problems, rather stupidly I look upon the company as my “little baby” which I was involved in conception and have survived the teenage years, and at last is settling into the young grown up, we had planned all those years ago. Much to my regret it’s time that I took some money out and benefit from those many long hours of sleepless nights and torments of the teenage years, it’s been fun, not as rewarding as it should have been, but almost enjoyable.
I liquidated my PSC at the back end of last year, but that was due to packing in as I had no use for it following IR35 and wanted to get the money out tax efficiently. I needed an insolvency practitioner as it was a members' voluntary winding up, but their fees were pretty reasonable and they were very efficient. If the company keeps trading, its really nothing more than a share transaction, so CharltonKerry definitely wont need one - it's really just tax advice that's required in this case.
I dont suppose you'll get it done this tax year anyway given the date, but worth waiting for April 6th or after to defer the payment of the tax by 12 months.
Help, guys, whilst I know a fair bit on pensions, iv not really that much knowledge on transfers.
A mate has a workplace pension through Legal &General with his current employer. This has 5 years of contributions and is highly likely to be his final employer before retirement.
He has a small pension pot worth £1200 with Aviva, into which he has made no contribution since 1991. He took this out through a Financial Consultancy when working with a previous employer.
He is 60 and currently draws a DB pension of about £3000 per annum from service with the old SE Gas board.
Two questions as the £1200 with Aviva is trivial, could he ask for the whole amount in cash. An if can would that be £300 tax free and tax on the other £900.
can he transfer the £1200 from Aviva into his current employers L&G scheme. An what is the process for this would he have to deal with both parties. Or if he asks L&G would they action the transfer on his behalf… ?
Help, guys, whilst I know a fair bit on pensions, iv not really that much knowledge on transfers.
A mate has a workplace pension through Legal &General with his current employer. This has 5 years of contributions and is highly likely to be his final employer before retirement.
He has a small pension pot worth £1200 with Aviva, into which he has made no contribution since 1991. He took this out through a Financial Consultancy when working with a previous employer.
He is 60 and currently draws a DB pension of about £3000 per annum from service with the old SE Gas board.
Two questions as the £1200 with Aviva is trivial, could he ask for the whole amount in cash. An if can would that be £300 tax free and tax on the other £900.
can he transfer the £1200 from Aviva into his current employers L&G scheme. An what is the process for this would he have to deal with both parties. Or if he asks L&G would they action the transfer on his behalf… ?
Yes on both counts.
He can take the Aviva scheme in cash as its comes under the "small pots rule" ( you can take up to 3 pensions in cash as long as they each don't total more than £10k). As per usual pension rules the first 25% is tax free, the remaining 75% is taxable. This is important to note if he is a higher rate tax payer or close to being one as the 75% payment will be seen to be income and he could be taxed at 40% on it.
On the second point re transferring into his current scheme. Best he speaks to both schemes & see what they require. Usually the new scheme can "request" the old schemes fund, but the old scheme will most likely need a signature from your friend authorising this. Aviva are buggers for this & might actually send out a transfer out form for him to sign first.
Thanks @golfaddick, just starting to think about consolidating a few pissant pension pots myself, including Aviva, so this is not just helpful for raplhie's mate.
For anyone thinking about transferring DC pension schemes then the main thing to think about are charges. Compare the plan charge/AMC/platform charge to see which one is the cheapest - dont just think about transferring the smallest pot into the largest one.
Rule of thumb - 1% should be the maximum & most traditional pension providers will reduce this depending on "pot" size - although any discounts dont start until c£25k. Any decent pension shouldn't have an annual charge in excess of 0.75%, and a few can go below 0.5%. If you go down the new "platform" route rather than a simple personal pension then platform charges should be no more than 0.3%. Problem is a platform usually requires you opening a SIPP & then self selecting the funds. The funds then attract their own individual charges which can be in excess of 1% - but many are between 0.5% & 0.75%. Tracker/passive funds should be lower and come in below 0.3%.
Im 55 in 6 months & wondering what to do with an old final salary pension. Transfer out value is £400,000 but all the time it’s sitting where it is it’s increasing roughly 4.8% annually I believe.
