The Government yesterday released its white paper on how it plans to reduce the UK’s production of carbon emissions and to move toward a low-carbon economy. 

The white paper, The UK Low Carbon Transition Plan, sets out the goal of the Government to cut the UK’s carbon emissions by 34 per cent by 2020. 

Achieving that goal will be difficult and will require a significant shift in attitude by consumers and businesses.  Reducing carbon emissions must become a fundamental consideration in every element of the way in which people live and work.  Businesses, particularly those in sectors responsible for generating the most emissions such as power, transport and agriculture, will have a large part to play in achieving the Government’s goals.

One of the UK’s leading investment houses, Jupiter, has said that the Government’s white paper is a defining moment for green and ethical investment in the UK. 

Many commentators have expressed the view that businesses that are more environmentally friendly will, in the future, do better than heavier polluting businesses that will face increasing ‘green’ pollution taxes and penalties imposed by governements.  The UK Government will be keen to generate extra tax revenue by penalising heavier polluting businesses under the banner of ‘green’ taxation.  Increasing taxation on heavier polluting businesses will naturally impact on those businesses’ profit margins going into the future.

Part of the Government’s plan is to increase the amount of renewable energy in the UK by 15 per cent of all energy by 2020.  Meeting that target will require substantial investment in renewable energy sources such as in the offshore wind industry.

HM Revenue and Customs has released figures which reveal that over 4 million Child Trust Funds have been opened in the UK since their inception in April 2005.

A Child Trust Fund is a long-term savings and investment account for children.  They were introduced by the Government in April 2005 in enable children born on or after 1 September 2002 to build up a pot of money for when they reach the age of 18. 

The idea behind the Child Trust Fund is to educate and encourage both parents and their children of the importance of saving and to give them a basic understanding of financial products.  Regular monthly contributions or one-off lump sums can be invested into a Child Trust Fund by parents, family and friends up to a total of £1,200 each year.  Income and growth arising on the money invested is exempt from tax.

The fact that over 4 million Child Trust Funds have been opened since April 2005 is a clear indicator that parents are keen to save and build up funds for their children’s futures, perhaps to provide funds for a university education, a car or for travelling.

The first tranche of Child Trust Funds will mature in 11 years’ time in September 2020.  The hope is that those aged 18 at that time will have a greater understanding of financial planning and saving which will in turn give them a better footing to start life as an adult.

One of the biggest Child Trust Fund providers, The Children’s Mutual Child Trust Fund, says that, on average, its customers invest monthly contributions of £24 and that over an 18 year investment period this could provide a tax-free lump sum of £10,000.

Homeowners with an interest-only mortgage are very likely to have a savings or investment arrangement in place such as an Individual Savings Plan (ISA), endowment policy or a personal pension to provide funds with which to repay their mortgage loan at the end of it’s term. 

Homeowners are frequently warned that it is important they regularly monitor the performance of their mortgage repayment plan so as to ensure it remains on track in order to avoid any potential shortfall in funds available to repay the mortgage loan. 

If homeowners realise that it’s likely they’ll have a shortfall of funds available with which to repay their mortgage then there are a number of ways in which they can try and remedy the matter.  Here are the most common ways:

• Increase monthly contributions into the existing repayment plan and/or increase the term contributions are invested so that more contributions are invested than would have otherwise been the case

• Start a new, additional repayment plan, such as a cash ISA or stocks and shares ISA, to provide additional funds with which to pay off the shortfall

• Contact their mortgage lender and amend the mortgage deal.  Homeowners could: switch the whole of the outstanding mortgage to a repayment method; switch part of the mortgage and the amount of the potential shortfall to a repayment method; make ad-hoc lump sum over-payments; make regular monthly over-payments; or, extend the term of the mortgage loan. 

The best option for a homeowner will depend or their particular circumstances and attitude toward investment risk.

