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Young, Self Employed, No Accounts And No Savings. How Did I Get A Mortgage?

I was having considerable problems getting a mortgage to buy my first home about four years ago. If I was to believe everything I had heard, I was the ideal candidate for a mortgage – young, a first-time buyer and with an annual income of about 30k. Easy!

No, not easy, actually. Being young with a leaning towards enjoying myself, I had no savings – nothing to use as a deposit. But what about these 100% mortgages I had been hearing about? Surely I qualified? Oh, there was something else – I was also self employed with no accounts.

Self employed with no accounts and no savings.

Could I get a mortgage? It was virtually impossible. Not a single High Street lender would give me a mortgage. Even my bank who have had my services for ten years turned me down; even though my bank knew exactly how much I earned each year and how much I spent each week; even though my bank knew that making the monthly payments on a repayment mortgage would not be an big problem for me.

Then I heard about Self Certification Mortgages.

What is a Self Certification Mortgage? It’s essentially a mortgage whereby you decide whether or not you are capable of making the repayments. And that is when the penny dropped, because you see the entire process of applying for a mortgage is premised upon an institution (such as your bank) deciding whether or not you are able to make the monthly repayments.

And what is the formula for working this out? Well, if you are employed it is your salary – a bank will lend you, say, 3 or 4 times your annual salary. Normally they will ask you for a small deposit, say 5%, to demonstrate that your intentions are serious.

Obviously, if you are self employed, and particularly with no accounts, you often do not have an annual salary and you are unable to demonstrate regular monthly income. Many self employed people – notably me – live hand-to-mouth, regularly waiting for reluctant clients to settle outstanding invoices. So how can your ability to repay a mortgage be judged? I discovered that self certification was the answer – i.e. YOU. You make a judgement as to whether or not you are borrowing too much money and whether or not you will be able to afford the monthly repayments. After all, if you are bright enough to run your own business, manage your own tax affairs, handle purchasing and invoicing, surely you are bright enough to work out whether you can repay your mortgage!

Think about it – conventional, salary-based mortgages are judged on the basis of what a person has earned in the past, but a person could be made unemployed within hours of securing a mortgage. On the other hand, Self Certification puts the onus on you predicting what you will earn in the future. Sure, you could go out of business, but a salaried person could also lose their job.

So I thought, well this is good, but I bet that a Self Certification Mortgage is the stuff of loan sharks, with huge interest rates, crushing monthly repayments and Guantanemo-style penalties.

But there was something else I discovered about mortgages. Although the High Street is swamped by lenders, there are only actually a very small number of ‘actual’ lenders: the majority are intermediaries acting on their behalf, because the number of mortgage applications is so great that intermediaries are required to perform the process of judging each applicant and assessing risk.

So I discovered that whereas a High Street lender would turn me down, a smaller lender might accept me. But get this: the mortgage that I actually received from the small lender at the end of the day was exactly the same as the mortgage which had been refused me by the High Street lender! Only the forumla for judging my ability to repay the mortgage was different, not the mortgage itself!

So what’s the catch with Self Cerftification? There is always a catch in my experience, and in this instance it was a very big catch. Whereas a regular mortgage requires the borrower to contribute a deposit of, say, 5%, my Self Certification Mortgage required a deposit of 15%. Fifteen percent!! Of course I can see why they ask for this, why if you are not being judged using the conventional formula you are expected to show some serious committment. But I didn’t have any savings. I was young and self employed for crying out loud.

So what did I do? Okay, I would not recommend this to everybody, but I was desperate for my own home and I knew that I could afford the repayments. I took out a Personal Loan shortly before my mortgage application and, supplemented with a timely invoice payment, I was able to pay the deposit and afford the key refurbishment costs on the property (roof, re-wiring, plumbing etc).

On the High Street this would be called a Home Improvement Loan and acquired AFTER you have obtained a mortgage and purchased the property. I simply borrowed a little more in the form of a Personal Loan before I had acquired a mortgage. I was fortunate in that I could afford to carry the costs of these repayments for the forseeable future and I had bought on a rising market – the value of my property was already more than the mortgage and personal loan combined before I had even finished the refurbishment (ie. 4 months after buying the property). I would not recommend this to everyone, and you have to be very, very clear about how much you are borrowing and what the total repayments will be.

