Norwich Union Portfolio Step-down: any good for income for a 63-yr-old?

EdInvestor

munk wrote: »

So for example the SW Fidelity Euro fund costs are:

Fund name: SW's AMC + Other expenses = Total AMC (Net Total Fund Charge)
SW Fidelity European: 1.000%+1.253%=2.253% (1.906%)

which just going on my knowledge so far of UT/OEIC investment funds does seem to be quite extortionate! Grr.

Quite so. And those are only the explicit charges.On top of them you have to add the implicit charges (bid offer spread, broker's dealing fee, price impact, stamp duty) which are not revealed (or only fleetingly mentioned in the KFD) but typically add another 1.5% in charges on equity investments, depending on the turnover within the fund.

Details of implicit charges here - from page 14

And then on top of that, you have to pay 20% taxes on your gains - your 9.2k annual CGT allowance can't be used.

munk

dunstonh - thanks for the opinion (trying to avoid the use of 'advice' or 'recommendation' ) on clerical medical, will certainly keep it in mind.

Still have to ride this dodgy FOB until the 5yrs is up and as such it's a matter of trying to pick the best of the funds available via SW. Luckily the selection isn't so bad with the FOB as it is with general OEIC/ISAs via scottish widows in that they include external funds in their pick list for the FOB and so allow for a greater diversity in the portfolio/spread (they limit you in the the OEIC/ISA fund range to only their own funds which was quite poor to say the least). When the 5yrs is up I will be looking around again (of course by then things will have changed again... will try to keep on the ball between now and then as to which is best option).

EdInvestor - I appreciate what you say about IBs re CGT, but for my mother's purposes right now (IHT mitigation), an IB is afaik a more suitable option?

Further still there's perhaps an argument for even increasing her IB exposure with a mind to local authority means testing; she's 69 at the moment and in good health but who knows what the future holds. Something else to research - joy!

Thanks again all.

PS with regards the trust - there shouldn't be any problem moving the investment out from scottish widows into another IB after the 5yrs initial period is up should there? From the copy of the trust application and documentation I can't see anything that ties us down to a single provider - even if it was scottish widows that set up the trust. Again, more research to do. I guess this is one for an IFA or even solicitor to look at in person really.

jamesd

munk, yes, IBs are the choice for IHT reduction and one of them for reduced care fees potential.

munk

Cheers jamesd, will investigate some more.

EdInvestor

munk wrote: »

EdInvestor - I appreciate what you say about IBs re CGT, but for my mother's purposes right now (IHT mitigation), an IB is afaik a more suitable option?

The problem here is that the taxes and charges within the bond often limit the growth in value of the fund so much that you might end up with more in your hand at the end if you invested directly and then paid the tax on the resulting much higher fund.

Further still there's perhaps an argument for even increasing her IB exposure with a mind to local authority means testing; she's 69 at the moment and in good health but who knows what the future holds.

It doesn't sound to me as though your mother is the type of lady who would want to be at the mercy of the penny pinching LA if she needed care. Have a look at this brief crib sheet, in particular at "immediate needs" care annuities.

https://www.hsbcpensions.co.uk/nhfa/pdfs/is6.pdf

Funding care is actually much more manageable than many people think and it certainly need not wipe out a person's assets or require the use of expensive vehicles like these bonds.

jamesd

munk,

EdInvestor wrote: »

The problem here is that the taxes and charges within the bond often limit the growth in value of the fund so much that you might end up with more in your hand at the end if you invested directly and then paid the tax on the resulting much higher fund.

dunstonh wrote: »

The charges are low. If you went with unit trusts, which is the main alternative, your annual management charges would be closer to 1.5% p.a. There would also be initial charges of around 1-2%. The IB has no initial charge, an increased allocation of 108% (in this case) and an annual management charge around 1% (assuming some external funds will be used in addition to internal. So, could be 0.9%, could be 1.1% but that will more or less be it depending on the portfolio recommendation).

That was dunstonh correctly replying to an earlier post in this topic.

Just shop around with a competitive IFA and you can safely ignore the suggestion that costs will eliminate the benefit of the investment bond. The use of the bond will make spending that portion of the money on care a purely voluntary choice, one that could be used to selectively enhance care instead of being drained for the basics.

dunstonh

I'm afraid Ed is posting inaccurate information again.

The problem here is that the taxes and charges within the bond often limit the growth in value of the fund so much that you might end up with more in your hand at the end if you invested directly and then paid the tax on the resulting much higher fund.

The only difference in tax is that assets within the fund can be chargeable to capital gains tax within the fund. This is why you personally have no liability. However, not all assets are chargeable and there are reliefs available to the fund manager. Plus no CGT is charged on income and low risk funds tend to be heavier on income than growth (with income reinvested within the fund). Income is treated the same as unit trusts.

Charges can easily be much lower. Again, Ed disregards that. The Reduction in yield is typically lower than unit trusts.

The issue here is IHT reduction. Assuming £100k was invested Eds way, there would be a £40,000 IHT tax bill (increasing as investment grew). With the IB, the IHT bill reduces down to zero over the 7 years. By then the IB will have no IHT to pay on any of the value but Eds solution would have £40k plus growth to pay.

