Monthly Archives: May 2010

The whole situation is again one which reiterates the flexibility of Equity Release. It also proves that an Equity Release Plan should always be examined as an option in relation to holistic retirement planning and that this should always be undertaken by a specialist professional in this area.

There are many questions which are being asked in relation to the emergency budget which has been announced for June of this year. As is always the case with such announcements speculation is rife concerning what it may contain and the effects that it will have on the population. One aspect which has been leaked is the proposed rise in Capital Gains Tax from 18% to 40%. There are many concerns with regard to this proposal; however the two main areas of concern are for small businesses and for those who own second homes. Both of these concerns are extremely prevalent within those at pre, post and at retirement age. For many years people have chosen to examine alternative options to fund their retirements rather than the traditional private pension policy. Confidence in pensions has suffered due to changes in tax rules and falling stock market value. This fall in confidence has driven people to invest more into their private businesses with the intention of selling close to retirement to raise capital. It has also encouraged people to invest in Investment properties, both of these did carry a CGT rate of 18%, the change to 40% if it comes to fruition will make a huge difference to the capital expectation. Now when considering the full aspect of retirement planning the use of Equity Release must be considered in relation to this change.

The reason that this could affect the demand or requirement for Equity Release is that people may use it in relation to the CGT change in two areas. Firstly if there had been a capital expectation of what may have been realised and there was a reliance on that amount then the amount will be reduced by as much as 22%, on a property or business worth £500,000 this equates to a loss of £110,000 from the expected amount. The consumer may use an Equity Release policy to plug this capital gap. The second way in which the consumer may wish to use an Equity Release plan to negate the change is to actually release capital from the residential property with a 0 tax rate, rather than selling an asset in the hope that the CGT situation may change again in the future.

There is an increase almost daily of the change in demand for Equity Release product. There are many changes in the reasons that people are looking at the sector, however a common theme is that the amounts which are required are increasing. The amounts are increasing both in capital amount and loan to value terms. There are many reasons for this but the most important one is that those over 55 are increasingly being left with large mortgage sums outstanding. Previous generations have reached this age normally with a mortgage paid or nearly paid. Due to the changing social and home owning conditions in the UK over the past 20 years this is now no longer the case. Many have changed homes many times over this period of time and in many instances have effected Interest Only Mortgages with no repayment vehicle in place. This has lead to people coming to retirement age with a large mortgage outstanding and only the tax free portion of their pension to pay the mortgage off. In many cases this figure is not enough to cover the mortgage. This is where an Equity Release plan can alleviate the situation. By releasing capital from the residential property they can pay off the outstanding mortgage and replace it with a plan where the interest does not need to be serviced. The sticking point ion many instances is that the ltv available on the Equity Release plan is not sufficient to clear the mortgage.

Where the problem both for the consumer and the professional trying to effect a solution becomes more severe is where the consumer is not yet at retirement age. We are finding many more applicants who are very close to the 55 minimum age limit for Equity Release plans. These people are enquiring about the plans due to having a large outstanding mortgage and they in many cases have unfortunately lost their jobs and redundancy payments, if there are any have been insufficient to pay off the mortgage. This constituency find themselves at 55 plus without an income or any substantial capital sum and with a mortgage to service. The idea of an Equity Release plan to these people sound fantastic, the issue tends to be that the loan to value required to clear the loan is not available due to their age and the actuarial calculation regarding their life expectancy.

It would be naïve to think that the calculations the providers are making will automatically increase ltv’s to accommodate this new demand. It is time though for the providers to radically rethink their products to see if they can make any accommodations for this audience.

Mick Bradley
Managing Director

An annuities calculator will help you find the best annuity rates and save you many hours of time shopping around with the annuity providers. These pieces of software work by taking your preferred options and checking against a database to return the results.

What are the options that can be computed?

You can enter the following information into the annuities calculator.

• Your age on the date you use the annuity calculator
• Your gender (male or female)
• Your pension fund size
• Whether you need a guarantee period (normally 5 or 10 years)
• Whether you want your payments to escalte in the future to keep pace with inflation
• If you require a pension for your partner to continue after your death

Once this information is entered into the annuities calculator you should get a list of all the providers that match the details you have entered and what annuity rates they can provide you.