However, getting on the property ladder and having my own home was the most important thing to me, and it just goes to show that if you look beyond the High Street you can actually find the same or similar financial products but with less of the hassle. The High Street had always made me feel inadequate, a financial failure

You might be interested to know that, because I was still looking for the catch in my Self Certification Mortgage, I went to a respected, independent financial advisor recently (on the High Street as it happens) and asked if I should change my mortgage to something better. His advice was that I had got a very good mortgage deal and that I should stick with it for the forseeable future. So I have.

Richard

Now, heres a real tax savings to the individual taxpayer with dependents. The child tax credit is a direct federal income tax credit based on the number of dependent children in your family. This federal tax credit is available to provide credit to taxpayers with income below certain established levels. Started in 2003 and going to 2010, the maximum credit per child is 1000 and is first applied to reduce or eliminate the taxpayers federal tax liability. In 2011, the Sunset Provision will decrease the tax credit unless the credit is extended or made permanent.

How does this federal tax credit work and who qualifies for this credit? Well, lets start with the last question first. Every family with children qualifies, however the federal tax credit phases out when income is above 110,000 for married filing jointly, 75,000 for single, head of household, or widow, and 55,000 for married filing separately. In addition, the child tax credit might be limited by the amount of income tax you owe as well as any alternative minimum tax you might owe. But like everything else in this world, there are exceptions. If the amount of your child tax credit is greater than the amount of federal income tax you owe, you may be able to claim a portion or all of the difference as an “additional” Child Tax Credit.

First exception: if your earned income exceeds 10,750, you may be able to claim up to 15 percent of that amount. Second exception: if you have three or more qualifying dependent children in your family, you may claim up to the amount of Social Security taxes you paid during the year, minus any Earned Income Tax Credit you received. If you qualify under both these exceptions, you receive the greater of the two amounts, up to the difference between your federal tax liability and your regular Child Tax Credit. You may want to seek a tax professional for help with this credit.

Now, to answer the how does it work aspect; the best approach might be to simply break down the requirements, and explain each fully. The child tax credit is the responsibility of the Internal Revenue Service (IRS), and the credit issuance is determined through the federal tax returns the individual taxpayer completes each year. Taxpayers must complete either the 1040 or the 1040A and the IRS form 8812. The IRS will then determine eligibility, and process accordingly; the requirements and limits change each year, so the individuals eligibility may change each year.

In order to qualify, a family must have earned at least 10,500 in income, and that figure will rise each year, according to inflation. There must also be at least one qualifying child. In order to be classified as a qualifying child, the child must meet the following requirements: under age 17 of the tax year, claimed on your tax return as a dependent, must pass the relationship test (son, daughter, stepchild, grandchild, brother, sister, foster child, adopted child, etc.), be a US citizen or a resident alien, and have a social security number.

During its original year of inception, many families with qualifying children were mailed an advance federal income tax credit of either 300 or 400 pounds; but they were also told this would reduce their end-of-year tax credit, pound for pound.
The method used for determining the tax credit is fairly simple, and is not difficult to calculate; however, any individual taxpayer with uncertainty should seek the advice and assistance of a tax professional when preparing their federal tax return.

The credits, as stated earlier are claimed when you complete a 1040 or 1040A and file your returns with the Internal Revenue Service. Although many individual taxpayers pay for a professional to complete their federal tax returns each year, there are qualified preparers that are available free of charge each year, through the IRS; either way, make sure that you communicate your qualifications for the child tax credit, and check your tax return to see that the credit was applied. You do not want to let this tax credit slip by.

The child tax credit, along with the Hope and Lifetime Learning credits are a direct means to affect the individual taxpayers tax liability and offer some level of tax relief. This is meant to help parents with the costs associated in raising children, and educating them. Most often, the child tax credit is a way to alleviate the existing federal tax liability for middle-income taxpayers. For the extremely low income families, there is often no income tax due, so there is no allowable tax credit. Although it does not help the poverty level families as a form of federal income tax refund or tax-free income, it does help to alleviate any federal tax liability. The Earned Income Credit is used by many poverty level or low-income families as a supplement to their earned income.

Asset bubbles – in the stock exchange, in the real estate or the commodity markets – invariably burst and often lead to banking crises. One such calamity struck the USA in 1986-1989. It is instructive to study the decisive reaction of the administration and Congress alike. They tackled both the ensuing liquidity crunch and the structural flaws exposed by the crisis with tenacity and skill. Compare this to the lackluster and hesitant tentativeness of the current lot. True, the crisis – the result of a speculative bubble – concerned the banking and real estate markets rather than the capital markets. But the similarities are there.

