First principles of investing

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11. Pensions and ISAs

Both of these products act as a tax-efficient wrapper in which to hold your direct investment and collective funds.

• Given the cuts to the state pension, your private scheme or plan may be seen as your most important investment, so you may wish to seek independent financial advice. You can invest in a company pension scheme and/or in a personal plan.
• Contributions qualify for full tax relief and the fund grows virtually tax free.

Pension contribution rules changed significantly on 6th April 2006 ('Pensions A-Day').

Individual Savings Accounts

• ISAs replaced Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) in April 1999. The annual investment limit is £7,200 (as of 6 October it increases to £10,200 for the over 50s, and thence for all the population from 6 April 2010).
• This product is intended primarily for equity investment but the £7,200 (soon to be £10,200) can be allocated to different 'components'. You can invest up to £3,600 (soon to be £5,100) as cash and up to £3,600 (soon to be £5,100) in equities, in each tax year.
• The fund grows virtually tax free and you can make withdrawals at any time, subject to the terms and conditions which may require you to give notice. Some accounts, which run for a fixed period and do not qualify for the government's 'CAT mark' (abolished in April 2005), may impose early termination penalties on withdrawals.

1. Five steps to establish your investment goals 2. Your attitude to risk and reward 3. The major asset classes 4. Which type of manager? 5. Your investment assessment kit 6. Is past performance a guide to the future? 7. Easy access deposits for emergencies 8. Fixed income products 9. A rising income 10. The choice of collective equity funds 11. Pensions and ISAs 12. Tax efficient but may be very risky 13. Selecting your shares 14. Your stockbroker 15. Buying your shares 16. Ethical Investment 17. When to sell 18. How to keep your portfolio on track 19. Do you need an adviser? 20. Conclusion

• First Steps in Shares
• How to Read the Financial Pages