£200,000 to last 8 years.

Arkwright007

After selling the business and investing around £100,000 we now have this sum to last until I'm 65 (in 8 years time) when the pensions kick in. With a daughter just starting uni. and allowing for current costs (and inflation) there is £100,000 of the lump sum that need not be touched for the next 3 years. In additon to the sum invested we are both using our maximum £7,000 p.a into isas so the question is - do we just keep swapping the cash between current accounts that pay the best rates or is there something weve missed?
P.S. we are both currently working (almost) full time to earn our own spending/leisure money. All comments welcome.

dunstonh

ISAs maximised but you have unit trusts/OEICs, ITs, ETFs, Investment bonds all available to you if you want.

Arkwright007

Thank you dunstonh, but are any of these worth considering for a 3 year period?

EdInvestor

It's a bit unclear what your aim is with this money. :huh:

Is the capital to be used to top up income?
Or is to be saved ( ie is only the income/interest to be used?)
Is it a "rainy day" fund ?

What have you 'invested' the other part of the lump sum in - ie, is this the cash component of a fund which has already been allocated into various asset classes ( eg stocks, property,bonds, whatever)? or is the rest of the fund in cash?

Will your pensions when they arrive be adequate for your lifestyle long term?

How does the 3 years fit in with the 8 years?

Arkwright007

Apologies for the delay in responding to EdInvestor. In answer to your queries;
The fund of 200k is in cash (deposit account). So far we've invested 80k equally between Friends Provident (Monthly Dist. Acc.), Sterling , Legal & General and Skandia Investment Bonds. Plus maximum on cash and equity Isa's for the past 3 years (42k total).
Annual expenses amount to around 30k (including Isa investments) as we have cleared the mortgage and any personal earnings are used for our personal expenditure (holidays, clothes etc.).
With this level of annual expense there is 100k of the cash fund that will be untouched for the next 3 years, so I was trying to find a short term fund or investment that would perform better than current savings accounts. Or is there the possibility of a fund to place more (say 150k) to give a monthly income at present?
The intention is to use the cash fund to provide our living needs plus a trickle into Isa's and funds that we can then draw on in 10 years to supplement the meagre predicted 50k pension fund that we have paid into up to 2004.
Your comments would be welcome.

dunstonh

So far we've invested 80k equally between Friends Provident (Monthly Dist. Acc.), Sterling , Legal & General and Skandia Investment Bonds.

Not a great move. Skandia, if invested more than 3-4 years ago, then fair enough as they were generally the best on offer then for fund range. However, they have been left behind by the others and their contract is too expensive compared to the others. Sterling are another very expensive provider and Friends Provident are top half of the table but rarely in the top 5 for cost.

Investment bonds are also quite poor value for money with small contributions but get much cheaper with larger contributions. Whilst 80k into an investment bond is fine, splitting it across 4 providers was an unnecessary cost. Especially considering the expensive providers you have.

Unit trusts with many providers can move into ISA at no cost each year. So, if you intend to utilise future allowances, then setting up unit trusts in sole names could be a suitable course of action. Its then just a case of choosing the appropriate fund supermarket that does it free and without taking you out of the market.

EdInvestor

What funds is the money in the investment bonds invested in?

Arkwright007

Funds invested in are;

Friends Provident - Dec. 2004; 100% Monthly Dst Acc. Fund

Skandia Multibond (3% extra allocation) - Dec. 2004; split 20% evenly between Invesco Pep High Int., Uk Equity, SK Fidelity Special Sits., SK Jupiter Income and SK Newton Higher.

Legal & General - Oct. 2005; Distribution Fund (A).

Sterling - March 2006; 35% Artemis, 30% Investec Cautious Managed, 25% Framlington Monthly Income.

I was slow in placing funds as the financial situation after selling was a little unsettled due to IR etc.

So .....where do I go from here?

dunstonh

So .....where do I go from here?

