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These questions have been answered by Boring Money bods and our wonderful panel of financial advisers and experts. It’s not regulated financial advice and should be taken as generic tips and pointers only.

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Do I need a financial adviser? Or can I do it all myself?

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If your financial affairs are straightforward, a pension or two here, an ISA there, the chances are that you probably won’t need to fork out for a financial adviser. We show you lots of decent online options on this site and we’ll also share which products we think are good choices. However, there are circumstances in which an adviser can help. Here are some reasons you might consider using an adviser:

 

1) You have a complicated family or financial set-up

A few marriages, step-children and/or foreign income, second homes and you might need to consult a professional. Equally, if your finances are in a bit of a mess – lots of different pensions all over the place, pots of saving here there and everyone, self-employment – a financial adviser can impose a bit of order to it all.

 

2) You don’t know much about money

Plenty of people would fall into this category and it’s no use pretending you’re something you’re not. While we’d encourage everyone to have a passing interest in their finances, for some people, it is simply incomprehensible and dull. No-one can force you to take an interest, but it might be worth admitting your limitations and signing up an adviser. Realistically though, most advisers these days will only take on new clients with about £75,000 of assets so be realistic about this choice – for the disinterested yet affluent!

 

3) You prefer shoes to saving

If you know you need to make some long-term investments, but quite like iPads, shoes and holidays, an adviser can impose some discipline on your savings habits. They will know if you’ve got a shoe-shaped hole in your pension arrangements. Research from adviser search site Unbiased has shown that investors with an adviser consistently save more than those without. Silly jokes aside an adviser can also be someone to bounce ideas off on. For example, lots of parents try and help their kids get on the property ladder, to their own financial detriment. It’s sometimes worth getting someone to run through the pros and cons. These days some advisers will do ad hoc work for an hourly fee so a financial MOT could be an option.

 

4) You’re OK, but your family know nothing

It’s all very well if you know the workings of the stock market, but can you be reassured that your family would get it if something were to happen to you. A financial adviser can act as a trusted person at the heart of a family’s financial affairs, and should know how to translate the situation for family members with less knowledge. They can also do some useful hand-holding and reassurance.

 

5) You’d really rather someone else was handling your cash

It’s a question of personal preference: Some people like to do their own research and take their own decisions. Others would far rather hand over the decision-making to someone else, who – let’s face it – probably knows a little more.

If you do want some advice, check out our Advice pages which walk you through your options on where to go and how much these options might cost.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

Where can you get free pensions advice?

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The new flat rate state pension is about £155 a week. Given that the Government has to fill a financial black hole and the population is ageing, by the time you or I get there, it may be somewhat smaller. We also need to have clocked up a chunky 35 years of National Insurance contributions to get the full whack. Either way, it’s probably a bit less than you’d like to live on in retirement, assuming you’d like the occasional holiday, or a few treats now and then.

So you’re going to have to get a pension. You may have one through your work, and/or you may have a private pension. Work ones are nice because your employer will pay in or even match your contributions. Private ones are OK too because – for the time being – you get the chunky upfront tax incentives to invest: The Government pays you back the income tax you have already paid on pension contributions, so, as a higher rate taxpayer, a contribution of £200 only costs you £120. For a basic rate payer, stick in £80 and this gets topped up with another £20 from the Government.

From the outside, pensions can look terribly complicated, with all sorts of rules attached. The detail is awful. Most of it, you probably don’t need to know. Equally, there are plenty of online tools and calculators to let you know how much you should be saving and where. Here’s some tips on where to look for help at different stages of your life.

Help when building your pot

There are two main phases to pensions, the bit where you build your pension pot, and the bit where you take your pension. For the ‘building’ bit, you will need to decide how much to put into a pension, and then also how to invest it (pensions are only a wrapper).

If you are investing through a workplace scheme, your employer (usually via the HR department) should give you some help with this. Usually they’ll offer you a range of options, depending on your age, how comfortable you are with stock market investment and so on; alternatively, they’ll just stick you in the “default fund”, which probably won’t be too awful.

For a personal scheme, you have the added wrinkle of which pension scheme you pick – do you go for one of the traditional pensions groups such as Aegon or Standard Life, or one of the platforms such as Hargreaves Lansdown or Fidelity FundsNetwork? Then, as before, you’ll have to decide what to put in it, though you probably won’t go far wrong with one of the model portfolio given by the providers. Have a look at our Pensions menu with which options we like – available on our Private Pensions page.

If you want to check you’re on track to achieve something like a comfortable retirement, there are some handy calculators – these from Standard Life and Hargreaves Lansdown are useful.  However, they can be a bit inflexible. Most steadfastly refuse to believe you might not need two-thirds of your income in retirement. It may be simpler to use a bog-standard savings calculator like these from ThisisMoney. If you stick in a monthly amount, and assume a rate of growth or interest, it will tell you how much you’ll get after a specified period of years. Assuming 4% for stock market investments over the long-term is probably an OK assumption to make for some back of a fag packet numbers.

Help when retiring

I can’t stress enough that this is a good time to be seeing real, proper advice from a real, proper adviser. Your pension pot has to last a looooong time. We know of people who have done this alone and made expensive mistajes which involved them paying too much tax. Or worse, in giving up valuable guarantees from an old final salary scheme. Nevertheless, if you are determined to do it alone, there are places and people that can help you. Be aware that this can be a time when you’ll be targeted by scammers. You should be very wary of anyone you don’t know approaching you direct about your options at retirement.

Your employer should be able to give you some guidance on your options if you have invested through a workplace scheme. Failing that, the government-sponsored Pensions Advisory service is pretty good. You can even call them and ask questions and they get reasonable satisfaction scores for their service. You can also get ‘Pensions Wise’ appointments at the Citizens Advice Bureau.

The providers usually do an OK job of providing impartial advice on pensions options. They are certainly a lot better than they used to be. It is certainly worth calling up the company that holds your pension – be it Prudential or AJ Bell – and asking what you can do next.

 

holly-adviser

Holly

Boring Money

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

How much does financial advice cost?

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Advisers will typically charge a fixed fee for or a percentage of the assets you hold with them. So you might be charged £500 and upwards for an initial review or, if you have a £100,000 pension and Isa portfolio, you would pay an adviser around 0.5-1% per year to manage it. If they work on this basis, they are obliged to give you ongoing care and attention, so make sure you get it.

The Unbiased website, which allows people to find qualified financial advisers in their region, has a useful list of indicative costs here.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

How can I find a good financial adviser?

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Here are some ways in which you can look for a good adviser who will watch your back, help you out and generally be on your side, helping you achieve the things you want to with your money.

1) Word of mouth – This can be the most reliable way to find a good financial adviser. However, it is worth ensuring that your needs and expectations are similar to the person who is recommending the adviser. If your friend or family member is an entrepreneur and you are a salaried professional, your needs may be different. Equally, if they are extremely rich, and you are – ahem – not so rich, then it may be worth seeking out your own options.

2)There are financial adviser organisations and their websites – such as www.financialplanning.org.uk – that can guide you towards reputable financial advisers in your area. Financial advisers will also have individual websites where you can look at their qualifications and experience and judge their expertise for yourself. Usually financial advisers will do the first ‘fact find’ meeting for free, so you can judge whether you like them.

3) Product area – As with accountants and solicitors, financial advisers have different specialisms, such as retirement planning, investment or mortgages. They may offer a generalist service, providing an initial financial plan and then referring on to a trusted bank of specialists according to their clients’ individual needs.

4) Qualifications – Advisers need to have a minimum qualification to be able to deal with clients – QCF Level 4, but many advisers have chosen to secure higher qualifications. This might be to QCF Level 6 or towards the higher level of certified or chartered status. This should be clearly displayed and if it isn’t, you should ask why.

Some view chartered financial planner status as the ultimate status – others say that experience is more important than qualifications. It is certainly true than anyone with chartered status will be very technically able.

5) Cost – Different advisers have different charging structures. For example, some will charge a percentage of assets under management, others will charge a fixed fee. The very average rule of thumb is that advisers charge about 3% for the upfront advice which tends to take a lot of time and then 0.5% – 1% a year for the ongoing work and management.  Advisers now are obliged to cost out their fees very clearly and some may also agree to do ad hoc work for an agreed hourly fee. Depending on where you live, £120 – £200 is the normal range. £150ish an hour is average.

