Stick with broker or use tracker?

Question
My wife and I are fortunate enough to have £800k in cautiously managed funds with a discount broker which we aim to pass on to our children, over the next 20 years or so.

These have grown by about 5% p.a over the last7 years, I have been happy enough with this, but my concern is that I am paying 1% management fees to the broker, £8k p.a, so possibly 160k over 20 years and I am concerned that charges will be a significant drag on performance.

Do you have any suggestions. I am cautious and not happy about managing my investments myself, so I would aim to leave the majority of the funds where they are. I am wondering whether to put 100-200k in a UK or global tracker or stick with the present arrangements.
Answer
The first step is to establish exactly what you're paying and the service you're receiving in return.

Discount brokers don't provide advice/management and nor do they generally charge an explicit fee - they instead rebate most sales commission, keeping some for themselves. A few brokers have started to rebate all commission in return for a fixed fee, which is usually the cheapest route and likely to become the norm over the next few years.

If you're paying a 1% management fee to the broker this suggests you're probably using some sort of investment management service, most likely discretionary management. This means the broker (or, more accurately, investment manager) is actively managing the money on your behalf, making all the day to day investment decisions.

The upshot is that you're probably being charged on two levels, the fess on any underlying investment funds in your portfolio plus those of the investment manager.

I would expect the manager to be using institutional versions (or 'units') of funds held, which means no initial charges and annual charges of around 0.75%. Or, if they use versions with commissions built in (called 'retail' units) the commission should be refunded in full to get a similar end result. If this isn't the case you're being taken for a ride and I'd switch broker without hesitation.

Add on the broker's 1% fee and you're probably paying a total of around 1.75% a year, perhaps less if the portfolio has high fixed interest exposure (as these funds tend to be a bit cheaper than stock market funds) or invests directly in shares/fixed interest (which means no underlying fund management fees).

Is this too much? If the broker is doing a good job of managing your money then perhaps not, although given the size of your portfolio it wouldn't be unreasonable to try negotiating the 1% fee down to 0.75% or less. Percentage based fees always risk becoming excessive on large sums, which is why fund managers and advisers like them so much. Unless a few of the larger players make a stand or consumers flex enough muscle to force a fairer deal I can't (unfortunately) see things changing.

You could consider re-directing some of the money into low cost tracker funds, but it's important to reflect how this will affect overall risk. Plus your broker will need to take this into account when selecting investments in the remainder of the portfolio they're managing.

A big issue you need to consider (I'm sure you are already) is tax; primarily capital gains and inheritance tax.

Assuming the investments aren't held in ISAs or pensions, it's important your wife and yourself both realise gains within the portfolio to fully use your annual capital gains tax allowances (currently £10,600 each), else you'll just store up an increasingly large tax bill when you pass the money (or investments) across to your children. Your broker should already be doing this, but double check.

When you gift the money/investments to your children you'll need to live for at least seven further years for the assets to fall fully out of your estate. If you pass away while it's in your estate they'll be subject to inheritance tax (assuming your £325,000 nil rate band is already eaten up by your home/other assets). It's possible to use trusts if you're in a position to give away money now but want to retain control, although this opens up a whole new set of pros and cons. I won't cover in detail here but take a look at our inheritance tax page if you're interested in reading more.

Read this Q and A at http://www.candidmoney.com/questions/question633.aspx

Are stockbrokers safe?

Question
I have stockmarket investments exceeding £50,000 with one broker, and my understanding is that the FSCS scheme only provides protection up to £50,000 should the broker go bust. How significant is the risk that I could lose everything above the £50,000 protection ceiling? I'm concerned that my money could be lost in the same way that client money was lost when MF Global went bust.


Answer
The answer depends on how you hold the shares. If you hold them via a certificate or Crest Personal Account then you are the registered owner, which is about as safe as you can get. Your holding would be unaffected if the broker goes bust (although you'd obviously need to use a another broker) and there's minimal scope for them to swipe your holdings via fraud.

However, it's far more common for shares to be held in a nominee account, especially if you trade online. This means the shares are owned by a nominee company, run by the broker, for your benefit. Assuming everything is above board the shares would be safe should the broker go bust, as the nominee company is separate from the broker company. However, if the broker committed fraud and dipped their fingers into the nominee company you could lose money. It's this possibility that's covered by the FSCS for up to £50,000 per person per institution. So yes, if the broker is fraudulent you could lose everything above £50,000 - albeit the risk is very small if you use an established company.

You can read more info in my nominee account article.

Read this Q and A at http://www.candidmoney.com/questions/question631.aspx

Can teacher also have a personal pension?

Question
My daughter opened a private pension with Aegon 4 years ago when a student. She pays £2880 per annum with the Government paying £720. She has now joined the Teacher`s Pension scheme in England - has a full time permanent teaching job.
My question :

Can she continue contributing to the Aegon pension and still receive the £720 from the Govt as well as be a member of the Teachers scheme?.Answer
Yes, she can. She's allowed to contribute into a personal pension (such as the Aegon pension she has) as well as an occupational pension and enjoy contribution tax relief on both.

The only proviso is that tax relief will only be given on contributions (including those made by an employer) up to her earnings or £50,000 a year, whichever is lower.

As an alternative to paying more money into the Aegon pension she could consider buying extra teacher's pension instead as this avoids investment risk (which effectively falls on taxpayers who ultimately pay for the scheme), but then there's no guarantee teacher's pension benefits/rules won't change in future or that she'll send up better off versus the Aegon pension.

Read this Q and A at http://www.candidmoney.com/questions/question630.aspx

Surrender endowment policy?

Question
We have a Friends Provident Joint Life Endowment with profits policy.

It’s got 2 years to run, and has a current surrender value of £40,734, however the policy only has a guaranteed minimum payout of £39,340.

We are paying £126 per month.

We have paid our mortgage off, and we don’t need the life cover.If I cash this policy now will we have to pay and tax on the£40,734?
I pay the higher rate tax, my wife pays basic rate tax but is close the the upper limit.

Or should we continue on with the payments (total over 2 years would be £3024)?Answer
Let's start with the simple answer - tax. Your endowment is technically called a 'qualifying' policy and provided you don't surrender during the first three quarters of its term then it's deemed to have qualified which means no tax to pay on surrender. Whether you have a 10/20/25 year policy, with just 2 years left to run it will have qualified by now.

These types of policy are taxed internally at basic rate anyway so no tax benefit for basic rate taxpayers. But for higher rate payers like yourself you at least avoid paying extra higher rate tax.

Whether to surrender now or hold until maturity is more difficult to answer. On the one hand, the surrender value looks appealing versus the guaranteed minimum payout (especially taking ongoing contributions into account), but what really matters is the size of 'final' bonus, if any, Friends Provident (now called Friends Life) will pay at maturity. Your endowment very likely invests in a with-profits fund, which holds back some profits in reserve to help smooth over bad years. Any reserves left in the pot at maturity are paid as a final bonus - more details on our life investments page.

Unfortunately, final (or 'terminal') bonuses can be unpredictable, so hard to second guess whether you should stay put or surrender. I'd ask Friends Life whether they'll estimate your final bonus, tell you how much has accrued to date or provide an example of how much it was on a recently matured endowment of the same duration as yours. This might at least give you a steer on how much you might get.

