First post-war ‘baby boomers’ pass the old Default Retirement Age of 65

Securing your eventual financial independence in retirement requires making sure that your plans enable you to achieve this goal. Whatever provision you already have in place must be regularly updated as your circumstances and requirements change, and you need to ensure that you are still saving enough. But for many retirees’ the future looks less certain.

The UK is witnessing the march of a new type of retiree as the first post-war ‘baby boomers’ pass the old Default Retirement Age of 65. According to Aviva’s latest Real Retirement Report, more than one in three (39 per cent) over-55s are continuing to receive a wage and nearly half are intent on using their extra earnings to travel more when they finish full-time work.

Data from the latest census in 2011 showed there
were 754,800 people aged 64 in England and Wales, and almost 6.5 million people are turning 65 over the next decade compared with 5.2 million in the previous decade. The spike is due to the post-war birth rate soaring when the armed forces returned from the Second World War, with the new-born generation dubbed the ‘baby boomers’.

Pushing back the boundaries
Allied with improved health care, more people are remaining active as they approach retirement age, and the report shows how they are pushing back the boundaries at work and in their leisure time.  23 per cent of 65- to 74-year-olds were still wage earners in December 2012, compared with 18 per cent when the report first launched almost three years ago in February 2010.

Fuelling the rise of income and savings
With 55 per cent of 55- to 64-year-olds also still in employment, compared with 41 per cent in February 2010, this trend looks set to continue as more baby boomers pass the age of 65. It has already fuelled the rise of income and savings among over-55s during the last three years. The typical over-55 now has an income of £1,444 each month along with £14,544 in savings (December 2012), compared with a monthly income of £1,239 and savings of £11,590 in February 2010.

Enjoying the fruits of your labour
Despite 80 per cent being concerned by rising living costs over the next six months (December 2012), the UK’s over-55s are determined to enjoy the benefits of extending their working lives. Nearly half (44 per cent) plan to use their extra time in retirement to travel more, while 42 per cent are focused on spending more time in their gardens.

Socialising is high on the agenda for many over-55s in retirement, with 37 per cent planning to invest extra time in their families and 33 per cent keen to socialise more with friends.

The most common motivation
They also have philanthropic intent: two-thirds (66 per cent) of over-55s would be interested in carrying out charity work or volunteering once they have retired. The most common motivation is to give something back to the community (49 per cent) and to stay active by getting out of the house (48 per cent).

A new model for later life
It’s clear that the first baby boomers are setting out a new model for later life, and getting the most out of their improved physical health and the freedom to continue working for longer. Many people find that staying active in a job helps to keep them young at heart – with the bonus being that it boosts their earning and savings potential in the process.

The key to making the most of this opportunity is for people to start planning for their 60s and beyond well in advance. In this way, rather than accepting the old retirement stereotypes, you can have the freedom of choice about whether you continue to work or not, rather than feeling forced to carry on out of the demand to meet financial commitments.

Flexible for the future
Everyone enjoys using their wealth in different ways. For you, it might be the joy of travel, helping others through philanthropy, sharing your success with family and friends or your passion for collecting. It might be the simple freedom to do what you want, when you want. Whatever your priorities, we can help you use your wealth by ensuring it’s working for you now and is structured to be flexible for the future.

Immediate access to your pension funds, allowing you to take out what you want, when you want it

As your wealth grows, it is inevitable that your estate becomes more complex. With over 400,000 people now expected to reach age 75 each year [1], more and more people could be faced with a 55 per cent tax charge on any money left in their pension fund when they die.

Free of any death tax
Money saved via a pension can be passed on to a loved one, usually outside the pension holder’s estate and free of any death tax, provided the pension fund has not been touched and the pension holder dies before age 75. People fortunate enough not to need immediate access to their personal pension may therefore decide not to touch those savings for as long as possible.

However, once someone reaches age 75, the death benefit rules change dramatically and their entire pension fund may become subject to a 55 per cent tax charge on death. This means it can become a race against time for many individuals to reduce the impact of this charge.

Flexible drawdown lifeline
It can take years to move money out of the 55 per cent death tax environment using capped income withdrawals due to the set limits on the amount that can be withdrawn each year. A lifeline can, however, come in the form of flexible drawdown. Flexible drawdown can provide people with immediate access to their pension funds, allowing them to take out what they want, when they want it. Flexible drawdown is only available to people who are already receiving £20,000 p.a. minimum guaranteed pension income – which can include their state pension entitlement.

