Finance

    MONEY TALK: Misconceptions linked to pensions

    By SHABAB GULFRAZ

    Over the last few years the government has done a fair amount to give low and middle income earners access to pensions. This is mostly through workplace pensions, but they have also made it far easier to get private pensions for those that are self employed. All employers will be required to provide staff members a work place pension by 2018. There is no exception, and if you contribute so does your employer.  Now the issue is that most employers have registered staff into work based pensions bar the smaller employer.

    So coming to the title the misconceptions that some people have relating to pensions are:

    When I die my pension dies with me –
    this is strictly not true because if you do die, you will have a pot of money, which can be transferred to your loved ones, or those that you chose. The government has relaxed the previous tax penalties that existed previously, so your pension will not die with you, and neither will it be taxed unless you have over a million in the pot.

    It is too difficult to set up –
    not anymore your employer has to set the pension up for you. In fact they have to actually auto enrol you, and then you need to choose if you want to keep the pension, or you want to come out of it. If you want a private pension for yourself, they are easy to set up, but if you want something a bit better with handpicked funds, and then be prepared to stump up a few hundred pounds as advice fees.

    My house is my pension –
    This is all well and good, but at retirement if you are going to sell to make ends meet, then where are you going to live. Your house also does not have any tax advantage i.e. a pension payment of £80.00 a month is actually a £100 as the government rewards for investing in a pension.

    The government will help me –
    The state pension is designed is minimal, and usually will not cover all your bills. I see many clients that are using savings, downsizing, or struggling significantly in retirement because they just have the state pension. Imagine paying all your bills, costs etc. on circa £150 per week. Could you live at the moment on circa £600 a month, and if the answer is no, then you know you need to do something.

    People have lost money in pensions –
    Yes this has happened, and there are several examples of companies that put simply have been unethical, however now there are many rules and regulators that ensure that this cannot happen. The key is not to be taken in, and always take advice before you make large decisions relating to large pension pots.

    I am too old –
    You are never too old to save in a pension, and with the new changes leading to liberation of pensions, saving for even a few years could mean you are far better off.

    I am too young –
    Ask an older person how soon years fly by. The younger you start the more time your monies have to grow i.e. £1000 today invested will have more time to grow than £1000 invested in 10 years, when you retire in 30 years.

    Overall, put simply we all need to invest into pensions because the state pension is self funding from our national insurance contributions. In this day and age we do not know how high the government may push the age of retirement. I know I am not prepared to work till 68 or 69; therefore the question is if you want options in retirement, then you need to save to retire early.

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    MONEY TALK: Your own business

    By SHABAB GULFRAZ

    As someone who has started his own business I always find beginning something new a task on its own. This is because there are many pitfalls to starting one’s own business. At the moment I am helping a friend with a new business project, and it got me thinking what are the pitfalls/hurdles that he will need to consider.

    I guess the first point to make clear is that when someone starts their own business they are actually an employee to themselves. Potentially gone are the 37.5 hours a week with a salary no matter what. Gone are the perks of being an employee, and instead you are now the person who is effectively in charge of ensuring you have an income at the end of the week or month.

    So, setting up your own business – well the first thing to consider is that you now need to be a professional in all areas of running a business. In past roles/job, you were probably just in charge of one key role or skill set. As a businessman/woman you are in charge of everything. You might have to learn new skills such as accounting, marketing, strategic skills as well as networking to ensure that your business is a success.

    One of the key things I found out when working as a consultant for various businesses was that the most vulnerable businesses are those that are run by one person. This is because there is one person making the decisions, and let’s faces it no matter how good we might think we are, it is always a good idea to have another person’s input; therefore if this is your very first business perhaps it might be worthwhile to consider a partner.

    I would also point that if you are thinking of starting a business, then maybe it might be worthwhile to consider buying into an existing business. This is because in my view buying a business is far easier than starting a business from scratch. A start up business is far more expensive from a time based perspective. This is because it will require time from you to start the business, and in most cases will take several months before the business is running properly.

    The other thing I would also consider with reference to time is that when in business, please do not think it is a wage earner. I also encourage people to think of a business as a profit making machine, rather than a wage earner. A wage earning business person will more than likely be satisfied with a wage that they feel is adequate, and in my view will not push the business or themselves to ensure further profitability.