Anyone got any idea what I would receive yearly after taking the 25% lump sum? Also does the transfer out value increase each year by the same rate as the pension does or at all.
Probably the biggest investment we make & struggling to understand it!
Im 55 in 6 months & wondering what to do with an old final salary pension. Transfer out value is £400,000 but all the time it’s sitting where it is it’s increasing roughly 4.8% annually I believe.
Anyone got any idea what I would receive yearly after taking the 25% lump sum? Also does the transfer out value increase each year by the same rate as the pension does or at all.
Probably the biggest investment we make & struggling to understand it!
Firstly the annual rises. These will be set down by the trustees & I'm sure will be documented somewhere. Do you get annual statements ? I know many schemes don't send out annual statements to deferred members (even though they should at least every couple of years) but if you get one have a look at what the annual increases are. Usually it will be in 2 parts - the GMP is statutory I believe & then the rest will usually increase in line with RPI or CPi.
Secondly the annual pension. This should be pretty easy to calculate as it's final salary scheme so you know from the outset ( assuming it's a 1/80th or 1/60th type scheme). Again, this will all be on an annual statement or paperwork you had when you left. If there is no immediate tax free lump sum then you will have to give up pension to get this. Again, quite easy to calculate once you know what the percentage give up is (NHS is 1 for 12).
Thirdly the transfer value. This generally doesnt have any direct relation to the annual pension & will depend on whether the scheme wants to get rid of the liability. Factors of 40 or 50 times the annual pension are now the norm and so the transfer value could change from year to year.
Lastly.....what should you do. The first thing is to get up to date figures. Second is to then get advice from an iFA if you are thinking about transferring. Then again, if it's a public sector scheme then it's not now possible to transfer into your own personal scheme.
And finally finally......any transfer is likely to cost you thousands. Any pension transfer specialist has many hoops to go through to satisfy the FCA & the personal liability insurance is costly. A TV of £400k could cost you in the region of £10k......and this has to be paid even if the advice is to stay put. And the FCA's stance is that the starting point should be not to transfer & you would need a very good reason to transfer. If you have spouse & dependants then its even harder.
There’s definitely lots to think about @dajavouslagan. @golfaddick has most of it in his note above. A couple of other things that might help and give you something to think about as I did this last year.
The regulator has clamped down on this in recent years (a reason for the increased fees, as well as a number of advisors no longer offering this service) and you’ll be told that the default position is that you should not transfer out. However, your individual circumstances may allow the IFA to recommend that you could/should transfer out, as mine did.
For me, single and with no dependents, it was a bit of a no-brainer but I still had to go through a lot of hoops with the IFA. Additionally, I wanted the flexibility to finish at 55 and whilst the work DB scheme would have allowed this, I would have lost 20% of my final salary number (4% per year before I reached 60). So you should also check what your scheme’s “retirement age” is. Had I stayed in the scheme, or been told I had to by the IFA, it wouldn’t have worked financially for me to take the early retirement.
Just finished my first 6 months of retirement today and certainly don’t regret it. Best of luck to you.
EDIT: just re charges for the advice. I think this is the standard, but my review was done in two parts. The initial chat was free and then this led into the first part of the information gathering. This allows the IFA to say either a flat no (stay in your DB scheme) or that further investigation is needed. The second part gathers a lot more information and they talk to you about what you’re looking to achieve, your attitude to risk, whether you want/need you tax free element etc. They then provide a full report with their recommendations, taking you through the details of the SIPP that they recommend for you.
The first part cost me £1,500 and the second, which it was obvious I was going to move to, was £6,000. The full fee was paid on conclusion and taken from my transferred funds. I would had to have paid the £1,500 myself had the answer been no.
I get full access to my pension via the firm’s platform and can check it daily if I like (not recommended at the moment 😱, although picking up again now 😮💨)
It’s the GMP piece that can get complicated. A friend had a deferred DB pension of roughly £3000, of which the GMP element was about £380.
The GMP element was being increased every year by 8.5% from when he left in 91 until age 65 in 2027. That GMP portion of his pension will go from £380 in 91 to £7200 in 2027.
The other part of the pension £2620 is only increasing by “Consumer Price Index” and is only likely to go from £2620 to a guesstimate of about £5300. In 2027.
