Everything you need to know about the “emergency mini-budget”

Liz Truss outside Downing Street, London.

With a new prime minister having taken office earlier this month, the government has begun to announce its plans for stimulating the UK economy during the cost of living crisis.

Kwasi Kwarteng delivered what has been called a “mini-Budget” in an aim to drive economic growth, against the backdrop of the Bank of England (BoE) reporting that the UK economy is already in recession.

The chancellor set out the three priorities of the government’s Growth Plan:

  • Maintaining responsible public finances
  • Reforming the supply side of the economy
  • Cutting taxes to boost growth.

Paul Johnson, the director of the Institute for Fiscal Studies (IFS) called the mini-Budget “the biggest tax-cutting event since 1972”.

Before you read about the main points of the mini-Budget, there were two further major fiscal announcements this week that could affect you.

Energy help for businesses announced with a cap on prices

The government has already announced that the average household’s energy bills will be capped at £2,500 a year for two years, in addition to a £400 contribution towards bills this winter.

Additionally, a new Energy Bill Relief Scheme will provide support for non-domestic customers with discounts applied to energy usage initially between 1 October 2022 and 31 March 2023.

The government will provide a discount on gas and electricity unit prices for businesses, voluntary sector organisations, such as charities, and public sector organisations such as schools, hospitals, and care homes.

Essentially, the government has capped the cost of gas and electricity (a “government supported price”) at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas.

For comparison, wholesale costs in England, Scotland and Wales for this winter are currently expected to be around £600 per MWh for electricity and £180 per MWh for gas.

Suppliers will apply reductions to the bills of all eligible non-domestic customers. Businesses do not need to take action or apply to the scheme. The government website contains more details about the scheme, along with some examples of potential cost savings.

Interest rates rise for the seventh consecutive time

To combat soaring inflation, the BoE has increased the base interest rate by 0.5%, to 2.25%.

The decision by the Bank’s Monetary Policy Committee (MPC) takes rates to the highest level since 2008.

The BBC reports that borrowers on a typical tracker mortgage will have to pay about £49 more a month, while those on standard variable rate (SVR) mortgages will see a £31 increase.

Corporation Tax rise will not go ahead

The chancellor announced that a planned move to raise Corporation Tax from 19% to 25% in April 2023 will be cancelled.

This results in the UK having the lowest rate of Corporation Tax in the G20. Kwarteng said: “That’s £19 billion for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions.”

1p cut in Income Tax brought forward to 2023

From April 2023, the basic rate of Income Tax will be cut from 20% to 19%.

This represents a tax cut of more than £5 billion a year. It will mean 31 million people will be better off by an average of £170 a year.

Abolition of additional-rate Income Tax

One of the surprise measures of this mini-Budget was the abolition of the 45% additional rate of Income Tax from April 2023.

This will apply to the additional rate of non-savings, non-dividend income for taxpayers in England, Wales, and Northern Ireland.

“From April 2023 we will have a single higher rate of Income Tax of 40%. This will simplify the tax system and make Britain more competitive,” said Kwarteng.

Health and Social Care Levy scrapped

Ahead of the mini-Budget, Kwarteng announced that the government will reverse the 1.25% National Insurance increase, introduced by Rishi Sunak in April 2022. The Health and Social Care Levy, which was to replace the 1.25 percentage point rise in April 2023, has also been scrapped.

The chancellor said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy. Cutting tax is crucial to this.”

The change will take effect on 6 November 2022.

This will reduce tax for 920,000 businesses by nearly £10,000 on average next year, the government says, as they will no longer pay a higher level of employer National Insurance.

Workers will also see a cut in their tax bill. The BBC reports that somebody earning £20,000 will save about £93 a year, and somebody earning £100,000 will save £1,093, compared to now.

Dividend Tax rise reversed

As well as reversing the National Insurance increase, the government will also reverse the 1.25 percentage point increase in Dividend Tax rates applying UK-wide from 6 April 2023.

The ordinary and upper rates of Dividend Tax will be reduced to 2021/22 levels of 7.5% and 32.5% respectively.

Due to the abolition of the additional rate of Income Tax, dividend income that was previously charged at the additional rate, will now be charged at the upper rate of 32.5%.

This will benefit 2.6 million taxpayers with an average benefit of £345 in 2023/24, and additional-rate payers will further benefit from the abolition of the additional rate of Dividend Tax.

A cut in Stamp Duty

The government believes that cutting Stamp Duty will encourage economic growth by allowing more people to move, and enabling first-time buyers to get on the property ladder.

So, the chancellor announced that, with immediate effect, no Stamp Duty will apply to the first £250,000 of a property purchase.

This will save a second-time buyer £2,500 when they buy a house valued at more than £250,000.

The chancellor also increased the threshold at which first-time buyers will start paying Stamp Duty to £425,000, and increased the value on which they can claim relief from £500,000 to £625,000.

He says: “The steps we’ve taken today mean 200,000 more people will be taken out of paying Stamp Duty altogether. This is a permanent cut to Stamp Duty, effective from today.”

Creation of new investment zones

The chancellor announced that the government will work with the devolved administrations and local partners to introduce “investment zones” across the UK. Early discussions have been held with almost 40 localities such as Tees Valley and south Yorkshire.

Businesses in these designated zones will benefit from accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plants and machinery.

There will be no Stamp Duty to pay on newly occupied business premises, no business rates to pay on new premises and, if a business hires a new employee in the investment zone, the employer will pay no National Insurance whatsoever on the first £50,000 they earn.

