Investment bond purchase options

Del407

When my late father was admitted to hospital due to rapidly deteriorating dementia, the family took advice from an IFA. The IFA was very pleased that Dad had an investment bond due to it being the one financial product protected from council assessment for care fees.

I'm now looking forward and doing my research, so that when I get my inheritance I can also put money into an investment bond. Is it possible to purchase an investment bond, other than through a financial advisor, who would charge a large arrangement fee and ongoing management fees? As I would probably want my bonds administered by Aviva, Standard Life or a mix of both, I don't see the need for ongoing 'support' and fees from an IFA. Both Aviva and Standard Life only sell their investment bonds through IFAs.

Does anyone have any advice on the most cost effective way to purchase investment bonds. My aim is purely to take the tax free 5% per year and leave the lump sum for my kids.

artyboy

You might want to get prepared for comments about why the state should pay for your long term care when you have the resources to do so yourself...

Although it's always surprised me the number of people that are seemingly prepared to suffer the privations of a council funded care home... personally I hope that if the time ever comes for me to need care, I'll get the best that I can afford in my final years.

And yes, I know this doesn't answer your question. But it's relevant nonetheless.

A._Badger

Del407 said:

When my late father was admitted to hospital due to rapidly deteriorating dementia, the family took advice from an IFA. The IFA was very pleased that Dad had an investment bond due to it being the one financial product protected from council assessment for care fees.

I'm now looking forward and doing my research, so that when I get my inheritance I can also put money into an investment bond. Is it possible to purchase an investment bond, other than through a financial advisor, who would charge a large arrangement fee and ongoing management fees? As I would probably want my bonds administered by Aviva, Standard Life or a mix of both, I don't see the need for ongoing 'support' and fees from an IFA. Both Aviva and Standard Life only sell their investment bonds through IFAs.

Does anyone have any advice on the most cost effective way to purchase investment bonds. My aim is purely to take the tax free 5% per year and leave the lump sum for my kids.

My recent dire experience with Aviva when trying to surrender a bond would suggest they are avoided like the plague. I haven't experienced such bureaucratic uselessness since the glory days of BT at its worst.

dunstonh

I'm now looking forward and doing my research, so that when I get my inheritance I can also put money into an investment bond

Around 5% of the population end up needing residential care.   Taking our an investment product just in case a 5% risk occurs is probably not a good idea.

Suppose you intentionally take out an insurance product to avoid funds being included in the means test. In that case, deprivation of assets applies and it can then be included in the means test.      There has to be another reason for taking it out that has nothing to do with means test evasion.

 Is it possible to purchase an investment bond, other than through a financial advisor, who would charge a large arrangement fee and ongoing management fees? 

No.

 As I would probably want my bonds administered by Aviva, Standard Life or a mix of both, I don't see the need for ongoing 'support' and fees from an IFA. 

Why would you pick those two?   I wouldn't.    So, perhaps you do need advice after all.   Also, why onshore and not offshore?

My aim is purely to take the tax free 5% per year and leave the lump sum for my kids.

There is no 5% tax free per year.  The 5% is tax deferred.  Plus, the onshore bond suffers taxation (unlike alternative wrappers)

Del407

Thank you for the comments so far. For the record, my father's pensions covered the cost of his nursing home fees and the state didn't fund any of the costs.
Cashing in his Aviva investment bond was very easy.
I'm looking for a way to invest money long term, while deferring tax and only withdrawing 5% of the investment.

Sorry if my question has caused offence, it was merely an enquiry about a financial product and a request for advice.

Linton

Del407 said:

Thank you for the comments so far. For the record, my father's pensions covered the cost of his nursing home fees and the state didn't fund any of the costs.
Cashing in his Aviva investment bond was very easy.
I'm looking for a way to invest money long term, while deferring tax and only withdrawing 5% of the investment.

Sorry if my question has caused offence, it was merely an enquiry about a financial product and a request for advice.

