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Tax Exempt Savings Plans [TESPs]

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  • masonic
    masonic Posts: 27,381 Forumite
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    edited 26 March 2015 at 7:45PM
    planteria wrote: »
    no, that is not what i have claimed. i understand the make up of the fund, as can anyone else when choosing whether to invest in it.
    I'm trying to make a decision as to whether these products have any value or whether they are all a load of rubbish as many others believe. As I wrote above, I've successfully found information relating to some very poor products. The evidence for some of these products being extremely poor investments has been well presented.

    I'm trying to establish whether there are any good ones. Are you prepared to share with me any information that would help me clarify this? I would like to get information about a better example, including its underlying investment strategy, composition of the fund, effect of expenses and fees deducted from the bonus pot etc. We seem to have established that this information is not secret and that you know at least some of it. Are you willing to share your knowledge with me?

    If we are unable to have an open discussion about specific details of these products, such as the information I have stated I am looking for above, so that people like me can make an informed decision about them, then what is the purpose of this thread?
    i am a member of five Friendly Societies. the one with which i have most invested, and with which i have engaged most, has members introduced by both unregulated 'Introducers' and also regulated IFAs who are certainly providing advice.
    Perhaps this suggests that there are some better products out there? Because the reason given for IFAs being discouraged from recommending these products was high expense ratios. Again, I would like information about the kind of products IFAs feel that they are able to recommend.
  • masonic
    masonic Posts: 27,381 Forumite
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    masonic wrote: »
    Are you willing to share your knowledge with me?
    I guess the answer to my question to planteria above is a no, then. :(

    Naturally, I am disappointed, but, undeterred, I did some more digging around and located a Friendly Society that hasn't failed to pay a bonus since 1840, that allows you to earn a return on money not yet invested, and which has a section dedicated to IFAs, which were all key features of the plans advocated by planteria. I've tried to identify the best product available going on the information in this thread and I believe I may have stumbled upon the very plan that has been discussed above as a potentially good one.

    The Friendly Society in question is Kingston Unity (http://www.kingstonunity.co.uk/products/), who currently offer a TESP and Regular Saver, which work on the same principles as discussed above. There isn't a great deal of detail on the website itself, but fortunately the application forms (which can be downloaded from the link above after selecting either of the products in question) contain a regulatory 'Key Facts' document and an illustration at the end. Let's examine the illustrations from each of the two products...

    Traditional With Profits Tax Exempt Pure Savings Plan

    Commitment and Sum Assured
    In this product, for a regular premium of £25 per month for 10 years (total commitment £3,000), the guaranteed sum assured is £2,952, which is in fact less than the money paid in. Bonuses are calculated on this sum assured (not the premiums paid, nor the total money paid in).

    Deductions
    The charges are 15% of premiums for the first year and 8% thereafter. This equates to an 8.7% initial charge. There is also a 0.7% AMC for the fund itself and some other related costs. As highlighed in the document, "over the term of the policy, the effects of these charges from the society could amount to £475" (or a little over 2.5% annualised based on the money contributed).

    Expected Benefits
    Illustrations need to use standardised growth rates, which take into account the composition of the fund being used to generate the returns. In this case, the average growth figure has been set at 5%. In this case, the total money paid out at the end would be £3,390 after deductions of £475. Putting it another way, in the words of the illustration "if the growth rate were to be 5%, which is no way guaranteed, Kingston Unity's charges would have the effect of reducing it to 2.5% a year"

    So, half of the returns are taken away in charges, leaving a return of just 2.5% in this case. Of course, returns could be higher or lower (indeed they would tend to be higher during global bull markets such as the past 5 years), but the 2.5% annual charges will remain and therefore this is a very expensive way to get exposure to the underlying investments in the portfolio.

    Regular Savings Plan

    This seems to work in exactly the same way as above, but the tax treatment (only really relevant for higher rate taxpayers) is different and the amount that can be invested is larger. In this case, the regulated average growth figure has been set to 4.5% (indicating that the fund has a higher proportion of defensive assets), but the 2.5% annual charges are the same, so £6,000 invested into this plan would return £6,610 after charges of £937. In this case, the Friendly Society takes more from the investor than they give back in returns! Of course, in this case too, returns could be higher or lower, but the 2.5% annual charges will remain and therefore this is again a very expensive way to get exposure to the underlying investments in the portfolio.

    So it would seem these products offer nothing of value and should on the whole be avoided. Similar products are available from companies such as Pru with much lower charges and with none of the restrictions around investment limits and early access.
  • colsten
    colsten Posts: 17,597 Forumite
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    colsten wrote: »
    planteria, can you clarify please. Is the information you can provide the same information I can get from the Friendly Society directly, or is it additional information. If the latter, please can you provide the additional information. Many thanks

    planteria, have you overlooked my request? I'd like to make a decision before the end of the financial year and would appreciate your soonest response.
  • MCGONIS
    MCGONIS Posts: 699 Forumite
    Hi. I was wondering if someone could answer a question. I have an Investment ISA (stocks and shares ISA I think) with Friendly Society Sheffield Mutual.

    I pay £50 a month to it. The bonus is about 4% after their charges.

    When you open one you get a £25 M&S voucher. Do you know if it would be okay to cease payments into this years ISA and open a new one mid April and get the voucher for £25?

    Sheffield say the investment/account should be viewed on the medium to long term. But if I pay in for one year and then open a new one each new tax year and get the £25 would this have any effect on the return I get?