Removal of the bankers’ bonus cap

In a politically controversial move, the chancellor announced that the Prudential Regulation Authority will remove the current cap to bankers’ bonuses.

Mr Kwarteng said: “All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe. It never capped total remuneration, so let’s not sit here and pretend otherwise. So, we’re going to get rid of it.”

Other measures

  • Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) extended
  • The government will wind down the Office of Tax Simplification
  • The Annual Investment Allowance will remain £1 million permanently, rather than returning to £200,000 in March 2023. This gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit
  • IR35 rules will be simplified, and the government will repeal the 2017 and 2021 reforms
  • The chancellor cancelled the planned rise in alcohol duty and confirmed that reforms to modernise alcohol duties will also be taken forward.

Get in touch

If you have any questions about how the mini-Budget will affect you and your finances, please get in touch.

All information is from the Growth Plan 2022 document.

The content of this “mini-Budget” summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.

4 tips once clients have breached the Lifetime Allowance

 

Senior couple sit on a sofa looking at their laptops

If your clients have been proactive with their pension planning throughout their working lives, they might have set aside quite a large pot in preparation for their pending retirement. 

Pension contributions are usually a tax-efficient form of saving, but there are instances where your clients can exceed their allowances and expose themselves to taxes. 

There are two allowances that your clients will need to be aware of when saving for their pensions: the Annual Allowance and the Lifetime Allowance (LTA). 

The LTA is currently capped at £1,073,100 for the 2022/23 tax year and will be frozen at this level until at least April 2026.

According to the latest figures from HMRC, the number of Britons breaching the LTA has increased by 21% from the 2018/19 tax year to the most recently analysed 2019/20 period.

This leaves many Britons who have saved efficiently throughout their lives potentially facing a 55% tax on their excess pension funds if they withdraw them as a lump sum, or 25% plus Income Tax if they choose to take it as an income.

Read on to discover four tips for how your clients should approach their pension savings once they have breached the LTA.

1. Clients should consider applying for individual or fixed protection 2016

Individual and fixed protection 2016 are two options your clients can apply for that help protect their LTA at the value of their pensions as of 5 April 2016, or £1.25 million, whichever is the highest. 

Individual protection 2016 requires your clients to have had at least £1 million in their pension as of 5 April 2016. 

This scheme allows them to continue building their pension without tax charges provided it remains under the £1.25 million cap. If it exceeds this cap, then charges on their LTA will apply once more.

If they apply for fixed protection 2016 then their LTA will be fixed at £1.25 million, and they can no longer contribute to their pension. This is the preferred option for clients who no longer want or need to contribute to a pension.

To apply for fixed protection 2016 your clients and their employers can’t have made any contributions since 5 April 2016. If your clients do end up making any further contributions, they will lose their fixed protection and will have to pay tax charges on the excess.

2. Clients might want to move surplus cash into ISAs

If your client has already breached the LTA – or they are approaching the threshold – they may want to consider alternative savings vehicles.

For example, an Individual Savings Account (ISA) allows your clients to earn interest or returns on cash savings or investments without paying any Income Tax or Capital Gains Tax (CGT). Clients can pay up to £20,000 into an ISA in the 2022/23 tax year. 

If you have clients under the age of 40 then a Lifetime ISA will allow them to save £4,000 a year towards retirement, free of Income Tax and CGT, with the government contributing a 25% bonus or up to £1,000 of essentially “free money” each year.

Your client’s Lifetime ISA can be used towards their first home purchase or withdrawn after the age of 60. 

The government will continue to make contributions on your client’s Lifetime ISA until the age of 50 or once they reach the lifetime cap of £33,000. 

3. Clients might invest in Venture Capital Trusts (VCTs) or the Enterprise Investment Scheme (EIS)

Another alternative to saving into a pension is a Venture Capital Trust (VCT) or the Enterprise Investment Scheme (EIS).

VCTs and the EIS are riskier investment options for your clients to consider but do come with their own range of tax-efficient benefits. 

VCTs are investment trusts listed on the London Stock Exchange that aim to raise money for fledgling companies to achieve their growth targets. These trusts are made up of usually 20 or more small companies. 

As an investor, your client would become a shareholder in the trust itself and would see the value of their investment go up or down depending on the trust’s performance. There is a higher degree of risk associated with VCTs as the companies that make up the trust are young and more susceptible to financial pressures, which could see them go under.

However, VCTs are valuable tax-efficient options as your clients can claim up to 30% Income Tax relief on the amount they have invested in a VCT, provided they hold onto their investment for at least five years. 

Additionally, your clients could benefit from CGT relief and tax-free dividends, if the VCT pays out dividends. 

Read more about the benefits to your clients of investing in a VCT in our useful guide.

The EIS is similar to a VCT but operates as an HMRC-run scheme that helps younger, higher-risk businesses raise finance from investors. 

EIS funds offer your clients a range of tax benefits such as Income Tax relief of 30% on up to £1 million of investments a tax year, or £2 million if at least £1 million is invested in knowledge-intensive businesses such as those in scientific fields. 

There is no CGT to pay on the sale of EIS shares held for at least three years and no Inheritance Tax to be paid on shares bought through EIS that are held for two years.

4. Clients could choose between an early retirement or continuing contributions

Finally, the easiest way for your clients to avoid any potential charges for breaching their LTAs is to assess whether what they have saved is enough to achieve their desired level of retirement comfort. 

