If you are diagnosed as having one of the specific life-threatening conditions defined in your policy, critical illness insurance pays out a tax-free lump sum, giving you peace of mind when you need it most. When you suffer from a critical illness it can seriously affect you financially and the last thing you need is to face not being able to pay bills or make mortgage payments.

Some policies also offer both life and critical illness cover. These pay out if you are diagnosed with a critical illness, or you die, whichever happens first. Although not all policies cover all critical conditions, industry guidelines say that to call itself critical illness insurance a policy must offer cover for cancer – but only advanced cases; heart attack – if sufficiently severe; and, stroke – if it results in permanent symptoms.

A basic plan will typically also cover kidney failure, major organ transplants, multiple sclerosis and coronary bypass surgery. More serious conditions are covered in more comprehensive policies, and many also include loss of sight, permanent loss of hearing and a total and permanent disability that stops you from working. Some policies also provide cover against the loss of a limb.

A policy will provide cover only for conditions defined in the policy document. For a condition to be covered, your condition must meet the policy definition exactly. This can mean that some conditions, such as some forms of cancer, won’t be covered if deemed insufficiently severe.
Similarly, some conditions will not be covered if you suffer from them after reaching a certain age, for example, many policies will not cover Alzheimer’s disease if diagnosed after the age of 60.

Very few policies will pay out as soon as you receive diagnosis of any of the conditions listed in the policy and most pay out only after a ‘survival period’ of typically 28 days.

Because policies vary widely in the cover they offer, you should obtain professional independent advice to ensure that you obtain a critical illness policy that is appropriate for your particular needs. An adviser will also be able to help you decide how much cover you need, how long the policy should last and whether you should combine critical illness and life cover.

How much you pay for critical illness cover will depend on a range of factors, including what sort of policy you have chosen, your age, the amount you want the policy to pay out and whether or not you smoke.

With so many different insurance policies available, it can be difficult to know which ones will best protect your family from financial hardship. To discuss your situation, please contact us.

The government has amended its pensions bill to make it easier for people to boost the amount of state pension they are entitled to receive. To claim the full state pension, currently £90.70 a week, you must have built up a certain number of qualifying years during your working life. You can make up any years you may have missed, for example through child care or ill health, by making a voluntary National Insurance contribution, but the current rules say you can only make up the most recent six years of missing payments.

The government now plans to allow you to make up an additional six years from any time in your career.

However, the rule will apply only to those who reach state pension age before 5 April 2015 and who have 20 qualifying years under their belts.

The state pension age is 65 for men and 60 for women who were born on or before 5 April 1950. Between 2010 and 2020 the retirement age for women will rise to 65 too. Between 2024 and 2046 it will rise to 68 for everyone.

A qualifying year is the year in which you have earned enough to make National Insurance contributions. In the 2008/09 tax year this is £4,680 or more for employees, and £4,825 or more for the self-employed. To get any state pension at all you must have at least ten qualifying years as a man and nine as a woman.

To get a full state pension the number of years you need depends on your sex and when you plan to retire. If you reach state pension age before 5April 2010 and you are a man, you will need 44 qualifying years to get the full state pension; if you are a woman you will need 39 years. After 5 April 2010 everyone will need to have accumulated 30 qualifying years.

Currently you can reduce the number of years you need to qualify to as few as 20 through home responsibilities protection – this is available if you are receiving child benefit or caring for someone sick or disabled. After 2010 this is set to be replaced by NI credits.

To determine if you have to make up your qualifying years, you will need to add up how many years you have worked and paid National Insurance, and how many more you are set to do before you reach the state retirement age, and you can see if you have enough qualifying years.

If you have any doubts as to whether you have paid NI contributions for every year you have worked, you can call the National Insurance enquiry helpline on 0845 915 5996 to check your record. The Pension Service can also provide you with a state pension forecast. To make up contributions at the moment it is £420 for each qualifying year, although this will be increased to offset the cost of the change.

Tax rate
Tax band

Basic rate: 20 per cent
£0-£34,800

Higher rate: 40 per cent
Over £34,800

From 2008/09, there is a 10 per cent starting rate for savings income only, with a limit of £2,320. If an individual’s taxable non-savings income is above this limit, then the 10 per cent starting rate for savings will not apply. There are no changes to the 10 per cent dividend ordinary rate or the 32.5 per cent dividend upper rate.
Income tax allowances
Type of allowance
Earnings for 2008/09
Personal allowance
£6,035
Personal allowance (aged 65-74) (1)
£9,030
Personal allowance (aged 75 and over) (1)
£9,180
Income limited for age-related allowances
£21,800
Married couple’s allowance for people born before 6 April 1935 (1) (2)
£6,535
Married couple’s allowance - aged 75 or over (1) (2)
£6,625
Income limit for age-related allowances
£21,800
Minimum amount of married couple’s allowance
£2,540
Blind person’s allowance
£1,800
(1) - These allowances reduce where the income is above the income limit by £1 for every £2 of income above the limit. They will never be less than the basic personal allowance or minimum amount of married couple’s allowance.
(2) - Tax relief for the married couple’s allowance is given at the rate of 10 per cent.

