Financial Positions of the Murrays - Case Study Example

RIFA al Affiliation) Introduction The report I am about to present will review, examine and discuss financial positionsof four people, most of whom (with the exception of Jonny) are from the Murray family. This report will employ different financial methods and techniques in order to come up with valid conclusions and answers to the various questions facing Jonny and different members of the Murray family. In addition to this, this report will use the necessary financial terms, definitions and jargons as a way of explaining some financial aspects of Jonny and the Murrays. I hope that at the end of this report, I will have provided appropriate answers and remedies to the dilemmas facing Jonny and the three members of the Murray family. Key Words financial terms, jargons, financial methods and techniques Discussion a) Jonny 1) According to Turner’s 2004 report, pension crisis is caused by two major factors. These are the downturn in financial markets and unpredicted improvement in longevity (Whitaker 1997, pg. 16). Of course there are other factors as well, but these two elements have the biggest role to play in anybody’s descent into pension crisis. Bill Murray should therefore watch them closely if he wants to avoid being caught up in the cobweb that is pension crisis. 2) A money purchase scheme is a variation of defined contribution pension schemes (Hearn 2004, pg. 32). It is normally created by employers as a pool from which they can pay their retired employees income. Despite the employer sponsoring it, it is managed by a board of trustees (with the only exception being public sector schemes). The Trustees are in charge of paying death and retirement benefits. The amount of income payable depends on the amount of contributions made to the scheme by an employer or member, the performance of investment funds and the annuity rate at the time one is retiring. 3) Jonny is not too young to think about pension schemes. In fact, at the age of 30, he should be ready to start putting money in a pension scheme. The reason for this is that he has 30 years or less of gainful employment, after which he will retire. Contributing consistently for 30 years in any pension scheme (especially a money-purchase scheme) is enough to sustain him for possibly the rest of his life. Pension Crisis Pension is a contract made in a regular basis to a person with a fixed sum on the retirement from service (Rein & Schmähl 2004, pg. 69). Pension crisis can be defined as the predictable difficulty found in the payment for the federal, corporate and the state pensions in Europe caused by the difference between resources and the pension obligations used in funding them. Causes of Pension Crisis Underfunded Pension Plan Pension funds have to maintain a funding status or the assets value to liabilities in order to be able to afford the retirement benefits for their employees. An underfunded pension plan has fewer assets used to afford its liabilities. This is mainly caused by mismanagement as the pension schemes rely on the amount of cash being contributed from the sponsor which can be an employer (Rein & Schmähl 2004, pg. 71). This management has a negative impact to the employees because there pension money has not been well handled. Shifting Demographics have also led to the lower ratio of workers per retiree. These are caused by the number of people retiring thereby causing employers to spend a lot of money on them compared to the profit gain of the company. The lower birth rates are also seen as a major factor as it leads to the decreasing labor force that is the number of workers. Money Purchase Scheme A money purchase scheme includes stakeholder and other occupational pension plans among others (Rein & Schmähl 2004, pg. 73). Its benefits depend on contributions to the pension fund and also the investment of the assets placed which can be positive or negative. When one retires the amount of money depending on the two factors is what will lead to the income one will get on retirement. Money purchase arrangements are used in controlling a pension scheme cost. Why it should be taken at a Young Age Investment at a younger age makes it possible for one to attain the financial goals, retirement benefits and also as a protection to any loss incurrence in the future. Through investment at a younger age it enables the amount of money invested to grow at a higher rate when compared to the people who started investing at an older age. Investing is also a better way of securing ones cash because in the market one can be able to see the fluctuations in the market taking the example of the stock exchange. This is a better way of investing as compared to the others. Through investing at a younger age it makes it possible for one being able to live at the same rate and cost the same way he lived while working (Rein & Schmähl 2004, pg. 76). This is because the amount of money in the pension scheme is enough for the sustenance of a person who invested in the