For individuals who wish to leave as much as possible to their beneficiaries, taking income from their pension and gifting it to their beneficiaries under the ‘normal expenditure’ rules will allow certain amounts of money to be passed to their beneficiaries outside their estate.

Passing money outside the estate
This may be more tax-efficient than suffering the 55 per cent death tax charge, or the 40 per cent inheritance tax charge if the money is simply brought into their estate. Any money taken out under flexible drawdown will be subject to income tax, so higher rate tax payers need to be careful to ensure the money is either passed on outside their estate tax-effectively or that their estate is within the annual IHT allowance of £325,000 (2012/13).

This may be particularly relevant for people who are approaching, or who have already reached, their 75th birthday, especially as many older pension arrangements will not allow pension savings to continue to be held beyond that date.

Younger people who have accessed their pension fund, even if it’s just to take the lump sum cash, could also be at risk of the 55 per cent death tax, and could benefit from moving funds out of this environment as efficiently as possible.

Are you prepared for the financial needs and challenges that may lie ahead in the future?

Almost 15 million people across the UK (31 per cent of the adult population) are not currently making any efforts to save for the future, while eight million people (17 per cent) have no savings to their name at all, according to Scottish Widows’ seventh annual Savings and Investment Report.

Managing to put something away

Although 63 per cent of Britons are managing to put something away, nearly a third (32 per cent) have a total pot of less than £1000, which is less than the UK average combined monthly mortgage and council tax costs (£1009). In addition, almost one in five of those who expect their financial priorities to change are seriously concerned about job security
for the coming year.

These statistics paint a bleak picture of people’s ability to cope with financial shocks that could hit now or in the future.

Families shoulder the burden
A 25 per cent of respondents with families have loaned ‘a substantial amount’ to their children, often to simply help them meet daily living expenses. Support is also provided for higher education and property purchases, with an average loan of almost £15,000 – an 11 per cent increase from the amount reported last year.

Interestingly, when asked what they’d rather give their children money for, parents opted for helping them get on to the housing ladder (63 per cent) over university fees (21 per cent).

A stark impact on parents’ finances
This level of support is having a stark impact on parents’ finances with a quarter (24 per cent) cutting back on their savings and almost one in ten (8 per cent) stopping saving altogether.

However, it isn’t just parents funding their children; whole families are pulling together to support each other. The report shows that grandparents are helping their grandchildren; children are lending money to their parents, and siblings are also supporting each other. Specifically, on average grandparents have lent £3,665 to their grandchildren, 6 per cent have lent to their parents with an average amount of £4,371 exchanging hands and 9 per cent of people have lent an average £3,485 to their sibling.

The savings shortfall spiral
The wider economic climate is also increasing the pressure on those struggling to save. 30 per cent of people report that they have been forced to cut back on their savings by rising costs, whilst a further 27 per cent are saving less than two years ago, principally due to a lower level of disposable income. Across the board, the majority (64 per cent) of people report that having no money available is a major barrier to saving.

Importance of building a safety NET
People clearly recognise the importance of saving something towards their future financial wellbeing, which is encouraging. The importance of building a safety net for themselves and their families is a priority, with 63 per cent of people reporting that they managed to save some money in the last 12 months. However, just a quarter of those people believed they were saving enough to meet their long-term needs, with a further 37 per cent saying they would definitely not be achieving this goal.

When we are faced with immediate financial commitments, such as mortgage payments and day to day living expenses, then it is absolutely necessary to give these pressing needs priority. However, taking a wholly short-term view of our finances will mean we are unprepared for the financial needs and challenges that lie ahead in the future.

Take a look at our checklist to see how we could help you

The closer you get to retirement, the greater the need to preserve your savings and ensure they will last all through your retirement. In addition, you’ll need to consider whether you need to make changes to your investments as you approach retirement.

With less than five years to go before retirement, there is still a lot you could do to maximise your eventual pension income. Take a look at our checklist to see how we could help you make the most of your pension pot.

