Barclays pushing investment bond?

faddy

My 84 year old mother has inherited my late father's money and his attitude to money management - keep it all in Barclays and don't worry about the interest rate, in fact better still keep it all in an obsolete and therefore low rate account.

After failing to persuade her to let me find homes for it in other institutions in order to break it up into chunks of less than £50k, we reached a compromise that I should manage it for her provided it all stays in Barclays.

We therefore agreed to put £100k into a 12 month Savings Bond (still paying 5% gross at time of writing). I rang her bank to arrange, they explained that as I have "third party access" but not full Power of Attorney on Mum's accounts, they would need to see her sign for the bond.

I explained that she is housebound and they agreed to send out two members of staff to her home to sign her up. However, we instead received a visit from a Barclays "Financial Planning Manager".

She proceeded to explain the merits of an Investment Bond:

1. capital growth, whereas savings won't keep up with inflation at current rates
2. minimum guaranteed payout of initial sum plus CPI, so long as no withdrawals are made
3. won't be counted in any care fees assessment, provided it's documented that it wasn't sold for that purpose

I'm doubtful as to whether 3 would work in my mother's circumstances. She's not currently receiving care, but did for a while about five years ago. She was again assessed as needing care about a year ago, but in the event my wife and I are providing care so no carers are coming in. I suspect that it would be difficult to sustain the argument that at the time of purchasing an investment bond (i.e. now) the possibility of Mum needing care is not foreseen, and that it may therefore fall under the deprivation of capital rule regardless of the documented reason for purchase.

My other concern is that I've read that investment bonds are unsuitable for non-taxpayers as tax is paid within the bond and is non-reclaimable. It's entirely possible that she will be a non-taxpayer within the five year minimum term of the bond, given further downward movement in interest rates. In fact if she put the maximum figure suggested by the "Financial Planning Manager", £90k, into the bond she would be left now with no tax to pay on her remaining income (pension + interest on remaining savings).

Any thoughts on the above appreciated.

Reaper

I think you need to discover more details about the product being offered. I wonder if it is the Investment Bond recently announced by Barclays Wealth?

As a rule of thumb investments offering capital protection give low growth and no guarentee they will keep up with inflation. On the other hand if it has been in savings accounts offering next to nothing maybe that does not matter to her.

The 5% on offer is not bad (is it fixed?) though remember to use her ISA allowance first if she is currently a tax payer. You could always go for that for 12 months then look again at the investment in a year's time if interest rates have become unappealing, as they probably will have.

dunstonh

I would have to ask the question about whether an 84 year old should be considering long term investments.

Investment bonds are best geared (from a tax point of view) for higher rate taxpayers, over 65s who are close to the age allowance reduction and for putting investments in trust (estate planning). They are totally unsuitable for non taxpayers unless the terms offered are significantly discounted (which you wont get from Barclays as their salesforce is expensive). Investment bonds are not included in the long term care means test if no withdrawals or income is being taken. However, that only applies when you know long term care is not required in the future. As she was assessed as needing care then it would not qualify to be exempt. It doesnt matter that she isnt in care now. The fact is that you know its likely.

We dont know the facts about your mothers scenario here but I would be on guard and concerned over the quality of advice based on what you have said. It smells like a salesmen recommendation rather than an adviser recommendation (the job title suggests salesperson as well. The two titles you look for are chartered financial planner or IFA).

In fact if she put the maximum figure suggested by the "Financial Planning Manager", £90k, into the bond she would be left now with no tax to pay on her remaining income (pension + interest on remaining savings).

But she would be paying upto 20% tax on the growth within the bond (equities) and the income within the investment would be taxed as well. By using unit trusts, she could achieve a similar result but with less internal taxation. However, that brings me back to the point that at 84, should she be considering a 5-10 minimum term investment?

faddy

Thanks to both who've replied.

