This for the client to utilise the product. pound

This document has been prepared for your training day, and the
focus is on the different types of regular savings plans that private clients
can utilise when saving money over the longer term.


What to
expect from this document

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Assets Classes

Different types of products: including Summary, Risk, Taxation and





Regular savings can be crucial to your future financial situation.
And could increase your wealth significantly if done correctly.   


There are however a number of 
different areas you need to consider when making a regular savings
contributions. Risk and attitude to risk, Accessibility/ liquidity, taxation,
suitability,  pound cost average.


What is the clients attitude to risk (ATR).  How much risk is the client willing to take.

understanding the balance between how much risk to take versus the
reward.  According to SJP “Almost all
types of investment carry the risk that their value could fall, particularly in
the short term. This may be due to stock market fluctuations, changes in
interest rates or other factors.” (SJP Website,2018)


According to Royal London the “Risk attitude has
more to do with the individual’s psychology than with their financial
circumstances. Some clients will find the prospect of volatility in their
investments and the chance of losses distressing to think about. Others will be
more relaxed about those issues” (Royal London Website, 2018)


There are a few different types of risk:


Conservative ( Low Risk ) more cash and fixed interest rather that
equities and shares. 

Balanced (Lower-Medium risk) 

Moderate (Medium Risk)

Dynamic (Upper-Medium Risk)

Adventurous (High Risk) more equities and shares
than cash or fixed interest. 


What accessibility dose
the client have to the funds. Are they easily accessed or are the funds locked
away for a certain period of time.


How are the funds treated within the product. In terms of taxation
and growth. 


Is the product suitable and affordable for the clients current
situation. Does it make financial sense for the client to utilise the product.





pound cost average. According to the Beaufort Group “‘pound cost
averaging’ – or, in laymen’s terms, regular saving – can come into play. Pound
cost averaging works on the basis that putting smaller amounts of money into an
investment reduces the overall risk of investing at the wrong time. Compared
with sinking one large sum in a single transaction, the risk is mitigated by
the fact your smaller, regular sums will buy in over a period of time at a
variety of prices.” (the Beaufort group website,2018)




It is very
important to look at the asset classes which you have exposure to, as this will
affect the risk which you face as well as the return which you are likely to
achieve. What we want to do in this Document is show you
how to diversify assets provide a healthy income as and when you want/need to
access your assets.


The key with any investment is that you must diversify the assets which
you hold. When I say assets there are really 5 different areas which you can
invest in within most regular savings products:


Equities/Shares – investments into companies from across the world.
These will carry risk and the values will change on a daily basis but over the
long term they tend to outperform most other asset classes. 

Bonds/Gilts – These are essentially a loan to a company for which you
receive a return, they are generally lower risk than shares.

Commodities – Refers to raw materials such as gold, copper, coffee etc.
They can all go down in value.

Property – Commercial property such as an office building. The growth
comes from the increase in the value of the building and the rent which the
tenants pay. Property can go down in value.

Cash – No risk to the value of the investment however your money may be
eroded by inflation (the rate at which goods increase in price). For example
interest rates are currently at 0.25% and according to BBC “inflation is at 2.3%”(
The BBC website) so keeping cash will mean that the purchasing power of your
money is decreasing.


Asset classes 1 to 4 all carry risk to the value of your initial
investment and you may get back less than you invested. However, they are the
only way which you will be able to beat inflation and ensure that you make a
meaningful return. It is very important that any investment you make is
diversified across all of these asset classes as this reduces the risk you face.
We will touch on this in more detail in a later section.















types of products: including Summary, Risk, Taxation and suitability


based- Bank Accounts:  According to Wikipedia “A deposit account is a
savings account, current account or any other type of bank account that allows
money to be deposited and withdrawn by the account holder.”(Wikipedia2018) as
mentioned above although cash has little or no risk your cash savings may be
eroded by inflation. However it is a good place to keep an emergency fund
(easily accessible cash in case of an emergency or unexpected sudden expenses).
There are no set limits on how much you should have for this fund some
recommend up to six months’ salary. Some people prefer more and some prefer
less depending on their attitude to risk and personal situation.


