It is perhaps a quirk of our financial system that the number of options available to us for earning a steady, tax efficient income increase as we get older, despite the fact that most us could do with a couple of steady income streams throughout our working lives.
One income might keep your household and family afloat, while the other might pay your child’s school or university fees. One might pay out regularly in your retirement, while the other might fund a trip or two away from home each year. This blog is about how an ISA, and in particular the Abundance ISA, can be a helpful way to meet some of those income needs.
For those with some time before they retire it can often feel like the demands for money are never ending; the mortgage, the credit card, school or university fees, the insurance; the broadband. All the while they are also being encouraged to regularly save; a pension, an ISA, maybe even junior ISAs or Premium Bonds, which is all well and good because everybody’s future self needs money but, sometimes, we also need some now. And we want to know when it’s coming and what it will be; the Abundance ISA can help meet that need.
The Abundance ISA is a flexible, tax efficient way to save in order to create an income for a set period of time to help meet some of life’s more predictable demands. Say you wanted a semi-regular income for 15 years to put towards school or university fees each term. An Abundance ISA can help because of the way our Debentures, the investments we sell, are structured. Our ISA combines the positive benefits of ISAs – tax free returns and the ability to withdraw whenever you please – with the positive benefits of Debentures – regular, semi-annual interest and capital payments over a set period of time that get your money back to you a little quicker. It means that when a predictable income need like university fees comes around, you can create a way to meet it from your ISA savings – although do bear in mind that, as with any investment, there is a risk to your money with our Debentures. Read the Risk Warning at the end of this blog to find out more.
The effect of holding Debentures in an Abundance ISA is that you get to keep more of your income. This is for two reasons:
- You are getting capital back every six months alongside any interest
- You don’t pay any tax on the interest you have earned or capital you receive back
The capital point bears expanding on, as this is a feature of Debentures that can be particularly useful for those using an ISA as an income generating product.
ISAs are increasingly a tool for those in or nearing retirement. Annuities were the required choice before 2015’s pension freedoms. They offer a guaranteed income for a set period or until death, with some types also inheritable; while they came in for criticism when providers tried limiting the choice investors had for a stable long term income, they are still a valuable element of many retirement portfolios. Now those options have diversified and people’s strategies have followed suit. Many choose from a mixture of drawing an income from existing investments, buying an annuity for the guaranteed income, and making the most of the tax free returns in ISAs.
The Abundance ISA, as in the first example, can provide a flexible, long term, tax free income for retirement spending that does not come to an end with any individual Debenture’s investment term. It is possible to create an ongoing income, rather than one for a defined period of time, by reinvesting all or part of your Cash Returns. You can choose how and whether to reinvest your interest or capital repayments when they arrive every six months. This gives you something to spend now while maintaining the size of your ISA income pot and even increasing your regular cash payments, although there is still some risk to your money (see Risk Warning below). This way you can build a tax free pot of money that lets you choose how to use your money in a way that suits you as your needs change over time. While you might be creating an income in a different way to the first example, you are benefitting from the same features of the ISA and Debenture products together.
In the end, no matter how our customers choose to use their Abundance ISA, three things remain true:
- It is always for them to choose where they want their ISA money invested
- It is always for them to choose just what they want to do with the returns
- It is always doing something good for the environment and society, too.
Part or all of your original capital may be at risk and any return on your loan or investment depends on the success of the project. Investments tend to be long term and may not be readily realisable. Estimated rates of return are variable and estimates are no guarantee of actual return. Consider all risks before investing.