The reasons that people are effecting Equity Release plans are changing. There are many different reasons for its use and they are very different to what were perceived as the traditional reasons. This is due in some respect to the way in which providers offer their products however the main reasons for the change are an alteration in the way in which consumers perceive their property and themselves generally. There has been a huge social shift in the UK and at the head of this change are the “baby boomer” generation. Where large proportions of those at retirement age previously were content with a relatively quiet retirement the new generation of retirees are in general far more adventurous. Long haul travel is no longer the preserve of a select few, it is accessible within reason to all. Travel in general is entered into far more readily and those at retirement in many cases have enjoyed holidays and short breaks on a far more regular basis than previous generations. However these holidays are expensive and we are all aware of the income gap in retirement. This is one area where Equity Release meets the demand created by those people who wish to have the “holiday of a lifetime” but who cannot afford it from pension income.

Another reason that Equity Release becomes a key is that generally those in retirement are spending more money than future generations however their actual income in retirement is lower than previous generations in terms of % of salary. This obviously causes a gap between desire for lifestyle and the means of funding it. That gap can be closed by the use of an Equity Release Plan. It is often said that 40 is the new 30, that we are in effect becoming younger in body and mind. This is also true of those at 70 and 80. The picture of a retired person sitting in a chair with pipe and slippers is wildly outdated and patronising to a large swathe of the retired population. Purely at overseas sporting events, scan the visiting England crowd at an Ashes Test or following the Lions in South Africa last year, a significant percentage of these travelling fans were of retirement age. It is not to say that all of these trips were funded by Equity Release or indeed that it is the best use of the product. What is absolutely valid is to state that there are those whose standard of living is greatly improved by travel and that one option to pay for it is to use Equity Release.

Phased retirement, sometimes known as staggered retirement, allows the purchase of the annuity to be phased giving flexibility at retirement. Staggered or Phased Retirement plans achieve this flexibility by periodically encashing segments of the plan to produce pension income. These plans are usually split into many individual segments, perhaps a 100 or more..

You need to review your income each year to determine the level of required pension income, then you just encash the required number of segments to achieve this level of income. You can also take 25% tax free cash from the segments, any remaining fund remains invested and can benefit from investment returns of the assets. Although with Phased retirement as with any other fund you should remember that the value of these assets could go down as well.

At age 75 the remaining segments must be converted to annuity or transferred to an Alternatively Secured Pension (ASP) plan. The rules for ASP are completely different and it would be very wise to seek advice well in advance of reaching age 75.

As these plans are quite complex they tend to be only suitable to pension funds in excess of £100,000 although in exception circumstances could be suitable for smaller funds. We strongly recommend seeking independent financial advice before entering into an agreement for phased retirement.

Just this last week two of the annuity providers have announced cuts in their annuity rates. Is this now the time to buy your annuity? Liverpool Victoria reduced their rates by around 1.5% and Standard Life by an average of 2%.

There are changes in the capital adequacy rules that means annuity providers will have to put aside more funds to provide the capital adequacy and this is putting pressure on them to lower rates. The question is do you buy your annuity now or do you wait to see what happens?

Before you decide you should get independent financial advice from an annuity specialist.

At Just Retirement hosted “Choices in Retirement” Symposium, Mike Fuller, CEO of Just Retirement, said that despite a doubling of the enhanced annuity market from 9% in 2005 to 18% in 2009, only 36% of annuity clients take the Open Market Option (OMO).

Even worse – only 8% improve their retirement incomes by taking an enhanced annuity, despite estimates that over 40% of retirees could qualify.

To help people maximise their retirement incomes, Mike Fuller suggested three ways to increase the use of the OMO: improve communication throughout scheme membership; speed up service efficiency and streamline the application and advice process; to improve the customer outcome.

Recent reports from various large stakeholders within the Housing market show that property prices are again on the increase. The Nationwide report recently published indicated a 9.8% increase year on year in certain geographical areas. Whatever the arguments may be regarding superficiality in the house price market and its effect on First Time Buyers, there can be no denying that this rise is a positive one for those in retirement or close to it who are home owners and wish to use an Equity Release Plan. From a strictly consumer transactional basis the plain fact is that the vehicle upon which the plan is based has an increased capital value and therefore the amount which can be released, at whatever % ltv is higher than before the rise in prices. This is especially important when one considers the ever increasing number of people who use Equity Release to clear unsecured and secured loans, the amount of these loans is sometimes too high to be paid due to ltv’s on plans. Without changing ltv’s the amounts which can be released from an equity release scheme increases.