6) Gut feel – It is all very well being ruthlessly practical, but you will have to share some intimate details with your adviser and it is important that you like them. This is especially true if you need to see an adviser because of emotional stuff going on such as a divorce. Ensure that you like them and are happy to talk about your situation, your financial needs and your hopes for the future.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

What’s the worst case scenario with the stock markets?

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Bad things happen and markets panic. From December 1999 to March 2003, the FTSE 100 dropped by around 50%. In the wake of the financial crisis, the FTSE again fell by about 30% in 2008 but pretty much recovered in 2009. Recently Brexit saw the FTSE fall the day after the result, only to jump up again in subsequent weeks. This sounds very scary, but on each occasion, the FTSE recovered its highs eventually. In the meantime, investors would still have been picking up dividends. Equally, those who were investing monthly would have been buying in at these new lower levels.

Also, these falls represents the overall index ie the total sum of the parts, not the individual companies. In each major market sell-off a number of sectors have taken a disproportionate hit. In the first instance mentioned above it was technology-related companies. The Vodafone share price, for example, dropped 75%. As the (then) largest company in the index, its weakness dragged down the wider index. There were plenty of companies doing very well, thank you very much. The second time it was the banks. Clearly, there is usually greater risk in areas such as smaller companies or emerging markets.

So all in all, these market drops can look very scary, but investors don’t usually take the full hit, and if they stay invested long enough, markets will often recover. They can also help mitigate falls by investing in ‘safer’ companies.

As usual, the boring but true statement is that if you are prepared to invest for at least 4-5 years + then although the stockmarket can swing up and down fairly wildly, you should be able to ride out these storms. Selling when the headline shriek doom and gloom is the sure-fire way to make a loss so you need to be sure you can hold your nerve and not do this.

holly-adviser

Holly

Boring Money

How much do I need to set up an ISA?

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Probably not as much as you think! Don’t think you’re not ‘posh’ enough or rich enough – you can get going, online, in your tracksuit, with a direct debit of £25 – £50 a month.

Your two main options for getting started are an investment platform or a direct offering from a fund manager. The lowest of the low are the investment trust schemes, where you can invest with as little as £25 per quarter. Witan, Baillie Gifford and Aberdeen all have good ones.

Check out the Investments tab on our website and the investments platform page for our tips and who we like. These financial department stores will let you get going with a monthly direct debit starting from just £25 a month.

The temptation is to say ‘what’s the point?’. How can a £25 monthly investment make a difference? £25 invested in the stock market, assuming an average return of 5%, would leave you with a pot of £3,900 over 10 years or £10,275 over 20 years. OK so these aren’t vast retirement sums BUT we know that people who start with £25 a month tend to ratchet this up with pay rises or any windfalls – as with those gym classes, just starting can sometimes be the hardest part. And you don’t need to be a Maths nerd either – our site will show you how even the least experienced and the least interested can do sensible stuff.

holly-adviser

Holly

Boring Money

How risky is a Stocks and Shares ISA?

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Let’s face it, people’s biggest fear with the stock market is the risk. No-one likes to think that they could invest all their cash, some banker presses the wrong button, triggers a global financial crisis and they lose the lot.

We would be the first to admit that the stock market bounces around like a 4-year old on a Haribo high, and every now and then it has a big old panic and sells off.  However, this can give a misleading impression of the risks involved. Over 10 years, stocks & shares are 91% more likely to do better than cash.* Those odds are not to be sneezed at!

The biggest question to ask yourself is how long you are sticking the money away for. If it’s less than 3 years, it’s a bit hairy to think about shares because they bounce around a lot. In 2008, UK shares went down by about 50%. If you had stuck in £1,000 at the beginning of the year and needed to sell at the end, you’d be sitting on a depressing £700. Nonetheless, in 2009, things rebounded by about 30%. You need to look long-term if you’re going to invest in the stock market.

You can improve your odds by investing monthly. You don’t have to sprint into the market. Say you have £3,000 to invest. You could decide to stick in £500 every month for 6 months. This avoids buying at the wrong time and is the investment equivalent of having a glass of water in between every glass of wine. If you’re going to do this, just check you’re not paying a transaction fee every £500 chunk as this can eat into your savings.

A final thought is this. We all think of shares as risky. But with interest rates at all time lows, leaving your cash in some rubbish account for the next 10 years has the risk of you not making your money work hard enough and you not having enough to do what you need to do. Sometimes, doing nothing can also be risky – food for thought.

Finally, the issue of costs. Paying someone a chunky fee to manage your cash is going to eat into your returns and is usually completely unnecessary for small pots on money to stick into regular savings or an ISA. If you DIY, then a fair value fee is about 1.25%, so £12.50 a year for every £1,000 you save. If you’re paying any more than that, make sure you’re getting something reaaaalllly good.

*Barclays Equity Gift Study 2016

holly-adviser

Holly

Boring Money

I’m getting divorced and need to fill out a Pensions Sharing Order

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Pensions can either be shared/split on divorce OR part of one spouse’s benefits can be “earmarked” for the other. The former allows for a clean break between the partners. Part of one spouse’s pension pot is separated off, and the money paid into a pension for the other spouse. Note that it can’t be taken as cash and put in the bank.

Earmarking means a note is placed on one spouse’s pension and when he/she comes to take benefits one day, part of those benefits will be paid to the other spouse. This means that spouses will need to keep in touch between the divorce and retirement age. This is a bit messy, and so sharing is infinitely preferable.

You will need to balance up the fact that the pension money  you receive will receive will not be accessible until you are 57. For the person getting the pension shared and put into an account for them, the rest of the divorce settlement should be thought of as allowing for immediate needs, and the pension is ‘gravy’ on top of the necessities ( I hesitate to call it that, but you get what I mean!).

When it comes to a pensions sharing order, you will have to decide where you want this money to be paid. If you have existing pensions it could be paid into that. You will just need to provide the details to your husband’s/wife’s scheme to allow the transfer. There will be a form that your current scheme requires to be completed too.

Your comfort in retirement is now entirely down to you, so when the dust settles on the divorce in a year or two, you should look to maximise your own savings towards her retirement.

Listen to this short 10 minute podcast we recorded with Pete Matthew on this subject in late 2015.

Boring Money has some suggestions to consider about where you might invest. These can be seen on our Pensions pages where we highlight some decently priced options which allow DIY pensions savings but you don’t need to be an expert to participate. 

All of these options will certainly tide you over and when things ease up a bit you might want to seek some financial advice or have a think about moving or adding some more investments to the mix. But all of the options we suggest are decently priced and will keep you invested over this horrible period. Just check you don’t lock yourself in with nasty exit fees in case you want to move when life gets a bit less stressful. Good luck!

 

pete-matthew

Pete

Jacksons Wealth Management

Everything’s in cash. Should I be investing in the stock market?

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Vedia, 43, contacted us. She is a Tired Parent and a business owner. She has a 5 year old boy and an older son. She has some savings account and a cash ISA but doesn’t have any investments and is nervous about the risks involved in the stock market.

Loads of people get worried about the stock market and leave their money in cash solutions where they know they’re not getting a great return, but better the devil you know? So how can you make a sensible decision about this?

As a very general rule of thumb, you should ask yourself if you are carrying expensive debt. Not a mortgage but a loan or a credit card or anything with a nasty rate of interest. There’s not much point in investing if you are. Try and focus on clearing this debt.

Most financial planners will also suggest you hold 3 – 6 months’ salary in cash for ‘rainy day’ money. You know – the boiler blowing up, the gearbox packing in, your parents needing some help with unforeseen medical bills – all that jolly stuff.

But once you have no pricey loans, and you have your cash buffer, it might make sense to think about the stockmarket if your timeframe for investing is 5 years or more.

holly-adviser

Holly

Boring Money

I have a Junior ISA with Hargreaves. Is it too risky?

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Alex, currently expecting her fourth baby, contacted us because she has got into a muddle over her Junior ISAs and wanted BM’s thoughts on stocks and share JISAs and/or independent advice.