Schemes: According to the Pensions Advisory service “a pension scheme is
just a type of savings plan to help you save money for later life. It also has favourable
tax treatment compared to other forms of savings” (Pensions Advisory Service
2018) while a pension scheme is a long-term regular savings plan here is a
brief example of how a pension works:

If you were
to have a pension pot of £1M at retirement it would be taxed as Follows:

Pension Pot                                                        £1,000,000

25% Tax Free Cash                                           £    250,000

5% tax free income from tax free cash    £      12,500

Amount Remaining for Income                  £    750,000

5% Income                                                          £      37,500

Tax on income                                                   £        5,380

Net Income                                                        £      44,620

Marginal Rate of
Tax                                             10.76%


The point here is that if managed correctly you will receive 40%
tax relief on pensions, tax free growth and you will only pay 10.76% when
taking money out of your pension. Therefore using pensions as a long term
regular savings product makes a lot of sense. downside is you will not have
access to the funds until the age of 55.


There are two main choices available to you at
retirement. I have listed and explained both of these below:




Guaranteed income

Indexed to
allow for inflation


Fixed income so
limits tax planning opportunities
Nothing is
passed on to your children
Annuity rates
are low at present
Income is less
than that which can be taken via drawdown



Flexible income
so useful for tax planning
Ability to now
pass fund to children
The assets
remain in your control
Greater level
of income available than an annuity
Ability to
withdraw whatever you like from April 2015


Income is
ultimately dependent on returns which are not guaranteed
There are fund
management costs which could exceed the growth in bad years


You also have a lifetime allowance of £1,000,000, and an annual
allowance depending on your adjusted income. which is called the tapered annual
allowance.  “Since 6 April 2016, the
annual allowance has been tapered for those with adjusted annual incomes,
including their own and employers contributions, over £150,000. For every £2 of
adjusted income over £150,000, and individuals annual allowance will be reduced
by £1, down to a minimum of £10,000” (page 217 AFA Book 2).  Due to these allowances and the fact that you
do not want to put all your eggs in one basket it is imperative that you utilise
other regular long term savings options.   


savings accounts (Isa’s): according to GOV.UK “there are 4
types of ISA’s”

Cash Isa: usually accessed through banks and
building societies. Relatively low risk.   

Stocks & Shares Isa: can invest In shares,
bonds/Gilts, property cash, you can self-select these or be advised or have a
managed fun service. Investors can withdraw or transfer funds whenever.

innovative finance ISAs: Peer to peer
lending, rates of interest closer to rates on loans. Higher risk thank
conventional cash Isa. 

Lifetime Isa

Isa are really the first starting point from a Long term savings
standpoint as they allow you to invest with the possibility of tax free growth(
Maximum you can invest is £20,000 per year). They come in two forms; cash and
stocks & shares. The great thing about an ISA is that is grows tax free so
it makes sense to put something in there that will have an opportunity for
growth. By doing this you will be exposing yourself to assets which do carry
risk (if investing in stocks and shares) but will undoubtedly outperform cash in
the long run. overtime equities will outperform cash – the key is to hold the
investment for a minimum of 5 years.

After pensions, ISAs are a brilliant way to be tax efficient and
as described above this can be a really efficient use of savings income and it
can provide you with flexibility to access the capital should you ever need it.
Income from pensions is liable to tax however income from an ISA is completely
tax free. Therefore this is a great way for you to top up retirement income
without every paying higher rates of income tax. With regular contributions you
can actually benefit from volatility as it means that you are picking up units
in investment funds at a lower price. (as mentioned above pound cost average)


Trusts: After ISA’s and Pensions the next place to be saving is into a
Unit Trust.

According to David Burnell Financial Services “A unit trust is
a collective investment created under trust. The trust pools the money of
numerous individual investors to create a fund with a specific investment
objective – income, growth, or both” David Brunell 2018 unit trusts are
suitable for clients who want exposure to the market without investing into
underlying investments, such as equities or shares .

When making an investment you usually make your return in two

Growth in the value of the share price/asset

Dividends or Income which is paid out to

Each return is taxed in a different way ‘Growth’ and ‘Dividends’.
A Unit Trust is another way in which we can shelter the majority of returns
from tax.