Read this Q and A at http://www.candidmoney.com/questions/question629.aspx

Tax if I surrender my Pru Bond?

Question
I have an prudential investment bond which I am going to cash in the full amount of the policy soon.

I paid in £14,500 and the surrender valuation is at the moment £18,200. As I am a higher tax payer what tax would I be liable for in surrendering this policy and would I be better off doing a partial surrender to pay less tax?

I have had this policy since October 2000 and have not made any withdrawals from the policy to date.Answer
The tax calculation process on surrender of an investment bond is called 'top-slicing'. You can read more about it on our life investments page, but a quick overview below.

We start by calculating a top-slice, effectively any profit you've made on the bond divided by the number of years you've owned it. This is added to your income and the proportion of top slice falling into your basic/higher rate tax bands dictates the tax owed on the overall gain.

Investment bonds held onshore, as yours very likely is, are effectively taxed at basic rate within the fund, so basic rate tax is already deemed to have been paid. But any top-slice falling into the higher rate tax band will be subject to the difference between basic and higher rate, i.e. 20% tax, multiplied by the number of complete years you've owned the bond.

In your case the profit is £18,200 less £14,500, i.e. £3,700. As there are no withdrawals to worry about we divide this by the 11 complete years you've owned the bond to give a top-slice of £336.

Given you're a higher rate taxpayer the slice will obviously fall entirely in your higher rate band, so you're liable for extra tax on the full top-slice (or, in other words, the full £3,700 profit).

So the £336 top-slice is taxed at 20% to give £67.20 and this is multiplied by 11 years to give a £739 tax bill.

If your income falls back into the basic rate tax band in future, surrendering the bond then could avoid some/all of this extra tax. Otherwise there's little reason to partial surrender unless you'd prefer to spread the tax bill over time or believe the higher rate of income tax will fall.

Read this Q and A at http://www.candidmoney.com/questions/question616.aspx

Can husband reduce CGT bill?

Question
My husband has quite a few shares in one company and wishes to cash then in,what is the limit he can cash in to avoid paying capital gains tax and will he have to pay income tax on them.He took early retirement just over 2yrs ago and recieves a works pension which he pays income tax on.Answer
The annual capital gains tax allowance is currently £10,600 (2012/13 tax year), so your husband can realise gains up to this amount without having to pay any tax. Gains in excess of this will be added to his income with those gains falling into his basic rate band taxed at 18% and any gains falling into his higher rate band taxed at 28%.

However, there's scope to use your allowance too. Your husband can transfer shares across to you, without selling them, allowing you to realise gains too. The shares will be treated as if you'd bought them at the original price your husband paid. So it's very easy to split the gain and use both your allowances. Your husband just needs to ask his stockbroker for a stock transfer form.

If there's still a lot of taxable gain after using both your allowances your husband could hold back on selling some shares (if viable) until the next tax year, i.e. after 5 April 2013 - when you'll both have fresh capital gains tax allowances to use.

You can read more and use a CGT calculator on our capital gains tax page.

Read this Q and A at http://www.candidmoney.com/questions/question614.aspx

Fidelity Wealth SIPP any good?

Question
Have you looked at the Fidelity Wealth Sipp offering for value etc?Answer
I've looked at it in passing and it didn't interest me that much, but let's take a closer look here.

Fidelity Wealth targets investors with at least £100,000, the main carrot being a typical annual fund charge rebate of 0.15% (although a few funds pay 0.25%).

The Fidelity Wealth SIPP (called the Fidelity Personal Pension) is administered by Standard Life and quite straightforward. There are no setup or annual SIPP charges, the aforementioned annual fund charge rebates and Fidelity pays between £50 - £1,000 cash back if you transfer in from another pension provider between 1 August and 30 September 2012.

However, there's no option to hold shares, including exchange traded funds and investment trusts. While this won't bother everyone, it's a big potential drawback for some investors.

If you're happy being restricted to funds then the lack of SIPP charges and modest annual rebates makes this pension a reasonable deal. But there are better offers out there for £100,000+ pension funds.

The likes of Alliance Trust Savings and Interactive investor give much higher annual rebates (typically 0.5%+) and offer share dealing. Unlike Fidelity there are Annual SIPP charges and dealing fees on funds, but you'll almost certainly still end up much better off if your pension fund exceeds the £100,000 Fidelity Wealth threshold.

If you only want to invest in funds you'll also likely save money versus Fidelity by using the Skandia Collective Retirement Account purchased via discount broker Club Finance - who rebate 75% of fund trail commission which typically equates to around 0.375%. The extra rebate should more than compensate for Skandia's £68.50 annual fee on a £100,000 pension fund.

Or, if you already have a SIPP, you could use a service like Massow's Paymemy which rebates all commissions on existing policies in exchange for a one-off £95 fee, the only caveat being high additional admin fees if commission can't be rebated back into the SIPP (most SIPP providers should facilitate this).

All in all, the Fidelity Wealth SIPP offers a fair deal. But there are cheaper alternatives and the lack of share dealing will be a problem for some investors. So no great reason to avoid it, but equally no great reason to use it either, hence my disinterest.

Read this Q and A at http://www.candidmoney.com/questions/question726.aspx

Which pension for divorce settlement?

Question
I am in the process of getting divorced I have been awarded a pension of approx £104,000 what is the cheapest and truly independent advice about where to invest it, as I have to transfer it to another pension company. How can I find the best performing pension companies?Answer
The days of pension companies only allowing you to invest in their own funds are passing. It remains commonplace for stakeholder pensions (which are cheap, simple and still a good choice for many), but the prevalence of low cost SIPPs means it's now possible to cost effectively hold most available investments in your pension (HMRC rules permitting).

It's easiest to think of a pension itself as a 'wrapper' which gives some tax benefits and surrounds investments of some sorts. So your decision is really split into two: which pension 'wrapper' is best value? And which will be the best investments to hold inside?

Unless you have the option to buy extra years of service in an occupational final salary pension (worth investigating if relevant) then a low cost SIPP is likely to be the most appropriate option as far as pension wrapper is concerned. In my view you don't need to pay a financial adviser a fortune to choose a wrapper for you (in any case, they invariably tie themselves to just a few wrappers - at best - for practical/financial reasons). Take a look at our low cost SIPP comparison and you should hopefully get a feel for those likely to be best value for your needs.

By far the harder decision is which investments to hold inside. If you're within 5 years (or so) of retirement the decision is a lot easier, you'll probably want to stick to cash and relatively safe fixed interest investments like gilts to avoid the risk of big pre-retirement losses. It's hard to go too far wrong here provided you select a pension with decent cash rates - most are appalling, but the James Hay iSIPP is an exception.

Otherwise, you'll probably want to invest across a range of assets such as stock markets, fixed interest, commodities and commercial property (the split depending on how much risk you're comfortable taking).

Using investment funds tends for this is usually simpler than shares and offers a practical way to spread risk (because your money is spread across lots of shares). But choosing funds can still be a lottery, primarily because the majority of fund managers just aren't very good, despite being expensive. Using tracker funds potentially circumvents this issue, but they're not suited to all markets and asset types.