Checklist in the run-up to your retirement

Request up-to-date statements for your personal and company pensions

Get an up-to-date state pension forecast at direct.gov.uk

Trace any lost pensions through the Pension Tracing Service at direct.gov.uk

Include any investments and savings when assessing your retirement income

Seek professional financial advice if there’s a significant shortfall, as delaying or phasing retirement could be an option

Reduce any potential investment risk to protect your pension from any downturns in the stock market as you approach retirement

If possible, augment your pension by increasing your contributions and/or adding lump sum payments

Take advantage of any unused pension tax allowance. Current rules allow you to carry unused allowances forward for three years

Think about whether you want to take your pension as an annuity or through income drawdown

If you want to take an annuity, decide which type. An annuity can, for example, increase by a set percentage or be linked to the rate of inflation

Look at impaired life annuities if you have any serious health issues

If appropriate, consider consolidating your pension or pensions to a Self-Invested
Personal Pension (SIPP) if you want to take income drawdown

Consider whether you want to take 25 per cent of your pension pot as a tax-free lump sum and think about how you might use this money

Write a will or review any existing will you have in place

Check what will happen to your pension if you die

Assess the value of your estate for inheritance tax (IHT) purposes and consider ways to reduce a potential liability

Seek professional financial advice if the value of your estate is significantly higher than the nil rate IHT band (currently £325,000) or your financial affairs are complicated ν

All figures relate to the 2012/13 tax year. A pension is a long-term investment, and the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. The Financial Services Authority does not regulate estate planning, wills or trusts.

The child benefit tax charge, introduced on 7 January, affects over one million families

A family with 2 children could soon see their annual spendable income drop by up to £1,752 p.a. in 2013/14, while those with 3 children could lose £2,449 pa. With prices rising faster than incomes, it is imperative for many families to know how they will be affected, and what options are available to help improve their situation.

What are the implications of the tax charge?
Benefit payments will continue to be paid in full to the claimant, but if the household’s highest earner’s personal taxable income exceeds £50,000 per tax year then the amount will be clawed back by way of a tax charge. Once taxable income exceeds £60,000 in a tax year, the charge will be 100 per cent of the benefit claimed i.e. the value of the benefit is wiped out. For incomes between £50,000 and £60,000, the tax charge is 1 per cent for every £100 income exceeds the £50,000 threshold. Overall, these people will benefit, as the tax charge will always be less than the benefit claimed.

For the 2012/13 tax year, the tax charge will never exceed 25 per cent of the yearly benefit claimed as the tax charge will only have been operational for one quarter of the current tax year. As such, the tax will be limited to £438 where benefit is being claimed for 2 children, or £612 for 3 children. Around 500,000 people will need to complete a tax return for the first time. The tax charge will be collected under self assessment; therefore, for those submitting online, the first return will need to be in by 31 January 2014. It is important to note that failure to do so could result in fines and late payment penalties.

What action can be taken?
This will very much depend on an individual’s personal circumstances and priorities. Making an individual pension contribution to reduce income to below £50,000 would wipe out the child benefit tax charge altogether, while higher rate tax relief would also be available on the contribution if it all falls in the higher rate band. Any contribution reducing income to a level between £50,000 and £60,000 will still result in a surplus of child benefit over the tax charge, and a tax return would still need to be completed.

A pension contribution by salary sacrifice is an alternative way of reducing taxable income. With the employer’s agreement, an employee can reduce their contractual income in return for an equivalent employer payment to their pension. The employee will also save NI at 2 per cent for payments over the upper earnings limit – if the employer agrees to pass their 13.8 per cent NI saving on to the pension then the contribution itself can be increased. Another alterative is to simply continue claiming the benefit and paying the tax, which is a more likely consideration for those families where the higher earner has adjusted net income between £50,000 and £60,000, when the benefit will still exceed the tax charge.

The important tenets of his investment philosophy and mythology

Warren Buffett is considered by many as the most successful investor of the 20th century and named “one of the most influential people in the world” by Time magazine in 2012. In this article we look at Buffett’s investment mythology and analyse some of the most important tenets of his investment philosophy.

Finding low-priced value
While evaluating the relationship between a stock’s level of excellence and its price, Buffett asks himself several questions to find low-priced value:

Has the company consistently performed well? 
He looks at a company’s return on equity (ROE) and determines whether or not they have consistently performed successfully, compared with others in the same industry. However, looking at the ROE of a company over the last year alone isn’t enough. To get a better perspective of historic performance, investors should view the ROE from the past 5-10 years.

Has the company avoided excess debt? 
Buffett also considers the debt/equity ratio of a company, as he would prefer to see minimal amounts of debt, meaning that earnings growth is being generated from shareholders’ equity and not from borrowed money. A high level of debt compared to equity will result in volatile earnings and large interest expenses.

