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Invest early – help maximise your clients’ investments

I know what you are thinking… new tax year, same old rhetoric…

Well perhaps, but maximising the amount of time your client is invested for can make a notable difference to their investments. It’s the same reason that features like prefunding tax relief, switches, and investments are so important when selecting a platform. But, despite being similarly beneficial, is the same emphasis always given to using a client’s ISA/pension allowance as soon as possible? Or do we sometimes overlook the obvious?

The examples below are based on the UT Mixed Investment 40-85% Shares sector, and show the amount of additional growth a client could have benefitted from if they invested on 6 April (the beginning of the tax year), versus investment on 5 April (the end of the same tax year).

ISA

Length of investment

Contribution

Additional growth

Additional growth (£)

5 Year (2012/13)

£11,280

15.67%

£1,768

3 Year (2014/15)

£15,000

10.48%

£1,572

1 Year (2016/17)

£15,240

17.49%

£2,665

 

Collective Retirement Account

Length of investment

Contribution

Additional growth

Additional growth (£)

5 Year (2012/13)

£50,000

15.67%

£7,835

3 Year (2014/15)

£40,000

10.48%

£4,192

1 Year (2016/17)

£40,000

17.49%

£6,996


Based on data up until 3 April 2017

Past performance is not a guide to the future.

ISA allowance now £20,000

This is a significant potential uplift, making the impact of investing early even more important. If you have clients with regular investments going into their ISAs, this potential uplift should trigger a review of these regular contributions to ensure allowances are being maximised.

To review which of your clients have regular investments going into their Old Mutual Wealth ISAs, simply use our ISA Data Download tool in the ‘download client data’ section of the platform.

We have produced some material that you can use to approach your customers.

Pensions Annual Allowance remains at £40,000 – Money Purchase Annual Allowance reduces to £4,000

Gone are the days when the Annual Allowance was hundreds of thousands of pounds (it peaked at £255,000 for the 2010/11 tax year). This important headline rate crashed to £40,000 on 6 April 2014 and it’s remained there ever since. Since then we’ve seen the introduction of the Tapered Annual Allowance (which is a reduction in the Annual Allowance for high earners), the Money Purchase Annual Allowance or ‘MPAA’ (which is a reduction in the Annual Allowance for those people who have flexibly accessed their money purchase pension) and the Alternative Annual Allowance (which is the Annual Allowance in relation to defined benefit pension schemes when the MPAA is triggered). All of these allowances are designed to restrict the amount that can be paid into pensions.

For the 2017/18 tax year there is going to be a significant change to the MPAA. In the Spring Budget, the Government confirmed that the MPAA will reduce from £10,000 to £4,000.

It’s important to understand that if the MPAA is triggered part-way through a tax year, only the contributions made after the trigger are tested against the MPAA. On top of this, the total contributions/accrual in that tax year are also tested against the £40,000 Annual Allowance.

Therefore, with these ever increasing restrictions strangling people’s ability to pay contributions into pensions, the best thing to do is to get your clients’ money invested sooner rather than later. Don’t delay in making the most of the current allowances before something happens (like the MPAA being triggered) and give your clients’ pension investments the best possible opportunity to grow.

Your clients’ investments may fall or rise in value and they may not get back what they put in.

For financial advisers only. Not to be relied on by consumers.


 

 

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