The Lemon Fool

I've never posted on here before but have been a long time reader. I have always invested my money myself in s&s Isas and cash Isas and have built up a considerable sum for retirement. A financial advisor has recommended that I cash in all my Isas and transfer them into an investment bond managed by him. I have already cashe my cash isas and my index linked saving certificates and am holding proceeds in my current account prior to handing over to him. I am starting to wonder if I am doing the right thing. any advice would be appreciated

emmabeth wrote: I am starting to wonder if I am doing the right thing. any advice would be appreciated

I would have thought it wrong in principle to move assets out of a tax shelter if there is no need to. That's assuming the "investment bond" cannot be held in an ISA.

I would be hugely sceptical about an 'investment bond'. These things are usually structured to maximise the adviser and the insurance company's fees!

Clear bargepole territory for me!

emmabeth wrote:I've never posted on here before but have been a long time reader. I have always invested my money myself in s&s Isas and cash Isas and have built up a considerable sum for retirement. A financial advisor has recommended that I cash in all my Isas and transfer them into an investment bond managed by him. I have already cashe my cash isas and my index linked saving certificates and am holding proceeds in my current account prior to handing over to him. I am starting to wonder if I am doing the right thing. any advice would be appreciated

If you have moved your savings out of an ISA on the IFA's advice, it sounds like he might have already done you a huge disservice. I would be very wary of trusting anything he is proposing.
However, you have not provided much in the way of background or context. Moving out of an ISA may make sense if you are in a able to cycle the amounts through a pension scheme, claim tax reduction, and then retire and pay a significantly lower tax rate on the money coming out of the pension.

Wary about investment bonds as well......

You must be half convinced to get so far. What has been promised? Do you think your interests and the IFAs are alligned?

emmabeth wrote:I've never posted on here before but have been a long time reader. I have always invested my money myself in s&s Isas and cash Isas and have built up a considerable sum for retirement. A financial advisor has recommended that I cash in all my Isas and transfer them into an investment bond managed by him. I have already cashe my cash isas and my index linked saving certificates and am holding proceeds in my current account prior to handing over to him. I am starting to wonder if I am doing the right thing. any advice would be appreciated

OMG - that sounds really bad to me. Don't do it.

Have you got any more details of what he's trying to put the money in? How old are you? How did you contact him?

Mel

I'm 67. He says I can take 5% per annum out tax free and all the money will be sheltered from potential care home fees

A solicitor recommended him. The money will be in unit trusts inside the bond wrapper

emmabeth wrote:I'm 67. He says I can take 5% per annum out tax free and all the money will be sheltered from potential care home fees

I think if we are to guide you into how to better look at this, we need a lot more detail.

What other pensions do you have?

What other income?

What other savings?

Are you actually retired?

Do you have dependants?

Do you know what your life expectancy might be likely to be, any hereditary illness you have to take into account?

Why are care home fees an issue?

How do you and this guy 'meet'?

What is the name of the IFA (I assume it's a firm)?

Is he suggesting the money is held in trust?

Has he gone through your attitude to risk? If so, what does he say it is?

I'm quite worried for you about this. It might be worth you speaking to https://www.pensionwise.gov.uk/en or the Citizens' Advice Bureau.

Have a read of this: https://www.pensionwise.gov.uk/en/scams

Mel

I think if we are to guide you into how to better look at this, we need a lot more detail.

What other pensions do you have?

My wife and I have government pensions and I have a small personal pension £5000 per annum

What other income?

We both have part time jobs bringing in £7000 each

What other savings?

our savings amount to £500,000, all will go into the bond

Are you actually retired?

Next year

Do you have dependants?

No

Do you know what your life expectancy might be likely to be, any hereditary illness you have to take into account?

No issues

Why are care home fees an issue?

They are not but we are concerned they might be, we want to leave our money to our 3 sons

How do you and this guy 'meet'?

Face to face

What is the name of the IFA (I assume it's a firm)?

Independent

Is he suggesting the money is held in trust?