If they have saved enough, then they could consider taking an early retirement and enjoying their newfound free time.

Otherwise, if your clients want to continue working and saving, they should consider continuing to make workplace pension contributions even if they might be about to or have already breached the LTA. 

While they may have to accept additional tax charges, they will also still continue to receive their employer contributions, which is effectively “free money”, as well as tax relief on the contributions and investment growth on the pension pot itself. 

When these returns are combined, your clients might find that they are still better off making contributions even if they do have to pay additional tax charges. 

Get in touch

Working with a financial planner can benefit your client in many ways. 

A well-written financial plan takes into account events such as breaching the LTA and will ensure your client has the best possible strategy to navigate around the issue while keeping them on course for their long-term goals.

If they would like to find out more, email [email protected] or call us on 0345 505 3500.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.

Enterprise Initiative Schemes (EIS) and Venture Capital Trusts (VCT) are higher-risk investments. They are typically suitable for UK-resident taxpayers who are able to tolerate increased levels of risk and are looking to invest for five years or more. Historical or current yields should not be considered a reliable indicator of future returns as they cannot be guaranteed. 

Share values and income generated by the investments could go down as well as up, and you may get back less than you originally invested. These investments are highly illiquid, which means investors could find it difficult to, or be unable to, realise their shares at a value that’s close to the value of the underlying assets. 

Tax levels and reliefs could change and the availability of tax reliefs will depend on individual circumstances.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

How financial advice can help your self-employed clients to boost their pensions

young businesswoman sits on her phone facing her laptop

The self-employed benefit from a wide range of lifestyle advantages. Your clients might enjoy perks such as flexibility over their working schedule, having control over who they work with or being their own boss.

However, there is also the pressure of added responsibility. If your client is reporting to an employer, then they will have employment benefits taken care of on their behalf including, normally, being enrolled into a workplace pension scheme. 

It can be very easy for someone who is self-employed to take their eye off the ball and overlook the importance of their pension contributions.

A study by the Social Market Foundation reports that, on average, Britons approaching retirement are approximately £250,000 short of the pension pot needed to meet their desired retirement goals. 

The report goes on to mention that only 31% of those surveyed have an accurate understanding of how much they’ll need to save for their desired level of retirement comfort. Just 20% of people with pensions have sought out and received independent regulated financial advice.

Being self-employed can leave your clients especially exposed to a potential pension shortfall and receiving financial advice could help keep them on track to meet their long-term goals.

Discover how receiving the right financial advice could potentially give your clients a helpful pension boost before retirement.

The majority of self-employed people in the UK aren’t saving into a pension

Over the last 30 years, the number of self-employed workers in the UK has grown from approximately 3.45 million in 1992 to 4.25 million in 2022, making up approximately 15% of the UK workforce. 

Source: Statista

While there was a significant dip during the onset of the pandemic as workers looked for the stability of a workplace income, the amount of self-employed workers is beginning to rise once more.

According to data from the Association of Independent Professionals and the Self-Employed (IPSE), as few as 31% of self-employed people are saving into a pension. 

The average age of self-employed individuals is 46, which means that they are potentially 20 years away from retirement and possibly facing a retirement income shortfall. 

When polled on how they save from a list of the most commonly used saving options (such as pensions, ISAs, stocks and shares or bonds), 39% responded “none of the above”. This suggests that potentially more than a third of the self-employed could have no savings whatsoever. 

A smart financial plan could make a huge difference for your self-employed clients and help them get back on track for meeting their retirement goals.

Financial advice may give your clients a greater understanding of how to reach their goals

One of the key differences between the self-employed and the employed is that they are essentially more involved with the operation of their own business. This can mean that far more of their time and money is focused on their work needs rather than their long-term personal requirements.

Financial planners work towards developing a plan that is personally tailored towards each client’s personal circumstances and long-term goals. 

Beginning by establishing exactly what a client’s long-term ambitions are, we build a plan that is designed to help them take the steps needed to get there – whether that is by saving more, investing more tax-efficiently, or taking adequate protection.

Working with a financial planner also has a range of emotional wellbeing benefits. The anxiety of managing their personal finances is taken off your client’s shoulders and they are freed up to focus solely on the needs of their business.

The relationship between a financial planner and a client is long-term. It is about fostering a level of trust that can take give your clients peace of mind and leave them with the knowledge that they are still on track to meet their long-term objectives.

If your client is concerned about their retirement but also doesn’t know how they can afford to contribute into their pension, working with a financial planner can help them assuage those worries. 

Working with a financial planner could boost your client’s retirement outcomes

The IPSE study referenced above goes on to state that 67% of the self-employed are concerned about being prepared financially for later life.

If your client is one of the minority of self-employed individuals with an existing pension, then making the decision to cut or stop their contributions as financial pressures increase during the current cost of living crisis and looming recession could have detrimental results come retirement. 

New research from Legal & General shows that, if a client was to stop making pension contributions in their early 50s, then they are likely to find themselves at least £50,000 worse off come retirement if they never opted back in and continued working full-time throughout.

If your client has no pension provision in place, then meeting with a financial planner and building a well-calculated plan could be life-changing.

There are a few ways a financial planner can help boost your client’s retirement savings:

Improve their tax efficiency

Pensions are an incredibly tax-efficient method of saving. At an individual level, your clients could receive tax relief of 20% of their contribution if they are a basic-rate taxpayer. The benefits are even greater for higher- or additional-rate taxpayers. 