The savings and loans association, or the thrift, was a strange banking hybrid, very much akin to the building society in Britain. It was allowed to take in deposits but was really merely a mortgage bank. The Depository Institutions Deregulation and Monetary Control Act of 1980 forced S&L’s to achieve interest parity with commercial banks, thus eliminating the interest ceiling on deposits which they enjoyed hitherto.

But it still allowed them only very limited entry into commercial and consumer lending and trust services. Thus, these institutions were heavily exposed to the vicissitudes of the residential real estate markets in their respective regions. Every normal cyclical slump in property values or regional economic shock – e.g., a plunge in commodity prices – affected them disproportionately.

Interest rate volatility created a mismatch between the assets of these associations and their liabilities. The negative spread between their cost of funds and the yield of their assets – eroded their operating margins. The 1982 Garn-St. Germain Depository Institutions Act encouraged thrifts to convert from mutual – i.e., depositor-owned – associations to stock companies, allowing them to tap the capital markets in order to enhance their faltering net worth.

But this was too little and too late. The S&L’s were rendered unable to further support the price of real estate by rolling over old credits, refinancing residential equity, and underwriting development projects. Endemic corruption and mismanagement exacerbated the ruin. The bubble burst.

Hundreds of thousands of depositors scrambled to withdraw their funds and hundreds of savings and loans association (out of a total of more than 3,000) became insolvent instantly, unable to pay their depositors. They were besieged by angry – at times, violent – clients who lost their life savings.

The illiquidity spread like fire. As institutions closed their gates, one by one, they left in their wake major financial upheavals, wrecked businesses and homeowners, and devastated communities. At one point, the contagion threatened the stability of the entire banking system.

The Federal Savings and Loans Insurance Corporation (FSLIC) – which insured the deposits in the savings and loans associations – was no longer able to meet the claims and, effectively, went bankrupt. Though the obligations of the FSLIC were never guaranteed by the Treasury, it was widely perceived to be an arm of the federal government. The public was shocked. The crisis acquired a political dimension.

A hasty 300 billion bailout package was arranged to inject liquidity into the shriveling system through a special agency, the FHFB. The supervision of the banks was subtracted from the Federal Reserve. The role of the the Federal Deposit Insurance Corporation (FDIC) was greatly expanded.

Prior to 1989, savings and loans were insured by the now-defunct FSLIC. The FDIC insured only banks. Congress had to eliminate FSLIC and place the insurance of thrifts under FDIC. The FDIC kept the Bank Insurance Fund (BIF) separate from the Savings Associations Insurance Fund (SAIF), to confine the ripple effect of the meltdown.

The FDIC is designed to be independent. Its money comes from premiums and earnings of the two insurance funds, not from Congressional appropriations. Its board of directors has full authority to run the agency. The board obeys the law, not political masters. The FDIC has a preemptive role. It regulates banks and savings and loans with the aim of avoiding insurance claims by depositors.

When an institution becomes unsound, the FDIC can either shore it up with loans or take it over. If it does the latter, it can run it and then sell it as a going concern, or close it, pay off the depositors and try to collect the loans. At times, the FDIC ends up owning collateral and trying to sell it.

Another outcome of the scandal was the Resolution Trust Corporation (RTC). Many savings and loans were treated as “special risk” and placed under the jurisdiction of the RTC until August 1992. The RTC operated and sold these institutions – or paid off the depositors and closed them. A new government corporation (Resolution Fund Corporation, RefCorp) issued federally guaranteed bailout bonds whose proceeds were used to finance the RTC until 1996.

The Office of Thrift Supervision (OTS) was also established in 1989 to replace the dismantled Federal Home Loan Board (FHLB) in supervising savings and loans. OTS is a unit within the Treasury Department, but law and custom make it practically an independent agency.

The Federal Housing Finance Board (FHFB) regulates the savings establishments for liquidity. It provides lines of credit from twelve regional Federal Home Loan Banks (FHLB). Those banks and the thrifts make up the Federal Home Loan Bank System (FHLBS). FHFB gets its funds from the System and is independent of supervision by the executive branch.

Thus a clear, streamlined, and powerful regulatory mechanism was put in place. Banks and savings and loans abused the confusing overlaps in authority and regulation among numerous government agencies. Not one regulator possessed a full and truthful picture. Following the reforms, it all became clearer: insurance was the FDIC’s job, the OTS provided supervision, and liquidity was monitored and imparted by the FHLB.