The Pensions Regulator said on 24 October that British pension schemes have a ‘relatively limited exposure’ to toxic assets. The Pensions Regulator also said in a statement that it has seen a ‘limited involvement in derivative trades with counterparties that are in difficulty.’ It urged pension trustees to check that corporate sponsors remain committed to supporting their saving vehicles.

The current volatile markets have wiped out billions of pensions assets. Accounting firm Deloitte estimated that the real pension deficit of FTSE 100 firms amounted to over £100bn pounds in the middle of October.

‘It is good practice for trustees to keep the employer covenant under review,’ the regulator said. The watchdog was set up in 2005 to control the pension industry and make sure schemes achieve and retain a fully funded position.

In its note it said that companies sponsoring a pension scheme involved in a recovery plan should discuss the situation with the trustees, but it added that fewer recovery plans have been filed since its new regime was implemented.

Every under-funded pension scheme in the UK is required to submit a recovery plan to highlight how the deficit will be made good.

In 2005 the regulator implemented a new funding regime where each scheme is assessed separately rather than against the general minimum funding requirement which had been in place since 1995.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investment can go down as well as up and you may not get back the full amount invested.

Protecting your savings

From 7 October 2008, savings of up to £50,000 are guaranteed by the Financial Services Compensation Scheme (FSCS). But the protection applies per person, per institution (not account) that holds an individual banking licence.

All customers of authorised financial services firms in the UK are covered by the FSCS. It will pay compensation if a firm is unable, or likely to be unable, to pay claims against it – when this happens the firm falls into default. If a bank collapses and takes your savings with it, you will be able to claim compensation from the scheme.

Reclaiming savings
If you have savings with a bank or building society that becomes insolvent, you can reclaim up to 100 per cent of the first £50,000 you hold in each provider with its own banking licence. You should check which banks and building societies share a licence.

You do not need to contact the institution yourself in order to make a claim. You will typically be required to complete a claims application form, which the FSCS will send you after the provider defaults.

The FSCS aims to process all claims within six months after a declaration of default, although it may take longer depending on the complexity of the claim or whether or not there have been any delays with the liquidator.

The FSCS normally issues a cheque for compensation, but says it will consider other alternatives for claimants who do not have a bank or building society account.
When it comes to insurance, the FSCS will cover life insurance policies such as pensions, annuities and endowments, as well as motor, home and employers’ liability insurance. For these claims you will again have to fill in an application form from the FSCS (not from your insurer) in order for it to consider your claim.

If you are making a claim against an insurance company that has gone into liquidation, the FSCS could compensate you for the premiums you have already paid (if the insurer is unable to do so) and will try and help you transfer policies or pay you compensation.

Compensation is unlimited under the scheme, but you will not get all your money back unless it is a claim for a compulsory insurance, such as third-party motor cover. The scheme covers 100 per cent of the first £2,000 you have lost, plus 90 per cent of the remainder of the claim.
If you have specific questions or concerns about the details of your insurance policy rather than anything to do with compensation, you should speak directly to the insolvency practitioners who will be responsible for the administration of the insurer and the settlement of any claims.

If you are making a claim against an investment company that has gone into liquidation, you will have to supply the FSCS with specific details about your investment, such as its type, how much you invested and when. If your business with the company was only ever before August 1988, then the FSCS will not be able to help you.

The FSCS will usually ask you to send any documents relating to your investments which the company may have sent you.

Q: I am due to reach State Pension Age before 6 April 2010. Will the changes affect how much State Pension I receive?
A: If you are already in receipt of State Pension, or are due to reach State Pension age before 6 April 2010, you will not be affected by the changes to the way State Pensions are calculated. You will be entitled to claim State Pension under the current system from age 65 for men, and age 60 for women. Earnings uprating of basic State Pension will be introduced for all pensioners from 2012 at the earliest.