Pension contributions can also often be considered as a business expense, which could cut their Corporation Tax bill. Pension contributions from the business can also help clients reduce their National Insurance contributions. 

Maximise existing pension pots

If your client has existing pension pots from previous employment built up, then consolidating the various schemes may end up reducing potential charges, meaning your client keeps more money.

However, there can be downsides so it can pay to seek advice.

PensionsAge reports that 1.6 million UK savers have lost or dormant pensions working out on average as about £23,000 a saver.

It is possible for your client to trace lost workplace pensions and potentially unlock dormant funds that may have been accruing added value. 

Use their established self-employed business to delay retirement

Finally, many retirees may look to move into self-employed or part-time employment in order to make up a pension shortfall as they approach retirement. 

Your self-employed clients will be one step ahead in this regard and will be uniquely set up to enter a state of “semi-retirement” by reducing their workload to part-time status and keeping an income flowing. 

Get in touch

The self-employed are exposed to a higher degree of risk of not reaching their retirement saving goals. A smart financial plan can boost your client’s options and give them peace of mind.

If you have clients who would benefit from advice, or you’re interested in working more closely with us, please email [email protected] or call us on 0345 505 3500.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

What you need to know if you plan on becoming the Bank of Mum and Dad

concerned senior couple sit at a laptop reviewing documents and receipts

The life of a parent can sometimes feel a bit like being a walking ATM, as you routinely open up your wallet to cover your child’s every need on their path from childhood to adulthood. 

You might expect some respite once your child starts to build a life of their own, but the world is changing, and it is becoming increasingly difficult for young people to make major financial steps independently. 

You will probably want your children to make their own way in life and build their own successes. However, everyone needs a helping hand from time to time – and that is particularly true when it comes to buying a home.

According to the Office for National Statistics (ONS), full-time employees in England are likely to spend 9.1 times their annual income on purchasing a home as of the start of 2022, compared to 7.9 times in 2020. 

This has increased the importance of the Bank of Mum and Dad (BOMAD) in supporting their children’s attempts to become first-time buyers. 

According to Savills, BOMAD loans will make up almost half of first-time property purchases between 2022 and 2024 with gifts from parents totalling £25 billion over the next three years. 

Read on to discover how you can help your own children get onto the first rung of the property ladder and the mistakes to avoid making along the way.

A growing gap between average earnings and property prices is putting pressure on the BOMAD

Children born around the start of the millennium might be finishing up their university educations and beginning to think about how they can afford to get a place of their own. 

But when looking at the trends in average earnings against average housing costs from the year 2000 through to the present day, there is an increasingly growing gap.

According to earning trends data reported by the ONS, table 5 of their study showed that the average earnings in the UK in the year 2000 were £18,848, while average housing prices by December of 2000 had reached £84,191 according to the Land Registry’s housing price index. 

This means that the average property in 2000 cost approximately 4.3 times average annual earnings, which is significantly less than the 9.1 times the ONS estimates today. The gulf is growing and putting added pressure on first-time buyers to save for rising deposits. 

In 2020, 131,000 first-time buyers relied on family assistance to help them get a mortgage. According to Savills that figure rose to 198,000 in 2021 and is expected to rise by another 470,000 over the next three years – or approximately one in every two first-time buyers. 

The Help to Buy scheme has provided first-time buyers with another form of financial assistance totalling £2.9 billion. However, this will end in March 2023 and remove another avenue of support from tens of thousands of aspiring homeowners.

Although the obstacle of rising interest rates is making mortgages more challenging, the main hurdle that first-time buyers are struggling to overcome is saving enough for the deposit. 

For many households, this is where the BOMAD have been able to plug the hole between a child’s savings and rising property prices.

Provide your children with the boost needed to get on the property ladder

One of the benefits for parents in gifting your child with a form of early inheritance is that it can help you to potentially avoid a large Inheritance Tax (IHT) bill. 

Gifts are typically tax-free if they make up less than the £3,000 annual exemption in a tax year (although any unused amount can rollover into the following tax year).

Gifts given more than seven years before you die, such as those towards a house deposit, are also likely to be exempt from IHT. So, there’s an incentive for parents to transfer wealth at a younger age to avoid getting caught out by IHT rules.

In most other circumstances, gifts will typically be liable to IHT with tax charged at 40% on estates above the £325,000 threshold (£500,000 if you plan to leave your home to a child or grandchild).

Another way to potentially navigate IHT is to provide financial support by offering your child an interest-free loan to help with mortgage payments, although this has caveats. 

Many banks will accept loaned deposits from family members provided there is a signed declaration of terms. However, loans can still fall foul of IHT rules if you fail to waive the debt as a gift at least seven years before you die.

More parents are choosing to gift their inheritance earlier in life when their child might need it most and when they are able to witness it being put to good use. You are also far more likely to live for seven more years when gifting at 50 than you are at 80, so timing has its benefits too. 

Avoid simple mistakes when gifting money

Your children are always a priority, which can make it very easy to lose sight of your own needs when providing financial assistance. 

We’ve covered how important it is to avoid potentially hefty taxes in the event you breach gift or IHT limits. But it is also vital that you don’t forget about your own short- and long-term needs in trying to aid your children.