Funding care is actually much more manageable than many people think and it certainly need not wipe out a person's assets or require the use of expensive vehicles like these bonds.

Instead you wipe out the capital buying an immediate care annuity.

Flynn_2

Coops10 wrote: »

5. I do not know dunstonh - but it seems a shame that he comes on here on a very regular basis giving some excellent guidance to people, only to be slated by people purely for being an IFA? If I was him, I'd have given up by now!

Hmm. Now let's not be too naive. :rolleyes:

Dunston makes an average of 100 posts a week on this board. Have you ever considered his reasons for doing that?

It could be that business is bad and he has too much time on his hands. Or it could be that it is a very cost-effective way to pick up business. Just one lead from here could earn him several thousand pounds in commission. Only Dunston could tell us which.

Certainly I see endless posts by him telling us his rates for his services, that the only decent advice is from someone exactly like himself, and of course that the only sensible investments are those that pay him annual repeat commission.

I find that to have a board used by so many inexperienced investors totally dominated by the same sales pitch as very worrying. He earlier claimed: "Its one of the key benefits when dealing with an NMA IFA... There is no bias possible." which is complete nonsense. Dunston describes himself as an "NMA IFA" of course.

I would certainly like to see more balance here, and while his advice may be useful if treated with care, would prefer to see less obvious use of his sales skills to push his business. I don't think it's approriate on a board of this type.

EdInvestor

dunstonh wrote: »

The only difference in tax is that assets within the fund can be chargeable to capital gains tax within the fund. This is why you personally have no liability.

This is a real joke. The money in the fund automatically gets charged CGT.So you have "no further liability" because you've already been automatically charged CGT.

But if you invest direct you have no liability in the first place. This is because your gains will be protected by your annual 9,200 CGT tax free allowance.

In the bond you cannot avoid paying CGT.Outside there's no requirement to pay it.Watch out for weasel words on this.

Charges can easily be much lower. Again, Ed disregards that. The Reduction in yield is typically lower than unit trusts.

I'm afraid that the example quited by Munk is much more tyoical of a standard investment bond than what Dunston h says.Remeber that hardly any advisors follow the so called "new model" with allegedly lower charges.

The issue here is IHT reduction. Assuming £100k was invested Eds way, there would be a £40,000 IHT tax bill (increasing as investment grew). With the IB, the IHT bill reduces down to zero over the 7 years. By then the IB will have no IHT to pay on any of the value

But what would the value be? You are still better off with 60k than you are with nothing. :rolleyes:

Instead you wipe out the capital buying an immediate care annuity.

Care annuities are very cheap - they are the only annuities which are IMHO value for money.

Over and over we see people selling the house (say worth 150k) putting the money in the bank and then paying care fees on a PAYG basis.They run out of money after a few years and then the council takes over.

Whereas typically a care annuity will cost around 50k, guarantee the payment of fees for life and enable 100k to be passed on to the family.Also giving peace of mind to the oldie that they won't be thrown out of the care home when the council takes over. The money is even tax free.

Pity so many advisors prefer to flog people investment bonds for care fees rather than care annuities.No doubt the latter don't pay high enough commission.

dunstonh

Dunston makes an average of 100 posts a week on this board. Have you ever considered his reasons for doing that?

Because I sit in front of a computer most of the time nowadays as I have staff to do the running around. I found the board to be a good place to visit between writing reports and research.

It could be that business is bad and he has too much time on his hands. Or it could be that it is a very cost-effective way to pick up business. Just one lead from here could earn him several thousand pounds in commission. Only Dunston can tell us which.

I do get people messaging me to do business and I will do it if they ask. However, it accounts for less than 2% of my turnover and very often the business is done on execution only business (where the person is using my IFA agencies to get discounted terms they cannot get elsewhere). I also turn a lot of people away or tell them to use the companies in martins articles because I dont have the time or the willingness to do it. You will see plenty of posts where I have said use HL or Cavendish (if you chose to look at those). Anyone thinking they can make a living posting on this board is living in cloud cuckoo land.

Certainly I see endless posts by him telling us his rates for his services, that the only decent advice is from someone exactly like himself, and of course that the only proper investments are those that pay him commission. :rolleyes:

And where are these endless posts giving these rates? I often make reference to FSA averages and typical maximums and will often give the typical NMA IFA charge. Only when asked and relevent. Often other posters have given that information and I only give clarification to those.

I find that to have a board used by so many inexperienced investors totally dominated by the same sales pitch as very worrying. He earlier claimed: "Its one of the key benefits when dealing with an NMA IFA... There is no bias possible." which is complete nonsense. Dunston describes himself as an NMA IFA of course.

This is a money saving site. So is better to get them to see an tied agent or transactional IFA getting 7% or an NMA IFA getting 1% or less?

I make no apologies for being an NMA IFA. I adopted that model early and believe that the model is one of the best ways to deal with an IFA. The FSA RDR proposals are that in future only those that work on the CAR model will be able to use the term IFA. Clearly the regulator thinks that is the best way to go aswell.

I would certainly like to see more balance here, and while his advice may be useful if treated with care, would prefer to see less obvious use of his sales skills to push his business. I don't think it's approriate on a board of this type.

You appear to see what you want to see and ignore everything else. I have never promoted my business on any posts.