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February Newsletter 2013

Hello – we hope that 2013 has got off to a flying start for you.

January is traditionally a busy month for divorce lawyers following the Christmas and New Year holidays so we’ve put together an article on the 3 essential financial aspects to consider if you or someone you know is experiencing divorce proceedings.  On a more positive note, as the Spring house-hunting season approaches, we highlight an innovative new mortgage product which removes the need for buyers to fund a large deposit.

We hope you enjoy the articles and find them useful.

In this issue:


Getting Divorced? 3 tips to protect your finances

1. Consider the Pension

All too often pensions are not given serious attention in a divorce settlement, particularly by women who focus instead on the more pressing, short term issues such as having a roof over your head and sufficient funds to meet your household budget. This pushes pensions down the list of priorities and can leave many women vulnerable in later life. There are 3 ways in which a pension can be treated as part of a divorce settlement and each has its own pros and cons:

Offsetting – one partner keeps the entire pension fund value while the other receives assets of equal value, eg the family home. On the face of it this is the simplest option enabling each of you to have a clean break. However a big drawback is that the offsetting assets are valued at a specific point in time with no allowance for future value and the effect on retirement planning.

Earmarking – one partner places a formal claim on the other partner’s pension entitling them to an agreed share of the benefits when they are paid out. On the flip side, there is little control over the timing of the pension draw down and if the partner who owns the pension dies before retirement, the funds would be subject to probate.

Pension Sharing – probably the safest option, but requiring court intervention, pension sharing allows the funds to be split equitably between both of you and, depending on the rules of the existing scheme, may be transferred into a completely new arrangement. This affords both parties a clean break and gives both of you complete control over your future finances.

2. Ensure you are Protected

Once you are divorced, it’s highly likely that your existing protection policies will be inadequate or inappropriate for your new circumstances, for example, a joint life insurance policy or, if you retain the marital home, an existing endowment policy. You will also no longer have your spouse’s income to rely on in the event you are made redundant or, worse still, become critically ill and unable to work. And if you have children, what will happen to them if you die? Critical Illness, income protection and redundancy insurance will all provide you with peace of mind and if you’re relying on maintenance payments then it’s worth taking out insurance on the maintenance agreement should your ex-spouse default or die.

3. Review your Beneficiaries

All your protection policies such as life insurance and death in service, as well as your pension policies and your Will, indicate those whom you have chosen to receive the proceeds in the event of your death. These instructions are legally binding so remember to review all relevant documents and update as appropriate. This is easily done via a death benefit nomination form from your policy provider or your IFA can help you. Ideally your Will should be amended through a solicitor or accredited Will Writer.

We highly recommend seeking the advice of an IFA at the beginning of your divorce proceedings to help secure the best financial outcome and ensure all assets are fairly split.

For a complimentary initial discussion call us on: 01926 651122 or email:justask@jjfsltd.com

A novel way to help your child onto the property ladder

The Woolwich has just launched a brand new, innovative mortgage product enabling buyers to purchase a property with financial support from their parents or other family members.

Aimed at first time buyers, but also available to those trading up to a larger property, the Family Springboard Mortgage offers a 95% LTV mortgage making home ownership accessible to many first buyers once again.

How does it work?

This new mortgage comes in two parts. The borrower takes out a Family Springboard Mortgage and pays the deposit of 5% of the purchase price. The family member or ‘helper’ opens a Helpful Start Account into which they deposit a further 10% of the purchase price. This account is then locked down for a period of 3 years, and as long as repayments on the mortgage have been maintained during that time, the funds are released to the helper, together with interest, once the 3 years is up.

The helper is not responsible for maintaining the mortgage payments and has no rights over the property however they may lose some or all of their funds if the mortgage repayments are not maintained. Taking independent legal advice is therefore a requirement of this mortgage process.

What are the benefits?

· Purchasers have access to a 95% mortgage and only have to find a 5% deposit up front.

· They can fund their property purchase without a direct hand out from relatives.

· Parents and family members can use their savings to help the borrower and receive those funds back with interest after 3 years (dependent upon mortgage payments being maintained).

· The helper can then use their lump sum to help another child or fund an aspirational purchase.