Are profit margins high? Are they increasing? 
Not only does the profitability of a company depend on a good profit margin but also their margins consistently increasing. A high profit margin means that the company is not only executing its business well, but increasing margins means management has been efficient and successful at controlling expenses. Investors should look back at least five years to get a clear indication of a company’s historical margins.

How long has the company been public? 
One of Buffett’s criteria is longevity: value investing means looking at companies that have stood the test of time but are currently undervalued. He will usually consider companies that have been around for at least 10 years, meaning that he would not consider most of the technology companies that have had their initial public offerings (IPOs) in the past decade. Historical performance is also crucial – determining if a company can perform as well going forward as it has done in the past is tricky, but Buffett is very good at it.

Do the company’s products rely on a commodity? 
He will usually steer clear from investing in companies whose products are indistinguishable from those of their competitors; if they don’t offer anything different than another firm within the same industry, Buffett sees little that sets them apart. He uses the term ‘economic moat’ as a way of describing any characteristic that is hard to replicate; the wider the moat, the harder it is for a competitor to gain market share.

Is the stock selling at a 25 per cent discount to
its real value? 
The most difficult part of value investing is determining whether a company is undervalued, and is Buffett’s most important skill. Investors must analyse a number of business fundamentals, including earnings, revenues and assets, to determine a company’s intrinsic value, which is usually higher than its liquidation value.
Buffett will then compare it to its current market capitalisation. If his measurement of intrinsic value is at least 25 per cent, he sees the company as one that has value – the key to this depends on his unmatched skill in accurately determining this intrinsic value.

The proof is in the pudding
As you can see from the above examples, Buffett’s investing style reflects a practical, down-to-earth attitude. This value-investing style is not without its critics, but nobody can question the success it has brought. The thing to remember is that the most difficult thing for any value investor is in accurately determining a company’s intrinsic value.

Information is based on our current understanding of taxation legislation and regulations. Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.

Uncertain election results rekindle euro-crisis fears

The prospect of a long period of political uncertainty following elections in Italy, the euro zone’s third-largest economy, has shattered months of uneasy calm in European financial markets and demonstrated that the currency union remains prey to shocks.

Italy’s protest vote against the Eurocrats has wrenched market attention away from the hunt for yield and back onto political risk. The social disaffection caused by youth unemployment has been strikingly reflected by the surge of the Five Star movement.

Italian economic fundamentals are fragile and the recession still deep. At best, the political impasse in Italy will push back the market’s expectation of a recovery there. At worst, the contraction could deepen as consumer and business confidence cowers under an extended period of political uncertainty.

Austerity-first solution
The elections have also emphasised that the most powerful opposition to the euro-zone crisis managers’ austerity-first solution to the bloc’s financial crisis could come from the ballot box. Three polls last year—a referendum in Ireland on new fiscal rules and elections in the Netherlands and Greece—went in favour of the euro’s political masters, in Greece’s case only just. However, in Italy, the euro zone seems to have run out of luck in a vote interpreted as a rejection both of the country’s traditional political class and of the austerity many Italians see as being imposed on them by Brussels and Berlin.

Financial-market tranquillity
The return of growth in Southern Europe is officially projected to be reached in the next 12-18 months, but may have been further postponed due to recent uncertainty. But there was no sign of any rethink: euro-zone governments and the European Commission have urged Italy to stick to the path of economic overhauls and budget stringency. The election has challenged the optimism beginning to emerge among politicians that the crisis was over, which had been encouraged by the financial-market tranquillity following the promise from European Central Bank President Mario Draghi in July to “do whatever it takes” to save the euro.

A grand coalition
We can now expect weeks of hiatus in the Italian political system as political leaders discuss whether they can form a grand coalition that can govern the country seems a certainty. Nothing formal can happen until March 15, at the earliest, when Parliament is formally convened. By May 15, President Giorgio Napolitano’s mandate will expire and a new president must be elected. An early decision to call new elections seems unlikely: to do so in an apparent effort to get the “right result” for the EU risks a further backlash among voters.

Fiscal discipline
The political will to preserve Eurozone stability has been proven in Greece. A new government in Italy, when it is eventually formed, is more likely to be unstable and ineffective than unorthodox and radical. Fiscal discipline is likely to be broadly preserved even if serious structural reforms are now off the agenda. Hence, the negative market reaction to events in Italy may provide an opportunity to buy into the periphery, albeit at significantly higher yields. It will be important to keep an eye on the rating agencies, who could well jangle nerves with another downgrade if policy uncertainty in Italy persists.