If it transpires that there will be a shortfall in funds available with which to repay their mortgage loan, the homeowner should speak to their mortgage lender as soon as possible.  If they do this then there is the possibility that the lender will agree a new repayment plan with the homeowner which should mean that the homeowner won’t lose their home due to the shortfall - so long as the homeowner maintains the monthly repayments on the agreed new repayment plan.  Homeowners who ignore the shortfall are taking the risk that they will ultimately lose their home.

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Help the Aged and Age Concern have released findings of a study which reveals that the majority of over-50s in the UK currently believe that they will have to work beyond their planned retirement in the wake of the current recession – a recession which has significantly reduced the rates of interest being paid on their savings, and decimated the value of their pensions invested in equity-backed investments linked to the stock market. 

Since the start of the recession, the Bank of England has steadily reduced interest rates in attempt lift the UK economy.  This has hurt those consumers relying on the interest payable on their savings to provide them with an income.  In addition, any investments and pensions linked to the stock market, which the majority of pension arrangements are, have plunged by as much a third in value over the past 18 months.  

The findings revealed that nearly 66% of the 943 people who took part in the study said they would probably have to delay their retirement.  Nearly 50% said they were more concerned about the value and security of their pensions and savings than compared to the start of 2009.  

In addition to reducing interest rates and significant fall in the value of equity-backed investments, the number of over-50s being made redundant over the past year has increased by nearly 50% as more and more UK businesses struggle to stay afloat during the economic downturn.  Those consumers over 50 who are unfortunate enough to be made redundant are then facing difficulties obtaining new employment since they are invariably competing against younger people, who have also been made redundant, for the same roles.

All in all, it is a bleak outlook for many over-50s in the UK at present.  It seems many people over 50 will now have to work many years beyond when they planned to retire. 

Those consumers looking to make their savings or investments work harder for them should consider shopping around and comparing savings accounts and ISAs for better deals.

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The Office of Fair Trading (OFT) has published a report which reveals, perhaps surprisingly, that UK consumers with some knowledge of finances and investments are more likely to be the victims of scams than the average consumer.  The OFT’s report reveals that over 3 million UK consumers are losing approximately £3.5 billion each year as a result of scams despite its continuing efforts to highlight the problem.

The OFT noted that the majority of consumers who fall victim to scams are simply gullible and that between 10% and 20% of the UK population are particularly vulnerable to scams.  The consumers at risk are much more likely to be open to persuasion and are much more likely to believe wild claims from the scammers about unrealistic investment returns than compared to the average person.  The types of scam consumers fall for range from bogus lotteries and investments to fake health cures and bent racing tips.

While the OFT’s report revealed that many scam victims are more gullible than the average person, it found that consumers who had some knowledge of making investments or played legitimate lotteries were more likely, than the average person, to fall victim to scams in these same areas. 

The findings revealed that most UK consumers didn’t fall for scams simply because they ignored the scammers’ emails and letters.  However, those consumers with some experience took the time and effort to look into the matter and, despite this, some still took the decision to part with their money – even going against their own gut feeling that the offer seemed too good to be true.  It would appear that those consumers realised that the claims made were similar to a long-odds gamble and that there was still a remote chance that the promises made might be real.  More worryingly, many victims of scams kept their involvement secret from family and close friends – the very people who perhaps viewed them as being financially astute based on their previous investment experience.

However, the OFT was quick to warn that a willingness to believe the improbable was not the only reason why many millions of UK consumers continue to fall victim to scams.  It said that many consumers remain potentially susceptible to the hard selling and persuasive tactics employed by scammers who market the scams in a very similar way to legitimate offers. 

The old maxim “If it’s too good to be true, it usually is” rings true in light of the OFT’s findings.  UK consumers should always be vigilant and take care to consider the matter carefully if they receive unsolicited emails or letters which make wild or unrealistic offers.

Defaqto, a research firm which provides financial information to all sectors of the UK financial services industry, has released figures which reveal that internet-only savings accounts typically offer better rates of interest than compared to high street based instant access savings accounts.   

