Small businesses, pensioners and those in mortgage arrears were some of the main beneficiaries of Chancellor Alistair Darling’s largesse in yesterday’s pre-budget report. 

 HMRC will allow firms to spread their tax bills over a longer period of time to help with cash flows, although how this will work in practice is not yet clear.

The Chancellor announced a £1bn Small Business Finance Scheme to allow firms to borrow between £1,000 and £1m. The rate for corporation tax will remain unchanged in 2009-10 (whereas it was due to rise from 21 per cent to 22 per cent).

Businesses will also be able to offset losses of up to £50,000 against losses in the last three years.

Meanwhile, Air Passenger Duty (APT) will be expanded to four tax bands with long haul travellers paying the most.

On the energy front, an additional £100m will be given to help 60,000 households to insulate their homes and the Government will use statutory powers against power companies if the gap between wholesale and retail fuel costs fails to narrow.
 
For homeowners in mortgage arrears, the Chancellor said mortgage lenders would be required to give homeowners three months’ grace before starting repossession proceedings and announced £15m for a free debt advice service.

State support for the unemployed claiming mortgage interest will be increased to cover mortgages of up to £200,000.

For first time buyers, the Chancellor announced £775 new investment in social housing and regeneration projects.

To encourage greater savings among the low paid, the Government will contribute 50p for every £1 saved via the Savings Gateway scheme.

Child benefit, meanwhile, will increase to £20 a week from 1 January 2009.

Pensioners will see the basic state pension rise to £95.25pw for a single person and £152.30 for couples from April 2009, while the pension credit will rise to £130pw for single pensioners and £198 a week for couples.

The pension lifetime allowance for tax-privileged pension savingswill be frozen at £1.8m from 2010-2015. This means any individual who has a pension fund above £1.25m today, and achieves reasonable fund growth of 6.5 per cent, will face a 55 per cent tax charge on some of their fund by 2015.

The lifetime allowance was set at£1.5m at A-Day and increased to £1.6m in 2007-08 and £1.65m this year. It will increase in future to £1.75m 2009-10 and £1.8m in 2010-11. Yesterday’s announcement means it will remain at the £1.8m level until, at least, 5 April 2016.

In a similar way the’ annual allowance’ which is the maximum tax efficient pension contribution that an individual can make to a pension scheme will be frozen at £255,000. The allowance is currently £235,000 and will increase to £255,000 by 2010.

Sipp providers are expecting a wall of money to hit their funds in the  months to come as thousands of investors look set to move ‘protected rights’ money from other pensions into their Sipps.

Protected rights are the funds built up when you ‘contract out’ of Serps or the State Second Pension. This has been possible since July 1988 and an estimated £100bn is invested in this way.

Protected rights funds used to be subject to various investment restrictions, but since 1 October 2008,  savers have been allowed to move the funds  into a Self Invested Personal Pension or Sipp.

Contracting out involves paying lower National Insurance Contributions and being paid a rebate by the Government to build up a separate pension pot whose purpose is to match, or exceed, the benefits paid by the state scheme.
 
Research conducted by Fidelity FundsNetwork shows that less than one in ten (9 per cent) of respondents was very happy with the performance of their protected rights pots and 29 per cent had no idea how their money had performed.

Well over a third (38 per cent) say they intend to move their protected rights money into an existing Sipp or open a new Sipp in order to do so.  Less than 8 per cent of respondents were happy to leave their protected rights money untouched.

But falling stockmarkets around the world mean that insurance companies may well introduce market value reductions (exit penalties) on with profit funds, in which many people hold their protected rights.

Given that the world economy is moving into a recession which could last several years, investors are not going to recover a 25 per cent penalty from investment growth any time soon.

Nearly  one in five respondents say they would face exit charges by their current provider and a further two in five were unsure whether they would or not, even though the research found that these charges could top 25 per cent.

So investors should be sure to seek independent financial advice to check whether the investment freedom offered by  Sipps outweighs the cost of switching.

Defaqto pensions and wealth management consultant, Matt Ward, says: “In a lot of cases, it may be the sensible thing to do, if you want to have greater control over your funds and consolidate them in one place. But as with any pension transfer, it is essential to check the cost of doing so.  It is the job of your IFA to weight up all the factors.”

To find an IFA in your area, visit www.unbiased.co.uk
0207 294 3682

To find out more about Sipps:
www.sippsupermarket.com

Read our Guide to Sipps:
http://www.defaqto.com/consumer/pensions/compare-sipps/guide-to-sipps.aspx

How much will your pension fund buy you as an income in retirement?
Try out our annuity calculator:
http://www.defaqto.com/consumer/pensions.aspx

Alliance Trust fund supermarket is to rebate 50 per cent of ongoing commission on  most unit trust and Oeics purchases within its Self Invested Personal Pension, Isa or investment account.

While many fund supermarkets offer discounts on initial charges, Alliance Trust will rebate to investors half of the ongoing annual management charge, which is usually paid to financial advisers(in this case Alliance Trust) via what is known as  “trail commission.”

As the annual management charge on most unit trusts is around 1.25-1.5 per cent, half of the trail commission equates to  0.5-0.75 per cent.

While Alliance Trust says that it will pay half the trail commission to investors on around 750 funds,  not all fund management groups, including Artemis and Invesco Perpetual, allow commission rebates on their funds.

Also before signing up to an Alliance Trust Sipp, Isa or ordinary investment account, it is worth calculating how Alliance’s overall charge structure will impact on any rebates you may be eligible for.