If you have no experience in this area then using a financial adviser for investment selection seems sensible. However, there are two big potential problems: many advisers aren't investment experts and will just recommend funds of funds (which are expensive, but profitable for the adviser) or put together an ill thought out selection of funds with little/no ongoing monitoring and advice.

So when asked to recommend a good investment adviser I genuinely struggle. Bestinvest, who built a strong reputation in this area, seem more focussed on selling their own SIPP and managed portfolio services these days (I suspect because there's more potential profit in it for them) rather than offering investment advice for third party SIPPs. Nevertheless, try giving them a call and see whether they'll advise on investments within a SIPP of your choice for 0.5% a year (i.e. the trail commission). Otherwise, I think it's a case of speaking to several Independent Advisers and seeing whether you feel you can trust one of them. You may find our financial advice page helpful, as it includes tips on how to choose a financial adviser.

Please feel free to ask any follow up questions below.

Read this Q and A at http://www.candidmoney.com/questions/question625.aspx

Pay off Swiss Franc mortgage?

Question
A little over 3 years ago, along with many others, we took out a 9 year Swiss franc mortgage which we repay in sterling. We have the funds to clear this but are unsure whether to grasp the nettle and do it shortly or whether to hold off in the hope that the exchange rate will revert or improve.

I understand you can't give specific advice but it would be interesting to have your thoughts.Answer
While an appealing idea, in theory, at the time. Swiss Franc mortgages haven't unfortunately worked out that well to date.

The key problem has been the strengthening Swiss Franc. During the credit crunch and subsequent turbulent times, Switzerland has been viewed as something of a safe haven and demand for its currency has soared. Higher demand makes a currency more expensive, which is bad news for foreigners with Swiss Franc mortgages.

To give an example. Suppose you borrowed £100,000 at 3% back in August 2008. The exchange rate was about 1 GBP = 2 CHF. So your mortgage would be 200,000 CHF with annual interest of 6,000 CHF. Move the clock forward and the rate now is about 1 GBP = 1.5 CHF. This means your mortgage is effectively £133,000 and the annual interest £4,000, i.e. both have increased by a third. This is a simplified example ignoring repayments etc, but highlights the perils of currency movements.

Will the Swiss Franc weaken in future? Given Eurozone/global economic woes are here to stay for a while longer yet, I think it's unlikely the Franc will weaken by much, if anything, over the next couple of years. The situation might change when global economies start showing signs of sustained recovery, but that may well be several years away, perhaps longer.

If the mortgage interest rate is so low you can earn more by keeping the cash in a savings account, then maybe don't rush to pay it off - although this would leave you exposed should the Franc further move against you..

Otherwise, provided this cash isn't needed that badly for something else, I'd be inclined to wipe the slate clean and pay off the mortgage.

Read this Q and A at http://www.candidmoney.com/questions/question621.aspx

Ways to hold grandchild investments?

Question
Hi, we are looking to invest an equal sum of money for each of our five grand children aged from one year to fifteen, allowing them acess at the age of eighteen.

I would prefer not to have in mine of my wife's name, we have heard of bare trusts but was wondering if you could surgest any other way, which hopfully will increase over the years, in particular for the more younger one's.

I have heard we are also allowed to give away three thousand pounds each tax year, without any tax inplication, and can use last years allowance as well, is this factual please. we await your reply/advice.Answer
There are two man points to cover here: the tax implications of gifting money to grandchildren and how to hold investments for them.

Neither grandparent nor grandchild are liable to tax on gifts made from one to the other. Although the grandchildren will have to pay tax on any subsequent income or gains from investing the gift if these exceed their annual personal tax allowances (which are the same as an adult's).

The tax implication for grandparents making gifts relates to inheritance tax. Provided you live for at least seven years after making a gift it's deemed to fall outside of your estate, hence free from potential inheritance tax. The £3,000 annual gift allowance you refer to means total gifts up to this amount fall outside of your estate immediately. And yes, you can carry forward the previous year's allowance if unused. You can also make an unlimited number of gifts of up to £250 per person. Obviously, the above is only relevant if inheritance tax is a concern for you.

Because investment's can't be directly owned by a child until they're 18 (16 in Scotland), the assets must be held by someone else or in trust for the child's benefit until then.

You can hold investments in your name designated for the grandchild, but they remain yours (hence you're liable for tax) until the child reaches 18, so will only be treated as a gift for inheritance tax purposes at that time too.

Placing the investments in a bare trust means they're taxable as the grandchild's and count as a gift, although the child can't take ownership until they're 18.

However, for something that should be straightforward, bare trusts cause an immense amount of confusion with little definitive guidance on what you actually need to do to set one up. Some fund managers provide a form and some don't. And HMRC doesn't require notification via the usual 41G trust form (thanks to reader 'ivanopinion' for pointing this out to me), but does state you need to write to them with details. In practice I doubt many people are doing this correctly and I also doubt HMRC cares that much - this is hardly the preferred route for big tax evaders.

And, to confuse matters further, I suppose you could put a designated investment in a bare trust.

I'll try and write a more comprehensive article on this in future, including a template bare trust form, but for now if your chosen investment provider doesn't offer a bare trust form then I'd be inclined to write your own using this Abbey form as a guide (it may be an old form, but the wording is valid).

Another, potentially simpler, option would be to use Junior ISAs. These avoid the hassle of trusts, are not taxable and can't be accessed by the child until age 18. The annual contribution limit is currently £3,600 per child, which may be split between cash and investments. However, there's a slight complication if any of your grandchildren already have a child trust fund (CTF), as this means they can't open a Junior ISA. CTFs will likely be merged into Junior ISAs at some point, meanwhile existing CTFs may also be topped up by up to £3,600 a year.

Hope my answer gives you some helpful pointers.

Read this Q and A at http://www.candidmoney.com/questions/question618.aspx

Which pension for compensation payout?

Question
I have received an offer of £192,000 after a successful pension mis-selling complaint. This has to be paid into a pension scheme or provider. Having lost money due to the initial advice you can imagine I am wary of investment charges and possible losses to this sum. I am 53 and hoping to start taking my pension at 55 or 56. I have a company final salary pension also that I intend to start taking at the same time. I assume that I would be best to put this into a SIPP. Given the short time this will be invested for before accessing it (either by annuity of drawdown), would it be possible to invest in a cash fixed income account for two years within a SIPP to guarantee an increase in the fund.

I currently have a Vantge account (not SIPP) with Hargeaves Lansdown and was considering getting advice from them or from St.Jame's Place who have been recommended.

Any pointers would be useful.Answer
Glad to hear you won your mis-selling complaint, it's good to see the industry pay for its past misdemeanours - although unfortunately it's still massively in profit from doing the wrong thing over many years - just look at most banks and life companies (not to mention a few financial advisers - although sadly they tend to go bust and leave the rest of the industry to pick up the tab via Financial Services Compensation Scheme levies).

If your final salary pension allows it, I'd suggest getting a quote to buy extra years of service within the scheme. If so, you can compare the potential benefits versus using a personal pension.