No he says it doesn't need to be

Has he gone through your attitude to risk? If so, what does he say it is?

Yes, medium

Gosh, that is a lot of money to trust one person with.

Are you paying him a fee, directly?

Why not get a few other opinions from other IFAs? maybe one of the big ones?

If it is just care home fees I'm not sure I understand how a bond would avoid that. Has he explained?

You do know, presumably, that making plans to avoid care home fees could well see those plans being reversed if the fees are required?

Mel

emmabeth wrote:I'm 67. He says I can take 5% per annum out tax free

There's tax free and tax free. If it's a bond issued by a UK insurer, the returns you see are after tax.

You can withdraw as much as you like tax free provided the assets stay in an ISA. It's not a tax advantage to move wealth out of an ISA shelter.

If there's wealth outside of tax shelters, it might be advantageous to move it to an Insurance Bond. In practice what you may save on tax, you can lose on charges and fees.

As a guess, your adviser isn't associated with St James' Place by any chance?

I was also wondering - this 'can draw 5% tax free' thing makes it sound like the capital may disappear on death, like an annuity. In which case - while avoiding care home fees (potentially and I'm not even sure that is right) it may be that there is no inheritance left which seems to be the aim.

Mel

melonfool wrote:I was also wondering - this 'can draw 5% tax free' thing makes it sound like the capital may disappear on death, like an annuity.

It's a UK or possibly offshore life assurance policy. The magic words to Google are "chargeable event". Gains on such policies are treated as basic tax paid, but potentially subject to higher rate tax. The 5% is an allowance which can be offset against this, it's treated as a return of capital. It's outside of Capital Gains Tax because returns are taxed in the hands of the insurer.

You said you have already cashed in your cash ISAs and hold the funds in a current account. May I ask how much of the £500k that represents (or to ask a different way, how much do you still have in S&S ISAs?)

Like most, I would be very very wary of entrusting all of your savings to one product. If the insurer goes bankrupt, you’re in real trouble.

A further question - presumably you own your own home? Roughly how much do you think it is worth?

I still have £150,000 in isas that are due to be cashed this week. I own my house worth £250,000

emmabeth - could you expand on why you think you need something 'tax free' when in fact, you can take what you like from your ISA tax free?

Is there some other tax issue that is not immediately obvious?

My parents have £450k in cash (not tax sheltered), house worth £800k, and they cannot spend their annual pensions of c£50k, so for them, minimising tax could be a useful tactic. But I'm not seeing it for you so much?

Mel

melonfool wrote:Is there some other tax issue that is not immediately obvious?

Assuming the advisor is FCA registered and it would be bargepole time if he or she wasn't, a "reason why" letter should have been produced. This should explain the supposed rationale behind stripping assets held in ISAs in favour of buying an insurance policy. As may have been gathered from the comments in this thread, the readers of this forum don't get it.

Alaric wrote:

melonfool wrote:Is there some other tax issue that is not immediately obvious?

Assuming the advisor is FCA registered and it would be bargepole time if he or she wasn't, a "reason why" letter should have been produced. This should explain the supposed rationale behind stripping assets held in ISAs in favour of buying an insurance policy. As may have been gathered from the comments in this thread, the readers of this forum don't get it.

Yes, hence my question which I was rather hoping the OP might answer

Mel

emmabeth wrote:I've never posted on here before but have been a long time reader. I have always invested my money myself in s&s Isas and cash Isas and have built up a considerable sum for retirement. A financial advisor has recommended that I cash in all my Isas and transfer them into an investment bond managed by him. I have already cashe my cash isas and my index linked saving certificates and am holding proceeds in my current account prior to handing over to him. I am starting to wonder if I am doing the right thing. any advice would be appreciated

I looked into 'retail bonds' a couple of years ago after a family member had a sum placed in one as a consequence of the death of my mother. Bargepole territory for me, I'm afraid. That's a significant sum of money and I think you are getting some useful warning signals from other board members here. Good luck.

RC