MONEY MATTERS


in association with


investments. Dorothy Lepkowska looks at what you can do


Beating inflation T


High inflation rates are hitting those with savings and


Individual Savings Accounts (ISAs)


Like pension funds, Isas offer a tax-efficient alternative for your retirement funds. If you are still some way off retirement, then you might want to consider a stocks and shares Isa to supplement your pension savings. over the long-term, share-based investments have


eachers work hard for their money, and prudent savers want to see their cash earning interest. But with the consumer prices index (cPI) currently standing at 4.5 per cent, inflation is becoming a growing concern for those with investments and savings.


The government’s target for cPI – its preferred


measure of inflation – is two per cent. however, with political instability in the Middle east and problems with the supply of oil from this region and from North africa, petrol prices have been, and may continue to be, affected. Furthermore, the new 20 per cent rate of VaT is continuing to hit consumer spending. It seems unlikely, therefore, that cPI will fall in the near future. The retail prices index (rPI), the other common


measure of inflation, is also increasing in the current economic climate, currently standing at 5.2 per cent (having reached 5.5 per cent in February). This rise in the rate of inflation is a blow to the


expectations of many savers, particularly when coupled with the low interest rates on savings accounts. To put it another way, inflation can erode the value


of your savings and reduce the buying power of your income. Basic and higher rate taxpayers need to find accounts paying at least 5.7 per cent and 7.5 per cent respectively, to beat the effects of cPI inflation – a tall order in the current climate. while pressure is mounting on the Bank ofengland to


raise interest rates and counter the increase in the inflation rate, the Monetary Policy committee (MPc), which sets interest rates, has not at the time of writing decided that this course of action is necessary. Indeed, earlier last month, the MPc voted to hold rates


steady at their current record low of half a percentage point amid concerns by its members that consumption remains weak. Prudent savers therefore need to ensure they are not reliant on a slowdown in inflation if they are to get the best returns on their money because it which might not come for some time.


Inflation and retirement planning


Teachers are fortunate in that they currently enjoy inflation-proofed pensions, generally linked to their final salary at retirement age, and increased each year in retirement in line with cPI. The cost of providing public sector pensions


is, however, forcing the government to review arrangements and, in some cases, to discontinue schemes and replace them with cheaper alternatives. The Teachers’ Pension scheme, for example, used


to follow rPI, which historically has always been higher than cPI. The findings of the recent hutton report into


pensions suggested a number of changes to defined benefit schemes for public sector workers. one of the options put forward was a move away


‘


from the final salary pension scheme to a career average earnings scheme – a move that has, unsurprisingly,


Prudent savers need to ensure they aren’t


reliant on a slowdown in inflation if they are to get the best returns on their money because it which might not come for some time


SecEd • July 7 2011


angered the teaching profession. The proposals also include an increase in employee contributions which could push the average contribution to 9.6 per cent. Negotiations are ongoing between the government


and unions over the increased contributions and other proposed reforms, although as many as 300,000 teachers, support staff and lecturers held a one-day strike last week in protest to the plans (see pages 2 and 3). Negotiations are due to continue this month. The key issue for teachers is whether your


pension alone will be sufficient to provide the standard of living you want when you retire. If it won’t then you should top up your pension or supplement it. There are a number of options to consider and the ones you choose will depend on your individual circumstances. Two popular choices include additional pensions and Individual savings accounts (Isas).


Pension plans


The Teachers’ Pension scheme offers the opportunity to purchase extra retirement income throughadditional Pension.other options include the additional voluntary contributions scheme and setting up your own personal or stakeholder pension plan. The tax regime for pensions continues to undergo


change as a result of government review. For example, the amount of money that you can save into your pension each year with tax relief has been reduced this year from £255,000 to just £50,000. Furthermore, from april 2012, the standard lifetime allowance – the total amount of pension savings you can build up tax efficiently over your life – will reduce from £1.8 million to £1.5 million. while these changes have altered some teachers’


approach to pension savings, they remain good reasons to use pension for retirement planning. Personal pensions are in essence “money purchase


arrangements”, meaning you make regular contributions and the money you save is invested for you.when you retire, you use the accumulated fund to provide pension benefits. subject to certain limits, whenever you make


contributions into a Personal Pension Plan, you are generally entitled to tax relief at your highest marginal rate on these contributions. This means that for each pound you contribute to your pension policy, your pension provider claims tax back from the government at the basic rate of 20 per cent and invests this in your plan. For anyone who is currently a higher rate taxpayer


’


but is likely to become a basic rate taxpayer in retirement, the advantage of 40 per cent tax relief on pension contributions now, with only basic rate tax deducted from the eventual income, can be very attractive.


Wesleyan for Teachers specialise in providing financial advice to the teaching profession.


Wesleyan for Teachers can offer a range of savings and investments to help you make the most of your money.


Whether you want to save a little each month or invest larger amounts for your future, we have products to suit different needs and objectives.


Call us now on0800 316 6554


quoting reference 60583 and arrange a no-obligation personal review and receive


£20 M&S vouchers


FREE* Illustrative vouchers only


* Terms & conditions: For any teacher or related profession booking a no-obligation financial review by 31 August 2011. Offer based on one voucher per person and only 1 appointment can be booked during this particular promotion. No purchase is necessary. No alternative is available. Employees of the Wesleyan are excluded. If a meeting is cancelled you will not be entitled to the vouchers. You will be required to complete and return a confirmation card after your first meeting and £20 of Marks and Spencer vouchers will be sent to you within 14 days of the card being received by Wesleyan for Teachers.


Wesleyan for Teachers is a trading name of Wesleyan Financial Services Ltd, which is authorised and regulated by the Financial Services Authority. Wesleyan Financial Services Ltd is wholly owned by Wesleyan Assurance Society. Registered No. 1651212. Head Office: Colmore Circus, Birmingham, B4 6AR. Fax: 0121 200 2971. Website: www.wesleyanforteachers.co.uk. Telephone calls may be recorded for monitoring and training purposes.


Does your money work as hard as you do?


We can talk to you about the following: • Tax efficient savings • Reviewing your existing plans • Lump sum decisions at retirement • You and your family's financial matters


tended to outperform cash investments, although past performance should not be relied on as a guide to future performance. The annual Isa allowance is £10,680 and all of this can be put into a stocks and shares Isa or you could invest up to half in a cash Isa. choosing the right Isa can be difficult as there


are many companies offering Isa products and it can be hard to know how to choose the right one for your needs. simon rake from wesleyan for Teachers said: “Teachers do tend to commit to saving for the long term, however, being able to reduce and increase your contributions within the allowable limits does provide the peace of mind, so that if your circumstances change you can adjust your savings amount.” however, if you want to save more than Isa limits


allow, you could consider investments such as Unit Trusts. with such uncertainty surrounding the level of


inflation expected for the remainder of this year and into next, and with the potential changes to the Teachers’ Pension scheme, it is important to seek advice from a specialist financial advisor to ensure you are getting the best, and most tax-efficient, returns for your money.


SecEd • Dorothy Lepkowska is a freelance education journalist.


another attractive feature of personal pensions is the


option to take a tax-free lump sum of up to 25 per cent from the pension fund when you retire. If you do not really need the lump sum, you could consider using it to provide a regular income via a “purchased life annuity” product, which can be a tax-efficient way of providing an income.any residual fund not taken as a lump sum must be used to provide a taxable income.


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