If you're keen to invest the money for two or three years then buy an annuity, a fixed rate cash account within a personal pension should fit the bill. The James Hay iSIPP currently seems best value for larger pension pots in this respect, as it offers access to several competitive cash accounts. Unfortunately most pension providers, including the Hargreaves Lansdown Vantage SIPP, pay peanuts on cash as it's very profitable for them to do so.

If you'd rather leave the money invested and draw a pension via income drawdown, good investment selection and management is key. A financial adviser could be worthwhile if taking this route, but be very careful when choosing one. St Jame's Place is a large and very profitable financial adviser, so I guess they must have some happy clients. However, I wouldn't personally recommend them as they're tied to selling their own products (albeit they outsource investment management). Plus I get the impression they're a rather sales-driven organisation, which in my opinion is a quality to avoid when choosing a financial adviser.

Read this Q and A at http://www.candidmoney.com/questions/question619.aspx

Is Moringa a scam?

Question
Is Moringa definitely a scam? Should I cut my losses?

I posted this as a comment on an earlier article, but as that was a thread nobody has commented on for a couple of months I thought I'd better submit it again, as I need to make a decision on this soon.

I was persuaded to invest in the Mozambique Moringa project earlier in the year, with Insight Group plc. I purchased 2 hectares worth of plantation, which was to be a total investment of nearly 7000USD over 3 phases. I have already paid the initial costs and the planting costs (nearly 6000USD), and I'm now being asked for the final "trade payment" of just over 1000USD.

I don't know why I didn't get more suspicious initially - just too naive I guess, and very good salespeople - but I am now, particularly following your earlier article and related comments. Do I understand there are people who are experienced investors who still vouch for this, or is it definitely a scam?

My options are either (1) not to make the final payment, and thereby definitely say goodbye to the 6000 I have already paid, or (2) pay a further 1000, possibly to a fraud, but keep alive the chance that I might get a return if it does turn out to be genuine

Please don't just say I shouldn't have invested in something so risky - I know that now, and next time will be wiser. But I need advice on what to do in my current situation. Is there a chance it's still genuine, or should I just cut my losses for the sake of saving the final 1000USD??

Thanks for any advice you can give.Answer
Very sorry for the slow reply - I got overwhelmed with questions during a period I had little time to spend on the site, still working my way through the backlog. I realise it's a bit late to help with your particular decision, but in the hope it helps others:

Run a web search (as I'm sure you have) on Insight Group plc and you'll find a lot of conflicting information, especially on investment forums. There are plenty of accusations that the business is a scam, but there are also some posts claiming to be from happy Moringa investors. The trouble is, it's neigh on impossible to verify such posts, which doesn't leave us much the wiser.

However, given Insight Group's website no longer properly works and their phone line is dead, I think we can assume the worst. I sincerely hope you got some sort of return on your money. Would be interesting to hear what's happened since you sent in your question?

For annyone else reading this, my overall advice has to be never touch any investment that isn't authorised and regulated by the FSA, unless you thoroughly understand what you're buying. And if it seems too good to be true, it is. Investment salepeople wouldn't waste time flogging such investments if they really are as amazing as they sound - they'd simply invest themselves then retire.

Read this Q and A at http://www.candidmoney.com/questions/question620.aspx

Can historic trail commission be rebated?

Question
I watched a programme about you some time ago and have also seen on your website that people can claim back trail commission that they have paid (claim back through a broker). I have four endowment policies, one life assurance, one pension plan. I have approached two of the companies listed on your website, they both say that previous money cannot be claimed back only future fees can be reduced. Please can you explain what I have obviously misunderstood? Thank you

I have had these policies since 1994. The endowments are for £57,000, £5,000, £5,000, £19,200, life assurance £19,200. I am currently waiting for Abbey National (Santander) to tell me how much I have paid in commission for my Friends Provident polices (I changed to a repayment mortgage but kept the endowment policies going). The pension is with Standard life and the commission has been charged by the firm of accountants that did accountancy work for the firm I worked for at the time to offset against the firms bill.Answer
I'm afraid you can only reclaim future trail commission payments, not past.

If these policies pay trail commission, chances are the financial adviser who sold them to you will have pocketed the money to date. Because the companies with whom the policies are held can't reclaim this money from the financial adviser, there's no practical way for them to refund the commission already paid out to you. And even if this was allowed, it would get very messy - advisers who do provide a genuine service in return for the commission could lose out if the money they've earned is retrospectively reclaimed.

However, better late than never. At least by using a discount broker now you'll get a good share of any commission paid in future.

When using a discount broker for these types of policy it's important to be clear whether the trail commission will be put back into your policies or paid out. If the latter, make sure there's no small print whereby the discount broker keeps some of this money to cover 'admin' costs. For example, while Massow's Paymemy service generally looks an attractive deal when commission can be rebated back into policies, admin fees make it far less attractive when commission has to be paid out.

There's also a question mark over whether commission payments relating to a pension policy can be paid out under HMRC rules - as it might technically be seen as paying out pension benefits (which are not allowed until at least age 55). While the notion seems a bit daft and views on this vary, it's generally safer to get pension trail commission rebated back into the policy wherever possible.

Hope this helps.

Read this Q and A at http://www.candidmoney.com/questions/question728.aspx

Tax on gift to sons?

Question
My husband is about to get some money that he wants to give to my two sons 24yrs and 29 yrs old

What is his position on this. Do they pay Tax, does he and is there a limit to amount that he gives them?Answer
Your husband doesn't have to pay tax on the money he gifts and neither will your sons on receiving the money. That's because HMRC assumes the money your husband gifts has already been taxed in some way or another. There's no limit pon how much he can gift.

Of course, your sons will have to pay tax as usual if they subsequently earn income from the money, for example tax on interest if the money is held in a savings account.

Provided your husband lives for at least seven years after making the gift then the money gifted will fall outside of his estate for inheritance tax purposes too.

Read this Q and A at http://www.candidmoney.com/questions/question607.aspx

Delay taking guaranteed pension annuity?

Question
My wife has a retirement annuity contract with NPI. Over 10 years ago they told her there would be no more annual bonuses. A financial advisor told us to continue with the plan but not to increase contributions because of the guaranteed pension it provided. This was and is currently £3,514 pa at age 60.

My wife was 60 in February and wants to take benefit. Since then and over the past 2 months NPI have provided 4 quotes and each time the tax free lump sum she could take has been less. We have found out, using on-line annuity quotes, that to provide a pension equivalent to the NPI guaranteed pension (i.e. level paid annually in arrears) for a female age 60 would require a fund of at least £68K. However NPI only valued the fund (for tax free lump sum purposes) at £65,871 in early February falling to £64,170 in late March and this has reduced the tax free lump sum she can take. NPI say this is because the "conversion factor" used to calculate this has been falling recently.

She has asked were she can find out what the historic values of the "conversion factor" are but NPI say this is not made available. They have also declined to explain what factors affect its value saying it is determined by the actuaries.

