Wednesday 26 September 2012
Automatic enrolment - why it's a good idea.
On Monday automatic enrolment will start to be phased in. In case you've missed the adverts or you're not employed by a large company (the phase in will start with the biggest companies first), it will mean that millions of employees will be automatically enrolled into their workplace pension, without them doing anything. But no-one will be forced to stay in if they don't want to - you're free to opt out if you want to.
You'll have to pay in 4% of your salary, your employer will pay 3% and the government will provide 1% in the form of tax relief (contributions are also being phased in so you won't pay this much to start and you can pay more if you want to).
Now, I don't think automatic enrolment is the perfect solution and I think the pensions industry has some real improvements to make in terms of what it offers, how it talks to its customers and how much it charges (particularly on old-style pensions, which people may have taken out years ago).
However, there's no getting away from the fact that the state pension simply isn't enough for most people to live on. It's currently £107.45 a week for the full basic state pension (less than £20 a day). You can retire on more if you earn a higher state pension through SERPS and/or the State Second Pension (S2P), but many people, especially women, don't.
There's a lot of research to back up the fact that while some people genuinely can't afford to save into a pension, many don't do it because they don't get round to it. Morrisons, one of the biggest supermarkets, says that 90% of its workers aren't in its pension scheme. And that figure is not uncommon.
Another major high street retailer found a massive difference in the percentage of (mainly female) workers signing up to its pension scheme, depending on the store they worked in. In some, over 80% of employees were in the pension scheme, in others, the figure was as low as 20%. There was no difference in the salaries earned, and not much difference in the age and income of the workforce in the various stores. What it came down to was how enthusiastic the local manager was for the pension scheme. If he or she joined it and said it was a good idea, others would and vice versa.
Automatic enrolment isn't the answer to the pensions crisis. We need the government to make sure it's always worth saving and not to shift the goalposts, and we need a pensions industry that always puts its customers first. But automatic enrolment is a step in the right direction. And it's quite a big step.
Wednesday 29 February 2012
Ten tips on surviving the cash ISA season.
With just over a month until the end of the tax year, it's that special time when banks and building societies remember that they sell cash ISAs, and hike the rates so they can secure that much valued top spot in the best buy tables. Sigh.
I know from the emails I receive that many people are reasonably cynical about the way a lot of the banks operate (and who can blame them?). But there's no point in having money sitting in your cash ISA earning next to nothing, or picking an account that's paying a paltry rate of interest. So, are my ten tips on getting a good deal:
1. Know your limits. This tax year (to April 5th) you can pay up to £5,340 into a cash ISA, which worked out at £445 a month. From April 6th you'll be able to pay in £5,640 into a cash ISA (or £470 a month).
2. Look at how much existing ISAs are earning. Many cash ISAs will accept transfers in, which means you can move some or all of the money you've saved in cash ISAs in previous tax years. If you have a cash ISA that you're currently paying into, you have to move all of it (or none at all).
3. Watch out for the bonus rates. Banks love bonus rates because they can pay an eye-catching rate during the ISA season and whisk it away after a year or so. Set up an alert to remind you to shop around when the bonus rate runs out.
4. Compare the comparison sites. Don't look at one comparison site alone because they often assess best buys in different ways: some don't give the top slot to ISAs that tie you to another account, others don't include bonuses that last for less than a year and some have exclusive deals that you have to take out via the site.
5. Look at fixed rate cash ISAs. If you're saving your ISA money for something longer term (i.e. you won't need your money within a year at least), find out how much more you could earn if you take out a fixed rate ISA. Some cash ISAs will let you get at your money before the fixed rate term is up as long as you give a couple of months' notice, but not all will.
6. Find out if you can top up your fixed rate cash ISA. Most fixed rate cash ISAs can't be topped up after a certain period (often 30 or 60 days), but some ISA providers will let you take out a second cash ISA to use up the rest of your allowance if you haven't already done so. If you think you'll have money to spare, check with the ISA provider first. Some will let you take out a fixed rate ISA, others a variable rate.