A large part of your Transfer value could be related to the GMP element.
That 8.5% is variable from pension to pension, and also on how long ago you left. But, does show it is not as simple as it looks. Hence why as Golfie says, a IFA charges a lump to investigate it all.
I was able to buy out at no cost as the final salary scheme that I was part of was in deficit and they were looking to reduce the burden of some of the larger pots. The advice I received was to stay in , but I made the case to leave it for a number of reasons. It was a bit of work but I was able to achieve it at no cost in the end
Just doing some client reviews as we are coming to the end of the tax year & doing some performance charts. No looking first but what do you think these indices have returned over the past 5 years.
FTSE100 Euro Stoxx50 Nikkei Dow S&P500
answers below........
in reverse order
S&P +94.1% Dow +69.7% Nikkei +49.6% Euro +11.73% and finally the good old FTSE100.............
+2.25%
2.25%. That is almost less than Cash over the period & certainly less than CPI/RPI.
Good job we all rely on our Financial Advisers to recommend our UK funds and don't rely on trackers..........
Just doing some client reviews as we are coming to the end of the tax year & doing some performance charts. No looking first but what do you think these indices have returned over the past 5 years.
FTSE100 Euro Stoxx50 Nikkei Dow S&P500
answers below........
in reverse order
S&P +94.1% Dow +69.7% Nikkei +49.6% Euro +11.73% and finally the good old FTSE100.............
+2.25%
2.25%. That is almost less than Cash over the period & certainly less than CPI/RPI.
Good job we all rely on our Financial Advisers to recommend our UK funds and don't rely on trackers..........
Interesting but in the last year only how does it look? I get that 5 years is a good period / average and there will always be exceptional events but given Brexit & Covid related sentiments in the recent past does it make better reading for the FTSE?
Im 55 in 6 months & wondering what to do with an old final salary pension. Transfer out value is £400,000 but all the time it’s sitting where it is it’s increasing roughly 4.8% annually I believe.
Anyone got any idea what I would receive yearly after taking the 25% lump sum? Also does the transfer out value increase each year by the same rate as the pension does or at all.
Probably the biggest investment we make & struggling to understand it!
I made a big mistake in transferring out my final salary scheme, even though I transferred it overseas for tax reasons (QROPS).
I had every intention of keeping the final salary scheme in place, however was sweet-talked out of it by a less than scrupulous financial advisor (English but based in Bangkok).
His so-called advice cost me dearly and my pension pot, although making a small recovery up to the end of last year, is much lower than it would have been.
Provided your pension is in a financially sound scheme, I'd really recommend playing it safe and taking your guaranteed pension and yearly increases. I'm not a financial expert, just someone that's experienced the downside of what you're considering.
Comments
You just need to take advice from a Financial Adviser
It was the case that any claim over £25K had to also involve an Insolvency Practitioner as well as your accountant so more unnecessary fees as I did most of the work for them!!
I have not heard about taking relief spread over a number of years but I am not a tax expert and legislation may have changed.
Good luck!
An alternative to selling the shares in tranches might be to sell all of them immediately but take a proportion of the consideration in loan notes so that the business can manage its cash flow over an agreed timeframe.
Had a word with my accountant yesterday with reference my question on entrepreneurs tax. He stated that you can sell your shares in lump and accept payment over a number of years, but the big disadvantage is that you have to agree the total sum for your shares (no problem), and pay the full amount of entrepreneurs tax (10% at present but could increase / decrease or benefit withdrawn although not being discussed at present) when it becomes due, you have around one tax year before you need to pay, so in my case he said the sales date should be the beginning of the tax year in 6th April 2024 and payment date would be 30th January 2026. He also said get a solicitor involved as I / my wife could die during this period and a legal document would pass the outstanding debt onto my beneficiaries so payment would continue.
Two questions as the £1200 with Aviva is trivial, could he ask for the whole amount in cash. An if can would that be £300 tax free and tax on the other £900.
can he transfer the £1200 from Aviva into his current employers L&G scheme. An what is the process for this would he have to deal with both parties. Or if he asks L&G would they action the transfer on his behalf… ?