My wife therefore has no idea whether it is sensible to take benefit from her plan now or wait for a time when the "conversion factor" might result in a better tax free lump sum. If you could shed some light on the mysterious factor it would be much appreciated.Answer
Rather than publish an actual pension fund value, it seems NPI takes your wife's guaranteed annuity value and then applies a 'conversion factor' to calculate an equivalent fund value. Establishing a fund value is important when seeking to transfer a pension elsewhere or take benefits, as in your wife's case.

Such conversion factors are broadly calculated to reflect performance of the underlying investment fund but, as you've experienced, it's rather shrouded in mystery and potentially subject to the whims the actuaries who work these things out. I'm surprised NPI won't give your wife details of past rates, but even she could get them I'm not it'd be very useful - as it won't help predict markets (or the actuaries) moving forwards..

Volatile stock markets will not have helped underlying fund performance in recent times, but as the NPI with-profits fund is largely invested in bonds and gilts (which have performed ok) I'm surprised the conversion factor fell so much so quickly.

Given your wife's guaranteed annuity rate doesn't appear to be significantly higher than prevailing rates, it probably makes sense to take the tax-free cash, especially if she's a taxpayer. Aside from being tax-free, the cash gives greater flexibility and reduces the balance 'gambled' on the annuity (I say gambled, as annuities are ultimately a bet with insurers on how long you'll live).

As for the conversion factor, given the state of markets and interest rates I wouldn't expect a dramatic increase, if any, over the next couple of years. If your wife does defer taking the income it would be worth checking that the guarantee will still apply in future and at what rates. If delaying, she'll also need to factor in the income lost meanwhile and the return she could have earned on the tax-free cash.

Read this Q and A at http://www.candidmoney.com/questions/question685.aspx

Top up pension or use ISA?

Question
I am 47 and would like to retire at or before 60.

I have a personal pension with Skandia, currently with a total unit value of £62,000. I pay £400 into this pension every month, which is the maximum I can currently afford.

I have a mortgage of £20000 with my husband. I have no additional savings - no ISAs, no savings accounts.
My question is, should I split up some of monthly £400 to go into an ISA account, on an ongoing basis, so that after a year of contributions I have saved the maximum allowable into an ISA, and pay the remainder of the £400 into my pension? Or should I forget about saving into an ISA and just continue with the £400 monthly payment? The government tops this amount up by £100, I think.Answer
In terms of pure tax savings the pension is likely to nudge ahead of an ISA thanks to being able to take a quarter of the fund as tax-free at retirement. The benefit would be greater still if you're currently a higher rate taxpayer and likely to fall into the basic rate band during retirement .

At you've mentioned, pensions benefit from tax relief on contributions. Your £400 monthly contribution will be automatically grossed up to £500, giving you £100 of basic rate tax relief. However, if you're a higher rate taxpayer you reclaim a further £100 of higher rate relief, either via PAYE or your tax return. Pension income , when eventually taken, is taxable.

ISAs don't benefit from tax relief on contributions, but income is not taxable.

The main argument for using an ISA is flexibility. You can access the full amount of money at any time, whereas a pension is tied up until at least age 55 and can only be accessed via taking an income (using either an annuity or income drawdown), although you can take up to a quarter of the fund as a tax-free lump sum.

I suppose the other issue with pensions is that Governments have a habit of moving the goalposts from time to time and there's little you can do about it (e.g. increasing the minimum age you can take benefits from 50 to 55 andr effectively imposing limits on pension fund size at retirement via the lifetime allowance).

If flexibility and/or concern over potential future pension legislation changes is important to you, then redirecting some of your pension contribution into an ISA would be sensible. You should be able to hold the same investments as your pension within a Skandia ISA, should you wish (in fact they'll likely be available via any other fund supermarket ISA too).

Whatever you decide, pay close attention to the underlying investments held - their success or failure will have a big impact on your eventual retirement income.

Read this Q and A at http://www.candidmoney.com/questions/question676.aspx

Alter income split from joint investment?

Question
My husband and I hold bonds in joint names - can the interest received be declared, for tax purposes, in a ratio of say 30/70 which would be beneficial to us, rather than 50/50?Answer
I'm afraid not, income from jointly owned savings accounts and investments must be distributed in the same ratio as the ownership. This will be 50/50 unless you've altered the relative balance each of you owns.

If you have an easy savings account held in joint names it's fairly straightforward to close the account and open new ones individually in the proportion you wish. You just need to be aware of the Financial Services Compensation Scheme (FSCS) limit of £85,000 per person per institution. Hold £150,000 jointly and you're fully covered, but open two accounts holding £105,000 and £45,000 respectively (a 70/30 split) and one of the accounts will breach the compensation threshold.

You could purchase fixed interest savings bonds individually too, but less easy to adjust existing bonds where the money is tied up until maturity.

If your referring to an insurance company investment bond then withdrawals up to 5% (of your original investment) each year are not taxable (as they're deemed to be a return of capital) But you will may have to pay tax on total profits when you surrender the bond (via a calculation called top-slicing), which will take these withdrawals into account. While you can't alter the balance of a jointly held investment bond as such, it is possible to assign the bond to someone else (e.g. spouse) when surrendering to take advantage of them being in a lower tax band.

Read this Q and A at http://www.candidmoney.com/questions/question677.aspx

7% stamp duty for property funds?

Question
Do the new rules on stamp duty on property >£2M and new taxation and possible annual charges on companies holding property affect unit trusts and IT's specialising in property? If so are there any specific funds that might be especially affected by these additional charges?Answer
No. Stamp duty rates for non-residential property are unchanged, i.e. a top rate of 4% on properties over £500,000.

The other tax changes, namely a 15% tax on properties bought through companies, will also not apply to bona fide investment funds. It's intended to stop wealthy individuals holding UK property via offshore companies to avoid paying stamp duty.

So it's business as usual for commercial property unit trusts and REITs.

Read this Q and A at http://www.candidmoney.com/questions/question678.aspx

Can pension contributions reduce CGT bill?

Question
Next tax year I have to sell stock options that will mean I make a capital gain of £40K, ( I've already used my CGT allowance for 2011/12 ). This means I will be liable for CGT on circa £30K. I am a 40% tax payer with a threshold of £35K for 2012/13. If I invest enough of my salary into my pension to ensure I'm just below my £35K lower rate tax limit I assume I'll only be liable for CGT at 18% as opposed to 28%. Am I correct ? Answer
You're correct that pension contributions can help reduce your income into the basic rate tax band. But capital gains are then added to this to calculate the proportion of the gain that's taxed at 18% and 28%.

So, in your example: After deducting your annual personal income tax allowance the basic rate tax threshold is £35,000. Your capital gain of £40,000, less the annual allowance of £10,600, will be added to your income with the proportion falling below £35,000 being taxed at 18% and the remainder at 28%.

Let's suppose your income, after deducting your income tax personal allowance, is £42,000. Without a pension contribution the full £29,400 (£40,000 - £10,600) taxable gain will be taxed at 28%, landing you with a £8,232 tax bill.

If you make a £10,000 pension contribution your taxable income will fall to £32,000. So the first £3,000 of the £29,400 taxable gain will fall within the basic rate band hence be taxed at 18%, while the £26,400 balance will still be taxed at 28%. This reduces the tax bill to £7.932.