    I appreciate any help you can give. :)
  • masonic
    masonic Posts: 27,381 Forumite
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    edited 29 March 2015 at 8:31AM
    MCGONIS wrote: »
    Hi. I was wondering if someone could answer a question. I have an Investment ISA (stocks and shares ISA I think) with Friendly Society Sheffield Mutual.

    I pay £50 a month to it. The bonus is about 4% after their charges.

    When you open one you get a £25 M&S voucher. Do you know if it would be okay to cease payments into this years ISA and open a new one mid April and get the voucher for £25?

    Sheffield say the investment/account should be viewed on the medium to long term. But if I pay in for one year and then open a new one each new tax year and get the £25 would this have any effect on the return I get?

    I appreciate any help you can give. :)
    This one? In short, it doesn't look like they have any specific terms to prevent you from getting additional vouchers in future years.

    The voucher terms state that you must keep your policy for at least a whole year and the minimum contribution is a £300 lump sum or £30 per month. The policy states you can stop paying into a plan without any adverse consequences. It's not clear whether stopping the monthly payments would be regarded as abandoning the policy within the first year, so best to assume you need to keep them up for 12 months,

    However, they do have the term: "The Society may withhold gift cards if the scheme is being misused and/or abused". I have no idea whether or not what you are intending to do would be seen in that light, or whether they would be bothered to do anything about it, but there is some risk there.

    They have a current bonus rate of 5.5% minus charges of 1.5%, giving the 4% rate after their charges. This is the bonus level after several great years for all asset classes, so it's reasonable to assume it is a best case scenario and future bonuses could be lower. With the current bonus rate on a £30 per month contribution, you'd earn £10.63 in bonuses and £25 from the gift card, so it looks great for year 1. Even if the bonus disappears completely, you'd make £25. But there are some other risks...

    "However, should you wish to close, transfer or withdraw funds from your ISA during adverse investment conditions, the Society may impose a Market Value Reduction, which could result in a loss of capital. Therefore the amount you will receive on repayment is not guaranteed."

    So there is some risk that you would not be able to withdraw the money at a time of your choosing and you could effectively be locked into a lower bonus regime for several years because of the MVR, which could erode the value you've gained from the voucher.
  • jimjames
    jimjames Posts: 18,727 Forumite
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    masonic wrote: »
    So it would seem these products offer nothing of value and should on the whole be avoided. Similar products are available from companies such as Pru with much lower charges and with none of the restrictions around investment limits and early access.

    Thanks for doing such comprehensive research!

    What you've found pretty much sums up my previous post about who these plans would be suitable for - that is, I couldn't find any category of person where there was a benefit.

    In financial terms you've highlighted it even more. Why take out such a plan when you can get better rates from cash without the 10 year lock in.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • planteria
    planteria Posts: 5,322 Forumite
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    i hadn't seen the thread updating. and yes, i see what you're doing:T

    i don't think you can do better in cash, jimjames, as even if the rate is lower than, say 4% from Club Lloyds, if it is paid based upon the amount you would invest over the 10 years, then the return is higher.
  • masonic
    masonic Posts: 27,381 Forumite
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    edited 29 March 2015 at 1:49PM
    planteria wrote: »
    i don't think you can do better in cash, jimjames, as even if the rate is lower than, say 4% from Club Lloyds, if it is paid based upon the amount you would invest over the 10 years, then the return is higher.
    It's been pretty clearly established that the typical returns from these products is not higher. It certainly is true that during the early years the returns appear to be very good if you calculate them based on the premiums paid so far, but in later years the return is much less when calculated on the same basis. This averages out to a lower rate overall, as explained in the earlier posts.

    Kingston Unity are very clear about the overall returns that can be expected from their products. In their illustration, they use standardised growth rates, which take into account the composition of the fund being used to generate the returns. The average expected growth rate from their figures is 5% and "if the growth rate were to be 5%, which is no way guaranteed, Kingston Unity's charges would have the effect of reducing it to 2.5% a year".

    A 2.5% effective annual rate is beatable by quite a number of savings products.

    I would say that Kingston Unity is quite clear in its communications on its website and the application forms that are available for download from there. They do not try to market these products based on smoke and mirrors, like calculating bonuses based just the early years contributions. To do so would be very deceptive, but they don't do it. However, I have seen you doing it in this thread and it leaves me wondering whether it's because you somehow misunderstand these products or you are deliberately presenting an unrealistic view of these investments in order to drum up interest for some reason... :think:

    But then we have the fact that you've repeatedly ignored or evaded genuine requests for information and continue to do so. It seems to me that if you are promoting these investments but really don't want the information about them being shared in this thread, then that's quite suspicious...
  • MCGONIS
    MCGONIS Posts: 699 Forumite
    Thanks very much!
  • colsten
    colsten Posts: 17,597 Forumite
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    colsten wrote: »
    planteria, can you clarify please. Is the information you can provide the same information I can get from the Friendly Society directly, or is it additional information. If the latter, please can you provide the additional information. Many thanks

    planteria, as you keep ignoring the question, I can only conclude that the information you have offered to provide would be nothing more than the information I can get directly from the Friendly Society. With the exception perhaps of your referral information, which is obviously personal to yourself.

    Given masonic's stirling analysis, I am not interested now in these Friendly Society products or in any referral by you.
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