Don’t gift more than you can afford. If you’re not sure whether any gift you plan to make is affordable or advisable, then working with a financial planner can help you create a cashflow plan to ensure your gift doesn’t hinder your own plans or leave you short in an emergency. 

You should also think about running the BOMAD like an actual bank with formal agreements and contracts in place to protect your and your child’s interests.

For example, a formal loan agreement can protect you both in the event of your death, when your child could suddenly be hit with an IHT bill on the money that you had previously gifted to them. 

Other forms of contract such as a Declaration of Trust or a Living Together Agreement can ring-fence your investment – for example, if your child is buying with a partner and you want to ensure their partner doesn’t benefit from your gift if they later separate.

Get in touch

Helping your child get on the property ladder can be life-changing for their future prospects. However, it is important to approach any arrangement like any other financial decision.

If you’re unsure about the best way to assist your child in saving for a deposit or obtaining a mortgage, then seek reassuring advice by emailing [email protected] or calling us on 0345 505 3500.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

4 practical ways to avoid a pension shortfall upon retirement

mature couple review documents with a calculator

The expected prize at the end of your working life is the fruition of your life’s hard work – a comfortable retirement.

It is a chance for you to enjoy the kind of lifestyle you’ve built towards. But what can you do if you find yourself approaching retirement with a pension shortfall?

According to Unbiased, a high-quality retirement that allows you to live life to the fullest and enjoy yourself with long-haul holidays, and big purchases such as a new car, is expected to cost a single person at least £31,000 a year and £41,000 for a couple.

Unbiased also reports that approximately 1 in 6 Britons over 55 have no pension savings set aside outside of their reliance on the State Pension, which as of the 2022/23 tax year works out as just over £9,627 a year.

For many soon-to-be retirees, this creates a looming pension shortfall of approximately £21,000 a year between them and that high-quality level of retirement. 

If you’re worried that your current pension savings might leave you with a shortfall – don’t panic!

A smart financial plan can help you get back on track to meet your retirement goals. Discover a few key steps you should take to avoid a pension shortfall.

1. Ensure you maintain your pension contributions

Your pension will most likely be your primary source of income upon retirement. It is important to maintain your monthly contributions even when short-term pressure can make cutting or reducing them a tempting option. 

The pandemic put additional financial strains on many households and millions of over-50s made the hard decision to cut their pension contributions to make savings. 

However, This is Money reports that over-50s who opted out of their pensions during the pandemic could be £50,000 worse off when they reach State Pension Age if they didn’t resume contributions. 

The more you earn, the more sizeable the ramifications of cutting pension contributions for your eventual pension pot.

Under current workplace pension auto-enrolment rules, the minimum pension contribution is 8%, made up of a 5% personal contribution (including tax relief) and 3% from your employer. 

If you opt out of your contributions all together, you will not only miss out on any savings you would have put aside but you will also be giving up essentially “free money” in the form of your employer’s contributions.

You will also miss out on other great benefits such as:

  • Tax relief from the government on all pension contributions up to the Annual Allowance, which stands at £40,000 (or 100% if earnings are below this threshold), for the 2022/23 tax year.
  • Tax relief is automatically paid at the basic Income Tax rate of 20%. This means for every £250 you contribute to your pension, you are only effectively paying £200, with the other £50 being added by the government. If you’re a higher- or additional-rate taxpayer, you can claim additional relief through your self-assessment tax return.
  • “Compound returns” arise from the long-term growth of your pension investment, a benefit that can increase over time. 

Finding alternative ways to cover short-term bills and maintaining your pension contributions can help you ensure your pension pot remains on track to achieve your retirement goals.

2. Don’t lose track of your workplace pensions

Over the course of your career, you are likely to change jobs several times and, in doing so, you may find yourself switching workplace pension providers. 

During the transition, an easy oversight is to forget to update your old workplace pension provider with your new details and keep track of the funds you’ve accrued that you’ll want to claim come retirement.

A report in Pensions Age details how £37 billion has been lost or is lying dormant in pension pots, averaging a value of £23,215 among 1.6 million UK savers.

This could potentially make up another significant chunk of your attempts to cover any potential pension shortfall.

So, what can you do if you’ve lost track of an old pension plan?

The government website offers support in working out how to trace any pensions you might have lost. Alternatively, you can speak with us for advice.

Locating a lost pension could possibly provide your pension with a windfall as it may have been generating investment returns for years on top of any amount you and your old employer originally contributed.

3. Make sure your surplus cash savings aren’t losing “real” value and are generating growth

Diversifying your income in retirement can be an important step that takes some pressure off your pension plan. This may come in the form of cash savings, ISAs, or investments.

Millions of Britons are allowing their cash to sit idly in easy access savings accounts, while current high inflation of 9.9%, according to the Office for National Statistics (ONS) figures, erodes its “real” value over time. 

The Express reports Bank of England (BoE) figures that show more than £1 trillion in UK savings is currently sat in accounts with an average interest rate of 0.18%. 

If you have at least three months’ worth of rent and essential bills set aside in savings for emergencies, then you should be looking at ways to maximise the returns on your surplus cash. 

At current inflation, £1,000 worth of goods and services a year ago would cost £1,099 today. Inflation is expected to continue to rise into next year and the Guardian reports that it is forecast to potentially reach a 50-year high of 18% in early 2023. 

By moving your surplus cash into a tax-efficient option like a Cash ISA or by taking a riskier approach and investing your funds in the stock market, you are more likely to generate the growth needed to reach your long-term goals.