field over a long period of time. Investing at a young age also gives enough time for one to be able to make a good amount of money which will benefit on in the future that is after the retirement period. Young people should therefore be advised to start being involved in the pension scheme at a younger age. b) Fred Murray Income Retail shop 10,100 London Stock Exchange dividend 30,600 The cash ISA 2,100 Deposit account 16,200 Event manager salary 36,000 Commission for good performance 2,600 Profit on sale of property 66,000 Total Income 163,600 Expenses Entertainment to foreign customers 2,800 Legal fees for sale of property 1,050 Fuel expenses 250 Painting of the musical shop 350 Light and heat 1999 Penalty fees for non-submission of return 1,000 Total Expenses 7,499 Adjusted Gross Income Calculation Result 163,600 – 7,499 156,101 Taxable Income Calculation Result 156,101 – 5,950 150,151 Total Taxable Income/Tax Liability Calculation Result (150,151 * 28%) – 6,383 35,659.28 The Pay As You Earn (PAYE) system is a system of paying both income tax and contributions to national insurance (Amatucci 2006, pg. 77). Employers deduct tax and contributions to national insurance from employees’ salaries or occupational pension prior to paying their salaries or pension. Salaries include adoption pay, paternity and maternity pay, and sick pay. Taxes are paid throughout the year so long as one is paid, instead of paying your taxes as a lump sum (Hale & Kramer 2001, pg. 48). Employers are responsible for forwarding the tax to HM Revenue and Customs (HMRC). Each pay an employee gets a pay slip indicating national insurance, tax and pay, as well as other deductions. Those who receive pensions may not receive pay slips for every payment. At the end of a tax year, one gets a form P60 which stipulates the total amounts you have been paid and those that have been deducted for the previous tax year. If one pays tax on occupational pension or salary under PAYE, the system may also be used to collect income tax on other taxable income one has. For instance, if one pays tax under the system on an occupational pension, the tax due on the State Retirement Pension is obtained through PAYE through the deduction of tax from the occupational pension. The system may also be used to obtain tax due on any other sources of income like untaxed rent or interest. c) Anne Murray Property prices in Bristol generally range from 100,000-500,000 pounds (Walker 2002, pg. 83). I have researched and found a mortgage company that is willing to offer Anne a loan of 195,000 on a fixed rate mortgage at an initial interest rate of 3.39% for 4 years, paying a monthly figure of 4,349.88. This is followed by the SMR, which is currently 3.99%, and the overall cost for comparison is 4.0% APR (Miles 2002, pg. 41). Using this package, Anne will end up paying a total of 208,794.24 (4349.88 * 48) on the mortgage. This exceeds the borrowed amount by 13,794.24. The agent fees will cost her 30 pounds (0.015 * 2000), which means she will be paying 2,030 (2,000 + 30) on the house every month . When you multiply this by 48 months you get 97,440. Add this to her current savings and you get 177,440; this is close to the actual cost of the house (Willett 1996, pg. 62). Property in Bristol The Bristol property market is seen to have grown tremendously over the years; this is because property is less expensive compared to other cities in United Kingdom. Anne Murray can therefore still get a house at a lower price than the one she is currently trying to buy (Lang 2008, pg. 50). On the other hand, I would advise Anne that if possible she should buy a house as soon as she can. This is because with a dynamic property segment like that of Bristol, property prices will rise sharply in a short time and she may even regret not buying earlier. To put things into context, Anne should buy a house as soon as possible, but also do thorough homework in order to avoid overspending (Lang 2008, pg. 53). d) Henry Murray 1) A will is important because it will allow Henry to specify how he wants his assets to be distributed in a way which is ideal for him and his next of kin (Chatterton 2001, pg. 17). In addition to this, he can protect his family’s interests and ensure that his property is managed efficiently by a trusted person who he deems fit. A well-executed will also allows Henry to save income taxes by making use of available deferral and tax planning measures. In the event that Henry does not write a will, his estate will be administered by whoever the laws of his stave of residence specify. 