She researched a good few options on the net and after nearly 2yrs of ‘swithering’, finally took the plunge and opened up three stocks and shares JISA for her children aged 9yrs, 7yrs and 2yrs with Hargreaves Lansdown. She transferred the two older children’s child trust fund accounts from The Children’s Mutual to Hargreaves Portfolio plus service and opened a JISA under the same service for her younger child.

She opted for a multi-manager ‘adventurous growth’ and is now worried this might be too risky. She’s also interested in whether it is more beneficial making a regular but small monthly savings contribution or one lump sum into the fund once every 6 months or so.

I love the idea of 2 years of “swithering”! I have done that about loads of things too! Well done for sorting this out.

The term ‘risk’ is misleading I think. What is riskier? Lying in bed for 18 years or running about a busy City? It depends if the risk if getting run over by a bus, or of turning into a big, bored unhealthy blob! In this example, cash would be the very safe bed option and shares would be the running around option.

Over 18 years, shares are 99% more likely to do better than cash. They have also offered better protection against inflation in the past and with interest rates at 0.5%, I’d argue that’s likely to continue. So investing for a 2 year old is exactly when we should be looking to ‘riskier’ investments – to stay in the ‘cotton wool bed’ of cash doesn’t really make sense.

You do have to accept that markets will go up and down like fury and it’s bumpy – but even your 9 year old has a long enough run at this for shares to be what I think is the sensible choice. My kids JISAs are with Hargreaves in even spicier stuff. However no-one can guarantee that the world won’t go crazy and you do have to accept that returns are not guaranteed.

So your selection doesn’t feel imprudent. I think it’s really important we explain the difference between investment risk (volatility) and just being cavalier or imprudent. Does that make sense?

On your choice of platform, Hargreaves is not the cheapest but they offer decent value and they are big and solid. The Multi-Manager options are pricier than picking your own funds. It’s like a ready-meal versus choosing the ingredients and making the meal. But for less confident investors it’s not a bad approach.

A cheaper option would be the Vanguard LifeStrategy 100% option, also available through the Hargreaves platform. This is a “passive fund” and costs 0.24% instead of the HL Multi-Manager 1.46%. Passive funds are where computers just pick the world’s biggest stocks in proportion to their size. And if oil is out of favour, well you still have the oil shares. And if retail is going gang-busters, well you don’t get any more than the proportionate weighting. You are buying the average.

Active managers cost more because they employ expensive people to make a bet on which stocks will do better – if they love M&S, they can buy twice as much of it. If they hate Easy Jet they can sell it all. Passive guys can’t do this. They have to hold what we call the ‘index weighting’ – if HSBC is 5% of the main basket of shares, the FTSE 100, they have to hold 5% in HSBC shares.

The good active guys will do better than the passive guys. But by definition, after fees, more than half the active guys will not do as well as the passive guys. So you can pay more fees for muppets! I have some passive stuff but more than half in active.

On your monthly saving question, I suspect that setting up a direct debit is the easiest. Then you don’t have to remember to do anything. There’s also something to be said for ‘dribbling in’ as you will never get stuck investing a £500 chunk the week after a big fall.

I think your basic course of action is fine. You could always get cracking with the monthly direct debit for the funds you select – and review after a year. As the fund builds in value you can see if it makes sense to include a lump sum of the cheaper passive stuff.

holly-adviser

Holly

Boring Money

How much do I need in a pension!?

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The answer, of course, is ‘it depends’. If you’re after the bog-standard type of retirement – a bit of golf, a bit of gardening – your income needs will be lower than if you have a more deluxe later life of champagne and cruises planned. Any calculation as to how much you will need in your pension should start with a calculation of how much income you are likely to need in retirement. You can then work backwards.

The basic rule of thumb is that your income will be your final pension pot divided by twenty. Scary, huh? If you want a more accurate guideline as to how much you’ll need in retirement, the Money Advice Service has a handy calculator here.

It is worth remembering that not all your retirement income has to come from your pension. You may have Isas, income from property or from inheritance. These all go into the pot. The Money Advice Service calculator will help you take this into account. You also need to make sure you factor in the State pension, currently a relatively generous £155 a week for those who have made all the relevant contributions.

It is worth doing this exercise in your forties or fifties when you can still do something about it if it looks like you are going to run short. That means looking at how much your work pension, any personal pensions and savings might be.  No-one wants to have to re-start their career in their seventies because the gold-standard retirement they planned hasn’t quite worked out that way.

holly-adviser

Holly

Boring Money

What is the tax treatment on cash from a pension?

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When you start drawing benefits from your pension scheme, the usual rule is that you can take up to 25% as a tax-free cash lump sum. You can take more than this in cash (though some workplace schemes may place limits), but any additional withdrawals will be subject to tax at your marginal rate.

This is know as the tax trap. Although taking all of your pension as cash might sound appealing, if you have a pot of £200,000, only £50,000 will be tax-free. The rest will be taxed at up to 45% as the taxable part is added to your other income in the tax year.

There’s also something else to consider which could make things initially worse. Why is this?  Well because of the way the tax system operates in relation to “one off payments”. The payer, the pension company, has to deduct tax on the payment it makes under the PAYE system. But it won’t know exactly how much tax to deduct because the payment will be made during a tax year and they won’t know what your other income for the tax year will be.

So what happens? This depends on your circumstances. Unless you have a P45 from a previous source of income or employment that you received in the tax year in which you received the payment from your pension then the pension company needs to operate the “Emergency code” on a so called “Month 1” basis.

This means the amount deducted could thus easily be substantially at 40% or even 45%, even if the amount of tax you actually pay may well only be at 20% in the end. Argh.

So while a great big pot of cash might sound great, be careful if you don’t want to get a chunky tax bill.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

I’m investing in a SIPP. What are the best investments?

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We often get emails from people asking us what investments to stick into a SIPP. This one is pretty tricky to answer in isolation without having a fuller picture of your finances, what your timeframes are and how calm you feel about investments which can jump up and down in value.

The very basic rules are this:

  1. Is saving into a DIY pension the right thing? You can’t get your hands on this money till you turn at least 55. If you do put this into a SIPP there are tax benefits (nice) but it’s locked away (could be an issue.)
  2. What are your timeframes? As a rule of thumb, the longer-term the investment timeframe, the more spicy you can be. If you’re in your 40s, you might feel able to buy spicier stuff than if you’re in your late 50s, for example. It depends on when you think you will draw down on these funds.
  3. With cash interest rates so low, and Government bonds in the doldrums, shares are worth a look.
  4. If you need an income from your investments, then have a look at Equity Income funds.
  5. If you don’t really know where to start, consider what we call a ‘Multi-Asset’ fund.
  6. If you’re a bit more interested and would like some help in picking a few different investments, then have a look at the fund shortlists available on many platforms.

Good luck!

holly-adviser

Holly

Boring Money

What’s this Auto Enrolment thingy?

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The law has changed and larger employers have started setting up workplace pensions for their staff and from 2018 every employer has to offer their staff a pension.

From 2019 you will have to put in at least 4% of your salary. The Government will bung in an extra 1% and your employer has to put in at least 3%. So that’s 8% which will be building up, month after month.

The more you earn, the more you will save.

You can stick two fingers up at this (“opt out”), but it’s not a great idea because you’ll forfeit the 3% from your employer and 1% from the government.

There is a minimum total amount that has to be contributed by you, your employer, and the government in the form of tax relief. This total minimum contribution is currently set at 2% of your earnings (0.8% from you, 1% from your employer, and 0.2% as tax relief). This is going up over the next 2 years.

The minimum contribution applies to anything you earn over £5,824 (in the tax year 2016-17) up to a limit of £43,000. This includes overtime and bonus payments. So if you were earning £18,000 a year, your contribution would be a percentage of £12,176 (the difference between £5,824 and £18,000).

This amount is slowly ratcheting up between now and 2019. The Government wanted to ease us all into this gently – and for small employers this is quite a chunky pill to digest!

From April 2018 this will jump to a total of 5% of your earnings (2.4% from you, 2% from your employer, and 0.6% as tax relief).

And from April 2019 onwards, it will get to a significant 8% of your earnings (4% from you, 3% from your employer, and 1% as tax relief).

Our Retirement Income Guide has some more detail.

holly-adviser

Holly

Boring Money

How can I find out how much my State Pension is likely to be?