4. Consider ways to keep income flowing for as long as possible

Ultimately, continuing to work might be the simplest way to overcome a pension shortfall. This is Money reports that approximately 30% of Britons are continuing to work into their 60s. 

Delaying your eventual retirement doesn’t mean you need to continue to work full-time. There are many part-time opportunities available, especially if you’ve developed a lengthy CV over the course of your career and a wealth of professional connections.

Reducing your working hours to part-time or shifting into a consultancy role can help keep income flowing for as long as possible until you eventually decide to fully retire.

It can also help you to make up any potential shortfall between your current savings and your desired goals.

Get in touch

Saving into your pension pot is key to achieving your desired level of retirement lifestyle. It is never too late to put a plan together. 

For advice on your pension, or other areas of your personal finances that might be worrying you, please email [email protected] or call us on 0345 505 3500.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.

6 ways you can navigate the impending recession

a young Asian woman sits at her laptop under lamplight

The last few years have shown the British people are a hardy lot and have the ability to succeed during the trickiest of periods. 

The UK might be about to face its third major recession since the turn of the millennium but that doesn’t mean there aren’t options available to individuals who plan ahead and prepare themselves to navigate the coming storm.

You will likely have already experienced two previous recessions this century and this one will be no different. However, if you still have concerns, then getting the right advice could help assuage those worries. 

Discover a few key ways you can protect your finances from the impending recession and stay on course to meet your long-term goals.

1. Start with the obvious by reducing your outgoings

The first step in preparing yourself for a recession is to review your monthly budget. As much as you might not want to make cuts, it can be prudent during uncertain times.

Take account of all your monthly outgoings and determine what expenses are essential and which can be stopped to make short-term savings. 

You don’t need to remove all the luxuries from your life but making sure you’re living within your means can provide a financial buffer during a recession.

Use a carefully formatted spreadsheet or a budgeting app to keep your finances in balance and ensure you always have enough money for key bills.

2. Make sure you protect your savings and have an emergency fund set aside

According to the Office for National Statistics (ONS) inflation is 9.9% in the year to August 2022. High inflation has an eroding effect on the “real” value of savings. For example, an outlay of £500 on goods and services a year ago would cost you £549.50 today at the current rate of inflation.

So, it’s important to not allow your cash to stagnate in a savings account with interest rates that are being outpaced by rising inflation.

While keeping your cash in savings accounts can erode its real value, you will usually have a need to retain some easy access cash savings. You will normally want at least three months’ worth of cash set aside in an easy access savings account with the best possible interest rates as a form of emergency fund. 

Your contingency savings should be there to cover essential bills such as rent, utilities, taxes, and key household outgoings. 

Any surplus cash savings could be invested to potentially protect them against the negative effects of inflation.

3. Protect your income with insurance

A recession is likely to mean rising unemployment and job losses. This is Money reports that over a quarter of households would struggle to cover their household bills within one month of losing their income. 

As previously mentioned, saving for an emergency fund is key. Beyond that, another way you can protect your essential outgoings is by taking out income protection. This valuable protection typically provides financial support in the event of illness and an inability to work, but certain options also protect against redundancy.

The cost of cover depends on your health and lifestyle, as well as the desired length of coverage. Cheaper options cover short-term windows of one, two or five years, while the most expensive policies can cover your annual income through to retirement and beyond.

A policy might be an additional budgetary expense, but if you have an inkling that redundancies could be possible then it could give you some much needed peace of mind and protection should the worst occur.

4. Diversify your income with “side hustles”

Another way to protect yourself against a sudden loss of income is by creating additional income streams through “side hustles”. 

According to research by Aviva, 1 in 5 Britons have taken on a side hustle since the start of the pandemic in March 2020.

Dependent on the terms of your employment, you might be able to work a second job utilising some of your free time to work as a consultant, or to start your own business.

Otherwise, making the most of your property can provide you with additional income. 

Whether that involves converting part of your property to act as an Airbnb or acquiring buy-to-let properties, rental income can be an extremely stable additional income stream. 

5. Get ahead of rising interest rates and review your debt arrangements

As inflation rises, typically so do interest rates. This is usually beneficial for savers, but detrimental to anyone with variable-rate debts. 

If you have a loan, credit card or mortgage you may well see your monthly instalments rise as interest rates increase.

Consolidating loans and credit cards under a fixed-interest loan agreement can help protect you against increasing debt repayments. 

Similarly for mortgages, it can be beneficial to consider a fixed-rate mortgage rather than a variable-rate agreement. 

Review your debts and consider making changes if you’re exposed to the negative effects of rising interest rates. 

6. Don’t forget to review your investment strategy in a calm manner

Investing your savings in the stock market is typically riskier than traditional savings but might offer returns that are potentially better equipped to keep up with rising inflation. 

A recession can sound scary and might elicit an emotional, knee-jerk reaction. The words “sell, sell, sell” might reverberate around your head as your newsfeed is inundated with unnerving headlines. 

It’s important to remember that a recession isn’t the same as a market crash. Stock prices are unlikely to plummet and will likely ebb and flow. 

The market can be volatile during a recession but also very lucrative, as many stocks will see their prices go down, which could allow you to buy more shares or fund units for a smaller investment.

Over the long term, this strategy could help you to reap significant benefits when the markets bounce back.

ONS figures from the 10 years after the 2008 recession showed an 11% growth in the UK economy after the initial dip in 2008. The economy generally recovers given time.