Defaqto noted that the average rate of interest paid on a lump sum of £1,000 in a high street based instant access savings account was currently 0.49%.  This compares to an average interest rate of 1.48% for internet-only savings accounts.  These low average interest rates being paid by providers is against the backdrop of the Bank of England progressively lowering the bank base rate over the past several months to 0.5% – the lowest rate ever. 

Defaqto believes that because of concerns about the security of the internet, and that a large number of the UK population still do not have access to the internet, savers are missing out on achieving better rates of interest on their savings by not fully embracing internet-only savings accounts.  As noted recently by UKfinancemarket.co.uk, savers should fully consider switching their savings accounts to make the most out of their money – this includes comparing the different savings accounts available online and on the high street.  Many providers are offering attractive introductory offers which could make switching financially worthwhile for many consumers. 

However, savers should be aware that simply because a savings account is internet-only, it should not automatically be regarded as paying the best or a competitive rate of interest.  For instance, some internet-only savings accounts are currently paying interest at the miserly rate of just 0.10%.  As with anything, UK savers should compare different savings accounts to make sure they are getting the best rate of return on their savings and fully read the terms and conditions of any tempting introductory offer.

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When it comes to switching financial products such as credit cards, home insurance, car insurance, broadband or energy provider, most UK consumers are happy to switch between providers each year to get the right deal for their circumstances.  Since the advent of the internet switching has become much easier since it allows consumers to compare quotes online with a few clicks of a button.  Comparing and switching most financial products is now regarded as the norm for most UK households who are looking to cut costs and to ensure they are not paying more than they need to.   

However, despite the willingness to switch providers on other financial products, the vast majority of UK consumers with current accounts are reluctant to switch providers, even where their existing provider offers poor customer service, low interest rates on balances and high overdraft charges. 

According to Alliance & Leicester just 33% of consumers with current accounts switched banks during the past decade – this is against a backdrop of a tenfold increase in complaints about current accounts referred to the financial dispute resolution service, the Financial Ombudsman Service, during the 2007/8 tax year – confirming reports of repeated poor levels of customer service and administration by current account providers. 

However, there now seems to be a sea change in consumers’ willingness to switch current account providers.  New figures have revealed that thousands of consumers are switching their current account provider.  Most of those consumers switching were previous customers of the big banks.  The timing of the switches to new current account providers supports the observation that consumers were driven more by dissatisfaction with their existing provider and a desire for perceived security than a search for better products or services. 

Some of the smaller high street banks, such as the Alliance & Leicester, offer new current account customers short-term incentives to switch, such as a £100 cash payment when the new account is opened.   

It would seem that most UK consumers are more nervous about switching their current account arrangements than any other financial product since they believe that there will be problems or obstacles in the way from making the switch successful.  Consumers are perhaps worried that the new current account won’t be set up in time and that bills such as direct debits won’t be paid in time which will lead to problems and charges. 

However, switching should be a relatively easy process since the banks have now made significant improvements to the process.  According to the voluntary Banking Code, consumers who wish to switch current accounts just have to ask their new bank to request a list of their direct debit mandates and standing orders from their old bank – the old bank then has to respond with the required information to the new bank within three working days.  The new bank must make the new account available to the new customer within ten working days of approving the application.

However, the actual transfer of the regular payments can take up to one month.  It is therefore wise for those consumers who are switching to keep some money available in both accounts until the switch has been successfully completed.  According to the Banking Code, any costs incurred as a result of any problems with the process are compensated by the banks – therefore, consumers should be able to switch with peace of mind.

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Defaqto, a research firm which provides financial information to all sectors of the UK financial services industry, has revealed that the average interest rate payable on cash Individual Savings Accounts (ISAs) accounts is currently 2%.  Shockingly, however, over 1 million savers with cash ISA accounts are currently earning interest at just 0.1 %.

The Chancellor announced in his recent Budget that the investment limit for ISAs would increase from £7,200 up to £10,200 by April 2010 – of that amount £5,100 can be invested into a cash ISA.  Given that such a high number of ISA accounts are currently paying such a low level of interest, it is questionable what extra benefit the increased investment cash ISA limit of £5,100 will offer to savers.