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From the start of this tax year, the state pension has been a – relatively generous – £155.65 per week. And that’s inflation-adjusted, so it should keep pace with price rises.

However, it comes with a few caveats: First you have to have made sufficient contributions. That means you have to have been working and paying tax, or someone has to have made contributions for you, for 35 years to qualify for the whole amount.

Equally, the government keeps monkeying about with the age. Gone are the giddy days when ladies could retire at 60. The age at which you qualify for the state pension is currently 63 and rising. By the time your average 40-something gets there, it could be 67 or higher.

It is fairly straightforward to check both the age at which you retire and how much you will probably get. The big thing to be aware of is that – if you haven’t got 35 years of National Insurance contributions under your belt by the time you collect your golden carriage clock from work, then you won’t get the full amount. Less than 10 years and you’ll get nowt.

As a rough rule of thumb, multiply your working years by £4.44 and this will be your weekly State Pension. Worked for 10 years and got 10 years of NI contributions? That will net you the princely sum of about £44 a week.

 

holly-adviser

Holly

Boring Money

Who do you rate for a pension provider?

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It is relatively easy to set up a direct debit into what we call a Self-Invested Personal Pension (SIPP). If you can set aside about £50 – 100 a month this could be an option for you. For every £80 a basic rate taxpayer puts in, the Government will top it up with another £20 so this ‘bonus’ makes it worth thinking about. Just remember with a pension that this money will be set aside until you’re at least 55 so it’s no way as flexible as an ISA which can you can get your hands on at any time.

Sounds complicated. It really isn’t – all the complicated stuff (tax reliefs etc.) is mostly done for you by the platform. Have a look at Fidelity, Hargreaves Lansdown or AJ Bell Youinvest – all are good options for people who want to set up a SIPP and have their stocks & shares ISA in the same place. One log-in. One report. Makes life easier.  These 3 also have pre-selected lists of investments if this all does your head in.  If you set up a SIPP here and give then the nod, they will be able to move your stocks and shares ISA over here too. Just check out there are no hidden exit fees from your current ISA lot if you do this. BM has done the leg work for you and you can read our very own platform rating guide here

Now you need to decide what investments to stick in your SIPP. ‘Passive’ or ‘tracker’ funds are one option. These are generally steady options, which involve limited decision-making from you, so they do suit less confident investors. Most platforms also have default choices or recommended fund lists. Multi-asset income or UK equity income might equally be reasonable choices. You could also look at Vanguard’s LifeStrategy funds, or BlackRock’s Consensus range or Fidelity’s Pathfinder Foundation range. These are all big global brands with mountains of experience in looking after people’s money.

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Holly

Boring Money

How much should I be paying in fees for a pension?

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Working out the costs of a self-managed pension can be head-bangingly difficult. If you are managing your pension yourself, it’s likely you have a self-invested personal pension through a broker or platform. Although lots of these platforms manage most things with a % fee for younger people who are building up their assets, the charging structures get a lot more complicated for people in drawdown who are taking out cash.

This kind of makes sense because it is more fiddly to administer.

Here’s a look at some of the larger retirement players today, with a particular focus on additional costs for those of you in drawdown:

AJ Bell – these guys have a RyanAir charging model – it’s very much based on a pay as you go principle. This can mean there are lots of bitty fees to consider, but you’ll only pay for what you do. This platform will charge you a ‘custody’ fee of 0.20% for everything you hold on it, capped at a maximum of £200 each year. In addition to this, you’ll pay £100 a year for a ‘SIPP custody charge’ if you hold more than £20,000. It’s £10 to buy a share and £5 to buy a fund.

If you are in drawdown and take a regular income payment, there’s an extra £100 administration fee. Any one-off income payments will be charged at £25. If you close your account within 12 months, there’s a £295 fee.

Here are the AJ Bell Youinvest charges 

Alliance Trust Savings – this provider falls into the Ryan Air camp too and has a fixed cost for providing a SIPP, rather than a % fee. There is a SIPP annual account charge of £155 + VAT (£186) which the customer pays annually on 1st Feb. Once they choose to go into drawdown/ take a regular income then this annual charge increases to £230 + VAT (£276) at their next payment due date.

There’s no fee for taking your tax free lump sums but you will be charged £40 + VAT per transaction for taking your UPFLS (that’s basically “cash” or “lump sum” in plain English!) if you haven’t started drawdown yet.

This page details the Alliance Trust Savings SIPP charges.

Fidelity –this US powerhouse falls into the British Airways charging model. It’s a single 0.35% charge for everything. And that’s it.  Nice and easy. This makes it pretty competitive for smaller accounts. Once you get over £100,000 in your SIPP, the fixed £ fee and Ryan Air guys start to look more competitive BUT it depends on how often you take income, how often you buy and sell funds and how you use your pension.

Here are Fidelity’s charges

Hargreaves Lansdown – these guys have a British Airways charging model. They think about what most people will do and charge a basic fee which is pretty much all-inclusive.

The charges start with a 0.45% platform fee on everything you hold (although it is capped at £200 a year for any portion you have in shares or investment trusts.) If you have more than £250,000 with them the costs fall.  It costs £12 to buy shares and there’s no fee for buying funds.  This 0.45% fee covers all income payments. It is quite hard to compare a % charge with a fixed fee and Ryan Air model. If you plan on using your pension like the bank account having an all-inclusive % fee might be best for you. There’s an early account closure fee of £295 if you try and set this up, take all the cash out and then close the account within a year.

Here are the Hargreaves Lansdown charges

Other providers you might want to think about include Bestinvest. They’re pretty small in the pension game today but have a very decent 0.30% charge for SIPP assets.  It’s £7.50 to trade shares, with no fee for funds. There’s an initial drawdown calculation fee of £100.  If you have less than £100,000 in the SIPP they charge £100 each year for income payments (free if you have more than 100 grand) and it’s £25 for ad hoc payments.

And if you try and sneak off before a year they’ll charge you £290 +VAT.

Their fees can be seen here

PS Managing your own pension does carry risk – especially when you are in the drawdown phase, or taking money out of them. Markets can tank. And you might run out of money too soon. Not a good option for novice investors. If you fancy chatting through this all with someone, have a look at our Advice section on how to find a good local independent financial adviser and see if you can pay for an hour of their time. This is too important to get wrong for the sake of trying to save a few quid.

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Holly

Boring Money

Can I sort a pension out myself online?

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Yes, you certainly can. And there are plenty of ways to do that. You can either opt for one of the traditional pensions groups such as Aegon or Standard Life, or one of the platforms such as Hargreaves Lansdown or Fidelity FundsNetwork.

In general, the pensions themselves probably won’t be very different. The charges will vary, the minimum investment level may vary, but, in the main, a pension is a pension.

What may be different is what you can put in it. In general, the traditional pension providers may offer a slightly more limited choice, though that probably won’t matter very much to most people just starting out. The options on some of the investment platforms can be daunting, from stocks to bonds to funds, but most offer ways to trim that choice down. Multi-manager/multi-asset portfolios can be a good place to start – see here from Hargreaves Lansdown, AJ Bell and Charles Stanley Direct.

You will also need to decide how much you want to invest each month. If you want to check you’re on track to achieve something like a comfortable retirement, there are some handy calculators – these from Standard Life and Hargreaves Lansdown are useful.  However, they can be a bit inflexible. Most steadfastly refuse to believe you might not need two-thirds of your income in retirement. It may be simpler to use a bog-standard savings calculator like these from ThisisMoney.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

Where can I get advice about retirement?

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We can’t stress enough that this is a good time to be getting personalised, professional financial  advice. Your pension pot has to last a looooong time. Our Advice pages will give you some good tips on how to find a good adviser. Nevertheless, if you are determined to do it alone, there are places and people that can help you. Be aware that this can be a time when you’ll be targeted by scammers. You should be very wary of anyone you don’t know approaching you directly about your options at retirement.

Your employer should be able to give you some guidance on your options if you have invested through a workplace scheme. Failing that, the government-sponsored Pensions Advisory service is pretty good. You can call them, book an appointment and ask questions and they get reasonable satisfaction scores for their service. Just be aware they are not regulated financial advisers and they can only give generic content, and not answer questions like “which pension provider is the best?” You can also get ‘Pensions Wise’ appointments at the Citizens Advice Bureau.