Healthy thrifts were coaxed and cajoled to purchase less sturdy ones. This weakened their balance sheets considerably and the government reneged on its promises to allow them to amortize the goodwill element of the purchase over 40 years. Still, there were 2,898 thrifts in 1989. Six years later, their number shrank to 1,612 and it stands now at less than 1,000. The consolidated institutions are bigger, stronger, and better capitalized.

Later on, Congress demanded that thrifts obtain a bank charter by 1998. This was not too onerous for most of them. At the height of the crisis the ratio of their combined equity to their combined assets was less than 1%. But in 1994 it reached almost 10% and remained there ever since.

This remarkable turnaround was the result of serendipity as much as careful planning. Interest rate spreads became highly positive. In a classic arbitrage, savings and loans paid low interest on deposits and invested the money in high yielding government and corporate bonds. The prolonged equity bull market allowed thrifts to float new stock at exorbitant prices.

As the juridical relics of the Great Depression – chiefly amongst them, the Glass-Steagall Act – were repealed, banks were liberated to enter new markets, offer new financial instruments, and spread throughout the USA. Product and geographical diversification led to enhanced financial health.

But the very fact that S&L’s were poised to exploit these opportunities is a tribute to politicians and regulators alike – though except for setting the general tone of urgency and resolution, the relative absence of political intervention in the handling of the crisis is notable. It was managed by the autonomous, able, utterly professional, largely a-political Federal Reserve. The political class provided the professionals with the tools they needed to do the job. This mode of collaboration may well be the most important lesson of this crisis.

Ask any new parent, and they will tell you that the costs associated with a new baby are many, everything from bottles to diapers to cribs, strollers, and high chairs, and all of this before the child even learns to walk and talk and beg you for a pair of 500 designer jeans. Parenting is one of the most rewarding, and important jobs that a person can have, in addition to being one of the most expensive. The good news is that there are two tax breaks offered by the federal government that the majority of parents can qualify for, which are the dependent exemption and the child tax credit.

The dependent exemption is a tax break that allows you to receive an additional tax deduction of as much as 3,000 each year until your child turns 19. This is addition to the standard tax exemption that the IRS allows per person to cover basic living expenses. Single people are allowed one exemption, while married couples have the option of taking two of these exemptions per year.

The amount that you will save with this exemption depends on your current tax bracket, and generally, the higher the tax bracket, the more money you will receive, unless your income is too high to claim an exemption, but again, most people will qualify. This dependent exemption is only phased out for married couples filing jointly with an adjusted gross income of more than 300,000. Limits for single parents exist as well, and it is important to research these limits, both for married and single parents, to be sure that your income does not exceed them. If you qualify for this exemption, you can simply fill out the required lines on your tax form, including an adoption taxpayer identification or social security number for each child.

The child tax credit is available for married couples filing jointly with a reported gross income of below 13,000, although again, it should be noted that income limits for both single and married parents are revised frequently. With this credit, it is possible to receive up to 1,000 per child.

Determining the amount of credit that an individual can claim requires the completion of the child tax credit worksheet, which can be downloaded from the IRS website. You will need to provide a social security or adoption taxpayer identification number for each child in order to qualify. As with all tax information you should always check with a professional because tax laws can change every year.

It is a well-known fact that Americans are miserable failures when it comes to saving for retirement. Well, the government is offering tax credits to change this for some of us.

Tax Credits for Retirement Savings

Social security is going to be under siege as baby boomers hit retirements. Fortunately, many baby boomers have put away piles of cash in 401ks and IRAs. Regardless, most people fail to do all they can in this regard. In an attempt to motivate us taxpayers to save as much as we can for retirement, Uncle Sam is dangling tax credits before us like the proverbial carrot.

The tax credit in question is the Retirement Savings Contributions Credit. Qualify for it and you may be eligible to take a credit of 1,000 for singles and 2,000 if youre filing jointly. The credit is eligible for those that make contributions to 401ks and retirement vehicles. The amount of the credit is determined on a sliding scale based on how much you make and contribute.

You can claim the retirement savings tax credit:

1. Individual taxpayers with incomes of 25,000 or less.

2. Individual taxpayers that are head of households and make 37,500 or less.

3. Married couples filing jointly who make 50,000 or less cumulatively.

There are some very minor restrictions regarding who is eligible for the tax credit. First, you have to be older than 18. Second, you cant be a full time student. Finally, another dependent cant claim you as a dependent on their tax returns.

Importantly, this tax credit is in addition to other tax advantages you gain from piling money into a retirement account. With a 401k, for instance, you can pound in pre-tax earnings, which cuts down your adjusted gross income for the tax year. Once you figure out your taxes, you can then deduct another 1,000 or so for the tax credit. Put another way, saving for your retirement is a no brainer.

