Question
Should I surrender my Investment Bond with St James Place (£60,000)? After reading your comments in the Daily Mail I'm concerned the bond has been mis-sold.
I have had it for 3months, on advice from a St Jame's Place adviser to surrender 10 year old With-Profits Bonds, which incurred a MVR penalty. I'm 71 and a basic rate taxpayer. On reflection I think this is too much of a long-term investment for me.Answer
There's two things to consider re: investment bonds: the tax treatment of the bond 'wrapper' and the investment(s) held inside.
I think investment bonds are a white elephant for most people because the tax 'benefits' are likely to be non-existent and certainly less appealing than other options such as ISAs and holding unit trusts and shares directly.
Investment bonds must pay tax on both income and gains at basic rate, currently 20%. This can never be reclaimed, not even by non-taxpayers. So for a basic rate taxpayer there's no tax saving whatsoever.
Compare this to a unit trust or shares where gains can be offset against an annual capital gains tax allowance, currently £10,100, meaning the vast majority of investors can enjoy tax-free growth. Dividends are automatically taxed at basic rate (which cannot be reclaimed), but tax deducted on interest from cash and corporate bonds can be reclaimed by non-taxpayers (and when held within an ISA).
So, as a basic rate taxpayer, suppose you held identical funds via a unit trust and an investment bond, you'd expect the investment bond growth to be 20% lower than the unit trust - simply because of the way they're taxed.
As you're over age 65 there's also another issue to consider. When you sell the bond, any gains will be notionally added to your income that year which may reduce your age-related personal allowance. Although if your investments produce income you may benefit meanwhile as you can withdraw up to 5% a year (of your original investment) from an investment bond without it affecting your age allowance that year.
All in all, advising basic rate taxpayers to buy investment bonds very rarely makes any sense at all. There may, on occasion, be a tax benefit for higher rate taxpayers, but I won't confuse the answer by covering that here (read our life insurance investments page if you want to find out more).
Moving onto the investment held inside. Most investment bonds now offer quite a wide range of conventional funds in addition to with-profits, traditionally the investment bond mainstay. But aside from with-profits there's unlikely to be an investment option within an investment bond that you can't get outside, for example via a unit trust.
What types of investment should you be holding at age 71? Well ,it depends on your exact needs but I'd imagine you're after income with low risk. You can probably achieve this within an investment bond but, as noted earlier, it may not be the most tax efficient option for you - especially if you have not used your ISA allowance. And you should porobably look to hold the investment bond for 5-10 years due to a combination of charges and underlying investment risk.
What should you do?
Based on the information you've given I have serious concerns that you've been mis-sold an investment bond, especially if the adviser did not use an available ISA allowance. It looks like the adviser has done what's known in the trade as a 'churn' - that is he/she has moved you from investment to another simply to pocket commission (investment bonds tend to pay high commissions), rather than because it's in your best interests. The fact you had to pay a penalty (MVR) to leave the with-profits bond (check whether there was an option to sell MVR-free on a certain date) only for the money to be invested in another investment bond sounds like bad advice to me.
Surrendering the bond now will probably incur a penalty, leaving you worse off.
If you think you've been mis-sold the bond I suggest writing to St Jame's Place stating that you are unhappy with the advice given because it is not tax efficient and inappropriate for your needs. State that you wish for the bond to be surrendered and for St Jame's Place to absorb any initial/exit charges and losses incurred so that you do not lose out. Then take your business elsewhere.
And if the adviser doesn't oblige take your complaint to the Financial Ombudsman Service, which is free for consumers, and they will hopefully exercise some common sense and rule in your favour.
Should I surrender my Investment Bond with St James Place (£60,000)? After reading your comments in the Daily Mail I'm concerned the bond has been mis-sold.
I have had it for 3months, on advice from a St Jame's Place adviser to surrender 10 year old With-Profits Bonds, which incurred a MVR penalty. I'm 71 and a basic rate taxpayer. On reflection I think this is too much of a long-term investment for me.Answer
There's two things to consider re: investment bonds: the tax treatment of the bond 'wrapper' and the investment(s) held inside.
I think investment bonds are a white elephant for most people because the tax 'benefits' are likely to be non-existent and certainly less appealing than other options such as ISAs and holding unit trusts and shares directly.
Investment bonds must pay tax on both income and gains at basic rate, currently 20%. This can never be reclaimed, not even by non-taxpayers. So for a basic rate taxpayer there's no tax saving whatsoever.
Compare this to a unit trust or shares where gains can be offset against an annual capital gains tax allowance, currently £10,100, meaning the vast majority of investors can enjoy tax-free growth. Dividends are automatically taxed at basic rate (which cannot be reclaimed), but tax deducted on interest from cash and corporate bonds can be reclaimed by non-taxpayers (and when held within an ISA).
So, as a basic rate taxpayer, suppose you held identical funds via a unit trust and an investment bond, you'd expect the investment bond growth to be 20% lower than the unit trust - simply because of the way they're taxed.
As you're over age 65 there's also another issue to consider. When you sell the bond, any gains will be notionally added to your income that year which may reduce your age-related personal allowance. Although if your investments produce income you may benefit meanwhile as you can withdraw up to 5% a year (of your original investment) from an investment bond without it affecting your age allowance that year.
All in all, advising basic rate taxpayers to buy investment bonds very rarely makes any sense at all. There may, on occasion, be a tax benefit for higher rate taxpayers, but I won't confuse the answer by covering that here (read our life insurance investments page if you want to find out more).
Moving onto the investment held inside. Most investment bonds now offer quite a wide range of conventional funds in addition to with-profits, traditionally the investment bond mainstay. But aside from with-profits there's unlikely to be an investment option within an investment bond that you can't get outside, for example via a unit trust.
What types of investment should you be holding at age 71? Well ,it depends on your exact needs but I'd imagine you're after income with low risk. You can probably achieve this within an investment bond but, as noted earlier, it may not be the most tax efficient option for you - especially if you have not used your ISA allowance. And you should porobably look to hold the investment bond for 5-10 years due to a combination of charges and underlying investment risk.
What should you do?
Based on the information you've given I have serious concerns that you've been mis-sold an investment bond, especially if the adviser did not use an available ISA allowance. It looks like the adviser has done what's known in the trade as a 'churn' - that is he/she has moved you from investment to another simply to pocket commission (investment bonds tend to pay high commissions), rather than because it's in your best interests. The fact you had to pay a penalty (MVR) to leave the with-profits bond (check whether there was an option to sell MVR-free on a certain date) only for the money to be invested in another investment bond sounds like bad advice to me.
Surrendering the bond now will probably incur a penalty, leaving you worse off.
If you think you've been mis-sold the bond I suggest writing to St Jame's Place stating that you are unhappy with the advice given because it is not tax efficient and inappropriate for your needs. State that you wish for the bond to be surrendered and for St Jame's Place to absorb any initial/exit charges and losses incurred so that you do not lose out. Then take your business elsewhere.
And if the adviser doesn't oblige take your complaint to the Financial Ombudsman Service, which is free for consumers, and they will hopefully exercise some common sense and rule in your favour.
Read this Q and A at http://www.candidmoney.com/questions/question283.aspx
No comments:
Post a Comment