Questions of Cash: Address your problem with a lawyer
Saturday 28 September 2002
My husband and I have a joint mortgage with the Nationwide, an endowment backed by three policies. An Abbey Life one was taken out years ago in my husband's name with his former wife. On divorce, it was signed over to him. But correspondence is still addressed to my husband and his former wife and the lives assured are theirs.
Q My husband and I have a joint mortgage with the Nationwide, an endowment backed by three policies. An Abbey Life one was taken out years ago in my husband's name with his former wife. On divorce, it was signed over to him. But correspondence is still addressed to my husband and his former wife and the lives assured are theirs.
What would happen if my husband dies first? Abbey Life says payment would be to me, but we remain unconvinced. We are considering encashing all the endowments to pay off some of the mortgage, taking out a repayment one for the outstanding amount. SM, by e-mail.
A If you are unconvinced by Abbey Life you should seek legal advice to ensure it is legally binding. In general, it is better not to surrender an endowment policy because you will not recover its value, though you could ask Abbey Life what the surrender value would be. Abbey Life policies are not saleable, because they are unit-linked, not with-profits. Adam Carruthers, research manager of adviser RJ Temple, says: "You must obtain written confirmation from Abbey Life that the policy will pay out to you."
Q William Kay, in his column last week, identified my position about maturing gilts [that new issues are at far lower interest rates]. How do I invest in local authority loans? RB, by e-mail.
A Local authority loan stock issued to individuals was an important means of councils raising money for major capital schemes until the last century, but not now. Martin Easton, adviser to the Local Government Association, says: "I would be surprised if you found any local authorities who issue loans like this. It is much more efficient for them to borrow in bulk from the markets."
Q My partner and I have been in our employers' pension schemes for 20 years. We intend to retire in 15 years, in our mid-fifties. We are investing heavily in additional voluntary contributions (AVCs) without using our Isa allowances. We wonder if this is a mistake. The income in retirement from the AVCs will be taxed.
If one of us dies, there would be no capital return to the surviving partner from the AVCs. All AVC funds must be used to produce pension income and cannot provide a tax-free cash sum. Should we invest in corporate/government bonds in an Isa wrapper? PH, Nottingham.
A Carl Melvin, of adviser Pension Transfer Solutions, says AVCs are of greatest benefit to higher-rate taxpayers, who will pay standard tax in retirement. "If you plan to take the AVC fund in your mid-fifties, the annuity is likely to be low because you are too young for a high one," he says. "If you pay basic-rate tax, you might divert future contributions to a personal pension plan, giving you tax relief and a cash sum of 25 per cent. But you will still be caught by annuity rates at early retirement. A non-pension route is better, with an Isa the obvious choice.
"If you both use your £7,000 Isa allowance, over 15 years a 6 per cent return gives you £170,491. With a pension of the same amount, assuming 8 per cent growth, your fund would be £203,200. Although the Isa fund is smaller, there is no tax on the income and the capital value won't disappear when you die."
* If you have any questions about personal finance topics or problems, please write to Questions of Cash, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail email@example.com. We regret that we can reply only to letters published here. Please send copies, not originals, as we cannot undertake to return material.
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