Another factor to consider is the effect that house price inflation has on the overall debt. If the consumer takes a £30,000 advance, within 7-10 years that amount will have virtually doubled therefore the amount outstanding is £60,000. If at inception the property value is £200,00 and in ten years has grown in value to £268,783 which assumes a growth rate of 3% pa compound, the equity stake of the consumer at day 1 is £170,000 and at year 10 it would be £208,783. Although it has to be remembered that the effect that the interest has on the original capital is considerable, one should also remember the net effect that house price inflation in a positive way could have to mitigate an element of this cost.

That is not to guarantee high price inflation will always be positive however historically even including falls in 1974, 1990 and 2007-8 there is historically long term growth in the UK housing market and with the prospect of a growing population and strict green field planning laws still in place the potential for price growth still remains. All of these factors should be considered when contemplating an Equity Release Plan.

Whatever type of business a person is engaged in, he can always have the option to purchase business insurance. But what kind of insurance is best for protecting one’s business? It is the key person insurance or the key man insurance.

Starting on a business and putting almost all of your money into it is a very risky thing to do. There sure learn a lot of knowledge on how to manage a business in business schools but there are some circumstances which we can’t control like that could greatly affect it like natural calamities or even death.

The key person insurance gives a business the protection against financial loss it could possibly suffer from due to the ‘key’ employee’s (member of the business specified in the policy) death, disability or disease. The money that could be taken out from the policy can be used to compensate for all damages inflicted to a business so it could still continue with its operation. And to make things clearer, this kind of business insurance could not be used while the key person is still useful and able for the business.

But how could this benefit the business or the company?

The money is taken out by the employer from the key person insurance policy on the health or life of an employee whose contribution to the company is very valuable. The amount received from the insurance will be used to offset the costs like hiring a temporary employee for the job left or the losses incurred due to the key person’s inability to do business transactions.

Here are the other difficulties a business may be encountering:

-          loss of confidence from customers and suppliers

-          difficulties in repaying existing loans

-          difficulties in raising fund to finance a new project

-   Loss of important personal and business contacts or connections.

Before signing for the policy and make your first contribution, make sure that you read and fully understand it.

It is far from clear exactly what the tax implications and measures of the new coalition Government may mean for the Equity Release market however there is one particular point which has been made clear before the emergency budget which is awaited in June.

The rate of Capital Gains Tax on second properties has been raised to 40%, now the absolute detail of this is yet to be confirmed, what cannot be denied is that this decision has caused widespread concern within those close to or at retirement age. The reason that this tax change is of particular interest to this particular group is that over the last 15 years many people have lost confidence in pension schemes and in many instances have invested what has historically entered these funds into purchasing second, third or ever more properties to fund their retirement. That the sale of these properties will now incur a tax liability of 40% of profit made will make a huge difference to the amount of capital expected to be realised. The reason this has a relevance to the Equity Release industry is that the question of whether to release capital from a residential property in this form needs to be considered prior to selling an Investment property.

As with all Equity Release Schemes the absolute key is to take specialist, professional IFA advice prior to making any decision. This whole question of tax changes and how individuals generally and those in retirement specifically deal with them is becoming ever more important. What the Equity Release industry needs to do is to make sure that it is an option that is always considered not only as a fix for retirement income gap but also in holistic financial and taxation planning. As always Equity Release is not the answer for all people in all situations, it is however an ideal solution in many situations. It is the job of the Equity release Industry to make certain that the option is always considered.

Our company offers quality travel insurance coverage for interested customers in the UK area, making sure that they will be able to travel safely during their trip within or outside the country. Interested customers can choose among our company’s insurance policies, covering various types of medical and general coverages, which will fit with one’s travel needs and safety.

In a world growing more complex, it is also growing more dangerous to be in it. This makes travelling around riskier, and one usually needs to be covered for whatever might happen to them during a trip. Whether travelling is domestic or international, having travel insurance is a necessity so one will be reimbursed for any damage done to them. Doing so, the injured party will not have to pay out of their pockets just to pay for the damages done towards them. Being covered means that any losses suffered by the injured party, as well as the expenses needed to be paid for in an accident or incident that involves the injured party, will be reimbursed by the company.

Travel insurance will cover risks most common while travelling, such as: medical expenses, trip cancellation or interruption, benefits in case of accidents, overseas funeral expenses, legal assistance, and many more. Insurance services, including emergency travel assistance, are available 24/7 so clients will be able to access our company’s services anytime they need to. Interested customers and clients can also avail more coverage if they pay more for insurance.

Customers and clients must review what kind of insurance plan they need while travelling, so that they will know what sort of coverage they will get for their purposes. They must also familiarize themselves with the policies and coverage of their insurance plan so they know what will or will not be paid for by our company.