He can take the Aviva scheme in cash as its comes under the "small pots rule" ( you can take up to 3 pensions in cash as long as they each don't total more than £10k). As per usual pension rules the first 25% is tax free, the remaining 75% is taxable. This is important to note if he is a higher rate tax payer or close to being one as the 75% payment will be seen to be income and he could be taxed at 40% on it.
On the second point re transferring into his current scheme. Best he speaks to both schemes & see what they require. Usually the new scheme can "request" the old schemes fund, but the old scheme will most likely need a signature from your friend authorising this. Aviva are buggers for this & might actually send out a transfer out form for him to sign first.
Rule of thumb - 1% should be the maximum & most traditional pension providers will reduce this depending on "pot" size - although any discounts dont start until c£25k. Any decent pension shouldn't have an annual charge in excess of 0.75%, and a few can go below 0.5%. If you go down the new "platform" route rather than a simple personal pension then platform charges should be no more than 0.3%. Problem is a platform usually requires you opening a SIPP & then self selecting the funds. The funds then attract their own individual charges which can be in excess of 1% - but many are between 0.5% & 0.75%. Tracker/passive funds should be lower and come in below 0.3%.
Hope this helps.
Secondly the annual pension. This should be pretty easy to calculate as it's final salary scheme so you know from the outset ( assuming it's a 1/80th or 1/60th type scheme). Again, this will all be on an annual statement or paperwork you had when you left. If there is no immediate tax free lump sum then you will have to give up pension to get this. Again, quite easy to calculate once you know what the percentage give up is (NHS is 1 for 12).
Thirdly the transfer value. This generally doesnt have any direct relation to the annual pension & will depend on whether the scheme wants to get rid of the liability. Factors of 40 or 50 times the annual pension are now the norm and so the transfer value could change from year to year.
Lastly.....what should you do. The first thing is to get up to date figures. Second is to then get advice from an iFA if you are thinking about transferring. Then again, if it's a public sector scheme then it's not now possible to transfer into your own personal scheme.
And finally finally......any transfer is likely to cost you thousands. Any pension transfer specialist has many hoops to go through to satisfy the FCA & the personal liability insurance is costly. A TV of £400k could cost you in the region of £10k......and this has to be paid even if the advice is to stay put. And the FCA's stance is that the starting point should be not to transfer & you would need a very good reason to transfer. If you have spouse & dependants then its even harder.
Good luck.
The regulator has clamped down on this in recent years (a reason for the increased fees, as well as a number of advisors no longer offering this service) and you’ll be told that the default position is that you should not transfer out. However, your individual circumstances may allow the IFA to recommend that you could/should transfer out, as mine did.
The first part cost me £1,500 and the second, which it was obvious I was going to move to, was £6,000. The full fee was paid on conclusion and taken from my transferred funds. I would had to have paid the £1,500 myself had the answer been no.
I get full access to my pension via the firm’s platform and can check it daily if I like (not recommended at the moment 😱, although picking up again now 😮💨)
The other part of the pension £2620 is only increasing by “Consumer Price Index” and is only likely to go from £2620 to a guesstimate of about £5300. In 2027.
A large part of your Transfer value could be related to the GMP element.
That 8.5% is variable from pension to pension, and also on how long ago you left. But, does show it is not as simple as it looks. Hence why as Golfie says, a IFA charges a lump to investigate it all.
FTSE100
Euro Stoxx50
Nikkei
Dow
S&P500
answers below........
in reverse order
S&P +94.1%
Dow +69.7%
Nikkei +49.6%
Euro +11.73%
and finally the good old FTSE100.............
+2.25%
2.25%. That is almost less than Cash over the period & certainly less than CPI/RPI.
Good job we all rely on our Financial Advisers to recommend our UK funds and don't rely on trackers..........
I had every intention of keeping the final salary scheme in place, however was sweet-talked out of it by a less than scrupulous financial advisor (English but based in Bangkok).
His so-called advice cost me dearly and my pension pot, although making a small recovery up to the end of last year, is much lower than it would have been.
Provided your pension is in a financially sound scheme, I'd really recommend playing it safe and taking your guaranteed pension and yearly increases. I'm not a financial expert, just someone that's experienced the downside of what you're considering.
PS zilch on the premium bonds this month.