The UK has lost its AAA credit rating for the first time since the 1970s

The credit rating agency Moody’s, at the end of February, downgraded the UK’s sovereign debt rating from AAA to AA1, relegating the UK to the second tier for the first time since 1978. The announcement made headline news, but it was far from unexpected and the possibility of a downgrade had been predicted; the coalition government is taking longer than expected to reduce the UK’s sizable deficit and all three leading credit rating agencies – Fitch, Moody’s and Standard & Poor’s – had already placed the UK on a “negative” outlook during 2012, stoking expectations of a downgrade.

Government’s capacity to repay its debts
Credit ratings provide an indication of a government’s capacity to repay its debts, but any concerns about the downgrade leading to a rise in the borrowing costs for the UK appear overplayed, at least if the recent experiences of the US and France are any indication: the US lost its AAA status in August 2011 while France was downgraded in November 2012. The borrowing costs of both nations have declined since their respective downgrades while their main stockmarket indices have risen significantly.

Fiscal consolidation programme
The implications of the UK’s downgrade are likely to prove more political than economic. Moody’s announcement highlighted the challenges that “subdued medium-term growth prospects pose to the government’s fiscal consolidation programme” and the coalition government continues to face substantial challenges in its attempts to reduce the UK’s debt levels. Politicians have placed considerable value on the UK’s top credit rating – indeed, in the Conservative Party’s manifesto of spring 2010, George Osborne pledged to “safeguard Britain’s credit rating”. As such, the news of the downgrade puts more pressure on the Chancellor of the Exchequer than on the economy itself.

Catalyst for fresh trouble
Taking everything into consideration, a drop in the UK’s credit rating is not likely to make much difference to the fundamental performance or health of the country’s economy. Although Moody’s decision highlights the challenges that the government face, the downgrade itself is likely to represent a symptom of the existing problems rather than a catalyst for fresh trouble.

Promising growth prospects
The decline in the value of sterling is likely to continue, as investors move their money into currencies used by countries with more promising growth prospects. A weaker pound would certainly help exporters, but it also makes imports more expensive. The price of petrol has already risen over the past month, and further increases like this are likely to put more pressure on household incomes and company profits, as well as on economic growth as a whole. A lower credit rating could also make it more expensive for the UK to borrow money.

Longer to resolve than expected
In a similar way to borrowing from a High Street bank, if you are in a well-paid job and are living within your means, you will have to pay a lower interest rate on a loan than someone who the bank thinks is overstretched and maybe not able to keep up with repayments. At present, the UK needs to borrow more than £100bn a year from investors, both at home and around the world. It seems that the UK’s economic problems, in line with many other countries, will take longer to resolve than expected.

Measures introduced through the Care and Support Bill come into effect in April 2017

Bills for long-term care in old age are to be capped at £75,000 in England. The recent announcement for changes to social care is thought to be part-funded by a freeze on the inheritance tax ‘nil rate band’ threshold.

Chancellor George Osborne announced during the Autumn Statement 2012 that inheritance tax rates would rise from £325,000 (£650,000 for married couples and registered civil partners) to £329,000 (£658,000 for couples) in 2015/16. This will now be delayed until 2018/19. As a result of this three-year extension, more people could be subject to an inheritance tax bill. Inheritance tax is charged at 40 per cent and is payable when the value of an estate exceeds the available nil rate band threshold.

Disappointment at the level of the cap
Jeremy Hunt, the Health Secretary, told the Commons in February that the ‘historic’ long-term care reforms would save thousands of people from having to sell their family home to pay for care. Some campaigners voiced their disappointment at the level of the cap, which was more than double the £35,000 recommended by the independent Dilnot Commission in 2011.

Means-tested government support
Alongside the cap, Mr Hunt announced a rise – from £23,250 to £123,000 – in the asset threshold beneath which people will receive means-tested government support for care bills. He also announced a lower cap on costs for people who develop care needs before retirement age, as well as free care for those who have needs when they turn 18.

Andrew Dilnot, whose report recommended a cap of between £25,000 and £50,000, said he was disappointed by the government’s proposal of a higher level, but did not think it would undermine his system.

The proposed £75,000 cap from 2017 equated to £61,000 at 2011 prices, he pointed out.
The measures will be introduced through
the Care and Support Bill and come into effect in April 2017.

Have you fully used your 2012/13 ISA allowance?

