New investors spring into action
With interest rates plummeting to record lows, savers are discovering that cash is not always king. This is encouraging a new band of investors to dip their toes in the investment market.
While some families have suffered financially during the pandemic, many have saved significant sums due to a reduction in spending on non-essential items. Official data1 shows the UK household savings ratio soared from 9.5% in the first three months of 2020 to a record 27.4% in the second quarter and has remained historically high since.
Save or invest?
Bank of England data shows £125bn was squirrelled into savings accounts last year and that figure is expected to rise substantially during the first half of 2021. As a result, many people have seen their savings balances grow at a time when ultra-low deposit rates offer little in the way of return, prompting many to consider alternatives to holding cash and take their first tentative steps into the investment market.
The value of advice
With so many funds available, the investment process can appear daunting and new investors often find it difficult knowing where to start. The key is to formulate a sound investment plan with sensible goals and to seek advice. A study seeking to quantify the value of financial advice, found that people have better financial outcomes when they have an ongoing relationship with an adviser, ‘Those who reported receiving advice at both time points in our analysis had nearly 50% higher average pension wealth than those only advised at the start.’ Benefits were greater for less-affluent investors, with a ‘just getting by’ group enjoying a 24% (£35,054) boost to their pension wealth across the ten year study period2.
Marathon not a sprint
Before investing, it’s important to establish a savings safety net and commit to investing over the long term, meaning at least five, preferably ten years. Historically, although investing in equities has delivered better returns than cash, there is inevitably a risk the value of investments can fall; we therefore need to establish your risk tolerance before recommending any investments.
Whether you’re thinking about your pension, establishing an investment portfolio, a stocks and shares Individual Savings Account (ISA), or perhaps a Junior Individual Savings Account (JISA) for under-18s in the family; if you’re looking to make your money work harder this spring but need help getting started, we can help you begin your investment journey.
1UK Parliament, 2021, 2ILC, 2019
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
Why it pays to update your pension expression of wishes
An expression of wishes tells your pension provider who you would like the beneficiaries of your pension to be in the event of your death. Multiple beneficiaries can be named, and you
can state how much of your pension you want each to receive.
However, while many people complete an expression of wishes when they first open a pension, it’s easy to forget to update it as circumstances change or mistakenly believe this isn’t necessary as long you have a Will.
Consequences of not updating an expression of wishes
The best way to ensure your wishes are followed is to keep your expression of wishes up to date. If you don’t, there’s a risk your money may not end up where you wanted it to. Pension providers will normally pay out according to their clients’ wishes, but they have the flexibility to choose different beneficiaries if deemed appropriate. Not updating your expression of wishes could therefore make the process of settling the death benefits more difficult and drawn out for potential beneficiaries at an already painful time.
How we can help
We can help with all aspects of your pension planning, so don’t hesitate to get in touch if you’d like further assistance updating your pension expression of wishes.
• Furlough scheme extended until 30 September 2021 – the government will continue to pay 80% of employees’ wages up to £2,500 a month until the end of June, employers then pay a 10% contribution in July, rising to 20% in August and September
• The Self Employment Support Scheme also extended until the end of September.
Business support & taxation
• A new ‘Recovery Loan Scheme’ replacing previous emergency government funding to support businesses, offers loans between £25,000 and £10m up to 31 December 2021 (government provides an 80% guarantee)
• A new ‘Restart Grant’ scheme provides retail, hospitality, accommodation, leisure and personal care firms up to £18,000, and non-essential retailers £6,000
• Business Rates Relief for retail and hospitality firms has been extended for three months to 30 June 2021, with a two-thirds discount available until 31 December 2021
• Headline rate of Corporation Tax will rise from 19% to 25% in April 2023; a tapered rate will be introduced for profits above £50,000, so that only businesses with profits of £250,000 or more will be taxed at the full 25% rate, businesses with profits of £50,000 or less will continue to be taxed at 19%
• To encourage business investment, a temporary ‘super-deduction’ tax incentive scheme will cut companies’ tax bills by 25p for every £1 they invest, by providing allowances of 130% on qualifying investment in new plant and machinery, from 1 April 2021 to 31 March 2023
• VAT 5% reduced rate for tourism and hospitality sectors extended until 30 September 2021, followed by an interim rate of 12.5% for six months.
