Pushing the Ethical Envelope - Abundance Sipp and Good Money Week

This week is Good Money Week so take a look at what's going on and get involved.

My "actions" towards becoming a more ethical investor/consumer include cancelling my subscription to Money Observer and using my financial magazine "allowance" to subscribe to Ethical Consumer instead. I've also written to my MP asking him to actively support the movement towards transparency and accountability in all areas of finance that is being promoted during the week.

Having control over what is being done with our money makes a big difference to how we feel about the whole process and, for me, being able to be confident that my investments are being used ethically would give me an added "bonus" that is worth far more than an extra % point on the potential profit. However it turns out that taking a hit on profits is no longer necessary because, (as was reported this week) ethical funds are now heading to the top of the leader boards due to the collapse in the prices of oil and other mining stock.

Divestment has actually made good financial sense for some time because, even if you're not worried about what will happen to the planet and the people on it after you're gone, you have to acknowledge that we simply cannot dig up and burn most of the fossil fuel left in the ground if we have any hope at all of keeping global warming down below the target levels agreed by governments. Fossil fuel companies are in very real danger of not being able to realise expected profits. It would be very short sighted indeed not to take this on board (-:  if the cap fits Ms Rudd et al :-))

In recognition of the unease many of us feel about the opaque nature of investing, Abundance, who I've been investing (and earning over 7% interest) with since March, have just announced the first peer-to-peer SIPP. There's a good write up on this on crowdfundinsider.com so I won't go into details here but it's very competitively priced (free to set up and no fee for the first year, 0.3% thereafter) and seems to make excellent sense if you're ethically inclined and worried about putting all your retirement eggs in the volatile equity basket.

I'm not in the market for any additional retirement investing myself as I'll soon be drawing down what I've got, but I'll certainly be talking about the Abundance product with my sons and their friends. My youngest son in particular is extremely "pension poor" as he's been in full time higher education for the last 8 years. This is exactly the kind of product that will appeal to him and his circle of friends who take the issues of corporate financial integrity and responsibility for the planet very seriously, seeing, as they can, where "turning a blind eye" has got us so far.

The introduction of new financial products such as this, ones that allow us to make our money work in ways we want it to, is an exercise in crowd-sourcing in its own right. People really do want to know what is being done with their money, and they want to be able to make informed choices about whose hands they put it in. Abundance have done their research and seem to have got a lot of things right regarding this product. They are honest about the fact that this pension is not for everyone and the risks involved. At the very least they are to be applauded for pushing the market forward and providing a product that supports all the principles of "Good Money" this and every week.

Gifting the Inheritance Away

I have two adult sons who have both done fairly well for themselves but have followed very different paths.

The eldest has lived in rented accommodation in London since graduating. At first he lived with a succession of house mates and then a long-term girlfriend but he is now on his own which is very expensive but at 31 he feels he needs his own place. He has a job that pays him well enough to live in London and has paid off his student loan but he has never saved beyond a few hundred for his next holiday. Recently he has become very disillusioned with his career (a para-legal job in the health services). His salary is barely creeping up, promotion prospects are poor and his pension is being down graded quite drastically. Basically he is bored, burned out and bordering on unhappy.

My youngest son has not yet ventured out of full time education after moving from a degree to an MA and then a PhD which he is just finishing. He has done some teaching work along the way but has mainly been funded via scholarships and bursaries which he has won due to hard work and excellent academic results. He actively enjoys living frugally which has helped. His friendship group is large and very supportive and he's very happy where he is.

Both my sons have a potentially life-shortening genetic illness. I mention this because it does make a difference to the decision-making process that my husband and I have just gone through. We have decided
to give/gift/pay out around half of our ISA savings to our sons now, when they need it, rather than continue to save it in case we have a "rainy day" (whatever form that might take).

As we aren't even proper "pensioners" yet we haven't really thought much about inheritance. We don't expect to end up paying any inheritance tax given that a surviving married partner also inherits their partner's unused allowance so this means that the total estate would need to be over £650,000 before any is due? Someone please correct me if this is wrong.

