Millions of over-fifties will be able to shelter another £33 billion from the
taxman in a month’s time when the Isa limit goes up by £3,000 to £10,200.
Some 21m people in Britain are aged 50-plus, and 11m of them have already
squirrelled away money into tax-free Isas. If they all used their full
top-up, it would see them stash away a further £33 billion out of the
Revenue’s reach.
The amount that you can save in a cash Isa will also go up from £3,600 to
£5,100 on October 6, or £16.5 billion if all 11m took advantage, figures
from Fidelity, the fund manager, show.
However, research undertaken by Lloyds Banking Group for The Sunday Times
found that more than three-quarters (77%) of adults don’t understand or are
unaware of the forthcoming changes.
You don’t need to put your top-up into the same fund as long as you stay with
the same provider, for example. So if you invested in the M&G Corporate
Bond fund earlier this year, as many investors did, you could now put your
extra £3,000 into an equity fund such as M&G Recovery.
However, if you’re on a fund supermarket, such as Fidelity Funds Network, you
can split your allowance between as many different fund providers as you
choose.
The stock market has rallied an extraordinary 21.5% since the start of the tax
year on April 6, but only a tenth of the 4,000 adults surveyed by Lloyds
said that they would commit new money to the stock market. This echoes the
views of many of our experts, who are taking a more balanced approach with
their Isa top-ups.
Geoff Tresman at Punter Southall Financial Management, an adviser, said: “Many
analysts believe the markets have raced ahead at too fast a pace and that
the underlying economic conditions do not justify such confidence.
“I feel a correction will happen over the next few months and investors would
be better advised to keep their powder dry. It is, however, important the
additional allowance is taken prior to the end of the tax year, otherwise it
will be lost.” Your £3,000 could be worth nearly £12,000 in 20 years
assuming investment growth of 7% a year — and free from capital gains and
income tax — figures from Bloomsbury Financial Planning, an adviser, show.
Jason Butler at Bloomsbury said: “If you only save tax at 20%, your fund would
still be worth £2,700 more compared with investing outside an Isa.”
In spite of fears earlier this year that some fund management groups might not
be able to accept Isa top-ups, all the big fund groups that were contacted
by The Sunday Times — including Fidelity, Jupiter, Schroders, Neptune
and Artemis — said that they would have no problem accepting the cash.
Here, we look at where five experts are investing their Isa top-ups:
Graham Frost, 55, chief investment officer at independent broker Bestinvest
“Being over 50, I’m not looking to take on as much risk and want a balance
between income and growth,” said Frost.
“Overall, equity markets are no longer cheap, unless you believe there’ll be a
large bounce back in corporate profits, which I don’t. Emerging markets will
be the source of global growth in the long term, but they have had a strong
rally of late.”
Frost is splitting his extra £3,000 allowance between Standard Life UK Smaller
Companies for the growth element, New Star UK Property (which yields 5.9%)
for income, and Gartmore UK Absolute Return.
The latter he likes as an “all weather” fund. It has the ability to short
stocks, so can make money when prices fall.
“I’ve decided to put my Isa top-up into smaller companies and commercial
property. Although smaller companies shares have risen recently, they’re
still relatively inexpensive,” he said.
“Meanwhile, capital values in commercial property have started to stabilise
and current yields look attractive — at about 6%.”
John Holder, 59, chairman of discount broker Chelsea Financial Services
“I felt I needed to add some stability to my portfolio, so I’ve decided to top
up my Isa with Artemis Strategic Assets,” said Holder.
The fund is run by William Littlewood, who was a star manager in the 1990s
while at the helm of Jupiter Income therefore there are high hopes for this
fund, launched in May.
“While most balanced UK funds contain the traditional mix of cash, equities
and bonds, this fund branches out into commodities and currency, as well as
being able to short stocks.
“This will help smooth volatility in the coming months,” he said.
Since launch, the fund is up 5.66%. Its top holdings include Glaxo Smith
Kline, the pharmaceutical giant, Royal Dutch Shell, the oil producer, and
utilities firm Centrica.
It has 60% in equities (9% of which are short positions), 10% in commodities
(including 5.4% in gold, which last week hit a three-month high of almost
$1,000, 29% in cash (including currency deals, such as shorting sterling)
and 1% in bonds.
Other funds included in Holder’s portfolio are Artemis Special Situations,
Invesco High Income, Jupiter Income and Gartmore China.
Jonathan Polin, 50, managing director of Ignis Asset Management
“While someone of my age would be typically reducing risk in their portfolio
in favour of bonds and cash, the recent fall in equity markets means there’s
great value in the stock market,” said Polin.
“I’m as guilty as the next man of having most of my assets tied up in the UK —
at around 95% — mainly in my home and UK equity funds. I want to diversify
away, as there are better opportunities elsewhere.”
He hasn’t yet invested his full allowance for 2009-10, so will invest the full
£10,200 in October with a split of 60% into European equities, 20% into UK
commercial property and 20% into general emerging markets.
“Europe is the world’s largest cheapest market just now — and is also one of
the most overlooked by investors. That’s a positive sign that European
equities are due for a resurgence,” he said.
“Having avoided direct UK commercial property to date, I’m becoming
increasingly attracted to it. Property has fallen further and harder than
most asset classes and we’re at or near the bottom of the market.
“Lastly, it’s essential to increase exposure to emerging markets to achieve my
retirement goals, especially in light of the problems faced in the West. I’m
willing to see any dips, such as the recent fall in the Chinese market, as a
buying opportunity.”
Polin plans to split his Isa allowance between Argonaut European Alpha
(£6,120), Ignis UK Property (£2,040), Hexam General Emerging Markets
(£1,020) and Aberdeen Emerging Markets (£1,020).
Colin Chisholm, 59, head of Jupiter’s private client division
“I’ve invested my Isa allowance with Jupiter for the past five years, but have
investments with other managers, such as Findlay Park, a boutique, and
Algebra,” said Chisholm. “I’m putting this year’s Isa money into Jupiter
Financial Opportunities and the extra allowance will go there too.
“I’ve backed Philip Gibbs, the fund’s manager, for a number of years — not
just because he is an expert at investing in financials, but because of his
skill at spotting significant turning points in markets and his willingness
to turn his portfolio round accordingly.”
Jupiter Financial Opportunities has around 62% in bank stocks, with its
largest holdings including BNP Paribas, Bank of America and Barclays. Only
12% of the fund’s holdings is in cash — a far cry from the 83% at the end of
February this year.
Mark Dampier, 52, head of research at Hargreaves Lansdown, an adviser
Dampier is also considering putting his top up into Gibbs’ fund, but is split
between that and Old Mutual Corporate Bond, run by Stephen Snowden. “I’ve
got about seven funds in my Isa, so don’t want to add more — I’d prefer
to add to what I’ve already got,” said Dampier. “Gibbs stands out as he’s
done so well, but Snowden has also done brilliantly. Remember, too, that
income in an Isa is tax free and Snowden’s fund yields almost 8%, which is
very nice.”
Old Mutual has lost 4.5% in the past year, but is up 49.3% after hitting a low
in March. Its largest holdings include bonds issued by Barclays, Punch
Taverns and Highbury Finance.
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