Standard Life Maturity Investment Option

nedrabb

A with-profits endowment policy I have had with Standard Life matures 6 February 2010. SL have offered me a Maturity Investment Option which I have to decide on by tomorrow. On the face of it, this seems attractive e.g. income earned is free from personal income and capital gains tax providing I pay a £5 annual premium. I'm a complete novice at these kind of things. Can anyone tell me if this represents a good deal or not? If yes, which investment fund should I opt for initially? I can make up to four switches between funds in any 12-month period free of charge. Would appreciate any advice offered as I have to decide by tomorrow morning. Many thanks in advance folks.

pikestaff

I've just faced the same problem and done some research. The answer may be too late for you, but I see the question has had a lot of hits. Hopefully others will find this answer useful...

If you exercise the maturity investment option, you are investing in a qualifying life assurance policy (actually, I think you are treated as continuing your existing policy; this is why it is "qualifying"). The fees and charges are quite reasonable (not "best buy" perhaps, but not bad). However, tax is paid within the fund, equal to the basic rate of income tax (currently 20%), on ALL income and capital gains. Investors have no further tax to pay, but cannot claim the tax back. So:

• If you don't pay tax, or pay at less than the basic rate, AVOID. Take the cash!
• If you pay tax at the basic rate, make sure you use your ISA allowance before you consider this investment. Also bear in mind that capital gains within the fund are taxed, whereas you (and your spouse, if applicable) have a tax free allowance for capital gains of £10,100 per year (2010/11 figure). This is a significant disadvantage of investing in this kind of fund, unless either (i) you already use these allowances, or (ii) for one reason or another, you find using them all too difficult. If this sounds like you, it is worth considering. And remember, you can take your money out at any time so it is not too much of a commitment.
• If you are a higher rate taxpayer and don't want to give the cash to someone who is not (eg a spouse paying a lower rate) then you will be saving higher rate tax and the investment becomes quite attractive. But you should still use your ISA allowances first and you should consider (having regard to your circumstances more generally) whether the taxation of capital gains within the fund is an issue for you.

What did I decide to do? Well, I'm, a higher rate taxpayer, but my wife currently pays no tax. So, I am giving the cash to her.

Please note that I am not a financial adviser! The above is a personal opinion and is not financial advice. No liability or responsibility accepted.

tinmanis

Just read your reply . I think you need to take a career as an ifa. I have had more understandable info from your reply than my ifa in the last 10 years. :T