2) Anne can go to court and request that she be given the family house as Henry’s next of kin (Feinberg 2000, pg. 25). This is because we have not been told whether Henry has children or a wife. Apart from this, Anne can also go to court and ask to be given the house on grounds that Henry is not of sound mind and is therefore unable to execute his will as expected (this may be demonstrated to an extent by his indecisiveness regarding who should he should leave the family home to) 3) I have researched Heath Ledger’s will (http://www.truetrust.com/Famous_Wills_and_Trusts/Heath_Ledger_Will.pdf) and concluded that it constitutes all the characteristics of a valid will. This is because he was at least 18 years old, the will is in writing, he was of sound mind at the time he was writing the will, he signed the will, and his signature was witnessed by at least two witnesses (Johanson 2003, pg. 49). Will A business will can be termed as an agreement that ensures the smooth transition of ownership. It can be said to having taking the same format as buying and selling option. This is used in an event like death occurrence, trauma, total and personal disabling of the owner. A will is important in ensuring capital gains are not triggered and also creates time for advice in the making of the will (Clifford 2007, pg. 35). A will also ensures proper sharing of the wealth in the preference of the owner. Through this there will not be emergence of disagreements and also the business will also be able to continue its operations with the absence of the owner. Criteria of a Valid Will The criteria of a valid will should be conducted by an owner in the arrangements of conditions. In a business there will be the specification like the method of valuation and the times of payment among others (Tiffany 2004, pg. 29). The value of the business is also to be used in the level of insurance as this type of cover is important in a business. The owner should also determine who will receive benefits upon death and other factors and also the insurance policy in a business to ensure the will is effective .There should also be the conscience of those who are to benefit for the will the benefit of the of the insurance policies if it is a company which include business expenses, revenue among others. The owner should obtain the insurance policies in the case of a business and finally execute the agreement. A valid will should be made of a person over the age of 18 and the person in charge of the will should also be of sound mind, memory and also understanding to the will. The will on its writing should not be due to influence which also includes force and it is also expected not to be fraud, if so the court will dismiss it. The will format should also be looked upon as it should signed in the presence of two witnesses written in pencil, ink or typed. Alterations shall be termed invalid after the will execution unless they have been executed (Tiffany 2004, pg. 32). A will can also be revoked n the occasion of the person in the will entering into a marriage or into a civil partnership. It can also be revoked by the person writing the will when he wants to revoke it making it invalid. Conclusion I believe that taking out this particular mortgage is not a worthwhile investment because if Anne can continue saving for a little longer she might buy the house. Henry should go ahead and write a will. As for Jonny, he should go invest in the money-purchase pension scheme since he is old enough to do that. An investment can thereby be seen as a better way of retirement benefit as one is able to achieve or attain his goals even after working. Through investment at a young age it enables one to be able to invest fully and be able to gain as compared to those who have not been investing. Money purchase can also be seen as a better way of investing as this depends on the amount of money one chooses to spend on in his advantage. From the above context we have also been able to see the importance of a will which will not only benefit an individual that is the owner. We have also seen how much Bristol has grown and becoming a better place for development. The construction company can be seen as a major contributor in its development and growth. Appendix A References and Reading List Amatucci, A 2006, International tax law, The Hague: Kluwer Law International; Chatterton, D. A. 2001, Wills (4th ed.), London: Cavendish. Clifford, D. 2007, Nolos simple will book (7th ed.), Berkeley: Nolo. Feinberg, R. S. 2000, Wills, Santa Monica, CA: Multistate Legal Press. Hale, L. S., & Kramer, R. 2001, State tax liability and compliance manual, New York: Wiley. Hearn, A. 2004, Pension schemes, London: Wiley & Sons. Johanson, S. M. 2003, Wills (11th ed.), Chicago, IL: Gilbert Law Summaries. Lang, J. 2008, Investing in property – UK, London: Mintel International Group. Miles, D. K. 2003, The UK mortgage market: taking a longer-term view: interim report: information, incentives and pricing, London: HM Treasury. Rein, M., & Schmähl, W. 2004, Rethinking the welfare state: the political economy of pension reform, Cheltenham, UK: Edward Elgar. Tiffany, G. 2004, Will, New York: Berkley Books. Walker, S. 2002, The changing structure of the UK mortgage market, London: Council of Finance Whitaker, T. 1997, Pension schemes, Geneva: International Labour Office. Willett, S. 1996, The mortgage, London: Mandarin. Appendix B Materials (http://www.truetrust.com/Famous_Wills_and_Trusts/Heath_Ledger_Will.pdf) Read More