So while it's possible to make a difference, you'll need a very large pension contribution to make a significant difference.

Hope this makes sense.

Read this Q and A at http://www.candidmoney.com/questions/question679.aspx

Which pension for ETFs?

Question
I would like to include ETFs in my pension investments what is the easiest way to gain access to this investment option?Answer
To hold exchange traded funds (ETFs) in your pension you'll need to use a scheme that allows share trading.

If you have an occupational pension chances are this is not available, although some employers are starting to use pension schemes with wider investment choice.

If you're planning to use a personal pension then there are some low cost self-invested personal pensions (SIPPs) that might suit your needs. If you're investing lump sums then Sippdeal currently tends to be cheapest when just holding shares (including ETFs) as there's no annual SIPP fee, just a £9.95 dealing fee. For regular saving both Interactive Investor and Alliance Trust Savings offer £1.50 monthly dealing, although both companies charge annual SIPP fees that may not be economic when holding just a few thousand pounds.

For further details take a look at our low cost SIPP comparison.

Read this Q and A at http://www.candidmoney.com/questions/question680.aspx

When will I receive inherited SERPS?

Question
I am entitled to an Inherited SERPS payment from my late husband. At what age do I start to receive this please? I was Born Late 1953.Answer
You'll receive your late husband's SERPS at the same time your state pension commences. Given you were born after 6 April 1953 you'll unfortunately fall into the increased women's retirement age of somewhere between 64 and 66, depending on your exact date of birth. The Pension Advisory Service has a useful calculator.

Note: you'll lose your eligibility to inherited SERPS if you re-marry.

The proportion of the inherited SERPs you'll receive depends on when your late husband was born, as per the following table:

5 October 1937 or before 100 per cent
Between 6 October 1937 and 5 October 1939 90 per cent
Between 6 October 1939 and 5 October 1941 80 per cent
Between 6 October 1941 and 5 October 1943 70 per cent
Between 6 October 1943 and 5 October 1945 60 per cent
6 October 1945 and after 50 per cent

There is a limit of overall weekly state pension you can receive of £161.94 (2012/13), including your own extra pension (SERPS/S2P) if applicable, as well as the inherited SERPS.

I'd suggest contacting the state pension forecast service (details here) on 0191 218 3600 to get confirmation of exactly how much you're due to receive.

Hope this helps.

Read this Q and A at http://www.candidmoney.com/questions/question681.aspx

Tax on gift from parents?

Question
What is the maximum cash gift I can receive from my parents before being liable to income tax. I am a 40% tax payee??Answer
You can receive as much from your parents as they wish to give you, without any tax liability.

Of course, any interest or gains you earn from the money once it's yours will be taxable as normal. So, for example, if you put the money in a savings account the interest will be taxed at 40% (or 50% if the interest pushes your income into the top rate band).

If your parents live for at least 7 years after making the gift it will fall outside of their estate for inheritance tax purposes, although they can gift up to £3,000 a year which will fall outside of their estate immediately.

Read this Q and A at http://www.candidmoney.com/questions/question682.aspx

Must I buy a UK pension annuity?

Question
As a UK resident do I have to purchase an annuity from a UK based provder?

I understand that annuity rates are low in part because The Bank of England interest rates are low due to quantitative easing. However if we could shop for an annuity in another financial centre e.g Germany, Australia, Hong Kong then surely we would not be so adversly affected the BOE's interferrance in the markets.Answer
The simple answer is yes, you must buy your pension annuity from a UK provider.

If you decide to buy an annuity from an insurer other than your existing pension provider then your pension is effectively transferred into their pension scheme and the annuity then purchased. Because your pension must remain within a UK registered scheme it follows the annuity must, by default, too.

There is theoretically an alternative called Qualifying Recognised Overseas Pension Schemes (QROPS), which are overseas pension schemes allowed to accept transfers from UK schemes. They can sometimes make sense for individuals looking to move or retire overseas (so pension can be in local currency), but reports suggest cowboy financial advisers have been flogging these to expatriates like wildfire (and pocketing vast sales commissions in the process) regardless of suitability. They are not available to UK residents and, even if they were, your annuity would be in a foreign currency which presents its own risks and hassles.

The reason annuity rates are relatively low is rising gilt prices - as insurers use gilts to back annuities.

As you point out, low interest rates have been a factor (as it makes gilts look more attractive, pushing up demand hence prices). Rising demand from nervous investors (primarily big institutions and pension funds) in the wake of volatile markets is also to blame, as is quantitative easing - whereby the Bank of England attempts to pump money into the economy by buying gilts from the market (reducing gilt supply).

Instead of buying an annuity you are allowed to leave your pension fund invested and draw an income instead. Income drawdown provides a lot of flexibility and you can still use the pension fund to buy an annuity in future, but investment risk means you could run out of money before you die - unlike an annuity.

Read this Q and A at http://www.candidmoney.com/questions/question686.aspx

Pension for £500 monthly saving?

Question
I would like to invest £500 a month into a pension probably for the next 17years. What would you suggest would be the best pension to go for?Answer
If you're employed and your employer matches your contributions into its occupational pension scheme, then this would be a good place to start. As well as tax relief on your contributions you'll also get something for nothing thanks to the employer contributions. Even if they don't directly match your contributions, provided they pay in an extra amount to reflect your contributions it's well worth considering.

Otherwise your main options would be a stakeholder pension or self invested personal pension (SIPP). The only significant differences between the two are that SIPPs offer a much wider investment choice and stakeholder pensions tend to be cheaper.

Given you'll (hopefully) build up a sizeable pension fund by investing £500 per month over 17 years, a low cost SIPP is likely to be the more sensible route. The additional investment choice should prove its worth over time. Whereas stakeholder pensions tend to offer fewer than 50 funds from a limited range of managers, most low cost SIPPs provide access to over 1,000. And the ability to hold shares, including exchange traded funds and investment trusts, could be very useful and cost effective.

There are a number of low cost SIPPs on the market - some less 'low cost' than others. Take a look at our comparison here for full details, but in general the best value choice depends on whether you'll predominantly want to hold funds or shares.

If you want to largely hold funds then using a SIPP provider who rebates both fund commissions (typically c0.5% a year) and the fees they receive from fund managers to feature on their SIPP platform (generally c0.25% a year) should prove your cheapest option. Because you'll be investing monthly then low dealing fees should also be a pre-requisite. Interactive Investor and Alliance Trust both potentially fit the bill, using their £1.50 monthly dealing facility.

If you'd prefer to invest in shares then Sippdeal will likely offer a better deal. Monthly dealing is again £1.50 for shares (nil for funds) but, unlike Interactive Investor and Alliance Trust Savings, there are no annual SIPP fees. However, Sippdeal's fund rebates are far less generous than those two companies, so it could prove more expensive if you start holding funds too.

Hope this points you in the right direction.

P.S. Don't forget there are alternatives to pensions when saving towards retirement. For example, contributing some of the money into an ISA will offer greater flexibility.

Read this Q and A at http://www.candidmoney.com/questions/question721.aspx

Should we accept money from relative?