If you have any worries about your portfolio, then consult a financial planner to discuss the best steps to protect your investments.

Get in touch

A recession can be a worrying time for even the most financially prudent of individuals. But don’t allow your emotions to sway you against your better judgement.

Consulting a financial planner can give you the reassurance that your savings are secure as well as alleviating any unwanted stress. 

Contact us by email at [email protected] or call us on 0345 505 3500 to seek advice on your financial plans. 

Please note

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The parents’ guide to paying for university and student loans

If your child will be going to university this year or is planning to further their education in the future, you undoubtedly feel proud. However, you may also worry about what it means for your child financially.

As a parent, it is important to understand what expenses students face, how they will repay student loans in the future, and how you could offer support. This could put your mind at ease and mean you could take steps that will allow your child to focus on their studies. 

In this guide, read more about:

  • The cost of going to university, including tuition fees and living costs
  • How student loans work
  • How students can fund postgraduate education
  • What to consider if you want to make your child’s education part of your financial plan
  • And more…

Download your copy of “The parents’ guide to paying for university and student loans” to learn more.

If you’d like to talk about how you can make education part of your financial plan and support your child while they study, please contact us.

Guide: Your complete guide to buy-to-let

Buy-to-let properties can provide an additional income stream and help you to support your goals. As a result, becoming a landlord is something you may have thought about.

For example, you may want to purchase a buy-to-let property to diversify your assets or provide children with an inheritance. One of the most common reasons is to fund retirement.

However, it’s also common to have concerns about buy-to-let. You may worry about understanding the regulations and tax requirements if you become a landlord.

If you’re thinking about investing in a property, there are some important things to consider first. This guide explains some of the essential things you need to know, including:

  • How a buy-to-let mortgage works
  • What taxes you may need to consider as a landlord
  • How to reduce tax liability
  • What to consider when you’re choosing a buy-to-let property
  • And more…

Download your copy of ‘Your complete guide to buy-to-let’ to learn more.

If you have any questions about the contents of the guide or would like to discuss your buy-to-let plans, please contact us.

What can we learn from the 25 years since Netflix’s founding about how to approach long-term investing?

A couple lie in bed watching Netflix on their laptop

Netflix is synonymous with the world of streaming, helping the world transition to a new way of digesting media content.

Today, Netflix is ingrained into the social consciousness, influencing everything from workplace “watercooler” chats to pop culture and dating slang. It has come to signify the changes we’ve seen in how our society functions over the last 25 years.

This is the “Netflix generation”. But the company hasn’t always had it easy.

If you rewind all the way back to its founding in 1997, you can follow the story of how a small mail-based rental business went from near anonymity to market domination over the course of 25 years. Discover the lessons it teaches you about the best way to approach long-term investing decisions.

Netflix began life as a small rental business that was dwarfed by the rental giant Blockbuster

In the mid-90s, while carpooling between their homes and offices, two successful Californian businessmen, Marc Randolph and Reed Hastings, came up with the idea for a mail-order, computer-based rental service for home-entertainment media.

On 29 August 1997 they founded Netflix. The company set about utilising the Amazon model that Randolph admired so much to create a way for consumers to order a large category of transportable items, made easily accessible through the advent of the internet.

The business was entering a $16 billion home-video sales and rental business marketplace, largely dominated by the rental giant Blockbuster.

Randolph and Hastings met with Jeff Bezos of Amazon who offered to acquire Netflix for between $14 and $16 million. For many, this might have seemed like a great offer and a reasonable time to make a sale.

In the early 2000s, the dot-com bubble burst and Netflix suffered significant losses. Hastings and Randolph offered to sell the company to Blockbuster, but their offer was declined.

The company persevered as the demand for DVD rentals and subscription services began to grow, eventually leading to Netflix rebounding with a surge in its value throughout the mid-2000s.

When investing, it is easy to react to short-term market trends and make knee-jerk decisions regarding your investment portfolio. It might have been easier for Netflix to exit the market during tough times – but persevering saw them reap rewards in the long term.

Remember your financial plan has a long-term view. Working with a financial planner to continually assess your investments and maintaining a patient outlook can lead to positive returns over time.

Netflix’s transition from mail-based rentals to online streaming saw it become a billion-dollar company

In January 2007, the company launched its streaming media service, which provided on-demand video entertainment through the internet. At the time, the company was only able to list 1,000 films for streaming compared to 70,000 titles in its DVD library and the revised concept was still in its early stages.

The company benefited from a leap forward in internet technology in the mid-2000s as data speeds and bandwidth costs had improved to sufficiently allow consumers to download shows directly from the internet.

By 2008, Netflix had begun to slowly phase out its rental-disc business by offering its current subscribers access to its streaming service at no additional cost.

Between 2010 and 2013, Netflix rapidly expanded its content library and subscriber base leading to its valuation surging past the $1 billion mark. It began to expand into new markets and create original content.

Moving your money in and out of equities to try and capture the market highs and avoid the lows is often referred to as “market timing”. It is a risky strategy and even the most experienced investors rarely buy at the bottom and sell at the top of the market.

If you sell your investments during a downturn, you could potentially lose out on gains if the prices rebound.

If you sold your Netflix shares when the dot-com bubble burst, you would have lost out on the colossal gains made during its transition to a streaming service. It’s often said that it’s “time in the markets, not timing the market” that counts – that is, it can pay to hold investments for the long term rather than trying to dip in and out of the market.