Generally the best way to invest significant money long term is a pension.  But that has limitations, particularly regarding the age at which you can withdraw the money and how much you cant contribute if not employed. Next best, and a fairly close runner-up is an S&S ISA which is completely sheltered from income and capital gains taxes .  Money can be withdrawn at any time.  However if you are fully employed,it  has a lower annual contribution limit than a pension.

Investment bonds can have advantages in niche cases such as when you are a higher rate tax payer wishing to invest a large sum but will be a basic rate tax payer when you withdraw the investment gains.

Del407

Linton, thank you for your comments, they are appreciated.
To put a bit more information. After an industrial accident I have been left unemployable due to injury.
I receive a tax free injury pension and a taxed pension which is just below my tax free allowance.
I fund my pension pot the maximum £2880 each year and also fully fund my ISA allowance each year.
I'm going to receive a large lump sum inheritance in years to come and I'm exploring options to make it as tax efficient as possible.
The comments above have assisted my research so that I'm now thinking that offshore bonds may be my best option and that I will definitely need IFA assistance.
What I would like to know is how to ensure I get best value from an IFA. Is ongoing input and fees from an IFA the best way to maximise my return?

Linton

Del407 said:

Linton, thank you for your comments, they are appreciated.
To put a bit more information. After an industrial accident I have been left unemployable due to injury.
I receive a tax free injury pension and a taxed pension which is just below my tax free allowance.
I fund my pension pot the maximum £2880 each year and also fully fund my ISA allowance each year.
I'm going to receive a large lump sum inheritance in years to come and I'm exploring options to make it as tax efficient as possible.
The comments above have assisted my research so that I'm now thinking that offshore bonds may be my best option and that I will definitely need IFA assistance.
What I would like to know is how to ensure I get best value from an IFA. Is ongoing input and fees from an IFA the best way to maximise my return?

I dont think you will do much to get best value from an IFA by deciding on a solution before you talk to one.  Proposing how to get the best returns  from a large lump sum with need for a secure ongoing income and possible significant tax issues is the major part of the IFA's job. Choosing funds and setting up investments is easy.

I suggest you explain your situation to say 3 potential IFAs  and get some views and estimated costs.  That wont cost you anything. Then you can make a sensible decision on which of them, if any, to choose based on real data.  In my view the most useful thing you can do now is to decide exactly what you need from the inheritance, with rough numbers if possible. Without that sort of information an IFA could find it difficult to provide the most appropriate solution. 

Is this future inheritance really secure? Much can happen before decease.  Is it too soon to make any firm decisions?

dunstonh

An investment bond has an initial fee and then has two layers of fees (one for the bond, one for the underlying investments). 

There are no initial charges on investment bonds.
Investment bond annual charges are like any other post RDR tax wrapper, such as ISAs and pensions.   

artyboy

dunstonh said:

An investment bond has an initial fee and then has two layers of fees (one for the bond, one for the underlying investments). 

There are no initial charges on investment bonds.
Investment bond annual charges are like any other post RDR tax wrapper, such as ISAs and pensions.   

I wonder if there is an element of semantics here - perhaps the bond itself has no initial charge, but if it can only be set up via an advisor, and the advisor typically charges a set up fee (per my own thread on this subject), then it's to all intents and purposes an "initial charge"...

Del407

Once again thanks for the comments. The podcast was a useful listen and I've learned a lot and now know I will need IFA assistance and advice to know what is actually most appropriate for me.

My incomes are all linked to CPI and are sufficient to live comfortably on.
The main inheritance is guaranteed in that I am already the legal owner of 48% of my late father's house, but while step Mum lives there the house is hers to use. Hopefully step Mum has many years left, which will give me more time to gain knowledge. 

Thank you to everyone who has taken the time to give advice. It has helped to show me how much I don't know. Hopefully when the time comes I will have gained the knowledge to be able to engage intelligently with a good IFA and to be able to understand their advice. Until then I'll continue to max my annual pension contributions and ISA allowances.