Defaqto noted that the majority of the UK’s largest high street banks and building societies are currently paying near-zero % interest rates on consumers’ savings, even on significant balances.  Based on an interest rate of 0.1 per cent, the yearly interest payable on savings of £20,000 is just £20.  With the effects of inflation coming into play, the purchasing power of these low interest-earning savings will slowly be eroded over the medium to long term.

The main reason why cash ISA accounts are currently paying such measly rates of interest is because of the bank base rate reduction over the past several months to 0.5%.  ISA providers have followed suit by lowering the rates of interest they pay on their ISA accounts.

It is likely that a large proportion of cash ISA savers are unaware of the poor rates of interest being received on their savings – many of these accounts were opened several years ago with significantly higher rates of interest being paid and it seems very few ISA providers are rewarding customer loyalty.  For instance, one high street bank is currently offering an interest rate of over 3.5% on its new cash ISA offering, compared to a rate of 0.1% on its older cash ISA offering.

In view of these findings, it again highlights the importance of consumers with ISA accounts to regularly monitor the performance and rates of interest being received on their savings to make sure they are getting the best deal on their money.  Consumers should consider switching ISA providers if it means getting a better deal.  It might be possible to get a better deal by simply asking the current ISA provider for a better deal.   However, some ISA providers do not accept transfers from other ISAs.

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Following the announcement of the Chancellor’s Budget last week, millions of consumers face substantial tax rises.  It has been estimated that the changes to be implemented will see ordinary families paying an additional £10 billion to the Government until 2012 – at a time when the UK economy is in its deepest downturn in living memory.

For those hard-pressed consumers, here are some brief highlights of the Budget and some tips to make the most of the changes announced.

 Families

- In 2010 the Child Tax Credit will increase by 38p per week.

- The Government will also start to contribute £100 each year into the Child Trust Funds of disabled children and £200 for severely disabled children. 

It is imperative that consumers check with HMRC that they are receiving all the benefits they are entitled to receive, via Tax Credits and Child Benefit, which currently pays £20 weekly for the first child and £13.20 for the second child.  The Child Tax Credit is £2,235.  For more information visit the HMRC website and search for Child Tax Credits.

 Pensioners

- Pensions will be increased by 2.5% irrespective of the fall in the Retail Prices Index.

- From November 2009, pensioners will also be able to benefit from their savings of up to £10,000 and still qualify for the Pension Credit, Housing and Council Benefit, rather than the maximum limit of £6,000 at present.

- The winter fuel allowance will for those over age 60 will be £250 and £400 for those over age 80.

- From November 2011 grandparents and other family members looking after grandchildren or other minors under the age of 12, for at least 20 hours a week, will be eligible to earn credits to the state pension.

 As mentioned above, it is imperative that consumers check with the Department for Work and Pensions to see if they qualify for extra support under the Pension Credit or Benefit system.  The DWP helpline is 0800 991234.

 Homeowners

- The Stamp Duty Tax concession has been extended which means homes purchased for under £175,000 are exempt from Stamp Duty Tax until the end of 2009.

- The Government has also committed to making mortgages more easily available to consumers in order to get the housing market moving again.

 Savers

- From October 2009 the maximum savings limit for Individual savings Accounts (ISAs) will be increased for the over-50s to £10,200 for equity ISAs, and £5,100 for cash ISAs.  Those savers under age 50 will have to wait until April 2010 to take advantage of the higher investment limit.

 Therefore, those consumers who are aged over 50 and are looking to save or invest should keep an eye out for top-paying cash ISA accounts and boost their deposits.

 Higher earners

- Those consumers earning over £150,000 will be hit by a new rate of income tax of 50%, and see the amount they can invest annually and qualify for higher rate tax relief in pension arrangements pegged at £20,000.

- Anyone earning over £100,000 will lose the benefit of a personal allowance.

 However, it has been noted that increased income tax can be circumvented by swapping income for additional benefits or for capital gains, which are taxed at a lower rate of 18%.