7. Split your ISA money. It doesn't necessarily have to be a choice between a fixed or a variable rate. Some ISA providers will let you split your money between two or more products they offer.
8. Think ethical. March is move your money month, a big campaign to encourage people to move away from mainstream high street banks to smaller building societies or ethical providers. There isn't much choice if you want an ethical current account but there are a number of ethical cash ISA providers (and as I write this, you'd earn £35 a year less in interest if you went with the best buy ethical cash ISA compared to the best buy non ethical ISA and invested the full allowance of £5,340).
9. Look at taxed accounts. If you're a basic rate taxpayer, look at whether you'd be better off putting your money into a taxable (i.e. ordinary savings) account rather than a cash ISA. Some banks pay better rates on taxable accounts (probably because they know that cash ISAs are so popular).
10. Understand the transfer rules. If you're transferring an ISA, the switch must be done directly from one ISA provider to another (you can normally download a 'transfer' form) - you mustn't close the account and pay the money into an ordinary bank account. You can transfer money you've saved in a cash ISA into a stocks and shares ISA and it won't affect your ISA allowance, but you can't do the transfer the other way round.
I know from the emails I receive that many people are reasonably cynical about the way a lot of the banks operate (and who can blame them?). But there's no point in having money sitting in your cash ISA earning next to nothing, or picking an account that's paying a paltry rate of interest. So, are my ten tips on getting a good deal:
1. Know your limits. This tax year (to April 5th) you can pay up to £5,340 into a cash ISA, which worked out at £445 a month. From April 6th you'll be able to pay in £5,640 into a cash ISA (or £470 a month).
2. Look at how much existing ISAs are earning. Many cash ISAs will accept transfers in, which means you can move some or all of the money you've saved in cash ISAs in previous tax years. If you have a cash ISA that you're currently paying into, you have to move all of it (or none at all).
3. Watch out for the bonus rates. Banks love bonus rates because they can pay an eye-catching rate during the ISA season and whisk it away after a year or so. Set up an alert to remind you to shop around when the bonus rate runs out.
4. Compare the comparison sites. Don't look at one comparison site alone because they often assess best buys in different ways: some don't give the top slot to ISAs that tie you to another account, others don't include bonuses that last for less than a year and some have exclusive deals that you have to take out via the site.
5. Look at fixed rate cash ISAs. If you're saving your ISA money for something longer term (i.e. you won't need your money within a year at least), find out how much more you could earn if you take out a fixed rate ISA. Some cash ISAs will let you get at your money before the fixed rate term is up as long as you give a couple of months' notice, but not all will.
6. Find out if you can top up your fixed rate cash ISA. Most fixed rate cash ISAs can't be topped up after a certain period (often 30 or 60 days), but some ISA providers will let you take out a second cash ISA to use up the rest of your allowance if you haven't already done so. If you think you'll have money to spare, check with the ISA provider first. Some will let you take out a fixed rate ISA, others a variable rate.
7. Split your ISA money. It doesn't necessarily have to be a choice between a fixed or a variable rate. Some ISA providers will let you split your money between two or more products they offer.
8. Think ethical. March is move your money month, a big campaign to encourage people to move away from mainstream high street banks to smaller building societies or ethical providers. There isn't much choice if you want an ethical current account but there are a number of ethical cash ISA providers (and as I write this, you'd earn £35 a year less in interest if you went with the best buy ethical cash ISA compared to the best buy non ethical ISA and invested the full allowance of £5,340).
9. Look at taxed accounts. If you're a basic rate taxpayer, look at whether you'd be better off putting your money into a taxable (i.e. ordinary savings) account rather than a cash ISA. Some banks pay better rates on taxable accounts (probably because they know that cash ISAs are so popular).
10. Understand the transfer rules. If you're transferring an ISA, the switch must be done directly from one ISA provider to another (you can normally download a 'transfer' form) - you mustn't close the account and pay the money into an ordinary bank account. You can transfer money you've saved in a cash ISA into a stocks and shares ISA and it won't affect your ISA allowance, but you can't do the transfer the other way round.
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