But in any case the timing of inheritance is something over which you have no control and doesn't fit in with anyone's plans. Why would we want to sit on cash "in case" when there is currently a valuable use for it. Waiting till we die to pass the money on to our sons makes less sense the more I think about it. We have around £70,000 in our ISAs which only form part of our retirement plan in that it would be used to provide a small amount of income (maybe about £3,000 a year) and be a care-cost buffer if we need it. In actual fact the costs of care are so astronomical that if residential care were to be needed for either of us on a long term basis, whether we had £35,000 or £70,000 would be soon become academic because it would vanish in such a short period of time. This is a scary thought but it does mean that keeping the ISA funds for this purpose doesn't make a whole lot of sense.

So we have decided to manage the money so that our sons can have around £17,500 each over the next couple of years. My eldest son can then leave his job and do a Masters in a subject he will enjoy. The change in him since we talked about this and told him of our decision is remarkable. He's full of enthusiasm and plans for the future, whereas before he seemed to be losing his naturally positive outlook on things. I defy anyone to tell me that this is the wrong thing to do.

I need to do some work on how we can do this and what would be the best way to "gift" it. I also need to bottom out which bits of our ISAs to sell and move into cash, whether to give the money as lump sum(s) or regular payments and investigate implications for taxation. In addition to the money my eldest son will hopefully be living in our studio flat for a year whilst he does the course so I also need to work around the loss of the rent for that period. Back to the spreadsheets.

In the middle of all this I'm expecting to put in my application for VR during the summer which might, or might not be accepted. Interesting times :-)

Getting Onto the Platform

I first took out a S&S ISA around 8 years ago with CIS (now managed by Royal London). I paid into it monthly and took very little notice of how it was doing, basically because I truly believed that it was little more than a glorified savings account which would just increase somewhere in line with the amount I put in. I had heard the term "volatility" but I had never really bothered to find out what it meant.

When I started thinking about retirement planning I took another look at my ISA as this is the biggest "chunk" of money that I have available to help me. Whilst doing my research on what a S&S ISA actually is (which naturally led onto a crash course in portfolio building and asset allocation courtesy of Tim Hale amongst others), I came to realise that there was a whole new world out there. This world was one where people could manage their own investments online, where they could see how those investments were doing on a day-to-day basis if they wanted to, where they could research what was available, create imaginary portfolios and "watch" interesting funds. In other words I discovered the online broker platform.

From believing that I had to leave my money where it was and passively watch what happened to it via an annual statement that came through the post, I went to realising that I could move it onto a platform and be actively involved in managing it. It was a liberating discovery as it fed my desire for control and need to plan, but it was also a little scary. How should I go about moving all that money, and where should I put it?

As I'd been reading Monevator for some time this article was my main information point in my planning, (although I did read the boards at moneysavingexpert.com and anything else I came across about the subject). Given my profile Interactive Investor turned out to be the fairly obvious choice and as they were offering an attractive transfer deal at the time (and still are, I believe) I decided to bite the bullet and start the ball rolling.

I filled in the transfer form, set up an ISA account and began to familiarise myself with how things worked. I must admit that the first time I bought a fund I felt quite nervous and, in fact, my 5 first buys were fairly small ones as I wanted to see the whole process run through but without committing much cash. For that reason I know I paid more dealing costs than I should have (iii charge £10 per deal) because I hadn't yet (and still haven't) been credited with any of the free dealing that was promised as part of the transfer deal. Thus I committed one of the cardinal sins of investing - paying over the odds to deal. But I'm happy to take this hit as I think it's worth it to get myself up and running with confidence. Plus I now know that I've been paying more charges than I have needed to for years, so, in the long run I will be saving quite a bit of money.

I'm now at the point where I feel that things are going pretty well. I have 5 funds with small amounts sitting in them, I've organised a monthly payment into my account from my current account and the first set of regular transactions I set up went through (almost) without a hitch. I feel pretty pleased with myself and all ready for the next financial year.

If only whoever is sorting out my transfer would get a move on and shift things across ..