 Motorists

- From September 2009 fuel duty will increase by 2p per litre, increasing on 1 April 2010, and every year to 2013, by 1p per litre above indexation.

- A new scrappage scheme will enable motorists to exchange their old car for a new car.  The Government will pay £1,000 toward the cost of the new car, as will the car manufacturer who will also pay another £1,000.  However, there are tight restrictions: the car to be scrapped must still have a valid MOT certificate, the owner must have owned it for at least a year and it must have been registered before 31 December 1999. 

 There are concerns that manufacturers may cut existing discounts to take the new scrappage scheme into account so consumers should bear this in mind.  It is clear that buying a smaller and more fuel efficient car will save consumers money on their motoring costs in the long run.  Comparing car insurance quotes online before making a deicison about which insurer to go with can potentially save motorists money too.

Figures recently released reveal that consumers invested significant amounts of money into tax-efficient Individual Savings Accounts (ISAs) during March 2009.

In March 2008, £47.5 million was invested into ISAs, but this increased to a massive £321 million for March 2009.  This perhaps indicates that many investors are keen to take advantage of depressed share price values, which have fallen substantially since the start of the credit crunch in September 2007, with the expectation that UK businesses will start to recover and increase profits, which in turn will increase share price valuations.  

The 2008/09 tax year saw net ISA outflows of £975 million compared with the net outflows of £1.7bn seen in the 2007/08 tax year.

The most popular sector for consumers to invest the funds within their ISAs was UK All Companies, which accounted for just over 20% of gross sales. 

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The values of defined contribution pension schemes, such as stakeholder personal pensions and employer sponsored money purchase schemes, were boosted over the past month on the back of the slight recovery in the stock markets.

Pensions experts, Aon Consulting, issued a report which revealed that defined contribution pension scheme recovered 6 % of their value over the past month after a period of heavy losses during the previous year or so. According to Aon, in the 16 months to the end of January 2009, the value of the UK’s defined contributions pension scheme arrangements fell by a third. 

Nearly 4 million people in the UK contribute into some form of defined contribution pension scheme – the values of which are determined by the performance of the underlying funds in which contributions are invested.  Most defined contribution pension schemes are invested in unit-linked equity funds, the value of which is determined by the performance of stock markets – hence the boost in value over the past month. 

The 6 % increase in values in March 2009 improved the value of the UK’s defined contribution pension scheme assets up to £391 billion – up from £368bn at the end of February 2009.  However, this is still well down on the total value of £550bn in September 2007 – just before the credit crunch started. 

However, Aon noted that the improvement in pension scheme fund values had been negated by falling rates on annuities.  At retirement pension funds are used to provide an income – this is called an annuity.  The rate for converting that fund into an income (annuity rate) has been falling since reaching a six-year high last year.  This fall in annuity rates is mainly due to the Government’s quantitative easing programme implemented last year which has forced down the gilt yields on which annuity rates are based.

In view of the falling annuity rates, consumers who are currently seeking to purchase an annuity are urged to use their right to an open market option – this enables consumers to shop around and find the highest paying annuity rates for their circumstances and state of health.  By using the open market option consumers can increase their annuity income by up to 30%.

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Currently, if a UK bank were to fail, savings of up to £50,000 are covered by the Financial Services Compensation Scheme (FSCS).  The FSCS is the UK’s statutory rescue fund for consumers of authorised financial services firms.  This means that the FSCS can pay compensation to consumers if an authorised financial services firm is unable, or likely to be unable, to pay claims against it, such as when a UK bank fails.

The FSCS protects:

 - Deposits / savings

- Life and general insurance firms

- Investment business (on or after 28 August 1988)

- Home finance (e.g. mortgage) advice and arranging (on or after 31 October 2004)

- General insurance policies advice and arranging (on or after 14 January 2005)

There are limits on the amount of compensation that the FSCS can pay so a consumer might not get compensation equivalent to their financial losses if they hold significant savings or investments with one institution that fails.  As noted above, savings of up to £50,000 are currently covered by FSCS in the event a UK bank or building society failed. That’s why it’s important to spread significant savings around several providers to spread risk.