· If the helper is a Barclays customer they can use their Helpful Start Account to offset against their own mortgage if they have one*, reducing the interest payable.

We think that other lenders will follow suit and come up with different ways to help first time buyers who are such an important part of the chain!

For more information about mortgages please email Mat Clamp: mat@jjfsltd.com

*In this case interest would not be payable on the Helpful Start Account.

 

The New Flat Rate Pension – how will it affect you?

The Government recently announced plans for a radical change to the state pension system creating a single tier, flat rate payment available to everyone. Although much of the detail has yet to be finalised, this new pension will come into force ‘no earlier than’ April 2017 and will pay £144 in today’s money (approx £155 in 2017) compared to the current state pension of £107.45. Designed to be simpler and fairer than the existing arrangements, the new plans will do away with the current two tier system, along with the state second pension and means testing of benefits.

On the face of it the new flat rate payment is higher than the current basic rate which is good news for the self-employed who are currently unable to claim a second or additional state pension, and for lower earners whose combined basic and top up pensions would have amounted to less than £144 a week. But it is not good news for everyone and there are some practical implications.

Increased Pension Age

As expected, the pension age will increase with life expectancy but now the gender gap is also being closed so the retirement age for both men and women will be 66 in 2020 and 67 by 2028.

When will you reach retirement age? Use this handy retirement age calculator to find out.

Increased Qualifying Period

To qualify for the new state pension payment, you must have 35 years worth of NIC contributions, up from the current 30 years. This is a worrying prospect for anybody in their 50s who was made redundant or took early retirement, and particularly for individuals retiring in 4 years time who will have accrued a year shy of the 35 year minimum. However the Government has promised transitional arrangements which will ensure these people do not lose out.

Increased Minimum Requirement

You must have a minimum 10 years worth of NIC to qualify for the new pension instead of the current one year, although these contributions do not need to be within the last 10 years.

Inherited Entitlements will be Scrapped

Under the new scheme everyone will receive their own individual entitlement dependent on their NIC record. This is good news for couples who are penalised under the current system and enables qualifying spouses to claim the maximum benefit each. However, women who have taken a career break to bring up children or stay-at-home spouses intending to claim on their partner’s entitlement will struggle to meet the 35 year requirement and under the new scheme will get nothing from their partner’s entitlement. The Government has promised transitional arrangements to ensure these people do not lose out, and the new regime will enable mothers to receive NIC credits for the years spent bringing up children which will count towards their final NIC total.

Removal of the Second Pension and Pension Top Ups

Higher earners will no longer be entitled to pension top ups which, under the current system, enables the more well off to build up a weekly pension payment up to a maximum of £250 per week. The new system will pay £144 regardless, although this is counter balanced by the removal of means testing, to encourage people to continue to save and make additional arrangements to fund their retirement.

Increased Cost of NI Contributions

Those who contracted out of the state pension and joined final salary schemes enjoyed reduced National Insurance Contributions as a result, but with the removal of opting out in 2017 these people will once again have to pay full NI contributions.

Existing SERPS / S2P Entitlements are Unaffected

The new changes are not retrospective so you can rest assured that any entitlement to additional pension payments you’ve built up through SERPS or S2P arrangements will remain unaffected. However people retiring between now and 2017 will be stuck with the current lower state pension payment, even if they defer retirement until after the April 2017 deadline.

For more information or to clarify your own pension position, please call us on: 01926 651122 or email: justask@jjfsltd.com

 

ISA deadlines are looming

Just a little reminder that the annual ISA deadline is 5th April 2013. The current ISA limits are:

· £11,280 in a Stocks and Shares ISA (up to £22,560 per couple)

· £5,640 in a Cash ISA with the balance in a Stocks and Shares ISA

These amounts are completely tax free but once the deadline passes you lose the year’s allowance for ever. For more information click on Your Annual ISA Allowance – Use It or Lose It. *

And don’t forget your children’s tax free allowance too. You can invest up to £3,600 per tax year into a Junior ISA on your child’s behalf. Click on Junior ISAs * for more information.

 

*Links amended in 2014 to reflect new ISA limits

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