In times like these, every penny counts. Interest rates are at historic lows and rising inflation can erode our buying power. But one way to mitigate these effects is to shield savings from tax by investing through an Individual Savings Account (ISA).

A flexible ‘wrapper’

An ISA is not itself an investment – it’s a flexible ‘wrapper’ under which a wide range of investments can be made, and the proceeds are free of capital gains or income tax. You can choose from two types of ISA – Stocks & Shares ISAs (shares, bonds or funds based on shares or bonds) and Cash ISAs. Stocks & Shares ISAs are also known as Equity ISAs.

Your questions answered
The 5 April ISA deadline is fast approaching and, if you don’t invest by then, you will lose your 2012/13 tax year ISA allowance forever.

Here are answers to some of the most common questions we get asked about ISAs.

Q. What is an ISA?
A. ISAs began on 6 April 1999. With an ISA you are entitled to keep all that you receive from that investment and not pay any tax on it. You can save up to
£11,280 in the current 2012/13 tax year. A tax year runs from 6 April to 5 April in the following year. The ISA scheme provides different ways of saving to meet people’s different needs. You can plan for the short term or put your money away for much longer.

Q. What are the different types of ISA?
A. There are two types of ISA: Cash ISAs and Stocks & Shares ISAs. In each tax year you can put money, up to certain limits, into one of each. Cash ISAs may be suitable for short-term savings, so that you can get at your money easily.

Stocks & Shares ISAs may be appropriate if you can afford to leave your money untouched for longer than, say, five years.

Q. Can I have an ISA?
A. You have to be aged 16 or over to open a Cash ISA, or 18 or over to open a Stocks & Shares ISA. You also have to be resident and ordinarily resident in the UK for tax purposes, or a Crown employee, such as a diplomat or a member of the armed forces, who is working overseas and paid by the government. The spouse, or civil partner, of one of these people can also open an ISA. You cannot hold an ISA jointly with, or on behalf of, anyone else.

Q. How many ISAs can I have?
A. There is a limit to the number of ISA accounts you can subscribe to each tax year. You can only put money into one Cash ISA and one Stocks & Shares ISA.
But, in different years, you could choose to save with different managers. There are no limits on the number of different ISAs you can hold over time.

Q. How much can I put into ISAs?
A. In the tax year 2012/13, which ends on 5 April 2013, you can put in up to £11,280 into ISAs. Subject to this overall limit, you can put up to £5,640 into a Cash ISA and the remainder of the £11,280 into a Stocks & Shares ISA with either the same or another provider.

So, for example, you could put:

£5,640 into a Cash ISA and £5,640 into a Stocks & Shares ISA; or
£3,000 into a Cash ISA and £8,280 into a Stocks & Shares ISA; or
nothing into a Cash ISA and £11,280 into a Stocks & Shares ISA

Q. What are the tax benefits of an ISA?
A. You pay no tax on any of the income you receive from your ISA savings and investments. This includes dividends, interest and bonuses. UK dividend income has been taxed at source at the rate of 10 per cent and this cannot be reclaimed by anyone. You pay no tax on capital gains arising on your ISA investments (losses on ISA investments cannot be allowed for Capital Gains Tax purposes against capital gains outside your ISA). You can take your money out at any time without losing tax relief. You do not have to declare income and capital gains from ISA savings and investments or even tell your tax office that you have an ISA.

Q. Can I put money into an ISA for my child?
A. Junior ISAs are a popular way for family and friends to build up tax-efficient savings and investments to help with the cost of university, provide a deposit for a house or simply give children a start in life. Any child resident in the UK qualifies who wasn’t eligible for a Child Trust Fund (CTF):

Children born on or after 3 January 2011
Children (aged under 18) born on or before 31 August 2002
Children born on or between 1 September 2002 and 2 January 2011 who didn’t qualify for a Child Trust Fund. Most children born between these dates did qualify for a CTF

The current maximum allowance per child per tax year is £3,600 and this will increase to £3,720 for the 2013/14 tax year. The account is held in the child’s name and a parent or guardian can open and manage the child’s account. Once a parent or guardian opens the account for their child, anyone, friend or family, is able to make a contribution up to the annual limit. No withdrawals are permitted until the child reaches the age of 18, at which point their account is automatically converted into an ‘adult’ ISA giving them full access to their investments and savings.

Past performance is not necessarily a guide to the future. The value of investments and the income from them can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Tax assumptions are subject to statutory change and the value of tax relief (if any) will depend upon your individual circumstances.