However, consumers could have savings and deposits of up to £500,000 covered under proposals being considered by the UK financial watchdog, the Financial Services Authority (FSA).  The FSA recently began obtaining opinions on its proposal designed to significantly increase the level of extra protection given to holders of temporary high deposit balances if another UK bank were to fail.  However, the FSA warned the FSCS was not designed to cover long-running high account balances, so the period for which the new rules applied would be limited.

The new scheme would also have to be examined under the European Union’s deposit guarantee schemes directive to see if there was scope to make the change.  The FSA plans to issue a detailed report on the proposal later in 2009 after receiving feedback.  The proposal could encounter a mixed reaction within the EU. Last year, when Brussels moved to increase the protection for depositors, there were sharply divided views among member states over how large a sum it should guarantee. 

Last year, the FSCS limit for deposits was increased up to £50,000 in the wake of the banking crisis.  During 2008, the FSCS paid out more than £20bn in compensation to consumers following five bank collapses – Bradford & Bingley, Heritable Bank, Kaupthing Singer & Friedlander, Landsbanki and London Scottish Bank.  This contrasted with a total payout of £1bn for the FSCS’s first seven years of existence.

The public’s opinion towards the banks is currently at an all time low, with many people blaming the banks’ irresponsible lending and bonus culture of the past several years being the catalyst for the recession the UK currently finds itself in.  In order to take advantage of this negative feeling towards traditional high street banks, the UK’s biggest supermarkets are planning to increase the level of financial services they offer consumers.

In the mid-1990s, the UK’s supermarkets started offering financial services to consumers. At the time high street banks were initially worried that the supermarkets, with their identifiable brands and large customer base, would pose a significant threat.  However, until now the banking customer base of the supermarkets has remained pretty modest and nothing like the high street banks feared back in the 1990s.  This could change in the next few years.

The UK’s biggest supermarket, Tesco, which already offers a comprehensive range of personal finance products, such as credit cards, car insurance, life insurance, pet insurance, personal loans, and savings accounts, is planning to open 30 in-store bank branches by the end of 2009, starting in Blackpool, Bristol and Coventry.  By 2012, Tesco plans to provide its own range of current accounts and mortgages.  A number of other supermarkets, such as ASDA, Sainsbury’s and Marks & Spencer also offer competitive credit cards, personal loans and insurance.  They too may be planning on creating in-store banking facilities for their customers, but are likely to wait in the wings and see how successful Tesco’s in-store brances do first.

There is no doubt that the convenience of being able to conduct simple banking affairs while doing the weekly shopping – all under one roof – will appeal to many consumers.  Tesco said its aim would be to provide old fashioned banking with the back-to-basic offers that high street banks used to offer, but have failed to concentrate on over the past several years.  It has been shown that the credit cards on offer from the UK’s biggest supermarket’s charge less interest than the sector average of 17.7 %. Tesco is currently offering a credit card deal for balance transfers, offering 0 % for 14 months. It is clear that the desire from the supermarkets to concentrate on simple products and their aim to attract new customers means any future current account or mortgage deals they offer could be equally competitive.

It is worth noting that for consumers there should be no difference in the level of security or quality of service offered by supermarkets compared with banks.  This is because all financial services businesses in the UK must be authorised and regulated by the Financial Services Authority.  Currently, savings up to £50,000 are covered by the Financial Services Compensation Scheme – this same level of protection would apply to savings and bank accounts with supermarkets.

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It has been reported in the financial press that in his upcoming Budget, the Chancellor, Alistair Darling, is set to increase the ISA investment limit up to £10,000 to encourage savers, hit by historically low interest rates, to make further tax-free savings.

The current maximum ISA investment allowance each tax year (6 April to 5 April the following year) is £7,200. Of that amount, up to £3,600 can be saved in a cash ISA each tax year. The remainder of the allowance can be invested in a stocks and shares ISA with either the same or a different ISA provider.