Finally, the pensions providers themselves usually do an OK job of providing impartial advice on pensions options. They are certainly a lot better than they used to be. It is certainly worth calling up the company that holds your pension and asking what you can do next. You can take any product suggestions with a pinch of salt but they are so heavily regulated that they will tend to avoid giving you specific suggestions anyway. It’s a useful starting point.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

Where can I get some advice about Pensions?

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There are two main phases to pensions, the bit where you build your pension pot, and the bit where you take your pension. For the ‘building’ bit, you will need to decide how much to put into a pension, and how to invest it. For the bit where you take your pension, you’ll need some guidance on how to invest it to ensure that it lasts as long as you need it.

Help and advice when saving up

If you are investing through a workplace scheme, they should give you some help with this. Usually they’ll offer you a range of options, depending on your age, how comfortable you are with stock market investment and so on; alternatively, they’ll just stick you in the default fund, which probably won’t be too awful.

For a personal scheme, you have the added wrinkle of which pension scheme you pick – do you go for one of the traditional pensions groups such as Aegon or Standard Life, or one of the platforms such as Hargreaves Lansdown or Fidelity FundsNetwork? Then, as before, you’ll have to decide what to put in it, though you probably won’t go far wrong with one of the model portfolios given by the providers.

If you want to check you’re on track to achieve something like a comfortable retirement, the above groups also have handy calculators.  However, they can be a bit inflexible. Most steadfastly refuse to believe you might not need two-thirds of your income in retirement. It may be simpler to use a bog-standard savings calculator like these from ThisisMoney.

At retirement

I can’t stress enough that this is a good time to be seeking advice and a one-off session with a financial adviser can pay dividends (see our question on how to find a financial adviser). Your pension pot has to last a looooong time and there are some big sums involved. Nevertheless, if you are determined to do it alone, there are places and people that can help you. Be aware that this can be a time when you’ll be targeted by scammers. You should be very wary of anyone you don’t know approaching you direct about your options at retirement.

Your employer should be able to give you some guidance on your options if you have invested through a workplace scheme. Failing that, the government-sponsored Pensions Advisory service is pretty good. You can even call them and ask questions and they get reasonable satisfaction scores for their service. You can also get ‘Pensions Wise’ appointments at the Citizens Advice Bureau.

The providers usually do an OK job of providing impartial advice on pensions options. They are certainly a lot better than they used to be. It is certainly worth calling up the company that holds your pension – be it Prudential or AJ Bell – and asking what you can do next.

Finally the Government’s free helpline The Pensions Advisory Service or TPAS can be contacted on 0300 123 1047.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

When will I get my State Pension?

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This is a relatively easy one: The Government website offers a handy way to check the age at which you can expect to receive your state pension – here.

It used to be 60 for women and 65 for men but the Government is slowly yanking the ages up and making it the same for men and women. By November 2018 it will be 65 for all women, something which there is a lot of controversy about as many women approaching retirement feel that these changes were poorly communicated to them. By October 2020 it will be 66 for both men and women. And then it’s creeping up to 67. I’m 44 – I will get mine when I’m 67, for example.

In future who knows!? We’re all living longer and I suspect my kids will have to wait until their 70s – if indeed they get one at all…..?

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Holly

Boring Money

What might a savings pot of £100k get me as a retirement income?

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Lots of people we speak to don’t know how much their current savings will actually get them as an annual income once they retire.   As a very very crude rule of thumb, we divide the total you have by 20 to get an estimation. So if you have £100,000 saved, you might use £5,000 a year of pension income as a guide.

To get a more specific answer tailored to your circumstances, use this tool from the Money Advice Service. 

This is based on you buying what we call an ‘annuity’. This is trading in your lump sum for a fixed annual income until you gasp your  last. Your other option is what we call ‘draw down’ – to stay invested in the markets, so you still have ‘skin in the game’, and to withdraw money from this pot as it (hopefully) grows cos stock markets go up over time. So the idea is that you might take out £5,000 a year BUT the £100,000 investment pot might go up by about 4-5% a year.

You should also take into account your state pension entitlement. The rules have changed recently and this has a particularly significant impact on women in their early 60s today. This calculator will tell you at what age you will be eligible for the State Pension. Loads of us grew up with the idea stuck in our heads that this was 60. Well that’s not true anymore. For most in their 40s today, it is more likely to be 67.

As a rough guide here, think about how many years you have paid National Insurance for/how long you have worked. Multiply every year by £4.44 and that will give you your weekly State Pension estimate. 20 years all in? That’s about £90 a week. Or another £4,600 a year.

So all in, if you have £100,000 saved and you have worked for 20 years, you can expect an annual retirement income of just under £10,000 a year – rough guide only!

This Retirement Income guide from us will help you walk through your numbers. Good luck!

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Holly

Boring Money

I don’t know whether a Junior ISA is worth it or not?

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That is a valid question. While Junior Isas are super-tax efficient and flexible, to my mind, they have one drawback: The child becomes entitled to the cash at 18. You may have raised the world’s most responsible 18-year old, who will spend it all on school books and tuition fees. However, you may not, and I’m not sure that I would have spent my money wisely if I had been given a chunk at 18! Goa springs to mind.

This aside, it is still a pretty good way to build up a nest-egg. Hargreaves Lansdown tell me that actually the vast majority of their Junior ISAs just convert to adult ISAs at 18, suggesting that ‘yoof’ today are more sensible than we might have been.

If you save £25 a month for the rugrats, for 18 years, and we assume a not crazy return of 4% a year, that would add up to about £8,000 on their 18th. The max you can save into one of these is currently £4,080 a year.

I keep saving a little every year into mine and hope that it is a nice tax-efficient way to help the kids deal with uni fees/property/whatever when the time comes. I also talk to them about these ISAs and what we invest in as a way of teaching them about saving. Finally, I also suggest them to relatives who are searching for a present at Christmas or birthdays and I think that the kids probably have enough Frozen tat or Minecraft toys!

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Holly

Boring Money

Where can I get a good Junior ISA?

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You need first to decide where to get the Junior ISA (which is the wrapper) and then decide what to put in it – cash, stocks and shares, funds etc.

We’re a bit suss on Cash Junior ISAs – if you’re saving for a baby then we think the stock market is likely to do better over the long-term. However there are good rates available for cash Junior ISAs – currently Nationwide and Coventry are offering 3.25% but these do change so please check online for current deals.

Many parents choose an investment platform for their stocks and Shares Junior ISA. Have a look at which ones we suggest here: Hargreaves is not the cheapest but they offer decent value and they are big and solid. Cheaper, but still good options, are AJ Bell, Charles Stanley Direct or Fidelity.

These platforms all offer a wide choice of investment options to put in a Junior ISA, too wide for many novices. That said, there are plenty of tools to help you find the right option: recommended fund lists and so on. In general, people tend to be over-cautious with their children’s money. You may have 15+ years to invest. That gives you a long time to ride out the ups and downs of a stock market. I know that people don’t like the thought that the capital value could drop, but over the long-term, the stock market generally outperforms cash.

For those new to investment, multi-manager funds might be an option. These are like ready-meals versus choosing the ingredients and making the meal. For less confident investors, it takes some of the pain away from choosing individual stocks or funds. Many of the platforms have their own versions – see here from Hargreaves Lansdown, AJ Bell and Charles Stanley Direct.

A cheaper option would be the Vanguard LifeStrategy 100% option, available through the Hargreaves platform. This is a passive fund and costs 0.24% instead of the HL Multi-Manager 1.46%. Passive funds are where computers just pick the world’s biggest stocks in proportion to their size. And if oil is out of favour, well you still have the oil shares. And if retail is going gang-busters, well you don’t get any more than the proportionate weighting. You are buying the average.

Active managers cost more because they employ expensive people to make a bet on which stocks will do better – if they love M&S, they can buy twice as much of it. If they hate Easy Jet they can sell it all. Passive guys can’t do this. They have to hold what we call the ‘index weighting’ – if HSBC is 5% of the main basket of shares, the FTSE 100, they have to hold 5% in HSBC shares.

Finally, in terms of paying into your Junior ISA, it is worth setting up a direct debit every month. That way, you drip feed into these and run less risk of investing when the market is at its highest, through simple bad luck and bad timing.