Reaper, the bond apparently includes a guarantee of a minimum payout of the capital + CPI, provided it's held for 5 years or until death, and no withdrawals have been made.

dunstonh, most of what you've said confirms my thoughts. As for the suitability of long term investments for an 84 year old, the pitch was that this would be money that she'd be passing on rather than spending herself. I take it you mean that if it's paid out on an early death it won't have had long enough to "perform"?

faddy

dunstonh wrote: »

Investment bonds are not included in the long term care means test if no withdrawals or income is being taken. However, that only applies when you know long term care is not required in the future. As she was assessed as needing care then it would not qualify to be exempt. It doesnt matter that she isnt in care now. The fact is that you know its likely.

My mother doesn't really understand how means testing works, or assessment come to that, so her motivation for this investment might well not be to keep it out of the means test, so arguably that wouldn't be deliberate deprivation - intention, if you can prove it, is the issue isn't it? The "adviser" seemed to think that the fact Mum isn't getting care at present, together with her documented advice that this was a suitable investment, would do the trick.

Mum was last assessed a little over 12 months ago, and I was told that the assessment lasts 12 months, i.e. she's need a new assessment if needing care now.

dunstonh

As for the suitability of long term investments for an 84 year old, the pitch was that this would be money that she'd be passing on rather than spending herself. I take it you mean that if it's paid out on an early death it won't have had long enough to "perform"?

Investment bonds involve investing into unit linked funds that can go down as well as up. The intention when investing is to take a long term view. An 84 year old probably hasnt got that long term view. That is not always the case but what happens if she passes away at a point when the investment is down 20% in value?

My mother doesn't really understand how means testing works, or assessment come to that, so her motivation for this investment might well not be to keep it out of the means test, so arguably that wouldn't be deliberate deprivation - intention, if you can prove it, is the issue isn't it? The "adviser" seemed to think that the fact Mum isn't getting care at present, together with her documented advice that this was a suitable investment, would do the trick.

If the investment can be justified by other means and you know long term care isnt required in the forseeable future then you can get away with it. However, I am not sure someone who is getting an annual assessment and has been judged to needing care would get away with it.

Also, I cant see how Barclays could get away with the justification. Ignoring age, you have to use ISA first. That is the most tax efficient. Then you have to compare unit trusts and life funds. The asset mix will influence that decision but she doesnt appear to have any of the requirements that make a bond better than unit trust. So, the Barclays rep would be risking a proper adviser reviewing the work in the future and putting in a mis-sale on the basis that a) it was not the best tax wrapper. b) At 84 equity based investments were not suitable for someone that had already been assessed for care and c) that the recommendation was almost certainly done because of commission bias (banks take double the commission on bonds compared to what they get on unit trusts).

Look at bond justification:

1 - Is she a higher rate taxpayer? No
2 - Is she close to age allowance reduction (£21,900 a year) and needs to reduce income? Doesnt sound like it from your posts
3 - Is she investing for a 5-10 year term? At age 84?
4 - Is the investment being placed into trust for estate planning? No
5 - Is the investment being discounted significantly to make the terms better than unit trust? No. You wont get a discount like that from Barclays.

So, what would be the justification for recommending a product that is not as tax efficient as the alternatives?

faddy

dunstonh wrote: »

Investment bonds involve investing into unit linked funds that can go down as well as up. The intention when investing is to take a long term view. An 84 year old probably hasnt got that long term view. That is not always the case but what happens if she passes away at a point when the investment is down 20% in value?

This bond apparently guarantees initial sum + CPI on death, provided no withdrawals have been taken.

If the investment can be justified by other means and you know long term care isnt required in the forseeable future then you can get away with it. However, I am not sure someone who is getting an annual assessment and has been judged to needing care would get away with it.

Just wondered whether it could be argued that Mum's lack of understanding of the system would mean there's no deliberate deprivation by her. Proving it would of course be the hard bit.

Ignoring age, you have to use ISA first. That is the most tax efficient.

