YOUR FINANCES FIXED

Can I move my old PEP into a cash ISA?

QI have an ISA that started out in the 1990s as a personal equity plan (PEP), and I am fed up with the stockmarket yo-yoing so I want to move my money to something that attracts less risk. Is it true I cannot move my money to a cash ISA? This is what I’d prefer to do but if not, what can I do so that I have less risk and easier access to the money if I need it in an emergency? CC/Kent

PATRICK CONNOLLY is a certified financial planner for AWD Chase de Vere

What you hold is now a stocks and shares ISA.The ISAs of today are far more flexible in terms of where you can invest than PEPs originally were; then, the main focus was initially on UK and then European shares.

It is possible to transfer a cash ISA into a stocks and shares ISA, but unfortunately you cannot transfer in the opposite direction.This leaves you with two choices if you want to reduce risk. You can either cash in part or all of your existing stocks and shares ISA and reinvest the money into cash savings or other low-risk alternatives, which will result in you losing the tax protection that comes with the ISA.

However, you can invest up to £5,340 into a cash ISA this tax year by utilising your 2011/12 annual allowance and this will ensure that any interest you receive will be tax-free.

While tax efficiency is important, it should be a secondary consideration. You should give priority to selecting the right investment for you. It’s understandable to feel nervous about stockmarket volatility at the moment, but remember that if you sell out of shares after the stockmarket has fallen you are in effect crystallising your losses.

Alternatively, you could leave your money in the existing stocks and shares ISA but transfer to lower-risk investment funds. You could consider

30 MONEYWISE | OCTOBER 2011

Should I repay my student loan or save for a house deposit?

QI have a student loan of nearly £20,000 to repay, but have also managed to save along the way with the intention of putting these savings towards a mortgage. In the current financial climate is this still the right thing to do, or would I be better paying off my student loan as soon as possible? AT/Lanarkshire

JUSTIN MODRAY is a former IFA and founder of candidmoney.com

Assuming you commenced your studies after 1998 then you’ll have a ‘new style’ student loan. This means interest is charged at whichever is lower of either inflation (measured by RPI

from the preceding March) or the Bank of

Hughes

Illus trations:Tom

England base rate plus 1%.This calculation is applied for the year to 1 September each year, with the rate being amended in the interim if base rate changes. What this means is you are currently being charged 1.5% annual interest, and it looks likely to remain at this level for at least another year or two, given that the Bank of England is unlikely to raise rates while our economy is still in the doldrums.

The lowest mortgage rates are currently around 3%, so on this basis you’d be better off repaying a mortgage or reducing the amount you need to borrow by saving for a bigger deposit. Of course, things could change in future, but if interest rate rises push up student loan interest they’re also likely to affect mortgage rates, so your student loan looks likely to remain a cheaper form of borrowing.

PEPS TO ISAS: A POTTED HISTORY 1986 Personal equity plans (PEPs) were launched by then chancellor Nigel Lawson to encourage savers to invest in the UK stockmarket. 1999 Individual savings accounts (ISAs) were introduced and no more money could be invested into PEPs, though existing PEPs continued to get tax relief. 2008 Existing PEPs automatically became stocks and shares ISAs.

a good quality fixed-interest fund such as Fidelity Money Builder Income, or a multi-asset fund such as Cazenove Multi-Manager Diversity, which will spread your money over a wide range of different investments, including shares. Both of these suggested approaches will reduce the risk you are taking with your money, and you can access it whenever you want.

WWW.MONEYWISE.CO.UK Can I extract money from my pension?

QI have a private pension that I no longer pay into, and I would like some way of getting money out to pay off my credit card. Is there any way for me to do this? AB/via email

The simple answer is no. As a rule, you can only get access to your pension fund from age 55 and even then you can only take a quarter of the fund

PATRICK CONNOLLY is a certified financial planner for AWD Chase de Vere

Can you help explain inheritance rights?

as a lump sum, with the rest supposed to provide you with an income in retirement. There can be exceptional circumstances where you may be able to access your pension fund earlier than age 55 – these are typically if you have a projected earlier retirement age or if you are forced to retire early because of ill health. Unfortunately, paying off your debts is not an acceptable reason.

Having said that, it is still a good idea to look at paying off your credit card debt, especially if you are paying high rates of interest. If you’re struggling to meet your credit card payments then contact the lender to discuss alternative arrangements. Also, look at your finances to see if there are any other expenses you could reduce to clear your card bill quicker.

“Paying your debts is not an acceptable reason to access your pension fund early”

It may be tempting to go for a quick-fix solution by clearing your debt with an overdraft or payday loan. But in doing so, you’re simply switching one debt with another.

Provided you are able to clear the debt before the 0% period ends or willing to transfer to a new deal at that point, transferring to a 0% balance transfer card could be a good way of clearing your debts more quickly. Interest-free balance transfer periods are fairly lengthy at the moment, with the best deal, 22 months, currently offered by Barclaycard.

QWe are a married couple and each have three children from previous marriages. One of my husband’s sons is severely disabled. He has been married for 10 years. There are no children from the marriage.

In my husband’s will, he has named only the disabled son to inherit on his death and excluded the other two sons. The will says that should the disabled son die before his father, the inheritance will go to my three children.

This means the disabled son’s wife is excluded from estate, or that have been disposed of in the six years prior to death.

The Inheritance Act is there to help spouses, children, civil partners, cohabiters and other surviving dependants who have been left to cope without sufficient money to help them to get by.

If a will (or intestacy) fails to make reasonable financial provision then the Inheritance Act will come into play. Although, your chief concern surrounds your stepson’s wife having a claim, I am concerned that the will in this case also appears to exclude your husband’s other two children.

inheriting what her husband would have received. Under the Inheritance (Provision for Family and Dependants) Act 1975, could she have a claim against the will? DA/via email

PAUL HUTCHINSON is founder of Hutchinson Legal & Associates in Bristol, specialising in wills and inheritance tax planning

The Inheritance Act 1975 allows a court to vary how an estate is distributed to any spouse, former spouse, child, child of the family or dependant of that person, in cases where the deceased person’s will or the standard rules of intestacy fail to make ‘reasonable financial provision’.This can be derived not just from monetary assets but also from any others that form part of the

Under the Inheritance Act, the court will take into account the applicant’s needs and resources and consider these against what would be reasonable for their maintenance.

However, claims by spouses and civil partners are different, as the court will look beyond what is necessary purely for maintenance and will take other factors into consideration.These other factors are listed under section three of the Act and include the age of the person making the claim, the duration of the marriage, the contribution of the claimant towards the welfare of the family, and what provision they would have expected to receive had their marriage ended in divorce.

An application would need to be made to the court by his wife or your husband’s other children within six months of the grant of probate.

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