Regular Savings
ISAs
These may be set up to receive a regular or a varying amount of your savings, to suit your requirements. On the investment side, they are an effective method of long or medium term saving to build a tax-free capital sum.
In their Cash ISA form, they are suitable for short term savings too.
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Unit Trusts etc.
These may be set up to receive a regular or a varying amount of your savings, to suit your requirements. They are an effective method of long or medium term saving to build a capital sum.
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Endowments
Endowment Insurance
This both protects your family and saves for the future. Although dearer than protection insurance alone it will help your family’s finances should you die, while at the same time it is a method of long-term saving. Endowment policies can be issued on a with-profits or unit-linked basis (see below). You pay premiums for an agreed number of years say 10, 15 or 20. At the end of this time you receive a lump sum, which is either the sum insured together with bonuses in the case of a with-profits policy, or - with unit-linked endowments - the lump sum is the return of all money invested together with the investment growth. If you die before the maturity date the insurance company will pay the sum insured, or the value of the policy at that time if greater.investments-endowments.html
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Pensions
Perhaps the most important long term saving vehicle in existence, for the following reasons:
These are considered the most tax effective way of building a long term ‘nest egg’, as most pension contributions will qualify to have tax relief added to your contribution before investment. (Whether or not you are a taxpayer !)
Anybody resident in UK can now save up to £3,600 pa in this way, regardless of earnings. In order to achieve this, one would normally need to contribute only £2,880 per year, or £240 per month. Tax relief at standard rate (currently 20%) is then added to this figure, (£720 per year or £60 per month) to make the total invested in your name £3,600 per year or £300 per month.
If you are earning above £3,600 per year, you may now save up to your entire years’ earnings in this way! – (but don’t forget you may need a bit of money for food and other things?). These savings would still qualify for the same rate of tax relief, unless your earnings are in the higher rate tax bracket, in which case they would qualify for 40% relief.
For example, if £500 net per month were saved during the year, this would result in tax relief of £1,500 being added over that year to make the year’s gross contribution total £7,500. You will see that your ‘net’ contribution of £500 ‘grows’ immediately by £125 to make £625 per month. (This represents a 25% gain on day one!! – where else does this happen?)
The total, or ‘gross,’investment then should continue to grow (or possibly reduce) by whatever rate the selected investment fund produces.
At selected retirement age, up to 25% of the fund may be released as a pension commencement cash sum, which is not taxable. The balance will be used to provide an ‘annuity’ (pension income) which is then guaranteed for life.
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The information set out on this page is intended to provide a general appreciation of the topic and it is not advice. Guidance should be sought from a specialist who is qualified to advise in your specific circumstances.
For more information on any aspect of regular savings please contact Surrey Financial Advice on 01483 211800 or email us at admin@surreyifa.co.uk We will be happy to assist you.