I know what I would do here. Get current and surrender values on the lot. Arrange 10 year projections and then compare that to a modern low cost contract offering a decent fund range. Discount the bulk of the commission to enhance it and if the charges are lower, then look to switch them over. However, I would also look to why you have chosen investment bonds and not unit trusts or other alternatives.

If you have followed other threads in here, you would know this issue gets mentioned a fair bit. Personally, I find investment bonds tend to come as best solution on investments around 20% of the time. We dont know enough about you to say which tax wrappers would be best but we do know that you are in expensive options which could be beaten by other investment bonds. Plus the small values in each bond would wipe out most of the potential savings in tax due to the higher charges. Think of it as buying a Ferrari at full price with no discount and then only driving it at 30 mph all the time.

So, if you think you are up to it yourself, you have an idea of what you need to do. If not, get an investment IFA involved. Whilst all IFAs are qualified to do what you need, you do tend to find that many do mostly mortgages and their investment knowledge is not quite what you want it to be. So make sure the IFA deals mainly with investment business. Plus the required changes would need a discount IFA, such as a "new model" IFA. Otherwise it is not likely to be cost effective at this time to make changes.

EdInvestor

dunstonh wrote:

I know what I would do here. Get current and surrender values on the lot. Arrange 10 year projections and then compare that to a modern low cost contract offering a decent fund range. Discount the bulk of the commission to enhance it and if the charges are lower, then look to switch them over. However, I would also look to why you have chosen investment bonds and not unit trusts or other alternatives...... Plus the required changes would need a discount IFA, such as a "new model" IFA. Otherwise it is not likely to be cost effective at this time to make changes.

It would be very interesting to see the result of such as survey: I doubt it is very clear to people yet what savings they might make from using a "new model advisor". Maybe this case could provide an example?

If you have followed other threads in here, you would know this issue gets mentioned a fair bit. Personally, I find investment bonds tend to come as best solution on investments around 20% of the time.

I am sure there are examples of where a properly priced investment bond wrapper could be used to an investor's benefit.But so often it's clear that benefit has gone largely to the advisor in the form of (very) high upfront commission. Also, the way the bond works has often not been properly explained, and the investor has been exposed to undue risk.

As it is mainly older, often retired, people who get sold these bonds, IMHO it's a matter of more concern than usual, because the combination of high commission earned and customers who find it difficult to understand complex issues and complain, can be a severe temptation for a salesmen to break the "Treating Customers Fairly" rules.

So any examples that can show people what is acceptable and what isn't are very welcome.

dunstonh

It would be very interesting to see the result of such as survey: I doubt it is very clear to people yet what savings they might make from using a "new model advisor". Maybe this case could provide an example?

Reduction in yield over 10 years is probably the equivalent of least 1% p.a. More on the bonds mentioned here as they are expensive versions and badly split so higher value increased allocation rates wouldnt have applied. They probably have an RIY of around 2.5%-2.8% compared to around 1.3% on NMA basis.

I am sure there are examples of where a properly priced investment bond wrapper could be used to an investor's benefit.But so often it's clear that benefit has gone largely to the advisor in the form of (very) high upfront commission.

They either pay upfront commission or commission which is comparable to ISAs/UTs. The choice is with the adviser and does not effect the charges to the individual. Basically, with upfront commission, the insurance company is paying around 4 years fund based commission on top of the intial. It means the adviser earns nothing after the sale of the policy. I would like to see that option removed, as many others would. However, the old business models would suffer (not my problem but its fair to mention that they would).

As it is mainly older, often retired, people who get sold these bonds, IMHO it's a matter of more concern than usual, because the combination of high commission earned and customers who find it difficult to understand complex issues and complain, can be a severe temptation for a salesmen to break the "Treating Customers Fairly" rules.

As mentioned on other threads, they can be very beneficial to retired individuals. They have no impact on age allowance, are not included in any means test calculation for local authority care or pension credit and can be used to reduce IHT liability.

When used correctly, they can be very worthwhile. When arranged on NMA basis, they can be cheaper than unit trusts on a like for like basis (i.e. same funds within both wrappers).