The federal government is practically begging you to put away money for retirement. With this tax credit, there is absolutely no reason to fail to comply.

The world stock markets are going through quite a turbulent period at present and on average around ten percent has been wiped off some of the leading markets over the last month. In this article I write about how on a personal note I try to save in a series of different financial products which helps me to spread the risk, including when we have these stock market falls.

I started saving money on a regular basis about five years ago. At this stage the stock market in the UK had just had some dramatic falls after the terrorist attacks in New York. I wanted to build up a kind of rainy day fund and decided to invest monthly premiums into a unit trust. I started saving 50 a month and over time I increased this figure.

I have to say that I have been very lucky as my investment has done very well, I have even over the last couple of years cashed in some of the units to pay for our family holidays. At the start of this year the stock market in the UK was showing its highest levels in five and a half years.

In the five years that I have been investing, I have bought and now own a large number of units in this unit trust fund. What it now means however, is that if the stock markets have a period just like the one it has had, it costs me financially on paper quite a lot of money.

I now believe that my exposure to the stock markets is high enough and have decided that I will leave the units that I have invested in the fund as they are, but that I will not be adding to them. Instead I am going to put my regular savings into one of the high interest regular savings online bank accounts. This of course is a way of spreading the risk.

I have no idea which way the world stock markets are going to go over the next few months. Many people are saying that the United States interest rates may rise and that this could have a damaging affect on world markets. There could well be another major terrorist attack which could of course result in dramatic stock market falls.

I am hoping that the stock markets will continue to rise in the same way that they have over the last five years and that the falls over the last few weeks are just a blip. I just think that I have enough money invested and would like to start building some form of other savings in a safer type of environment.

The journey of a thousand miles begins with a single step. Its as true with saving money as with anything else.

These days, weve been frightened into thinking we must save thousands of pounds immediately. Most of us simply cannot do this, and the media does us no favors when it makes the situation sound so hopeless that we might as well give up.

Financial planning should be focusing on real people, people who have trouble saving, people who really need the help that instead seems geared towards the wealthy.

As a result, many of us think that if we can only save, say, 10 a month, then it isnt worth it. Not true! Once you sock away that 10 and realize that youre still okay, youll realize you can put away a little more.
Maybe you increase it to only 20 a month, but thats 240 a year, plus the interest youll receive for putting the money in a savings account or money market. You only need 250 to open an IRA, and thats a worthy goal.

Even if you stick with 10 a month, thats 120 a year, and if you think that isnt much money, you can probably afford to put away more.
The best part of this technique is that you get into the habit of saving. Once you do that, savings can grow and grow as your income increases, your expenditures decrease, or you receive a bit of extra money from your tax return, a work bonus, etc.

Here are a few tips for saving more by starting small:

Pay yourself first. Youve heard it before, but thats because it works. When you pay your bills, write a check to yourself. Depositing as little as 5 from each paycheck into a savings or money market account should get you to that initial goal of 10 a month. If thats painless, increase it to 10 per paycheck. If, after a couple of months, you find 10 is painless, increase it a little more. Keep doing this and you might be surprised at how much you can afford to sock away!

If your employer offers direct deposit, even better. Open a savings or money market account and have at least 5 per paycheck deposited into that account. Again, keep increasing this as you get comfortable with saving the money.

Do you spend 2 a day on coffee, a muffin, or some other inexpensive treat? Do that five days a week for 50 weeks, and youve spent 500! Spend a little of that on a coffee maker and some ground or whole coffee beans, and put the rest into your savings account.

When you save money with good deals or coupons, consider putting the difference into your account.

Most importantly, get yourself into the habit of saving, and dont underestimate the effect of saving just a little. All you need to do to begin the journey is to take that first, single step.

Tax saving is one of the prime important issue for an individual as we are paying up to 40% of our hard earned income as tax.

Various banks are offering different tax saving fixed deposits scheme with high interest rates plus abundant saving of taxes. Tax-saving is no longer the secured domain of Public Provident Fund and National Savings Certificate. Tax-saving Fixed Deposits offered by banks are also eligible for deduction under Section 80C. The deposits are subject to a 5-Yr lock-in period. Currently, the returns on tax-saving Fixed Deposits vary between 7.50-8.50 per cent per annum. The minimum and maximum investment amounts (per annum) have been pegged at Rs 100 and Rs 100,000 respectively. Introduction of tax-saving Fixed Deposits offers risk-averse investors the opportunity to broaden your horizons across mechanisms while conducting the tax-planning work out. A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. Fixed deposits also give you a higher rate of interest than a savings bank account. IDBI is launching a five year IDBI Suvidha Tax Saving Fixed Deposit with effect from August 4. The rate of interest on the five year deposit is 8.5 per cent. For senior citizens, the rate of interest would be higher at 9 per cent. Under the scheme, an Undivided Family can invest up to a maximum of Rs. 1 lakh. On a pre-tax basis, the return on the deposit works out to over 12 per cent.