 The anticipated changes to the ISA investment limit would see a maximum cash ISA level of as much as £5,000, up from the current maximum of £3,600. This would offer savers an additional amount of £1,400 tax-free savings each year. 

It is not clear how soon any change to the ISA investment limits could be implemented. Unusually, the Budget this year is late – it is usually announced before of the start of the tax year on 5 April. The chancellor could either announce an immediate increase in ISA investment limits, or, given the lateness in announcing the Budget, state that the increase would be effective from April 2010 so that ISA providers have time to get their systems up to speed.

Last week, in a widely expected move, the Bank of England kept the bank base rate on hold at 0.5%.  This followed a number of rate cuts since October 2008 when the base rate stood 5%.   Despite the current record low base rate of 0.5%, savings account interest rates are increasing.  This increase is due to intense competition between savings accounts providers, which is driving up the rates on offer to savers.  This has lead to a number of new fixed rate savings accounts being launched which are paying very attractive rates of interest compared to the current bank base rate.  Those savers willing to compare savings accounts could get themselves a great savings rate.

Banks and building societies, such as the Halifax and Birmingham Midshires, are keen to obtain long term funding for their borrowers and know that if they offer attractive savings rates, savers will be willing to lock their money away in savings accounts for fixed periods in exchange for good rates.  According to Moneyfacts, savers with money in instant access accounts are currently earning interest at record low levels; on average, savers with money in an instant access account earn just 0.66 per cent on their deposits, while some earn as little as 0.01 per cent.  Therefore, those savers willing to lock their money away in savings account for fixed periods of at least one year could obtain a much better deal on the interest they receive on their savings, compared to leaving their money sitting in their instant access accounts.

One thing that savers should bear in mind is that interest earned on a cash Individual Savings Accounts (ISA) is completely tax-free, whereas the interest earned on most other types of savings account is not.  An ISA is basically a wrapper put around a savings account so that interest received is tax-free.  However, there is a limit to how much can be invested in a cash ISA each tax year.  For cash ISAs, an individual can invest up to £3,600 each tax year (which is from 6 April to 5 April the following year).  Generally speaking, because of the tax-free interest, savers should attempt to fully use their cash ISA allowance each tax year before making savings in other types of savings accounts.

At UKfinancemarket.co.uk we have teamed up with several leading insurance companies, banks and building societies so that you can compare ISAs, current accounts, savings accounts, Child Trust Funds (CTF) and other investment products.

Is now a good time to invest in shares?  The UK is currently in the middle of a deep and painful recession.  Many businesses, including big household names, have folded and continue to fold every week.  This is leading to rising unemployment and is naturally very worrying for the population.  It is widely expected that the remainder of 2009 will be tough for the UK economy and that we won’t start to see the light at the end of the tunnel until late 2010 at the earliest. 

There are a significant number of investors with a stocks and shares Individual Savings Account (ISA).  Due to the substantial fall in share prices since October 2007, the value of these stocks and shares ISAs could well be worth less than the amounts originally invested.  When a recession bites, the majority of investors with shares or equity backed investments will be concerned about the value of their investment spiraling downwards and that they will lose significant amounts of their money if they continue to hold onto them.  They will usually sell their investments at a significant loss because they tell themselves that ’something is better than nothing’.  These people, driven by the fear and panic created by attention grabbing headlines in the national press, will surrender or sell their shares and equity backed investments at a loss and horde the proceeds in cash with the intention of riding out the recession storm.  

Then, when they think the recession is over, they will all follow one another and re-invest their cash funds back into into riskier investments, such as equity backed investments when prices would have generally recovered – therefore, the scope for achieving higher investment returns is diminished.  In most cases, this is generally regarded as the worst thing to do.  Conventional investment wisdom is that when share prices have fallen investors should buy more when the price is low, rather than sell, since it is expected that the price will rise again in the future.  Remember, you will only suffer an actual financial loss if you sell your shares or equity backed investments.  Until that time, it is just a paper loss.  It is important that investors always have access to a reasonable amount of cash deposits for emergencies so that they are never forced into selling shares or equity backed investments at an ill-opportune time. 

