What savings options
There are a number of options available when it comes to medium and long term
savings products. Key issues to consider when looking at the various savings
products are the length of time over which you wish to save, what level of
access you may require to your money, what level of risk you are prepared to
take and the tax efficiency of the product. A particular product that maybe
ideal for one investor may be a poor choice for another.
At Provident Solutions we believe we have an important
role to perform in helping people to make the right choice. We will consider
our client's existing arrangements, their saving's objectives and the
various product features to ensure our clients make an 'informed choice'.
We believe that advice on the most appropriate
recommendations for medium and long term savings can only be given after
fully evaluating a customer's current financial circumstances together
with their future aims and objectives. We have therefore listed below
the various savings products available with a generic description for
each. We strongly recommend that you call us now on 0116 2592371 so
we can arrange to visit you and conduct a thorough analysis of your savings
requirements before making any specific recommendations.
What are the main
types of savings vehicles available?
The main savings vehicles are collective investment vehicles - ISAs, OEIC's,
Unit and Investment Trusts, Endowments and Friendly Society Tax Exempt Savings
Plans - or a balanced mix of these. Obviously different investments also have
varying decrees of tax efficiency so it's important to utilise as many tax-sheltered
vehicles as possible. Lets have a look at some of the more common types of
products that can be utilised for medium and long term regular savings:
Unit Trusts and OEIC's
These are pooled funds where individuals buy units in a fund at a published
price. The fund then buys assets in Equities within their investment remit
and the fund is wholly reliant on the performance of the assets. The fund
is open i.e. unlimited numbers of people can invest in the fund - the fund
just issues more units and invests the money in more assets. Your money is
pooled with that of other savers and invested by a professional fund manager.
Generally these funds invest in the stock market. With more than 1,000 to
choose between from dozens of investment companies, it is possible to find
funds investing in the most exotic stock markets and the most complex financial
OEIC's are open-ended investment companies. Although an OEIC is structured
along similar lines to a Unit Trust, it differs in having no bid/offer
spread. This means buyers and sellers get the same, single price. Additionally,
OEIC's have an umbrella structure allowing numerous sub-funds investing
in different types of assets, so the investor can switch more easily
between different specialist areas.
ISAs (Individual Savings Accounts)
ISAs can be viewed as a 'Tax Efficient Wrapper' that is placed around collective
investments such as Unit or Investment Trusts & OEIC's. You can invest up to £20,000 in a 'Stocks & Shares' Investment ISA or you can deposit up to £20,000 into a Cash ISA or any mixture of the two subject to the overall maximum of £20,000. (Figures are for the 2017/2018 Tax Year)
This is actually a company, which invests in other companies. Investment Trusts
are listed on the Stock Exchange, have an independent board of directors
and a pool of shareholders like other public companies. An investment trust
has a team of salaried staff or, more commonly, contracts the services of
a specialist fund management company.
A standard with-profits endowment is probably the most basic savings plan.
Level regular premiums are paid, usually monthly or annually, although quarterly
and half-yearly plans are also available. This purchases a guaranteed sum assured,
payable on maturity or earlier death. Many such policies have a ten-year term
which is the minimum for qualification status. To this guaranteed sum assured
are added bonuses, at the life office's declared rate, each year. When the
policy matures (or on earlier death), an additional terminal bonus is added.
This is often based on a percentage of the total annual bonuses already allocated.
The eventual return will thus be the total of the guaranteed sum assured, annual
bonuses and terminal bonus. Because bonuses are not directly linked to investment
performance in the same way as unit-linked policies, it is possible for a life
office to utilise its reserves and so produce a 'cushioning' effect which irons
out the sharp rises and falls which characterise unit-linked investments. Most
with-profits savings plans are now unitised with-profits, rather than conventional
with-profits. These type of policies offer a decree of tax efficiency because
providing they remain 'Qualifying Policies' then there is normally no Capital
Gains Tax Liability or Basic Rate Tax Liability. However there can be a liability
to Higher Rate Tax depending on an individual's circumstances when they encash
(or take withdrawals from) the policy.
Unit Linked Savings
The alternative to a with-profits savings plan is a unit-linked contract. Under
these contracts, premiums are applied to buy units in a unit-linked fund run
by the life office or possibly in a unit trust run by the life office or an
associated institution. These type of policies also offer a decree of tax efficiency
because providing they remain 'Qualifying Policies' then there is normally
no Capital Gains Tax Liability or Basic Rate Tax Liability. However there can
be a liability to Higher Rate Tax depending on an individual's circumstances
when they encash (or take withdrawals from) the policy.
Friendly Society Tax Exempt Savings Plans
These are investment products that are essentially the same as an endowment
policy, but there is no tax to be paid at the maturity of the policy. The
value of the 'with profits' version is that the plan should grow each year
in line with the addition of bonuses. You can invest up to £25 a month,
How do I find out more?
Call us now on 0116 2592371 and we can arrange to
visit you and conduct a thorough analysis of your Regular Savings
requirements and provide you with the appropriate recommendations.