Personal taxation, wages and pensions
• From 6 April 2021 Personal Allowance increased to £12,570 and the Income Tax higher rate threshold increased to £50,270, both thresholds will remain at these levels until April 2026
• National Insurance threshold increased to £9,568 from 6 April 2021, the Upper Earnings Limit will be £50,270
• Inheritance Tax nil-rate band remains at £325,000 and residence nil-rate band at £175,000, until April 2026
• Capital Gains Tax annual exemption remains at £12,300 for individuals and £6,150 for most trusts
• Lifetime Allowance for pensions remains at £1,073,100 until April 2026, the Annual Allowance remains at £40,000
• New single-tier State Pension increased to £179.60 per week in April 2021, the older basic State Pension increased to £137.60 per week
• ISA (Individual Savings Account) allowance remains at £20,000 for the 2021/22 tax year
• JISA (Junior Individual Savings Account) allowance or Child Trust Fund annual subscription limit remain at £9,000 for the 2021/22 tax year
• National Living Wage increased to £8.91 per hour from April 2021 and will include those aged 23 and over.
• Stamp Duty (SDLT) holiday on house purchases in England and Northern Ireland extended, with the £500,000 threshold at which SDLT starts to apply ending on 30 June, a threshold of £250,000 applies for a further three months, with the regular £125,000 threshold returning from 1 October 2021. In Wales, the Land Transaction Tax (LTT) temporary tax reduction has been extended to 30 June 2021
• Mortgage guarantee scheme introduced from April, with the government providing guarantees to UK lenders who offer mortgages to buyers to secure a loan with a 5% deposit on a property of up to £600,000 up to 31 December 2022.
Hopes of a “swifter and more sustained economic recovery”
Chancellor of the Exchequer, Rishi Sunak, delivered his second Budget on 3 March, which centred on a three-part plan to continue supporting people and businesses through the pandemic,
to fix public finances once recovery is underway and to lay the foundations for the future economy.
The Chancellor opened his statement by revealing the latest predictions from the Office for Budget Responsibility (OBR) which provide hope of “a swifter and more sustained economic recovery” than previously expected. The latest forecast predicts growth for the UK economy of 4% in 2021 and 7.3% in 2022. Mr Sunak also confirmed details of various COVID-19 support measures to bring total fiscal support to over £407bn.
From a taxation perspective, the
Chancellor was left with little room for manoeuvre as the Conservative manifesto pledged not to lift Income Tax, National Insurance or VAT rates, so some key tax thresholds will be frozen. The Personal Allowance will rise with inflation in April as planned, to £12,570, before 20% Income Tax becomes payable, and the higher rate threshold, at which people start to pay tax at 40%, will rise to £50,270. However, both thresholds will then be frozen at these levels until April 2026. Similarly, tax thresholds for the pension Lifetime Allowance, Inheritance Tax and the annual exemption for Capital Gains Tax will remain until 2026.
Interestingly, a new NS&I retail ‘green savings bond’ will be launched later this year to fund renewable energy and clean transport projects.
Planning to retire in 2021?
Whether you had always been planning to retire this year, or COVID-19 has forced your hand, it’s never too late to get organised.
We believe that retirement is something to be looked forward to after a lifetime of hard work – so don’t let it be overshadowed by financial concerns. We can help you quantify your finances and get straight, ready for an enjoyable retirement.
Even if you’re not planning to retire this year, it’s important to engage with your finances – don’t just sweep them under the carpet and hope that things will work out.
Don’t know where to begin?
Here are some pointers to get started with; we’ll be on hand to help with these.
> Get a State Pension forecast
Visit www.gov.uk/check-state-pension to find out how much State Pension you’ll be entitled to and when you can receive it
> Check what’s in your pension pot…
Calculating the value of your pension pot(s) is essential to start planning your finances in retirement
> …including any ‘lost’ pension pots
You may have lost track of a pension over the years, perhaps as you moved between jobs and workplace pension schemes. We can help you track down lost pensions and potentially provide a welcome boost to your retirement income
> Quantify your savings, investments and debt
Calculating the value of your savings and investments, and quantifying any outstanding debt, will help provide a holistic understanding of your overall financial circumstances
> What will you need in retirement?
We can help you calculate your income requirement in retirement, by thinking about the lifestyle you want, your living costs and other potential expenses
> Watch out for scams
Don’t risk losing your lifetime savings to scammers. Pension fraud is on the rise – so make sure you know how to spot the signs
> Take advice
In this period of uncertainty, financial advice has never been more important. We can help you make those big retirement decisions easier by guiding you through your available options, taking into account the tax implications and giving you the confidence that you’re making the right choices for your future.
