With-Profits Bond with Clerical Medical

jamesd

Geoffo M, with this and the larger NU bond it seems quite likely that you have good planning using bonds in place to avoid the effect of age allowance reduction. Best to follow along with dunstonh to be sure which way it works out.

You're probably best off seeking additional personal advice from an IFA with pension planning qualification so you can make any additional adjustments needed now, before you retire, with a fuller understanding of your whole situation than is practical here. The position of your wife, if any, is also significant.

Geoffo_M

You are spot on dunstonh with 21K as being my anticipated total gross pension. What I don't understand by the CM letter is that if I transfer into one of their investment funds, am I staying within the bond? So would I still be able to draw 5% as I am at the moment.

Sorry, I should have mentioned that I am single. Just to understand what you are saying clearly. If I anticipate earning above £20,900 at 65, it is best to stay within the bond. So if I change out of with-profits into one or more of their 60 other funds, do I still stay within the meaning of the bond in terms of tax -i.e. if I was materially under the £20,900 it wouldn't matter and I would be just as well to sell up completely?

Geoff

jamesd

An investment bond is a tax wrapper, same sort of thing as an ISA, SIPP or personal pension. You can hold the other funds within it and still get the benefits, though there's no harm in asking CM to be absolutely certain. There's no fundamental reason why you can't continue to draw the 5% but again it's wise to ask CM to be certain.

Your understandings in the second paragraph are correct, though if the funds you want are available there seems little reason to change.

Chrismaths

Just to provide a bit of balance - don't let the (tax) tail wag the (investment) dog. jamesd and dh are bang on in saying these investment bonds will help you reduce the amount of tax you pay, but sticking it all on a horse would do the same.

You said you are 59 - with any luck you will be retired a long time. As you are already at the very top end (even excluding interest) of the age allowance, maximising the investment returns over the tax advantages may be the way to go. My (biased but accurate) view is that removing limitations from the assets you can invest in is the best way to inprove investment returns. 60 assets to choose from is not good.

To be better off in net terms you only need to increase the performance (assuming a directly held investment) by 30% of your current investment perfomance - that is probably around 2% pa. Which ain't difficult.

Best of luck

dunstonh

What I don't understand by the CM letter is that if I transfer into one of their investment funds, am I staying within the bond? So would I still be able to draw 5% as I am at the moment.

Switching funds will take place within the bond. They have about 60 funds now and you can built up to 10 funds in the bond at any one time. You can chop and change as much as you like.

Chrismaths is right on not letting the tax dictate what you do. However, if the CM is able to do what you want it to do and you get to save the tax as well, then thats when it becomes appropriate.

Clerical Medical is not the best bond out there for investment choice. However, it does have a good range of funds for the low risk investor. If you are medium risk or higher then you could look to alternatives. Nothing stops you taking the money out now and moving it to Selestia or Norwich Union for example. Both of whom offer better bonds. Get a commission discount by using an NMA IFA or go execution only and you get the MVR covered for you.

If you do stick with a bond, then you can always review the position over the years. Age allowance limits go up each year and you get the annual ISA allowance. You may find you are able to withdraw money annually to place into ISAs and a bit into unit trust and that will phase the movement from bond to alternatives. It isnt as clean as a single move from one to anther but all it takes is a diary note for you or an active IFA to do it each year.

jamesd

When considering moving out of investment bonds it's also worth considering this point from dunstonh "4 - nursing care costs a concern".

What do you want to happen in the hopefully distant future when you may need nursing care? In the investment bonds case your assets are currently protected. If you shift them out, they will probably all be sold to pay for the care.

As Chrismaths says, investment choices are key but if you do find yourself wanting other investment choices it's worth seeing if they are available in alternative investment bonds, perhaps those dunstonh mentioned.

One thing to be wary of in such planning is that preventing loss of assets as the reason for using investment bonds will simply result in their use being considered evasion and the assets will be lost anyway, particularly if it's done just before the care is needed. Meanwhile today you have a clear record of using them as a general investment tool, protecting you from that ruling. There are merits in continuing that existing practice of using investment bonds as well as the merit you already have of having used them well before retirement and care costs become an issue.

Given your level of anticipated income it may be the case that you have sufficient assets to pay care costs of 14,000 to 29,000 for a very long time without substantial loss of capital. In which case this matters far less than it could for those with more limited resources. And you may not care about loss of capital if you have no particular plans for your money after your death.

The general background to this particular aspect is "The 'elderly support ratio' - the population of working age divided by the population of pensionable age - is projected to fall from 3.35 in 2002 to 3.10 in 2011, 3.09 in 2021 and 2.53 in 2031, before falling below 2.2 in the 2050s and levelling off". This will inevitably create great pressure to make people pay for their own care, as the tax burden per working person of the state doing it rises substantially. It seems entirely possible that the law relating to investment bonds will be changed at some point during this time, eliminating them as a shelter.

EdInvestor

Geoffo_M wrote: »

Just to understand what you are saying clearly. If I anticipate earning above £20,900 at 65, it is best to stay within the bond. Geoff

No, he said the opposite.

If you are well through that mark, then investment bonds are not going to offer you any tax saving over unit trusts. !!/quote]


You would be best to junk the bonds and use a combination of your ISA allowance and direct investment, which would mean you paid less tax for the same returns based on your original investment arrangement.

jamesd

EdInvestor, except that the anticipated gross pension is 21,000 so he's not well above the upper threshold for age allowance reduction. Instead he's in the area where every extra pound in taxable income is going to reduce his age allowance.