Over the past several months UK shares listed on the FTSE index have been at their lowest for several years.  At the time of writing, the FTSE 100 is still under 4,000 points; it was over 6,700 points when the credit crunch started in October 2007.   Therefore, there is some way for share prices to go before they return to their previous highs.  This could therefore be the perfect opportunity for the investors who are willing to accept a significant degree of investment risk in exchange for the potential for substantial investment returns over the longer term, which is generally regarded to be any period in excess of five years. 

One of the simplest and most tax-efficient ways of investing is through an ISA.  For those investors looking to invest in shares or equity backed investments, you should consider a stocks and shares ISA.  Please see our section on ISA for more information.  To re-cap, each tax year (6 April to 5 April the following year) everybody has an allowance of £7,200 to invest through a stocks and shares ISA.  Any growth on your investment is completely tax free.  Please note that investment in a stocks and shares ISA should be for a minimum of three years, but preferably at least five years.  There are no guarantees on investment returns received from a stocks and shares ISA, and you could get back less than your original investment.  However, historical data reveals that investment in shares and equity backed investments has always exceeded the return on cash over the longer term.  In UKfinancemarket’s opinion, now is the time to invest in shares and equity backed investments, so long as you are prepared to accept a significant degree of investment risk.  If you invest through a unit trust within a stocks and shares ISA wrapper, the investment risk is spread through a number of different companies.

Figures recently collated by pension consultant firm, Aon, reveal that the significant fall in the value of share prices since the start of the downturn in the UK economy in October 2007 has decimated the private pension savings of nearly 4 million people in the UK.

Since the start of October 2007 defined contribution pension arrangements, such as stakeholder personal pensions, have reduced by nearly 30%.  Such pension arrangements are typically invested in shares (equities) which explains the reason for the substantial reduction.  According to Aon, the overall value of defined contribution arrangements have reduced by £161bn, from £552bn to £391bn since October 2007.

While these figures may be alarming, it should not be viewed as all doom and gloom.  This news should really only be of concern to those at or near retirement and are seeking to convert their decimated pension pots into income.  For these individuals there is little or no opportunity to remedy the matter before they retire.  However, those individuals who are many years away from retirement are, in reality, unlikely to be affected by this news since there is sufficient time for the stock markets, and thus the value of their pension arrangements, to recover.  Notwithstanding this, contributions invested now will be purchasing equities at relatively low prices, the value of which could reasonably be expected to increase substantially over the longer term leading up to retirement.  There are always people that win and lose during a recession.  On this particular subject the losers are those individuals at or near retirement, and the winners are those many years away from retirement who are able to invest now while the value of shares are at significantly reduced values.

 In view of this, pension arrangements, such as stakeholder personal pensions, still have a very important part to play in building up funds for individuals’ retirement.

Defined contribution pension arrangements, which are better known as final salary pension schemes, have not been immune to the reduction in the value of shares.  This is because such schemes typically have a significant proportion of their assets invested in equities also – in order to achieve sufficient investment returns to meet the future liabilities of members not yet retired.  Aon’s figures reveal that the final salary pension schemes of the top 200 companies in the private sector in the UK had a surplus of £1.4bn in October 2007, which, mainly due to the reduction in the value of equities, has now turned into a deficit of £19.4bn.

The substanital deficits of final salary pension schemes has been well documented in both the financial and national press in attention grabbing headlines designed to create panic and fear.  However, members of final salary pension schemes are protected by a safety net should their final salary pension scheme become insolvent.  This safety net is known as the Pension Protection Fund (PPF).  In it’s most recent estimate, the PPF put the combined deficit of nearly 7,800 final-salary schemes in the private sector in the UK at £219bn in February 2009, with 91% of schemes now in deficit.  For more information on the Pension Protection Fund (PPF) visit www.pensionprotectionfund.org.uk.