Question
My wife has been asked by her step-uncle to put £20,000 into her bank account and possibly £20,000 into our 3 year old daughter's bank account. He has recently been diagnosed with cancer but I'm not sure if that is the reasoning behind him asking us. So I was wondering what are the implications for us. Does it effect out tax,child benefit or childs nursery allowance. Plus what would happen if he died?Answer
It all depends on your step-uncle's motivation for wanting to pass money to your wife and daughter.

If he's intending the money to be an outright gift then it will belong to your wife and daughter, so he'll have no right to ask for it back, nor will his estate be able to reclaim the money should he die.

Your wife and daughter won't have to pay any tax on the money received, although any interest it earns from sitting in their bank accounts will obviously be taxable as usual (but very unlikely your daughter will be a tax payer - ensure you complete form R85 so that interest is paid without deduction of tax).

Child benefit will be unaffected, although from 7 January 2013 if either parent has annual income above £50,000 it will reduce by 1% for every £100 over that limit. All 3 and 4 year olds are entitled to 15 hours of free nursery care for 38 weeks of the year, so this would be unaffected. Any other entitlements you get may be affected if they depend on your wife's income, she'd receive interest of around £600 a year (before tax) on £20,000 if she puts it in an account paying 3%.

However, if your step-uncle is passing the money to your wife and daughter with a view to wanting it back in future the situation could get messy. Unless he puts something in writing to state the money must be repaid in future your wife and daughter would still likely have claim to the cash, even if he dies. But perhaps he's trying to evade paying tax on the interest earned or hide it for some reason. Neither is a situation your family would really want to be involved in, so I'd suggest poltely declining his request. It could also save a lot of potential family politics and arguments if he has other relatives taking an interest in his financial affairs.

Read this Q and A at http://www.candidmoney.com/questions/question722.aspx

Good cash rate in pension?

Question
We currently have invested approximately £323,000 in a personal pension phased retirement plan. We are both 60 years old and are looking to transfer to a fixed interest type account e.g. Scottish Widows Bank (currently 5 years @ 4.7%) We understand that the FSA guarantees £85,000.00 each per institution so we assume our pension pot would be divided into 2 accounts per person.

Could you please advise if this is a good idea and the best way to achieve this or similar?Answer
If you're looking for a competitive fixed cash rate in your pension you'll need to consider a self invested personal pension (SIPP). Unfortunately, lower cost SIPPs tend to offer just one cash account paying almost zero percent interest.

To access the wider savings account market you'll need to use a higher end SIPP, but expect to pay hundreds of pounds a year in annual fees. You'll also be restricted to those accounts that permit trustee customers - which rules out most of the 'best buy' accounts featured on comparison websites and in newspaper tables.

Scottish Widows does offer a 5 year fixed rate pension account, but the rate (at the time of witting) is only 3.8%.

The best compromise is probably the James Hay i-SIPP, which offers a handful of fixed rate accounts that pay reasonable (although hardly earth-shattering) rates of interest. You can view a list of the available rates here. James Hay charges a £180 annual fee, but this is currently waived on pensions above £180,000.

Of course, before you consider transferring your existing pension arrangements check the available cash options and any penalties your provider would levy should you transfer away from them. There's no point moving to a better cash rate if penalties wipe out several year's worth of extra potential interest.

I'd also check whether your pension is 'phased' or whether you're taking 'income drawdown'. Phased means your pension is split into lots of identical policies, so you can gradually take benefits on each policy - i.e. take 25% tax-free cash and buy an annuity with the balance. Income drawdown means taking benefits (i.e. the 25% tax-free cash) on the whole pension but instead of buying an annuity leaving the money invested and drawing an income instead.

As for protection against a bank going bust, the Financial Services Compensation Scheme covers the first £85,000 per person per institution. A pension can only be held in one name, so unless you have a pension each you'd need to spread the £323,000 across 4 different banking intuitions (within the pension) to ensure you're covered. If the £323,000 refers to your combined pensions (held individually you can each hold money with the same banks, i.e. up to £170,000 per institution.

Hope this helps.

Read this Q and A at http://www.candidmoney.com/questions/question658.aspx

Should I invest redundancy money?

Question
I am 55 years old and currently out of work being made redundant last year, but hope to be working soon.

I have an AVC and occupational pension amounting to around £12,000 in total, which obviously is not enough. I have £5,000 in redundancy money and am looking to invest for my retitement, could you give me some ideas?Answer
Sorry to hear about your redundancy and hope you find another job soon, if you haven't already.

Assuming you don't have an income from elsewhere (e.g. a spouse) then I'm reticent to suggest you do anything with the money except put it in the most competitive instant access savings account you can find, at least until you find another job. Or, if you have expensive debts such as a credit card balance then pay them off first.

Investing the money will tie it up and that's probably a bad idea with so much financial uncertainty hanging over you. Assuming you're a non-taxpayer at the moment it doesn't matter whether you use a cash ISA or conventional savings account (competing form R85 will ensure interest is paid without deduction of tax). Websites like www.moneyfacts.co.uk Moneyfacts are a good place to find 'best buy' savings accounts. Just beware of accounts that have temporary bonuses, they're fine until the bonus ends then you'll need to look elsewhere.

When you have a stable income again that would be a better time to think towards retirement. A pension would likely work out more tax efficient than an ISA if you're a non-taxpayer in retirement. You could use a low cost stakeholder pension or perhaps make additional contributions to the scheme of a future employer - obviously impossible to weigh up which would be most cost effective until you get there. Just be careful regarding fund choice, you probably don't want to take excessive risk when you're close to retirement.

One thing to be aware of is the possibility of retirement savings simply replacing an otherwise 'free' state benefit - the Government's Pension Guarantee Credit. This scheme guarantees those over 60 a minimum weekly income of £142.70 if single or £217.90 per couple. With the basic state pension currently £107.45, you might a pension fund in excess of £50,000 to make additional pension provision worthwhile - see my answer to thisprevious question for more details. Of course, there's a big caveat - the pension credit system may well change over the next 10 years, the Government is already talking about a higher, flat state pension for everyone. It's a ridiculous situation and, as things stand, a big disincentive for many to save. Let's hope there's some clarity sooner than later.

Read this Q and A at http://www.candidmoney.com/questions/question667.aspx

Cheapest FTSE tracker ISA?

Question
First off I'd like to say this site seems brilliant, as one of I am sure many people entering in to the investment side of saving, your well laid out and clear 'jargon free' site is great thank you.

I planned to ask a few questions but pretty much found the answers on your site. This leaves me really with only one question which is related to your views on Hargreaves fund platform for Vanguard, I wounder if your views had changed since your entry (Dec 11), especially as they have now increased the charges placed to investments through them.

My plan to date is to invest the 2012-13 full ISA allowance into the Vanguard FTSE All Share Tracker through Alliance Trust, due to their low costs. Your views would be welcomed.


Thank you for your time, and once again for this site.Answer
Really glad you like the site, thank you for the kind words. Sorry it's taken me a while to answer.

Hargreaves Lansdown (HL) Vantage enjoys a good reputation for customer service and pumps out lots of research/information/marketing material (on which there are mixed views). As a result, they seem to have plenty of satisfied customers.