Millions keeping ill health a secret
According to a recent survey3, seven million people (13% of the population) are keeping mental health issues secret from their loved ones, while just under four million (7%) are hiding a physical health problem.
As well as causing symptoms such as anxiety (34%), guilt (29%) and difficulties sleeping (25%), keeping secrets from our families can also have serious long-term implications.
Protecting against the unexpected
Keeping family members in the dark about important health issues could be painful and shocking if you died or became seriously ill. What’s more, they could find themselves facing financial
hardship at an extremely difficult time.
Even if you are insured, for example via a life insurance or critical illness policy, your claim may be rejected if, like with your family, you also hide your condition from your insurer.
A listening ear
In these difficult times, a problem shared is a problem halved. Don’t keep things to yourself – talk to us, we can help you put sufficient protection in place to safeguard you and your family
against unexpected life events.
3Life Search, 2020
‘Side hustles’ become a lockdown staple
If you’ve seen your income drop during the pandemic, have you considered taking up a side hustle? The term is an Americanism that is slowly making its way into common usage here in the UK. It refers to the practice of taking up a second job alongside your main job.
A nation of side hustlers?
A poll of 2,000 adults4 published in October 2020 found that a third of respondents expected to face an average shortfall of £239 going into the festive season, with the result that 20% had started a side hustle to increase their income. What’s more, 55% of them said they expected to continue into the New Year.
Common ways to earn extra money include selling old clothes, DVDs and tech, doing odd jobs like DIY, lawnmowing or cleaning, and making and selling baked goods or crafts.
Don’t forget that side hustling could have tax implications, e.g. changing your Income Tax band. You also need to remember to set aside tax on your side hustle earnings, as you’ll need to declare and pay this within specified timescales.
The financial basics you wish you’d learnt at school
A survey of British employees reveals that a significant proportion of working adults wish they’d been taught more about basic financial topics at school.
According to research5, the number one topic UK adults wish they’d learnt more about at school is pensions: 40% of respondents to a survey said that learning about pensions at school would have
encouraged them to take their own pension more seriously as a young adult.
Would these skills have helped you?
Other popular financial topics British workers wish they’d learnt about at school include:
• Basic money management (e.g. budgeting) – 28%
• Saving methods – 28%
• General investment knowledge – 27%
• Understanding interest rates – 23%
• Mortgages and how to apply for them – 21%
The vast majority of the respondents (68%) felt they would have benefited from this type of general, everyday financial know-how at a younger age.
You’re not alone
If you feel a little at sea with the financial basics, you’re certainly not alone – and yet many people are needlessly ashamed of their lack of financial understanding. A more recent study6 revealed that 55% of adults struggle to open up about money, with nearly one in five (18%) citing shame or embarrassment as the primary reason. We’re here to tell you that nobody is expected to know everything about their finances.
Financial advice is key
If you’re concerned about your finances or need help with basic financial topics, we aren’t here to judge. We’re on hand with simple, jargon-free advice that will provide you with the confidence and understanding you need to take control of your finances once and for all.
5Portafina, 2019, 6Money and Pensions Service, 2020
Dividing your finances on divorce
The past year has sadly put huge strain on many relationships, with couples locked down together for months on end whilst trying to work remotely and home school their children, bringing relationships to breaking point. This brings financial challenges.
Separating your finances
When a couple divorce, they need to decide how to fairly divide financial assets such as their home, money in current and savings accounts, investments and pensions. For example, they may be entitled to a share in the sale of their property, or a portion of their ex-spouse’s pension. They may also have to make decisions about the value of maintenance payments required to maintain their and their children’s lifestyle.
Currently, however, the heightened stress and reduced financial circumstances caused by the pandemic may make coming to an agreement more difficult. If a couple is unable to agree, they may still be able to settle out of court by hiring a trained mediator or collaborative lawyer. If not, they may have to ask a court to decide.
Talk it through
We can help couples divide their assets tax-efficiently and guide individuals through how to best invest the proceeds of a settlement. We can also help set up comprehensive protection cover and help people manage their post-divorce expenditure.
It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.
The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.
The Financial Conduct Authority does not regulate advice on deposit accounts and some forms of tax advice.