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Holly

Boring Money

Can I move an old Child Trust Fund?

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Yes, after some vociferous campaigning, it has become possible to transfer the old Child Trust Funds into Junior Isas since April 2015. There are advantages in doing this. CTFs, which were available for all babies born between September 2002 and January 2011, tend to have worse rates (do check your existing deal) and are less flexible than the Junior ISAs that replaced them. In the vast majority of cases, CTFs also charge higher fees than Junior ISAs. Also, at age 18, CTFs must be sold and the cash transferred to the child, whereas Junior ISAs automatically roll over into a normal ISA.

Making the transfer to a junior ISA is relatively straightforward, and many of the major investment platforms – see our handy guide here – will allow you to do this by printing off a form and sending it. Of course, you will have to decide which Junior ISA is right for you.

As a final word, most transfers will need to be done as cash. i.e. you can’t get them to move the existing investments over. In other words, you need to tell your CTF guys to sell up and move the money over. DON’T then withdraw the cash from the CTF wrapper or you’ll lose the tax perks, but get them to transfer the cash to your new JISA provider.  Don’t be put off. Your new chosen JISA provider will be keen to get your business so they will do all the boring leg work for you. We promise this is not as time-consuming a process as it sounds. Have a look at the Junior ISA guys we like, make your choice and then tell them to sort the transfer out.

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Holly

Boring Money

How much does life insurance cost?

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The cost of life insurance depends on a number of variables: your age, general health and the amount you need. As a rough guide, a 40-year old non-smoker would need to pay around £15 a month to give themselves protection of £250,000. However, life insurance can start from as little as £7 a month.

Some groups provide discounted gym membership and various other perks. Equally, if you are in good health, it can be worth picking a provider that gives you better rates for filling in a detailed questionnaire on your medical history.
As a rule, it is better to do something rather than nothing, so even if you can only afford £7 a month, at least it will give your family something to fall back on.

You can get a quote online from many of the price comparison sites in less than 10 minutes. Having kids is the prompt many of us need to take this out – have a look at our Tired Parents tribe pages for more details on this and which life insurance providers we think are any good.

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Holly

Boring Money

Where’s a good place to look for life insurance online?

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Comparison websites are a good place to start looking for life insurance online. They may not be fully comprehensive in all cases, but most offer a decent range of providers and, almost certainly, a reasonable option for your needs. They will generally do a lot of the leg work for you – helping you calculate how much you need, give you a list of options, which you can sift through and compare and then lead you through the application process. Most comparison sites will also give you a view on where the best deals are today.

Moneysupermarket and Compare The Market are 2 examples. Lifesearch is an adviser firm which will deal with you on the phone and give you a bit of help and support for any more complex affairs you may have.

 

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Holly

Boring Money

How much should I insure my life for?

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Deciding what you are worth may feel a little weird, but it is an important calculation when buying life insurance. It determines how much your family should get if you die, which in turn, will affect how much life insurance you need to buy.

There are some key things to think about: One of the major impacts will be on your mortgage. If you and your spouse hold the property as joint tenants, the survivor will automatically get it, mortgage n’all. One of the main uses for a life insurance policy is to ensure some or all of this is paid off it you die. If you are the main breadwinner, you will also need to ensure that you can replace your salary. While you may have some death-in-service benefit from your company, it may only be two or three times your salary, which may not be enough to support your family long-term.

Even if you are not the main breadwinner, do not underestimate the cost of providing childcare. If you are a stay-at-home carer, your spouse would need to use childcare if they planned to continue working full time.

Finally check your contract at work as it may well have some basic life cover in place for you already.

In practice, many online life insurance comparison sites have calculators to help you determine how much you are likely to need. They should also help you decided which type of life insurance is right for you. These are:

LEVEL TERM INSURANCE pays out a fixed lump sum if you die during the policy term. This lump sum doesn’t change over time, so you know exactly what any dependents will be left with in the event that you die. So, you take out £100 grand of life cover for 20 years and – yup – your family gets £100,000 if you die within this timeframe. Nice and simple. Well, maybe just simple.

INCREASING TERM INSURANCE Many people want to take out life insurance, which will factor in the rising cost of living, and therefore opt for increasing term insurance. The sum insured either increases by a fixed amount each year, or rises in line with the Retail Prices Index (RPI) measure of inflation.  So you’ll pay a little bit more every year BUT if you meet your maker after 10 years, not 5 years (for example) your family’s payout will be a bit bigger.

DECREASING TERM INSURANCE If you are looking for life insurance to cover a debt that will gradually reduce over time, such as a repayment mortgage, then decreasing term insurance is worth considering. With this kind of cover, any pay-out also reduces over time, which means the premiums are lower than for level term insurance.

JOINT LIFE INSURANCE If you are married or have joint financial commitments with a partner or relative, you may want to consider a joint life policy rather than two single policies. However, although this will mean premiums may be cheaper than if you have two separate plans, remember that joint life insurance is normally written on a “first death” basis.

Cherry Maynard Money Owl

Cherry

Boring Money's Consulting Editor

How much does it cost to do a will?

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The answer is, of course, it depends. At the cheapo end of the spectrum, WHSmith and Amazon offer DIY Will ekits for approx. £10. Trade Unions often offer a will service free to members, and some charities such as Cancer Research UK and Barnardo’s do the same for anyone over 55 in the hope that the charity is remembered in the will.

Next up are online providers, such as Co-op, who offer a fixed-fee service. We also like solicitors Irwin Mitchell who offer an online service starting from £145+VAT for a single will. Many banks will offer their customers a will writing service and costs can average from £90.00 -£150.00.

Also interesting is new service Lexikin which will let you draw up a will but also manage your whole ‘digital estate’, leaving photos, messages, videos and other sentimental things for your family. You can also store passwords and accounts here and your executor just needs to pay £100 to access all of this. Security is the big question these guys will have to tackle.

If you instruct a solicitor to draw up your will, the cost is likely to be between £150 and £400 for a single will or between £200 and £500 for mirror wills. Anything more complicated will cost extra. But paying a few hundred pounds now could save thousands of pounds in tax in the future. So those with more assets, people who are unmarried or divorced, parents and anyone with very specific wishes, should consider forking out to get this done and checked by a professional.

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Holly

Boring Money

What happens if I die without a will?

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If you die without a will, your estate is distributed according to the laws of intestacy. These are pretty archaic, so if you’re not married and die without a will, the money goes to your children, not your partner and it’s held in trust for them ‘till they are 18. This leaves your partner with the thorny question of how they would pay the mortgage.

If you’re separated but still legally married, your ex could get it all. Nice. Equally, if you don’t have children, your estate could end up passing to siblings or even parents, rather than, say, a live-in partner. This could see said partner forced to move.

Even dying is a taxable event! If your property and assets are worth more than £325,000 there will be 40% inheritance tax when you gasp your last, unless you are married or have a civil partner. They can currently leave your beneficiaries double this (£650,000) when they die. Having a will helps you plan for inheritance tax and avoid any unnecessary nasty shocks.

In other words, in most cases, dying without a will leaves a big old mess. If you want to ensure that your money goes to those who need it, don’t take the risk. Making a will is relatively easy and low cost and can be done fairly painlessly online.

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Holly

Boring Money

Can I do a will myself?

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Technically yes. You can scribble your will on the back of an envelope if you so choose. Perhaps not the best idea, but as long as it is probably signed and witnessed by two grown-ups, present at the time you sign it, it can be legally binding.

However, there are various pitfalls that may not be immediately obvious; you need to ensure that your witnesses are independent, for example, and are not beneficiaries. Using the wrong wording may mean that your wishes aren’t followed or even that the will isn’t valid. Using paper clips, for example can nullify a will’s contents (it could look like there’s been a page removed). Marriage and divorce will also invalidate previous wills.

As such, we’d only recommend it where your financial arrangements are pretty simple – e.g. your money is passing to your husband or wife, and then to your children. If your family set up is a little more complex – step-children, estranged family members – or if you want to do something unusual – bequeath your home to your cat, for example – you may want to look at using a will template at the very least. These are available from stationary shops and cost £10 to £30.