After an ISA allowance you should look at using your Capital Gains
Tax (CGT) allowance. Everyone in the UK has a CGT allowance of £11,300 a year
which means you can make gains from investments up to £11,300 and pay no tax on
this growth. CGT allowances are like ISA allowances in the fact that you lose
them each year, therefore some assets are only measured against your CGT
allowance when you come to disposing of the asset, for example property.
However by investing into more liquid assets, such as unit trust funds, you can
get into the habit where you are using this allowance every year. The way in
which this works is as follows:

You hold a unit
trust fund and at the end of the tax year we calculate the gain over that year

We then instruct
you to make a fund switch to ‘crystallise’ the gain

We then file this
on your tax return and as long as the gain is under £11,300 it is all tax free

If you make a
loss in a year we can crystallise this and you can offset this loss against
future gains

After 30 days you
can rebuy your original funds and the gain is washed away


essentially they are washing away their gains each year so they
never have a large taxable gain as you would with a buy to let. This means that
a £100,000 gain over 10 years could pretty much be completely tax free whereas
with other assets this could be as much as losing £17,780 (20% rate) or £25,000
(28% rate) to tax.

In addition, new rule changes mean that the first £5,000 of
dividends earnt each year will be free of any tax. This therefore means that we
can set up a Unit Trust investment which, if managed correctly, will grow tax
free up to £16,300 per annum. Assuming a growth rate of 5% pa.


Bonds: After maximising ISA allowances, Pensions,
Capital Gains Tax allowances and Dividend allowances, we then need to look at
what other regular savings investments that are tax efficient.  Bonds are a great product to look at. When it
comes to the taxation of bonds there are two options you can look at Onshore
and offshore.


to Sanlam “Comparison of onshore and offshore bonds This document compares
onshore and offshore bonds and how they differ in areas such as taxation
treatment. Our comments are confined to UK resident investors. Offshore bonds
are generally issued by subsidiaries of well-known UK life offices in financial
centres such as Ireland, Luxembourg, the Channel Islands or the Isle of Man.
One of the major differences between onshore and offshore bonds is that
taxation is deferred within an offshore bond due to low (or no) tax on gains
and income arising on the underlying investments during the term of the

investment.” (Sanlam website 2018)








1. Tax
deferred withdrawals up to 5% per annum
(over 20
2. UK
dividend income is received net of 10%
tax. This is non recoverable, but
the provider’s corporation tax liability in
of the dividend.
Investment funds are subject to tax on interest and
gains realised within the funds.
4. On
surrender, the fund is deemed to have already
paid tax
at 20% (even if the effective rate in the
bond is
below 20%). For a higher or additional rate
any chargeable gain will be subject to
difference between basic rate and higher or
rate income tax. A basic, starter or nil
taxpayer pays no further tax unless the gain,
added to their other income, takes them into
higher rate tax bracket (in which case ‘topslicing’
will be
5. For
chargeable excesses arising from part
or part assignments, the ‘top-slice’ is
by dividing the gain by the number of
years since the policy commenced or,
lower, the number of years since the previous
Corporation tax relief applies during the term on
therefore £100 of expenses costs an

1. Tax
deferred withdrawals up to 5% per annum
(over 20
Dividend and other income may be subject to withholding
which is non recoverable.
Income and realised gains in the funds are not taxed
or may suffer a low rate of tax.
4. On
surrender, a higher or additional rate taxpayer pays tax
at the
higher or additional rate on any chargeable gain.
A basic
rate taxpayer pays 20% on any chargeable gain
and a
starter rate taxpayer 10%. Top-slicing relief will be
to basic rate taxpayers who become higher rate
on receipt of the bond proceeds, or higher rate
payers pushed in to the additional rate band.
5. For
chargeable excesses arising from part surrenders or
assignments, the ‘top-slice’ is calculated by dividing
the gain
by the number of complete years since the policy
even if there have been previous chargeable
surrenders or assignments.
6. The
compounding effect of income and gains rolling up
can make a big difference to the overall return,
over the longer term.


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