But times are changing and HL's Vantage platform charges are generally less competitive than they once were, especially since the recent introduction of the £1 or £2 monthly charge per fund that doesn't pay any trail commission, as you refer to. Trail commission rebates that average around 0.15% for a typical portfolio (zero for SIPPs) are starting to look rather stingy too, so it's not hard to see why some previously happy clients are taking their business elsewhere.

Alliance Trust Savings and Interactive Investor currently seem to offer the best deals for investors with reasonable sized portfolios (about £60,000+) of trail commission paying funds, thanks to full trail commission and platform fee rebates. But, their fixed annual fees can prove expensive for smaller portfolios, especially when there's no trail commission to rebate. Cavendish Online invariably comes up trumps for trail commission paying portfolios below this amount, but doesn't offer Vanguard funds.

So what's your cheapest route to buying a FTSE All Share tracker fund within an ISA? Assuming a £10,680 investment with no existing portfolio:

Cavendish Online - HSBC FTSE All Share Tracker 0.27% TER no extra charges.

Hargreaves Lansdown - SWIP foundation Growth 0.11% TER, plus £24 annual fee, equivalent total annual cost 0.33%.

Sippdeal - db X-trackers FTSE All Share ETF TER 0.4%, plus £9.95 dealing fee, equivalent total annual cost first year 0.49% then 0.4%.

Alliance Trust Savings - Vanguard FTSE Equity Index 0.15% TER, plus £12.50 dealing fee and £48 annual ISA fee, equivalent total annual cost first year 0.71% then 0.6%..

Interactive Investor - Fidelity Moneybuilder UK Index TER 0.3% plus £80 annual ISA fee, equivalent total annual cost 1.05%.

Of course, the relative competitiveness of these companies will change if you decide to hold trail commission paying funds in future, as mentioned earlier. But this hopefully gives you a helpful indication for a sole tracker fund investment.

Read this Q and A at http://www.candidmoney.com/questions/question664.aspx

Should I switch to Share Centre?

Question
As I receive so little advice from the stockbroker I use I am thinking of transferring my share account to the Share Centre, and wondered if you know this Company and can confirm they are ok. I have noted that they say client's money is kept seperate from their own money so I assume they are ok?

They also claim to provide free advice by phone, your account seems to be updated throughout the day rather than on a daily basis, and you can apply stop loss limits, so it seems better.Answer
Share Centre is a well established stockbroker that seems to have a good reputation, so from that point of view they're fine to use.

However, they're not cheap. there's an annual administration fee of £12, rising to £60 for an ISA, and dealing fees are 1% with a minimum of £7.50. Putting this another way, an ISA portfolio with six £10,000 trades a year would cost £660. You can reduce dealing costs to a fixed £7.50 by paying an extra £96 a year, reducing total annual cost in our example to £201. By contrast, low cost broker x-o.co.uk would charge £35.70, albeit their website and service is rather bare bones (though functional, with features like limit orders and stop loss).

The key is whether Share Centre's telephone advice and service is worth the extra fees. As I'm not a customer of theirs I can't give a specific answer, but in general the advice given by stockbrokers tends to be rather mixed (a bit like fund manager performance). If you have the time, then reading newspaper business pages, magazines like Investors Chronicle and/or Internet investor websites may result in you making better decisions than a stockbroker.

I think it's standard practice for online stockbrokers to update client account valuations real time, so you should expect this facility whoever you use.

Likewise, it's normal practice for stockbrokers to hold client money and investments separately from their own. Cash is normally pooled together with that of other investors, but the usual Financial Services Compensation Scheme (FSCS) limit of £85,000 per person per institution applies. Share Centre also spreads the cash across several banks and building societies, which is sensible.

Shares will be held via a nominee account, which is basically owned by the stockbroker for your benefit. While such arrangements run a slim risk of fraud, I wouldn't be concerned about Share Centre in this respect. For more details about nominee accounts please read my article here.

In summary, the only reason I wouldn't use Share Centre is cost. Hard to know whether their advice will prove worthwhile, perhaps it's a case of giving them a try to see. If any reader's have experience of Share Centre perhaps you could post below, thanks.

Read this Q and A at http://www.candidmoney.com/questions/question717.aspx

Pension or ISA for son?

Question
Our elder son, single and aged 50, earns about £16,000 p.a. as a self-employed piano and keyboard teacher.

My wife and I are in our eighties and are concerned about what will happen in the future. He currently has a tiny SIPP fund and two very small occupational funds from past employment. We are considering setting up a trust and are also able to pay regular gifts to him (and our other son and his children) out of income.

The question is whether to use the regular gifts to fund our elder son’s SIPP to increase his potential pension, or to invest into ISAs, for him, from which he could draw income in the future. Which is the better strategy?Answer
Regular gifts out of income (not capital, such as savings) immediately fall outside of your estate for inheritance tax purposes, so should help longer term tax planning provided you can afford them.

As for tax advantages, pensions benefit on the way in thanks to tax relief on contributions, so a basic rate taxpayer like your son will only have to pay in £80 to enjoy a £100 contribution. Whereas ISAs benefit at the other end, because income is not taxable. Assuming tax rates remain the same, these two tax benefits are effectively equal - see our ISAs page for an example.

However, as your son may well end up being a non-taxpayer in retirement, the benefit of tax-free ISA income could be less useful. And the added advantage of being able to take a quarter of the pension fund as a tax-free lump sum at retirement (having enjoyed basic rate tax relief on the way in) probably tips the scales in favour of pensions.

A pension is less flexible as it cannot be accessed before age 55 and the money must ultimately be used to provide an income for life, whereas an ISA can be accessed at any time. But this may be no bad thing if your motivation is your son's long term welfare.

One point to bear in mind if your son has scant pension provision is the rather silly pension tax credit system. Under current rules, if a single person aged 60 or over has a weekly income of below £142.70 then the Government makes it up to this amount via a 'Guarantee Credit'. This is obviously a good thing, but it rather defeats the purpose of building retirement savings in addition to the basic state pension, currently £107.45, unless you'll comfortably exceed £142.70 weekly income (note: savings are assumed to produce a notional weekly income of £1 per £500 over £6,000, pension income is included 'as is'). There's a risk you end up saving to simply replace a state benefit you would have otherwise received.

If your son is entitled to a full basic state pension then, as things stand, the first £1,833 of annual pension/savings income would simply replace the pension tax credit he'd otherwise receive. £1,833 of annual income equates to a pension fund of around £50,000 based on current inflation-linked annuity rates for a non-smoking 66 year old (the state retirement age from 2020). Of course, the pension tax credit system may change in future (the Government is still talking of introducing a flat weekly state pension of around £140 for everyone) and your son's occupational pensions and possible extra state pension (via SERPS/S2P) may mean this isn't an issue. But it's good to be aware.

I'd also check his tiny SIPP isn't incurring any fixed annual charges that are not cost effective on a small amount. Unless he's an active investor a stakeholder pension may be more appropriate.

Read this Q and A at http://www.candidmoney.com/questions/question715.aspx