Q: I reach State Pension age before 6 April 2010 but will my State Pension be worked out under the new rules if I put off claiming it until after 6 April 2010?
A: No. The new rules apply only to people who reach State Pension age on or after 6 April 2010. If you put off (defer) claiming your pension, you may be able to get a higher amount or a lump sum when you claim it later.

Q: I have already reached State Pension age. Will I be affected by Personal Accounts?
A: If you are over State Pension age but under age 75 and working and want to save, then you can ask your employer to enrol you into a scheme. If you chose to enrol, you will also get a pension contribution from your employer.

Q: I am a woman and will be 60 before 6 April 2010. Will I still be able to claim my State Pension when I am 60?
A: Yes. As you will be 60 before 6 April 2010, you will still be able to claim your State Pension from age 60.

Q: I heard that I can’t get any basic State Pension unless I have at least 25 per cent of the contributions needed for the full amount because I will be reaching State Pension age before 6 April 2010. Is this correct?
A: Yes. If you reach State Pension age before 6 April 2010 your State Pension will be worked out according to the current rules.

Q: I am currently getting an Adult Dependency Increase (ADI). Will this stop on 6 April 2010?
A: If you are already getting an ADI when the rules change on 6 April 2010, you will be able to keep it for a time under transitional rules. It will stop when the qualifying conditions are no longer satisfied (for example, because the person you are getting the ADI for starts to get their own State Pension) or, at the latest, in 2020.

Q: I am married and currently getting an Adult Dependency Increase (ADI). Will I be worse off when ADIs stop altogether in 2020?
A: Around three quarters of the ADIs in payment in April 2010 will have stopped before 2020, for example, because the person the ADI is for starts to get their own State Pension. If this is not the case for you, you will be told about any other benefits you may be able to get when your ADI stops in 2020.

Q: I am a married woman. I’m already over State Pension age but haven’t paid enough contributions to get a pension. My husband doesn’t intend to claim his pension until he’s 70. When can I claim a pension using his contributions?
A: At the moment you can’t claim your pension until he claims his, but the rules are changing from 6 April 2010. If he’s 65 (State Pension age) before then, you can claim your pension from 6 April 2010. If he’s 65 on or after 6 April 2010, you can claim when he reaches his State Pension age regardless of whether he chooses to claim his State Pension or not.

Q: Why won’t my pension be uprated in line with earnings until 2012 at the earliest?
A: The change is timed to coincide with other economic factors associated with the overall package of Pensions Reform. However, if you are on a low income you may be able to get Pension Credit. The standard minimum guarantee in Pension Credit is already uprated in line with earnings and this will continue.

Why not make an alternative gift to your children or grandchildren this Christmas, something they’ll still benefit from in future years?

Festive returns of the year
When investing for children there are numerous products to choose from, including bank accounts, National Savings & Investments, Child Trust Funds, unit trusts, individual savings accounts (ISAs) and stakeholder pensions. There are many choices to make, including whether to invest a lump sum or regular premium, the time scale, risk profile and tax considerations. Take a look at some of these festive stocking fillers.

Bank accounts
There are a number of accounts designed for children, and because these will often be held for a relatively long time they often offer higher interest rates. Cash deposits are very low risk and would be suitable for people who are extremely risk-averse or who are not concerned about inflation.

From a tax point of view, if the interest accruing in a tax year is less than the child’s personal allowance of £6,035 (2008/09), there should be no tax due. By completing an R85 form, typically available from the bank or HM Revenue & Customs, the interest will be received gross.

Care should be taken if the money is a gift from the child’s parents. In this situation, any interest above £100 will be taxable for the parents. If each parent makes a separate gift, they can each use their £100 allowance, thereby allowing interest of £200 to be free of tax.

Because of this, if a significant gift is to be made, it will often come from the grandparents or other relative as the £100 rule would not apply.

The National Savings & Investments Children’s Bonus Bond
You can invest between £25 and £3,000 tax-free for children under the age of 16 and the interest is fixed for five years. The Children’s Bonus Bond issue 31 pays a guaranteed compound rate over 5 years, including the 5th anniversary bonus, of 3.70 per cent AER tax-free. Tax-free means the interest is exempt from UK Income Tax and Capital Gains Tax.

AER (Annual Equivalent Rate) is a notional rate that illustrates what the annual rate of interest would be if the interest were compounded each time it was paid. Where interest is paid annually, the quoted rate and the AER are the same.

Child Trust Fund
Every child born after 1 September 2002 and receiving child benefit is eligible. The Child Trust Fund account is a savings and investment account for children. The account will belong to the child and cannot be touched until they are 18. Money cannot be taken out of the Child Trust Fund account once it has been put in.