There are also will-writing services, which can be used for as little as £100. Solicitors Irwin Mitchell have an online service which starts from £145. Make sure anyone who you use belongs to the Society of Will Writers or the Institute of Professional Willwriters.

Executors (those named in a will who must distribute your wealth and ensure your wishes are adhered to) need instructions about any ‘digital legacy’, i.e Facebook, twitter account, paypal etc. If you have money in online bank accounts or a social media presence you want deactivated, the family will need to know how to access those accounts.

 

So – you can do a DIY will. You can do it online. You can even do one for free or at very low cost. It just depends on how complex your affairs are and how much you have to protect. However, even having a cheapy DIY will is better than nothing so if you have been putting off that trip to the solicitor for years, why not at least start with a quick DIY job and get this done?

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Holly

Boring Money

Should I be investing in the stock market?

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Loads of people get worried about the stock market and leave their money in cash solutions where they know they’re not getting a great return, but better the devil you know? So how can you make a sensible decision about this?

As a very general rule of thumb, you should ask yourself if you are carrying expensive debt. Not a mortgage but a loan or a credit card or anything with a nasty rate of interest. There’s not much point in investing if you are. Try and focus on clearing this debt.

Most financial planners will also suggest you hold 3 – 6 months’ salary in cash for ‘rainy day’ money. You know – the boiler blowing up, the gearbox packing in, your parents needing some help with unforeseen medical bills – all that jolly stuff.

But once you have no pricey loans, and you have your cash buffer, it might make sense to think about the stock market if your time frame for investing is 5 years or more.

If you’re a newcomer to investing, have a look at our Funds page which has options requiring minimum brain cells as well as options for those who like understanding the nuts and bolts of the investment world!

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Holly

Boring Money

Pension vs ISA – which one is the best?

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This is a really tricky question and there is no ‘right’ answer for everyone.

For most people, we would say it isn’t a case of either/or. ISAs (whatever form they take) and pensions meet different needs and both are part of an intelligent financial strategy. If you are able to, saving into both an ISA and a pension will give you the best of both worlds; one is a largely tax-free savings wrapper that allows you to build up your funds towards more immediate goals, such as your first property, while the other is solely for the purpose of making sure you have a fun and secure retirement (with the added benefit of tax relief on your contributions).

Pensions are cool (oh yes!) because you get a free Government handout in the form of tax relief. Basic rate taxpayers get £20 free for every £80 they save. So your stash grows quicker. Great. but you cant get your hands on this till you’re at least 55. Less great.

ISAs are largely tax free savings vehicles and you can plonk up to £15,240 a year into these. But take the money when you want it. So no Government handout in the standard stocks and shares ones BUT you can take the money when you want it.

And if you’re a first time buyer, the Help To Buy ISA is a bit of a no brainer with free Government bonuses to enjoy here too.

One thing to consider in the pensions versus ISA question is your pension at work. If you’re enrolled into a workplace pension, you’d generally be mad not to take advantage of this. The government has introduced a system whereby every employee in the country should (by 2018) be automatically enrolled into their company’s pension. This means that you will have been signed up for the workplace pension scheme without you even agreeing to it. You will have a certain amount deducted at source from your pay packet each month (will only be 1% from your pay packet at first) into a pension fund overseen by an investment manager who is expected to invest your money for the long-term so you can have a healthy nest egg in retirement.

You can opt out if you really can’t spare the cash but you’d be giving up free government money and employer contributions on this too. The amount that you are contributing is likely to be extremely small and nowhere near enough to give you the right income in retirement. It is worth thinking about a private pension that will supplement whatever you’re paying into a workplace pension, with the added benefit that you have more choice over how and where the fund is invested as well as a greater opportunity to check up on its progress.

The bottom line is generally that ISAs are more flexible and don’t lock your money away till you’re really old BUT pensions do come with the added Government ‘bonus’ and top up which means you get to turbo-charge your savings.

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Holly

Boring Money

How can I invest in the stock market?

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What do you think investing entails? Chances are that you conjure up images of men in red braces and pinstripe suits shouting down the phone, trying to make a killing on Rolls Royce shares.
But much of investing today is done online by millions of ordinary people with a bit of extra cash to spare.
Most people who aren’t experts plump for what we call a ‘fund’, run by a fund manager. Fund managers are tasked with doing a whole heap of research into the economic prospects of different regions, sectors and companies and then deciding which ones hold the most promise. They put together a portfolio based on those choices and pool your money into what is traditionally called a ‘’unit trust’’ but is most commonly referred to as a fund. These days, you can access a whole universe of funds online through do-it-yourself investing platforms; this means you can pick the funds that suit your needs, sit back and keep an eye on things at a discreet distance via an online dashboard. You can also go to a financial adviser who can actually tell you which funds to invest in or what is known as a ‘’robo adviser’’, which will guide you towards funds…find out which options we like here.
The bottom line is that you can stick relatively small amounts of money into the stock market – starting from monthly direct debits of just £25 – and pick an online ‘ready meal’ option which gets even the least enthusiastic investors to the table! And then you can get on with something more fun instead.

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Holly

Boring Money

Should I be even thinking about the stock market?

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It really depends. Have a go at the following questions:

– Do you have savings that you can draw on in an emergency?
– Are you on the housing ladder OR not saving for a house?
– Do you have a stable job where you can afford to put money into a regular investment or savings plan each month?
– Do you have a certain amount of money left over at the end of the month that you can set aside for the long-term?

If all your answers are ‘yes’ than you should seriously consider investing in the stock market. It sounds scary but your money is probably going to grow more impressively in the long-term if it is invested in a well-balanced, diversified portfolio compared to a bog standard savings account, where interest rates have been rubbish for some time now.

The stock market has time to ride out the peaks and troughs of the stock-market so if you stick in there for at least five years, you have a reasonably good chance of cultivating decent returns.

One thing to bear in mind; there are no guarantees when investing in the stock market. You’re never absolutely 100 per cent certain that you will get back what you put in. You’re taking a risk by investing in the prospects of companies, markets and entire regions; here at Boring Money, we would argue that you have to be in to it win it over the long-term but it’s your call entirely.

If the answers to the questions above are ‘no’, then you should probably concentrate on either building up emergency savings in a decent savings or current account, finessing your credit rating or possibly saving into a cash-based Help to Buy ISA to get ‘free money’ from the government. Additionally, if these savings are to fund a goal over the next 2-3 years then the stock market is not such a great idea. If things fall off a cliff, you do NOT want to be a forced seller in down turns. That’s how you lose money.

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Holly

Boring Money

Can I have a normal ISA open at the same time as a H2B ISA? Should I?

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Erm…it depends. You’re absolutely fine to hold a stocks and shares, or innovative finance Isa alongside a help to buy Isa, as long as you stick within the overall Isa limits for the tax year.

The wrinkle comes if you want to open a help to buy Isa (H2B) and you’ve already been contributing to a cash Isa. You can theoretically do an Isa transfer from your cash Isa into a H2B Isa, subject to the £1,200 limit, but many banks and building societies don’t let you do that – it’s gotta be one or the other. Boo.

Some providers will let you open what’s known as a “split ISA’’. This means you can merge your H2B ISA and your bog standard cash ISA into one tax wrapper. Is it worth it? We’re not convinced – that 25% bonus from the Government is compelling! But the bonus is limited to £3,000 (so total savings from you of £12,000). If you are loaded and can afford to save £15,240 – the full ISA limit this tax year – into a cash ISA, then splitting this could make sense as you can save the max into the H2B and then stick the rest into a cash ISA.

The maximum you can save into a H2B is £1,200 in Month One and then £200 a month after that.

If you’re super keen on buying property, we would recommend you go for the H2B option rather than the vanilla cash ISA – that juicy 25 per cent bonus makes for a way better deal and the rates are often a little better.

Here’s the full lowdown on how the H2B Isa works.

iona

Iona

Freelance Financal Journalist

How long will I get the dosh in a H2B ISA for? Will this change post-Brexit?

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The last time we checked, you can keep saving into the account and receiving the extra dosh until 2030. So you can go about it verrrrrryyyyyyy slooooowwlllyyy if you so wish. But BREXIT ALERT: since we have a new Chancellor and it is all change at the mill, there are no guarantees about how long the ISA will remain open OR if bonuses will continue to be paid out. So I’d say; get a wiggle on and save as much as you can each month into the account to get up to the magic £3000 nice and quickly. See our tips for saving here.

iona

Iona

Freelance Financal Journalist

What is the H2B ISA and how does it work?

