Financial documents may be clearer than they used to be but they are rarely totally straightforward.
Be honest; what do you do with all the bumf that you receive from financial companies? Perhaps you put it straight in the bin if it’s junk mail and in a file or drawer if it looks more important. Financial companies often seem to delight in constructing the most complex documents crammed full of gobbledegook and jargon. So, how do you decode it? Here’s what you need to know about the information contained in your annual ISA, pension, mortgage and savings statements.
Your annual ISA or investment statement
The important figures to be able to decipher are contained in your statement, which for an ISA (individual savings account) or other investment plan, should be sent out at least once a year.
Before reading it, work out what you want to know, and then take it line by line. If, for example, you have an ISA that’s invested in a pooled fund – such as a unit trust – you will want to know how much it is worth. That will be under the heading ‘valuation at this statement date’.
To compare that with the value of your investment a year ago look for the ‘valuation at last statement date’. Any contributions you have made to the policy in the meantime should also be shown on the same page.
Your statement will also have lots of other figures including how much income you have taken or reinvested, how much each unit is worth and how many units you own; useful information but not as important as its current value. By the time the provider has added explanatory notes and a list of funds you’ve invested in, the statement can run to four or five pages.
However, financial companies have to give policyholders a lot of the information contained in the statements, because it is in the rules laid down by the financial regulator.
Your annual savings statement
If you have any savings accounts, you should be sent an annual statement for each account by your provider. This will detail the total amount of interest earned on your savings during the tax year. The interest rate shown on your statement is the rate on the date the statement was issued.
The interest shown on your statement won’t have tax deducted, but that doesn’t necessarily mean you don’t have any to pay (unless the account is a Cash ISA). For example, you may need to pay tax on interest earned above your Personal Savings Allowance (PSA). The PSA is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers (those who pay tax at 45%) don’t get a Personal Savings Allowance at all. You can learn more about how the PSA works in our guide What is the Personal Savings Allowance?
If you think your savings could be earning more interest, then unless you’re tied into a fixed savings account, it’s well worth seeing whether they could do better elsewhere. There are several websites where you can search for the best savings rates. These include Savingschampion.co.uk and Raisin UK’s marketplace for savings, where you can choose from a wide selection of high interest-paying accounts from 40 banks and building societies including challenger banks and those not found on the high street. Learn more in our guide Where can I find the best savings rates?
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Your annual pension statement
With pensions, the big problem is that the provider cannot tell you what you really want to know: namely exactly what your fund will be worth at retirement – although they can give you an idea of how much you’re likely to get.
Your statement should be split into two parts. The first part will set out your fund value, how much you have paid in over the last 12 months etc (as with the ISA statement). It will then give you two indications of how much you might get at retirement, using one lower and one higher growth rate.
These rates are determined by the regulator, the Financial Conduct Authority and don’t relate to how well or badly your fund is performing.
The second part will give you an idea of what that fund could buy you in today’s money, assuming you were to use it to purchase an annuity, or income for life. It makes all sorts of assumptions such as what inflation will be between now and retirement, what level interest rates will be and whether your pension rises in line with inflation or remains the same. Learn more in our article Your annual pension statement explained.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,250 reviews on VouchedFor, the review site for financial advisors.
Your annual mortgage statement
Every year you’ll receive a mortgage statement from your lender detailing how much of your mortgage you’ve paid back over the last year, and how much you still have left to pay.
Your statement will usually have two columns, one showing the mortgage payments you’ve made over the year, and then one showing any returned or unpaid payments, and any fees and charges you might have incurred.
You’ll also be able to see the total amount of interest you’ve been charged, factoring in any interest rate changes over the year (if you’re on a variable rate), along with the ‘balance carried forward’ which is how much you still have left to pay.
The statement tells you on what basis you’re repaying it, for example, your mortgage may be on an interest-only basis, a repayment basis, or a combination of both. It will also show the amount required if you want to pay your mortgage off in full, including the balance at this date plus any possible early repayment charges and exit fees you might have to pay. Learn more in our article Paying off your mortgage early – how to get the best results.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
A final thought…
Trawling through financial statements isn’t anyone’s idea of fun, but it’s well worth giving them more than a cursory glance when they drop through your letter box. Understanding what they are showing you can help give you a clearer idea of your overall financial health, highlighting which areas might need attention, and helping you to budget more effectively. Learn more about budgeting in our article How to make a budget and stick to it.
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