TOPICAL UPDATES

June 24, 2011

Pearson Jones provides bespoke advice to individual clients. This involves face-to-face meetings with your advisers.  On occasions, market conditions result in situations arising where it is not practical for advisers to speak to clients on an individual basis; hence this news alert.

National Savings and Investments (NS&I)

NS&I recently re-launched Index-linked National Savings Certificates and Fixed Interest National Savings Certificates.  Both operate over a 5-year term with the Index-linked variety paying RPI + 0.5% and the Fixed Interest paying 2.25% p.a.  Both returns are tax-free and individuals can invest up to £15,000 per person in each issue.  40% and 50% tax-payers with cash on deposit should seriously consider both of these options and should speak to their Pearson Jones adviser if they wish to proceed.  Previous issues have sold out quickly so we would suggest that you do not delay.

Equitable Life

The long awaited Compensation scheme details have now been announced and are available on the following website: http://www.hm-treasury.gov.uk/fin_equitable_life.htm

Beneficiaries of the scheme are broadly policyholders who took out policies or incremented policies between 1.9.92 and 31.12.2000.  Policyholders who transferred out are still eligible.

The scheme will pay 22% of “Relative Losses” (except With Profits Annuitants who get all of their losses reimbursed).  “Relative Losses” are broadly defined as the difference between the return Equitable policyholders received and the returns achieved by those investing in the average With Profits fund.

Payments could start as early as June 2011 but the scheme could run for 2-3 years.

Eligible people need take no action but the scheme states that deceased policyholders (and their estates) will be dealt with as a priority.  It will be interesting to see how Equitable identifies policyholders who transferred out and subsequently died so it is prudent for any beneficiaries of such individuals to talk to their Pearson Jones adviser to ensure that they make the scheme administrators aware of their particular situation.

Savings for Children / Grandchildren

Regular saving of modest amounts for Children and Grandchildren can be particularly beneficial for the child and the parent / grandparent.  We all know that further education costs continue to spiral and the average age of first time buyers continues to increase as lenders insist on large deposits.  As the state reduces pensions provision, every individual needs to amass ever-greater levels of pension funds during their lifetimes.  Inheritance Tax continues to be a problem for many clients as thresholds (when tax is payable) remain frozen despite increases in asset values.

For many years now, parents and grandparents have each been able to contribute up to £3600 per child / grandchild per tax year into Stakeholder / Personal Pensions.  To contribute £3600, the donor only needs to write a cheque for £2880 as £720 tax relief is automatically paid by HM Revenue & Customs into the child’s pension.

In 2011, the government intends to announce full details of Junior ISAs (Individual Savings Accounts) which are being introduced to replace Child Trust Funds.

Finally, banks and building societies continue to pay very low interest rates on savings accounts for children.  Generally, younger children have the capacity to accept more investment risk and it may now be the time to consider investments as an alternative to savings accounts.

Parents and grandparents with spare capital or income should consider all these options and your Pearson Jones adviser can provide full information.  Inheritance Tax is a complex subject and clients should not take action on these ideas without the benefit of a full review with a Pearson Jones adviser.

Savings Accounts

As mentioned above, savings interest rates continue at record low levels.  Inflation and tax generally means that most savers are seeing the buying power of their savings reduce day-by-day.

Pearson Jones advisers are proficient at advising on suitable alternatives.  If you have spare cash (above your day-to-day needs) in savings accounts, please discuss this with your Pearson Jones adviser at the next opportunity.

Past performance is no guide to the future and no statement in this commentary constitutes any form of individual advice.  The value of investments can fall as well as rise.  Readers should not act on the comments made in this document without the benefit of Independent Financial Advice from a Pearson Jones adviser.

Peter Heckingbottom
Investment Director and Deputy Managing Director
Pearson Jones plc