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This is a bit of a no-brainer for first time buyers saving for a house. You can save £1,200 in the first month and £200 a month after that. And when you buy the Government will top up the total with a 25% bonus as long as you have saved at least £1,600. The most you’ll get the bonus in is a savings pot of £12,000 i.e. a £3,000 bung from the Government.

A Help to Buy ISA is basically a variation on a theme that already exists – the ISA – it’s a tax efficient savings account.  The H2B ISA is available from most banks and building societies and most of them can be opened online (hurrah!)

Here’s why we like it:

1. You get free money up to a pretty generous amount
2. You can carry on doing it for quite a while, although it’s sensible to start saving as much as you can asap (once you’ve built up your emergency savings pot which should be about 3 months’ salary at least).
3. If you’re saving up for your first home with a partner (smooch smooch) you can BOTH open an ISA and effectively double the government money you get towards a first home. (If they’ve already got on the housing ladder, however, they are barred from opening one so you’re own your own with the H2B game.)
4. The H2B ISA can be used to get you a house worth under £450,000 in London and £250,000 outside.
5. You don’t need to get a mortgage in association with the bank/building soc that provided your H2B ISA so you have flexibility still.
6. You can do the H2B shuffle and move your money into a better-paying H2B account the minute your rate drops. And we recommend you do, because that interest needs to be at the max to help you bump up your savings even more.
7. You can find some groups such as Nationwide which will let you do a ‘split’ ISA – and have some in a H2B and some in a vanilla cash ISA – all in the same account. This is a bit of a fiddle as you are not supposed to open a cash ISA and a H2B in the same tax year. The only negative in doing this (the split thingy) is you may get lower rates on both your Help to Buy ISA and cash ISA by linking them together.

Convinced? Simply apply for one from one of the many banks and building societies that have jumped on this bandwagon. Halifax, Santander and Nationwide are three of the bigger high-street brands offering decent rates (between 2% and 2.5%) and which let you operate online. You can get a little more with some providers if you live in specific regions and are prepared to deal in branch. Yawn.

Just one more thing; you can’t take the government’s cash early and take off to Koh Samui with it. (Otherwise, wouldn’t everyone be doing it??!!) Once you come to buy your home, your solicitor will actually have to apply for the cash once you’ve notified your bank/building society that the job’s done and you intend to close your account. You can withdraw your cash from the account early but you lose the money the government would have given you – thus defeating the purpose of the exercise! So make sure you have an emergency savings pot you can draw on instead…

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Holly

Boring Money

Do I have to pay to see my credit score?

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There are a number of credit reference agencies available which allow people to check their score score; the main three are Equifax, Experian and Noddle. It is important to remember that your credit score isn’t the be-all and end-all – lenders have their own systems for credit scoring you, which only partly involve the number handed over by credit reference agencies. So you’re getting a rough idea of where you’re at – but it’s better than sweet F.A.

You should check at least once a year to make sure there are no errors on the record and to get a good idea about how you’re shaping up in the credit stakes before you apply for a mortgage. If you can, use more than one agency to get rounded picture.

You DON’T have to pay membership to these credit rating agencies if you’re canny – you have a statutory right to pay £2 to check your credit rating and credit reference agencies usually allow you to have a free trial for one month (just remember to cancel – put the date in your diary.)

iona

Iona

Freelance Financal Journalist

How can I pimp my credit score?

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There are some simple things that you can do TODAY to boost your credit score and win over those pesky lenders. If you haven’t already, get on the electoral register with your current address (even if you don’t intend to vote) – it takes about 20 minutes and you can do it online. Paying bills on time or ahead of schedule, even if it’s just your broadband or mobile contracts, will help to bump up your credit score over time.

If you have ever struggled to pay your bills on time, you need to make sure you have a monthly budget; this is a really helpful snapshot of your finances over the month, with one column detailing all your income and the other listing all your expenses. Take particular care to accurately jot down how much your essential (or ‘’fixed’’) expenses cost; these include things like your rent and utility bills.

The trick is to get on the radar; lenders need to KNOW you can pay back debt on time. It seems counter-intuitive; why should I take out debt to prove I’m responsible? But look at it from the lender’s perspective; would you lend a much-loved book or DVD to a pal you knew for certain would return it or a complete stranger who you don’t know from Adam?

You’ve got to convince a lender to let you take on manageable debt – emphasis on the word MANAGABLE – that you can easily handle and will show that you can pay back debt on time. The two most common (and sensible) ways to do this are through a credit card or an unsecured loan. The reason why these products could help with your credit to get are that they do not charge the same levels of interest as other forms of rip-off credit, like payday loans or store cards, although it’s vital to shop around for the best deal using comparison websites to ensure you can make the payments on time.

You can and should pick credit to suit your needs – for instance, you could use your credit card to pay for your discretionary shopping earlier in the month before you get to payday OR you could get a loan for a specific item that will help you (a car is a classic example, although you’d have to factor in other costs once you actually own the damn thing!) If you choose a credit card, make sure you don’t keep a high balance on there, as lenders may view it as excessive and get twitchy about your ability to repay. Avoid sticking to minimum repayments as this can prolong the amount of time it takes to pay off your credit card, making it more expensive in the long run. However, you might not want to be too zealous about paying off your balance too quickly; lenders ultimately don’t make money off people who are TOO good with their debt repayment! Spending too little on your card can also be turn-off for lenders, so it’s about striking a balance between using the credit card responsibly and being too much of a goody two shoes…

Only apply for products when you really need them; applying for more than four forms of credit a year can do more harm than good. And once you have got what you needed from your credit card, don’t keep it lingering on; close out-of-date credit cards and make sure you cancel old agreements. Divorced or separated from your partner? One last thing; make sure you sever your financial relationships for good (regardless of whether you’re on good terms or not!) and close your joint account, as the credit history of any spouse still attached to your joint account will affect your credit rating too.

iona

Iona

Freelance Financal Journalist

What is a credit score and why do I need it?

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A credit score is a magic number that is used by lenders to assess how reliable you are as a borrower. This number is SUPPOSED to indicate your likelihood of paying back debt on time, which lenders obviously want you to do (otherwise they don’t get back the money they lent you or they have a right hassle trying to get it back.)

It works on the basis (rightly or wrongly) that what has happened in your past is likely to happen in the future – so if you have shown a proven track record of responsible borrowing, lenders will feel you’re a safe pair of hands and are more likely to approve you for credit.

The higher your credit score, the more likely you are to get approved – whether that’s a mortgage, a credit card or a personal loan. Moreover, you’re also likely to get favorable terms for that credit as you’ll have a greater choice of products (which often means lower interest rates on your repayments, making the whole deal far cheaper in the long-term.) The lower the number, the more borrowers will think twice about accepting you for credit.

Unfortunately, it can be damaging to make ‘’hard’’ applications for credit only to get rejected. These rejections show up on your credit file and make it even harder to get approved. It’s vital, therefore, that you persuade lenders to do a ‘’soft’’ credit search on your behalf wherever possible as the results will not be passed onto other lenders when they search you.

Each lender will put together its own credit score for you behind closed doors. Each lender will score you differently based broadly on three criteria; past dealings with you (if any), application information AND your credit file. This might all seem very secretive and furtive, but the good news is that you CAN see your credit file by registering with a credit reference service like Experian, Equifax and Noddle.

iona

Iona

Freelance Financal Journalist

Important stuff!

Holly and the team have worked in the finance industry for many years but we are not regulated to give you personal financial advice, nor are we regulated by the industry watchdog (although we do talk to them a lot). For every story on this site about a good investment, or something which went up by 10% or made someone £200, we could share a story about a bad investment, something which fell by 10% or lost someone £200. Nothing’s certain when investing so if you’re really unsure, or dealing with complicated stuff like working out what to do with a pension when you retire, we’d really suggest you get some financial advice. Here are some tips on  how to pick a good financial adviser. Or check out Unbiased or VouchedFor. Just remember, commission has been banned now so advisers need to be very clear with you about what you are paying them and when.