Neither you nor your child will pay tax on income or gains in the account (provided that you are UK residents) and a maximum of £1,200 a year can be saved in the account by you, family or friends. Each contribution year starts on the child’s birthday and ends the day before their birthday.

Parents receive a £250 or £500 voucher to start an account and the government will make a further contribution when the child is seven. This top-up payment will be £250, or £500 for children in lower-income families. These payments will be paid direct into the child’s account.

There are two types of account, stakeholder and non-stakeholder. Broadly speaking, the stakeholder option caps the annual charges at 1.5 per cent of the account’s value but imposes certain investment restrictions. The non-stakeholder is more flexible but can levy higher charges.

Unit trusts and Open-ended investment companies (OEICs)
These are collective investments that pool investors’ money to allow a wider investment spread: in stocks and shares, bonds or other investments. Economies of scale mean that the cost of running a collective investment may be less than that for an individual portfolio. In general, even in these current turbulent economic times, shares should outperform cash deposits and inflation over the medium to long term.

Investment trusts perform a similar function to unit trusts and some have special savings schemes for children. If the investment is for a short period, a lower-risk deposit-based investment would probably be more suitable.
Children have their own tax allowances, the same as adults. It is possible, therefore, to use the child’s income tax allowance (currently £6,035) and capital gains tax allowance (£9,600).

Bare trusts
Because children are not allowed to hold investments, they are often wrapped in a trust. The simplest form of trust is a bare trust, with the investment held by an adult, usually a parent or grandparent, on behalf of the child.
However, apart from being the named holder (nominee), the parent has no beneficial right to the investment and must exercise control for the benefit of or on the instruction of the child. The income arising on the investment is taxed as part of the child’s taxable income and any capital gains as part of the child’s capital gains.
From a practical point of view the bare trust is extremely easy to administer because there is no trust document. The investment is made in the parent’s name and the existence of the trust is denoted by having the child’s initials in brackets. There is no additional cost in placing the investment in a bare trust.

Individual Savings Accounts (ISAs)
ISAs have proved to be very popular because of the tax benefits. The proceeds from cash and corporate bonds held within an ISA are tax-free. Dividends from shares within an ISA will have 10 per cent tax deducted, but there is no liability to higher-rate income tax and any capital gains are free from capital gains tax.

ISAs cannot be owned by children. However, many parents invest in ISAs in their own names but earmark the investment for their children. This flexibility may be useful as it does not tie in the parents, unlike unit trusts in a bare trust.

Stakeholder pensions
Stakeholder pensions were introduced by the government as a flexible, low-cost, tax-efficient way of providing income in retirement. They also allowed for contributions of up to £3,600 a year to be made on behalf of someone else, including children. As the contributions attract tax relief at the basic rate, an investment of £3,600 would cost only £2,880.

This facility therefore allows for parents and grandparents to start a pension very early in a child’s life. Even modest contributions can grow to a meaningful sum over a 50-year period. Stakeholder pensions can therefore offer a useful way of boosting a child’s pension. The only downside is that the child cannot touch the money until he or she is 55.

If at any time you are unsure about how much risk you are prepared to take, you should speak to us to receive professional advice.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investment can go down as well as up and you may not get back the full amount invested.

Many UK households could be at risk of paying inheritance tax (IHT), the tax which is charged at 40 per cent on the value of your estate over the nil-rate band threshold – currently £312,000 for an individual and £624,000 for a married couple, (2008/09 tax year).

The government has reversed many popular IHT schemes during its term in office. Tens of thousands of families who set up home-loan trusts to avoid the tax were affected by a crack-down on preowned assets in 2005.

A tax to discourage the use of certain types of trusts was also announced in 2006, and in 2007 the government announced it would be paying closer attention to lifetime gifts.

Many families do not start thinking about IHT planning until it is too late, so the first thing to do is to work out if the tax will be an issue. Add up the value of your savings, investments, properties and other personal possessions. Don’t forget to include funds held in an Individual Savings Account (ISA) wrapper. Although an ISA is tax-free during your lifetime, they are subject to death duties. You only pay tax on the value of your estate over the nil-rate band threshold. In the 2008/09 tax year the threshold is £312,000.

IHT is not payable when an estate passes between a husband and wife, or from one civil partner to another. Even better, married couples or civil partners can transfer the unused element of their IHT-free allowance to their spouse when they die. A couple would escape tax on £624,000 (2008/09) by doubling up the allowance this financial year. In 2010, when the nil-rate band threshold rises to £350,000, a married couple would escape tax on £700,000.