Done that. Cash ISA set up on my initiative. Not mentioned by "adviser".

So, the Barclays rep would be risking a proper adviser reviewing the work in the future and putting in a mis-sale

What would be the possible consequence of that?

At any rate, I don't think I can in good conscience recommend this to Mum, so back to the Savings Bond (12 months)!

Thanks again

dunstonh

This bond apparently guarantees initial sum + CPI on death, provided no withdrawals have been taken.

Its possible to get guarantees like that on unit trusts with lower internal taxation.

The other thing is that knowing that it would be included in any means test, it would mean significant capital withdrawals would need to be made and these could start incurring penalties and loss of guarantees (on amount withdrawn). Anyone with a parent in long term care will tell you that the fees just go up and up every year way beyond what you plan for.

Just wondered whether it could be argued that Mum's lack of understanding of the system would mean there's no deliberate deprivation by her. Proving it would of course be the hard bit.

That wont work. Its been tried and failed. Ignorance is not a defence. It still doesnt get past the fact that the bond has no justification.

Done that. Cash ISA set up on my initiative. Not mentioned by "adviser".

What about the £3600 S&S ISA allowance? That needs to be utilised. Failure to do so makes it an easy mis-sale.

What would be the possible consequence of that?

Having the policy voided, money returned plus redress and the Barclays rep getting reprimanded and harming his career prospects. However, sales people dont always look long term. Hes probably looking at the 7% commission that would go towards his sales target. Especially if he is running short at the moment.

At any rate, I don't think I can in good conscience recommend this to Mum

I would agree. Take a look at NS&I certificates. They tie the money up for 3 and 5 years but after 12 months you can access the money if required with some indexation/return. They are tax free and for some of the money, they could be the best option.

If she does go into care there are also annuities that can be used for this purpose which can often be a very good option.

faddy

dunstonh wrote: »

That wont work. Its been tried and failed. Ignorance is not a defence. It still doesnt get past the fact that the bond has no justification.

So social services would look at the financial merits of the "adviser's" case, rather than simply checking that it wasn't explicitly (i.e. in writing) recommended partly as a fees avoidance strategy? I'm a little surprised that ignorance is not a defence to intentional deprivation, but I suppose the intention can be that of the claimant's advisers as well as of the claimant?

I would agree. Take a look at NS&I certificates. They tie the money up for 3 and 5 years but after 12 months you can access the money if required with some indexation/return. They are tax free and for some of the money, they could be the best option.

My hands are tied by my mother's loyalty to Barclays (even though she has Premium Bonds, which apparently don't count). So it looks like Barclays 12 month Savings Bonds for now.

If she does go into care there are also annuities that can be used for this purpose which can often be a very good option.

"Adviser" suggested that if they (Immediate Needs Annuities?) were worthwhile, there'd be more providers..

jem16

faddy wrote: »

"Adviser" suggested that if they (Immediate Needs Annuities?) were worthwhile, there'd be more providers..

Salesman is only jealous as Barclays don't sell any.

My hands are tied by my mother's loyalty to Barclays (even though she has Premium Bonds, which apparently don't count). So it looks like Barclays 12 month Savings Bonds for now.

Can you not try to tell her she would be supporting her government in its hour of need?

EdInvestor

faddy wrote: »

My hands are tied by my mother's loyalty to Barclays (even though she has Premium Bonds, which apparently don't count).

N&SI is the provider of the Premium Bonds as well as the certificates, so that should be OK, they won;t count either. Can't get a safer investment than this.

"Adviser" suggested that if they (Immediate Needs Annuities?) were worthwhile, there'd be more providers..

Worthwhile to whom? This is an excellent example of how an advisor/provider's interests may not be the same as those of the client. This is a fundamental problem with much financial advice, and is of course a particular problem with bank salespersons.

An excellent set of opinions from dunstonh on this thread though, I must say.