Its Sipp charges an annual fee of £75 +VAT, online fund purchases and sales will set you back £12.50, while phone and postal dealing cost £20 per transaction. Regular saving schemes are charged at £5 a month.

While Alliance claims to be unique in rebating trail commission directly to investors, Chartwell’s Investor Centre, rebates half of its trail commission to investors who register their funds on the Cofunds fund supermarket.

Also many of Alliance’s competitors do not levy transaction fees or charge lower fees than Alliance Trust.

Hargreaves Lansdown offers 1,700 funds, mostly with no initial charge and with rebate of trail commission of up to 0.25 per cent, but only on funds bought through Isas or directly.

Hargreaves’ Vantage Sipp, does not rebate trail commission, but makes no plan charge for investors who only holding unit trusts and Oeics with its Sipp.

Defaqto investment principal, David Abbis says: “As financial advisers receive commission to cover the cost of giving advice at the initial sale or for an annual review once the investment has been made, it would seem appropriate for Alliance Trust to rebate the commission they receive as they do not give advice.

“When making comparisons, it is essential to understand the service being provided and other charges that may be made, particularly when trading funds.”

For details visit:
www.alliancetrust.co.uk
www.theinvestorcentre.com
Check out our Best Buy unit trust tables (click on any of the unit trust sectors on the left hand side)
http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx:

Whether you’re off to Europe, the US or a more exotic location, taking the right credit and debit cards will save you a small fortune in currency exchange and handling fees.

Which Money? checked out the cost of buying $500 at 15 high street outlets that offer ‘commission free’ foreign exchange and found that costs varied by almost £15 thanks to varying exchange rates. The costs can be even greater if delivery charges or buy-back fees are added.
 
The cheapest providers for purchasing $500 was First Choice (£260.42) and Marks & Spencer (£260.69), while the most expensive were Going Places (£267.56) and Thomas Cook (£274.73).

Even if you obtain a good exchange rate, total costs could be bumped up by extra charges, such as delivery charges which are compulsory with Saga because they will only deliver currency.

Some companies  offer a ‘buy back’ service, whereby  they guarantee to buy your leftover currency when you get home at the same rate you paid for it, but think carefully before agreeing to this, as it usually costs extra and the exchange rate might have moved in your favour by the time you get home.
 
Also check your travel insurance policy for how much cash you are covered for in the event of theft. You don’t want to carry around large amounts of cash if you’re only covered for £200.

Cash machine withdrawals
For cash withdrawals from a cashpoint machine while abroad, the Nationwide Flex Account debit card is the most competitive, with no foreign exchange loading of 2.75 per cent or handling fees which are typically £1.50 per withdrawal with other providers.

Whatever you do, don’t use a credit card to obtain cash from a cash machine as the interest charged will be higher than for credit card purchases, there’s a 3 per cent handling fee and interest is charged from the date of withdrawal.  Withdrawing £500 with a Barclaycard credit card could cost £26.25 in fees.
 
Credit card purchases
For credit card purchases, the Abbey, Post Office, Saga, Thomas Cook and Nationwide Gold Visa credit cards are the most competitive - again because they don’t load an extra 2.75 per cent currency exchange fees.

Five  purchases totalling £500 would amount to £13.75 using a Barclaycard credit card, or £21.25 with a Halifax debit card.

For more details, visit www.which.co.uk

Following  scathing criticism from watchdogs and consumer grouprs of insurers who flog expensive payment protection insurance policies to unsuspecting customers,  the FSA has launched a comparison service http://www.fsa.gov.uk/tables/bespoke/PPI on its website to help consumers shop around for more competitive policies.
 
PPI insures you in the event that you can’t repay loans, credit cards or a mortgage due to accident, sickness or redundancy.

The Competition Commission recently published a report accusing  insurers of overcharging their PPI customers by £1.4bn a year and of using PPI to subsidise cheap personal loans.

The FSA’s tables are designed to provide  customers with basic information about exactly what the polices cover and how much they cost.
 
Insurers stand accused of selling expensive polices inappropriately and to individuals who may never to be able to make a claim becuase they are unemployed, self employed or a temporary worker.

The FSA has levied numerous fines on financial companies and retailers, such as HFC Bank and Land of Leather, for mis-selling PPI policies in this way.

The Competition Commission has suggested imposing temporary price limits on PPI policies and to ban firms from selling PPI policies to customers when they take out loans or credit cards because they do not have the opportunity to compare policies at the point of sale.

The Financial Ombudsman Service has been inundated with complaints about PPI since 2007, when negative press coverage started to raise consumer awareness of possible mis-selling

Its comparison tables allow customers to type in basic details about their circumstances and financial needs and provide a range of possible policies, together with costings.

Although the tables are not comprehensive, because some providers refused to supply details of their policies, they  give consumers a better idea of what is on offer and shames those providers which declined to participate.

Defaqto principal, Brian Brown, who has recently written a report on the PPI market, warned consumers not to cancel existing policies without reviewing their position, unless you definitely do not want cover or find you are ineligible to claim.

You should also check what cover your employer would provide in the event of ill health (typically 3 to 6 months’ pay) or redundancy.

Mr Brown says: “Check that the policy you hold covers what you want protected, whether this is credit card, personal loan or mortgage repayments. Consider buying a stand alone income protection policy which works in a similar way to PPI, but can be considerly cheaper, especially for personal loans. These can be found on the Internet or at the Post Office.

“Alternatively, people can consider other strategies, such as building up a rainy day fund or using 0 per cent interest credit cards to tide them over during a period when they can’t work. “