Giving away assets during your lifetime is a simple and legitimate way to mitigate potential death duties, as long as you do it in time. You can gift up to £3,000 a year and it is immediately exempt from IHT, or £6,000 if you did not make a gift of this kind in the previous tax year.

A married couple giving for the first time could, therefore, hand over £12,000 to their children in one year. After that, the maximum for a couple is £6,000. You can also escape IHT by giving £250 to any number of people every year, but you cannot combine it with the above exemption.

Parents can give £5,000 to each of their children as a wedding or civil partnership gift. Grandparents can give £2,500 and anyone else £1,000. Gifts of any size to political parties or charities are also exempt. If a gift is regular, comes out of income and does not affect your standard of living, any amount of money can be given away and ignored for IHT.

It is possible to make further tax-free gifts known as potentially exempt transfers (PETs), but you have to survive for seven years after making the gift. If you die within seven years and the gifts are valued at more than the nil-rate band threshold, you apply taper relief. The tax reduces on a sliding scale if the gift was made between three and seven years earlier.

You can give away most assets, including cash and shares. However, it has to be an outright gift from which you can no longer benefit. This excludes giving away your family home. If you hand it to your children and continue to live there, you have to pay a market rent, which can wipe out the tax benefits. Always make a note of such gifts to pass on to the executor of your will.
Loan trusts are designed for people who cannot give away assets because they need to live off the income but want future investment growth to be IHT-free.
You make a payment to a trust, which is treated as an interest-free loan to the trustees. The trust then repays your loan capital in instalments, giving you an income.

When you die, any outstanding loan forms part of your estate, but all investment growth is free from tax.
If you want to give away assets, and need to draw an income but do not think you will need the capital, you could consider discounted gift trusts. You make a gift into a single-premium insurance bond for your children, fixing how much income you will draw until your death. If you survive for seven years, the bond does not count as part of your estate.

Some investments offer tax benefits. Most shares listed on the Alternative Investment Market (AIM) become free from IHT once you have held them for two years. This is because they qualify for business property relief. There are risks, as AIM stocks can be extremely volatile, but the value of your portfolio would have to fall by 40 per cent or more before you would lose the IHT benefits.

Money invested in a commercial forest or actively farmed land also becomes free of IHT after you have owned it for two years. Commercial woodland is defined as property where timber from the forest will be actively marketed and sold.

If at any time you are unsure about how much risk you are prepared to take and what approach is appropriate for your particular situation, you should speak to us to receive professional advice.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.

Under new rules brought in by the government on 22 October aimed at reducing repossessions, mortgage lenders will have to prove they have tried to help struggling homeowners avoid losing their property.
As the credit crisis spreads from the financial sector into the rest of the economy, Britain is expected to enter its first recession since the early 1990s.

The housing market is already slumping fast and English and Welsh courts ordered more home repossessions in the second quarter of this year than at any time since 1992.

Lenders seeking a repossession court order under the new rules will be expected to show they have tried to find alternatives when borrowers get into trouble with their mortgage repayments, the Treasury said.

‘We need to make sure we help those who might be hardest hit in the tougher times ahead, ensuring repossession is the last resort not the first,’ said Chief Secretary to the Treasury, Yvette Cooper.

‘We also want to make sure that vulnerable homeowners are protected from exploitation and dodgy deals.’

The government also wants the Financial Services Authority to regulate firms that buy property cheaply from those struggling to keep up with their mortgages and then rent it back.

Your home may be repossessed if you do not keep up repayments on your mortgage.

News of the three-part package to bail out the banks in an attempt by the government to restore confidence in the financial markets and encourage them to lend to each other again will come as welcome news to many business owners. But until the credit lines start flowing again, it is prudent for businesses to keep a close eye on their financial positions. Here are ten tips for surviving the credit squeeze.

1. Put cashflow and financing on the agenda for every management meeting.

2. Regularly update your cashflow forecasts.

3. If there is a conflict between profitability and cashflow, take the cashflow option.

4. If you have a term loan or overdraft, be aware of any covenants and constantly monitor how close you are to breeching them.

5. Prepare thoroughly if a review is coming up on any of your financing facilities.

6. If limits might be threatened, ‘think the unthinkable’ regarding the sale of assets.

7. Talk to current financiers before you get into difficulties. Otherwise you devalue future forecasts.

8. Make sure that all types and sources of finance have been fully considered.

9. Invest time talking to new sources of finance. You might need them if your current providers prove difficult.

10. If you are ‘cash rich’, draw up a list of ways in which you could use surplus cash for the longer-term benefit of the business.