    I would encourage you to network with other businesses. There are many places where you can showcase what you do, and get your business the attention it deserves. I used to do a lot of networking in the past, and this worked well, but I realised that networking takes a lot of time before it pays off.

    Last point I want to make is that as a business person focus on all areas of the business, and do not get yourself into a muddle by focusing on just one thing in isolation. I would split the business into three or four different areas such as: marketing and product sales; administration and financial planning; and lastly business operation be it service or manufacturing related. You will need to keep all three areas of the business actively within your mindset to ensure that your business does not fall behind.

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    MONEY TALK: Accident, Sickness and Unemployment

    By SHABAB GULFRAZ

    What is this? Well Accident, Sickness or Unemployment, are mini insurance policies designed to pay out a certain amount of cash on the event of a claim.

    The reason why I am writing about a boring subject such as insurance is that it is not so boring in the event that one makes a claim. This we all hope we do not do, but in the event that we need to, then we all hope that there is something there to protect us. Many of us think that our employers will do this, however this is becoming rare. Unless you work for the government, or in a large multinational organisation the chances are that you will only be paid statutory sick pay.

    I want to talk about these policies as I persuaded a friend of mine who has a long term disability to take one of these policies. He has had the policy for over 5 years and was paying about £20 a month for £1650 of benefit per month. His policy covered him for 12 months for accident and sickness.

    It was a few months ago that my friend got ill, and he had to stop working due to the illness. His employer although did pay some sick pay, but the circumstances were such that he resigned from employment to get better.

    Now if one resigns from employment it means no more income coming in and reliance on benefits. As my friend had this type of policy he claimed, which was far easier than I thought it would be. The insurer wanted medical confirmation, which his GP charged £30 for and set the claim immediately. After 30 days of claiming he received a bank transfer for £1650. Now this amount was far less than his salary, but his mortgage and necessary bills were paid.

    The policy paid out till he was better to go to work. I asked my friend what does he think about such policies and his view now is that paying in £20 a month for 5 years meant he could take time off to recover and not only did this aid recovery, but it helped in ensuring his savings were safe.

    Now with most types of insurances they undertake medical checks etc, to make sure you the customer are a good punt for the insurance provider and not likely to make a claim. With reference to Accident, sickness policies there is no medical underwriting; therefore in the event of a claim it does not matter what you had previously.

    I like these little plans because they are quite cheap, no medical underwriting means no matter what illness you had previously, you are likely to be eligible and therefore have valuable protection for your family.

    I have one of these policies myself due to underlying medical reasons; however I took the policy out because the provider I am with covers you if you have to become a carer for 12 months also. I felt it was valuable protection for a very small figure and something I needed.

    In this day and age when things are getting more expensive, jobs are harder to come by and with all the stress we all have on a daily basis, in my view something that makes life easier and pays the bills for 12 months in a row is definitely worth considering, when you may not be able to take out any other type of insurance due to underwriting issues.

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    Its finally happened – Article 50 has been triggered

    It has been some nine months since the results to the Brexit vote were announced, and the Prime Minister finally triggered Article 50. She said in the commons, “The Article 50 process is now underway... In accordance with the wishes of the people, the United Kingdom is leaving the EU...”

    Overall it is a sombre days for those that wish to remain in the UK, and those that want to leave. The truth is we do not know what to expect in the next two years; however at least we as a nation now know that Brexit will be a reality, and that we will be leaving on 29 March 2019. There is now no way to stop Brexit, and as the Prime Minister said, she was acting upon the democratic will of the people.

    With reference to markets I was expecting some turbulence in the markets, nevertheless surprisingly the markets behaved themselves, and the pound actually rose against the euro. I guess the markets were aware that it was for certain that Article 50 would be triggered; therefore the level of uncertainty within the markets was quite low. Now that the UK is leaving there is some certainty within the markets that Britain will leave the EU and a date has been set.

    I guess one of the things I agree with since last June is that the UK should no longer be defined by the vote we cast, but instead concentrate on being determined to being successful after leaving the EU. We decided to leave therefore now is not the time to moan or groan about the result as has been the case in the press/parliament over the last nine months, but instead the focus should now be on getting the best result for the UK.