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The modern socio-economic scenario has made life really very complicated for us, as we all have to run after money to make ends meet. In this age of rapid commercialization of economy, we are always running short of cash no matter how much we earn. As the economy scale new highs aggressive consumers are always busy exploring new ways and means to augment their income. For spendthrift people it may however turn out to be an arduous task to save money.

Therefore, it makes sense to invest in saving bonds so that you never reach a stage of bankruptcy and always have some cash to fall back upon in times of need. Industry experts strongly recommend consumers to use saving bonds as a reliable means of letting your money grow at an amazingly fast pace. According to a recent media report, savings bonds currently bring greater benefits than many savings or money market accounts. With savings bond you can solve all your monetary woes. Savings bond takes care of your child’s higher education or even your post retirement ordeal.

Some of the advantages of investing in saving bonds are as follows- -The monthly interest rates on savings bonds accumulate on a monthly basis. Savings bonds offer enviable rates of return in comparison to other bonds.

-Savings Bonds come with a particular registration number so that they can be easily be replaced in case it is stolen or tampered.

-You do not have to dig deep into your pocket to buy a savings bond. You have to shell out as little as 25 to get a savings bond.

-Another unique feature of saving bond is that they are easily exchangeable. You can get cash out of your bond easily in case of an emergency.

-One of the greatest benefits acquired from investing in savings bond is tax exemption. The interest amassed on savings bonds is free from all state and local income taxes.

-Last but not the least, savings bond act as a great balancing factor to your existing investment folder paving a way to start building your own capital. This unique feature of the savings bond gives you enough room for diversification of funds.

There are a variety of savings bonds on offer. You just have to do a little bit of market research to find out which one suits your bill perfectly. Riding on its highly beneficial factor savings bonds have really emerged as a preferred investment option everywhere. Series EE or Series I bonds are the safest bet amongst all categories of savings bonds. Savings bonds have undoubtedly emerged as the best add-on to your investment portfolio.

Therefore, if you want to make your life simpler with little financial worries then investing on savings bond is a must. Your post retirement life or child’s’ higher education expenses may not seem to be at all difficult after investing on savings bonds. So, get ready to outsmart your peers by investing on savings bonds and it will save you from unnecessary harassments and gift you a secured peaceful life in return.

We all look forward to the day when we can give up work but to ensure your retirement is comfortable you will need to prepare for it carefully.

Putting a proportion of your earnings towards a pension may seem like a drag right now, but realistically you will need to save for as long as possible to gain a decent income in later years. Not only this, but there are substantial benefits to saving into a pension youre not taxed on contributions and there may be additional extras such as life insurance or lump sums included in your scheme.

These days people are investing more and more in private pension schemes and long term savings the state pension is likely to become negligible with an ageing national population.

State Pension

At present, the basic pension for a single person is 82.05 a week. This depends on you having made sufficient National Insurance Contributions over your working life. Even if you have paid off your mortgage by the time you retire, would this be enough for you to live on? Bear in mind that the age when you can claim your pension (currently 65 for men, 60 for women) is highly likely to rise in the near future, and keep on rising.

Company Pensions

Employers are likely to offer some form of pension scheme. The terms and details of these vary from company to company, but usually fall into one of two basic types: final salary schemes, based on your salary and how long youve been paying into the pension; and money purchase schemes, which depend on the amount contributed into the fund. When you retire, you then buy an annuity a type of insurance which will pay you a regular income. A money purchase scheme can be more flexible, but slightly more risky.

Personal Pensions

These schemes offer a lot of flexibility, and there are several different ways to invest, including investment trusts and unit-linked schemes that depend on share prices. Personal pensions operate in roughly the same manner as company pensions, only you have more control over your investment. Currently there are limits on the contributions you can make to personal pensions, but these are set to change in 2006.

The rules on pensions are changing all the time, and are likely to undergo radical changes in the next few years. For up to date advice, check the Pensions Advisory Service at www.pensionsadvisoryservice.org.uk