ISA-Frequently Asked Questions
What is an Individual Savings Account (ISA)?
Taking out an ISA allows your savings to benefit from a tax-efficient ISA wrapper. There are various different categories of ISA and there are also certain restrictions on how much money you can invest during each tax year.
What are the rules that apply?
(All tax years start on the 6th April and end on the 5th April the following year).
Within the tax-efficient ISA wrapper you can invest in one or more of the following two forms of savings:
- An investment in stocks and shares or as part of a life insurance policy which is what the Foresters Friendly Society ISA is.
- A cash deposit account.
You can invest in one or both of the above savings schemes with any provider.
The Foresters Friendly Society ISA is an investment into a life insurance policy and is categorised as a Stocks and Shares ISA. We do not currently offer a cash ISA. This means you cannot invest in the Foresters Friendly Society ISA if, in this tax year, you already have another Stocks and Shares ISA with another provider.
During the 2010/11 tax year, you can invest up to £10,200 in your ISA. If you do this you cannot additionally invest in any other type of ISA, including a cash ISA.
Who is the Foresters Friendly Society ISA suitable for?
Providing you are aged 18 or over and a UK resident for tax purposes, the Foresters Friendly Society ISA is suitable for anyone who can afford to put the lump sum or monthly contributions aside - perhaps to keep it for a rainy day or for long-term savings objectives. You should think carefully about the risks before deciding whether the ISA is right for you.
What happens if I cash-in my ISA?
You can cash-in your ISA whenever you want, but if you cash-in during the early years you may get back less than you have paid in. The cash-in value of your ISA will depend upon the amounts you have invested, the investment returns that we achieved, and expenses incurred. As this is a with profits ISA we aim to smooth out many of the ups and downs in investment markets so that the plan value gradually increases with the addition of regular bonuses. In favourable investment conditions we may also add a final bonus to the plan value, provided that the plan has been in force for at least 5 years. Conversely, in adverse investment conditions we may apply a Market Value Reduction (MVR) to reduce the plan value.
What is a Market Value Reduction (MVR)?
This is a deduction we may make when you fully or partially cash-in your ISA. We will not apply an MVR on death. Its purpose is to be fair to both Members leaving the fund and those staying by ensuring that the cash-in value is not unfairly higher than the market value of the plans assets and that a fair share is left for the remaining Members. This adjustment could have the effect of reducing the value of your ISA at that time and in some circumstances could mean that you get back less than you have paid in.
Where is my money invested?
Any money you contribute into a Foresters Friendly Society ISA is invested in the Foresters Friendly Society's with profits fund. By spreading the money paid into the fund across a number of different types of investments you benefit from the exposure to a range of asset classes which may include stocks and shares, property and cash. A further advantage of this approach is that if the return of any one particular asset type is very poor, your investment may be protected from the full impact of this fall as the other assets forming part of the overall investment may perform better than this asset.
Thus the fall in value of one asset class (e.g. shares) may be cushioned by the potentially better performance in another asset class (e.g. property).
Further details are available in the document entitled 'How you share in the profits of Foresters Friendly Society' .
How does money in the fund grow?
Depending on how the underlying assets in the fund perform, and costs incurred, at the end of each year we aim to declare an annual bonus. In addition, when you decide to cash-in your Foresters Friendly Society ISA we may add a final bonus depending on the overall investment growth that has been achieved and expenses incurred.
This is different from a Bank or Building Society account or Cash ISA where only interest is added because the growth of the investment depends on the performance of the underlying fund and not the interest rate on the account. Although in some investment conditions the growth in the Foresters Friendly Society ISA might not be as great as that on an interest only account, taking this risk with growth means that there is the potential for growth over and above the level which might be achieved on interest only accounts.
A Typical Example
- These figures are only examples and are not guaranteed. They are not minimum or maximum amounts. What you could get back depends on how much is actually invested and for how long, how the investment grows and on the tax treatment of your investment.
- You could get back more or less than this.
- The guarantee is that, subject to scheduled contributions being paid when due, at maturity you will not get back less than the guaranteed maturity amount which will be at least the sum of contributions.
- All Friendly Societies use the same rates of growth for illustrations but their charges vary.
- Do not forget that inflation would reduce what you could buy in the future with the amounts shown.
How will the charges affect my investment?
There is an Annual Management Charge which is initially set at 2% of the value of your ISA, which will be taken into account when applying bonuses. It will not exceed 3% of the value of your ISA in any one year. The charges are designed to cover our costs for administering the ISA on your behalf. The effect of the charges on an initial investment of £1,000 followed by monthly contributions of £50 per month assuming growth of 7% a year is as follows:
WARNING: If you cash in during the early years you could get back less than you have paid in.
What are the deductions for?
- The deductions include the cost of expenses, charges, any surrender penalties and other adjustments.
- The charges, expenses and other deductions used in this guide are best estimates based on current experience. They could vary in the future.
- The last line in the tables show that over 10 years the effect of the total charges could amount to:
Single contribution ISA £338 Regular contribution ISA £851.
- Putting it another way, this would have the same effect as bringing investment growth down from 7% to 5.0% a year. If you would like an illustration specific to your own circumstances, please contact us.
What happens if I die?
The death benefit provided by your Foresters Friendly Society ISA will be paid to your estate. The amount payable on death is 101% of the contributions you have paid in, plus any attaching bonuses, plus any final bonus, and may be subject to Inheritance Tax. The tax advantages of the ISA end from the day that you die. Full policy terms and conditions are available on request.
I'm not sure if an ISA is right for me. What should I do?
If you are unsure as to the suitability of this product you should seek advice from an Independent Financial Adviser. You may have to pay for this advice.