    So what are the implications of Article 50 being triggered? Well the UK now has two years to formally leave the EU block. This is after membership of forty four years, which means there is a considerable amount of work to be done before the UK is formally out of the EU. I guess what is important to me as someone in the financial industry is that Britain remains the financial hub as it currently is in Europe.

    I also see quite a lot of benefits that the EU has brought to the UK, such as equality of pay, discrimination legislation etc. that has positively contributed to our society in the UK, which personally I would like to see remain, and hopefully improved upon.

    Although two years sounds like a long period of time, it appears it is going to be a slow and drawn out process that will take some months before it is likely that negotiations will start. In reality Article 50 has not been triggered by any nation before; therefore in reality there is no expectation of how the process will follow in the next two years.

    As a nation there are certain things that will be of more importance to us that need to be agreed beforehand. I agree with what the Prime Minister is trying to do by agreeing the divorce deal as well as future arrangements in parallel – within the period of two years. This I think is a sensible move on her part as it means we will be in a stronger negotiating position.

    I guess only time will tell if Article 50 will be a smooth transition for Britain and the EU, or whether matters become more entangled with fuelled tensions on both sides. As far as the EU is concerned EU leaders will meet on April 29 2017 at an extraordinary meeting to agree a specific mandate to begin talks in early May.

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    Money Talk with our Finance expert Shabab Gulfraz: Mortgage Liability

    It is likely many of you out there with mortgages must have at some point thought about how you will pay off your mortgage, or how you could pay off your mortgage as quickly as possible. I know it’s something that used to bother me, perhaps because when I started to learn French I realised that mortgage translate to, ‘a pledge to the death’.

    It is worrying that one in ten people are thinking of using their retirement fund to pay off their mortgage. This is worrying because, surely a retirement pot should be for retirement purposes, other than paying off debt that should ideally cease before ceasing work.

    For those of you that are on a repayment mortgage, and the term is going into retirement, I would suggest you visit a mortgage adviser, and work out if you can repay your mortgage before retirement age, or change retirement plans so that the mortgage ceases before you finish your working life.

    The positive aspect of a repayment mortgage is that at least you are on target to cease your mortgage at some stage in the future. If your mortgage is to run into retirement or you want to retire early, then perhaps making affordable over payments maybe an idea to reduce your mortgage term.

    It is more worrying if you have a retirement only mortgage, and have no repayment vehicle in place. There are many individuals who will most certainly have a financial nightmare with an interest only mortgage and no repayment vehicle.

    MONEY TALK -Mortgage LiabilityI would strongly suggest if you have an interest only mortgage to consider moving the mortgage to a repayment mortgage, or if you truly dislike the idea of a repayment mortgage, then you start a repayment vehicle to pay the mortgage off. This could be in the form of a NISA, a bond or any other type of savings plan to pay the debt, when the mortgage term ceases.

    The issue with an interest only mortgage is that now it is very difficult to be eligible for an interest only mortgage. This is because the regulators have clamped down and insisted lenders restrict only mortgage to only those individuals with credible repayment plans in place. This means if you have no repayment vehicle, then it maybe likely you cannot move from your current mortgage deal to another interest only deal.

    By not being able to move away from your current interest only mortgage, which may have a rate of 3.99% at the standard variable rate or higher, you are losing out because currently a typical two year fix can be secured for as little as 2% if not less in some cases.

    You could also undertake a holistic view of your overall financial situation and see if there are any other ways to reduce your mortgage debt. A recent survey undertaken highlighted 6 percent of individuals are waiting for an inheritance to pay off the mortgage debt. The issue with this is your parents/grandparents may not leave you much cash due to reduced pension income, cost of care homes and other costs. I would always say make your own provision to pay the debt, and if you are left some funds by a loved one, then spend them wisely first paying any unsecured debt, and then secured debt. This is because unsecured debt usually has a higher interest rate.

    Whatever your personal situation is, I would suggest undertaking a review with your advisers to ensure that you are on track and there are no nasty surprises to follow in the future.

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