Pooled investments

Providing the potential for capital growth or income, or a combination of both

If you require your money to provide the potential for capital growth or income, or a combination of both, provided you are willing to accept an element of risk pooled investments could just be the solution you are looking for. A pooled investment allows you to invest in a large, professionally managed portfolio of assets with many other investors. As a result of this, the risk is reduced due to the wider spread of investments in the portfolio.

Pooled investments are also sometimes called ‘collective investments’. The fund manager will choose a broad spread of instruments in which to invest, depending on their investment remit. The main asset classes available to invest in are shares, bonds, gilts, property and other specialist areas such as hedge funds or ‘guaranteed funds’.

Most pooled investment funds are actively managed. The fund manager researches the market and buys and sells assets with the aim of providing a good return for investors.

Trackers, on the other hand, are passively managed, aiming to track the market in which they are invested. For example, a FTSE100 tracker would aim to replicate the movement of the FTSE100 (the index of the largest 100 UK companies). They might do this by buying the equivalent proportion of all the shares in the index. For technical reasons the return is rarely identical to the index, in particular because charges need to be deducted.

Trackers tend to have lower charges than actively managed funds. This is because a fund manager running an actively managed fund is paid to invest so as to do better than the index (beat the market) or to generate a steadier return for investors than tracking the index would achieve. However, active management does not guarantee that the fund will outperform the market or a tracker fund.

Flexible Drawdown

After years of saving into your pension fund, you’ve now decided you want to retire and are overwhelmed by the retirement options available. We can work with you to choose the right strategy in order for you to enjoy your retirement years.

If appropriate to your particular situation, one option you may wish to consider is Flexible Drawdown. Perhaps the most radical aspect of the new income drawdown rules that were introduced from 6 April 2011 is that, under Flexible Drawdown, there is no limit on the amount of income that you can draw each year.

The usual tax-free lump sum is allowed but any other withdrawals taken by you are taxed as income in the tax year they are paid. If you become a non-UK resident while in Flexible Drawdown, any income drawn when non-resident will be subject to UK tax if you return to the UK within five tax years of taking it.

As the name suggests, this option is much more flexible than income drawdown. Qualifying for this option removes the cap on the income you can take.

You can draw as much income as you like when you like. However, Flexible Drawdown will not be available to everyone and there are certain criteria that must be met before you can choose it.

Giving those with very large funds more flexibility

Those over the age of 55 who can show that they have secured pension income in excess of £20,000 per annum will be able to drawdown an unlimited amount from their pension funds each year, but this will be treated as income for tax purposes.

The income included for satisfying the new Minimum Income Requirement (MIR) includes the basic state pension, additional state pension, level annuity income and scheme pensions. Please note income from purchased life annuities and drawdown arrangements do not count.

The lump sum required to purchase an annuity that will satisfy the MIR, assuming the full state pension is payable, will be about £200,000. This means that this option is available only to a small number of wealthy individuals.

A drawdown pension, using income withdrawal or short-term annuities, is complex and is not suitable for everyone. It is riskier than an annuity as the income received is not guaranteed and will vary depending on the value and performance of underlying assets.

Pension options

There are three types of non-State pension. Some are offered by employers and some you can start yourself. They are:

– Occupational Final Salary Schemes – offered by some employers

– Occupational Defined Contribution Schemes (also called Money Purchase Schemes) – offered by some employers

– Stakeholder Pension Schemes and Personal Pensions – offered by some employers, or you can start one yourself. You may also be offered a group personal pension at work (also called Money Purchase Schemes).

If you work for a business employing fewer than five employees, your employer does not currently have to offer you access to a pension scheme. However, the government is planning changes that will mean all employers will have to offer and contribute towards a pension in the future. From 2012 employers will need to automatically enrol their eligible workers into a qualifying pension scheme and make contributions to it. Employees will be able to opt-out of their employer’s scheme if they choose not to participate.

Workers who give notice during the formal opt-out period will be put back in the position they would have been in if they had not become members in the first place, which may include a refund of any contributions taken following automatic enrolment.

Although you don’t have to join any pension scheme offered through your employment, it usually makes sense to join an occupational pension scheme if it’s available because:

– your employer normally contributes

– often you also receive other benefits, such as life insurance which pays a lump sum and/or pension to your dependants if you die while still in service; a pension if you have to retire early because of ill-health; and pensions for your spouse and other dependants when you die.

Not all pensions offered by employers are occupational pensions. Your employer may offer a Stakeholder Pension or a Personal Pension through a Group Personal Pension arrangement. These pensions are not called occupational pensions, even though the employer may contribute.