Netflix dominated the home-entertainment market and became the face of the streaming industry

Netflix saw another period of rapid growth between 2013 and the 2020 pandemic. Through creating a diverse range of specially tailored original content and expanding into new markets, Netflix saw its subscriber base grow to over 220 million and its value rise to more than $100 billion.

Even with its recent downturn, due to a slowing down of new subscribers in the face of growing competition and a cost of living crisis reducing household disposable income, the company is still one of the most valuable in the world.

If Netflix’s history has taught you anything, it’s not to bet against them finding a way to continue surging forward.

There are a few key takeaways when it comes to long-term investing:

  • Emotional trading tends to hamper investment returns
  • Patience, and riding out short-term fluctuations, can help you to achieve long-term gains
  • Long-term investing can allow you to compound any earnings you receive from dividends.

Netflix has gone from a minnow in the home rental industry to a goliath in the streaming market over the course of 25 years. It would have been easy to have bailed on the investment at various points over the last few decades. But long-term investing requires patience.

Working with a financial planner can give you peace of mind regarding your long-term planning and help you avoid any short-term investing mistakes.

Get in touch

A bespoke financial plan helps you build towards your long-term lifestyle goals by investing your wealth with an eye on the bigger picture.

If you would like to find out more, email [email protected] or call us on 0345 505 3500.

Please note

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

3 practical reasons to work with a financial planner as you reach retirement

a senior couple examine some documents while sat at a table with a computer and calculator

Over the course of your life, there are few points that bring about as significant a change in circumstances as your eventual retirement.

Your retirement is a chance to do all the things you have dreamed of. Even if it’s a few years away, you probably have some ideas of how you’d like to spend the time – whether that’s to travel, start your own business, or dedicate more time to your passions.

Getting the right advice at the point you retire can be critical if you want to ensure you can live the lifestyle you want.

Despite this, PensionsAge found that 40% of all “decumulation” pension products in 2021 were bought without regulated advice. It’s inevitable that, without professional advice and guidance, some soon-to-be retirees will make decisions they might end up regretting.

Read on to discover three reasons you should work with a financial planner to address any potential issues as you approach your retirement.

1. A financial planner provides emotional support

It is natural to feel a degree of nervousness as your approach your retirement. The decisions you make relating to your savings, investments and pension pot could affect the rest of your life.

A financial planner will work on building a trusted relationship with you, taking the time to understand your circumstances and needs as well as your lifestyle and retirement goals.

We’re here to help you to focus on your ambitions, and to ensure that you can take a sustainable income throughout later life.

Using cashflow modelling software, we can forecast future income and expenditure, giving you the confidence that you can maintain your lifestyle without the risk of running out of money in later life.

We can also help you to manage the transition into later life.

As PensionsAge reports, one of the consequences of retirement that most people don’t plan for is the sudden loss of their work identity and the daily purpose it gives. We can ensure you focus on both the financial and emotional aspects of this next phase, so you can approach it with confidence.

2. A financial planner ensures your money grows as efficiently as possible

Your retirement fund will likely be made up of several income streams including your pension pot, savings, and investments. These funds will need to last you for potentially 20, 30 or even 40 years.

Your savings will need to provide you with enough money to give you the level of comfort you desire during retirement as well as protect you from the ill-effects of inflation or changes in circumstances.

Paying avoidable taxes is one of the quickest ways to shrink the size of your retirement pot. So, we can help you to:

  • Build your wealth tax-efficiently and make the most of the reliefs on offer
  • Withdraw your income in a tax-efficient way so you don’t pay more tax than you should
  • Plan your estate so your loved ones don’t lose 40% of your wealth to Inheritance Tax when you die.

With regard to your pension contributions, we can also help you to tackle issues such as the restrictions of the Annual and Lifetime Allowance and help you to avoid unwanted tax charges.

3. A financial planner can keep you on track

Over time, your circumstances are likely to change. You might start a new job, move home, or you may get married or divorced. All these events can mean your financial plan needs to adapt.

One of the benefits of working with a financial planner is that it will be a long-term relationship. We meet with all clients on at least an annual basis to review your progress towards your goals, and to make any changes that ensure you remain on track to achieve your life goals.

Developing a long-term relationship with a financial planner – rather than taking one-off advice – can also boost your wealth.

A study by the International Longevity Centre (ILC) found that fostering an ongoing relationship with a financial adviser leads to better financial outcomes.

People who received professional financial advice between 2001 and 2006, and were still receiving advice in 2014 to 2016, had nearly 50% higher average pension wealth than those only advised at the start.

Get in touch

One of the main goals of a financial plan is to ensure you reach your desired retirement aims. By working with a financial planner as you approach retirement you can reduce your stress and ensure you are on track for the lifestyle you want to lead.

If you would like to find out more, email [email protected] or call us on 0345 505 3500.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Delaunay Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (806635). Registered in the UK at: Wey Court West, Union Road, Farnham, Surrey, GU9 7PT. Company Registration Number: 08107472 The Financial Conduct Authority does not regulate taxation and trust advice and employee benefits.

Should you have cause to complain, and you are not satisfied with our response to your complaint, you may be able to refer it to the Financial Ombudsman Service, which can be contacted as follows: The Financial Ombudsman Service, Exchange Tower, London, E14 9SR www.financial-ombudsman.org.uk

© Delaunay Wealth Management Ltd 2015. All Rights Reserved