How to protect your budget from the energy price crisis
Gas price rises have soared thanks to rocketing demand for the fossil fuel as the global economy gets going again.
It is something of a perfect storm for households as the government’s energy price cap is rising too. It now stands at £1,277 and is predicted to rise again next April to above £1,600, thanks to mounting wholesale prices.
The issue it has created for the UK is that many firms in the energy market rely on low prices to offer better deals to households than the ‘big’ firms.
But this has led to a lot of companies collapsing as energy prices rise. The upshot of this is that consumer choice in the market has been totally wiped out. Price comparison services such as uSwitch have even suspended their energy price comparison services as a result.
So, what can you do to keep a handle on your energy bills with such issues at hand?
Still try and switch
If you weren’t already on a cheap deal, you could still find a provider that will offer you a better price than the energy price cap currently stipulates.
Firms such as Octopus Energy, E.On and others still offer lower prices although you may not be able to find them on price comparison sites at the moment. It is worth researching and getting quotes from as many companies as you can.
Improve your home’s efficiency
Improving energy efficiency of your home can range from minor tweaks to big projects, but there are some ways to go about it – especially if you live in an older property. For starters, excluding any kind of draft and keeping doors inside closed will retain more heat in rooms.
Other ideas, which may seem more wacky but are in fact quite effective, include getting radiator foil which reflects heat from your radiators back into the house.
Smart plugs and timers strategically placed in the house can also be a good way to save energy, especially if you forgot to turn the TV off at the socket before bed.
Other higher investment and more long-term efficient solutions include getting brand new roof and wall insulation installed. This can cost thousands but will be recouped as your bills come down over time.
Finally, installing new eco-friendly biomass boilers or solar panels have a high upfront cost, but could in time pay you for putting energy back into the grid. According to Renewable Energy Hub such equipment could save you up to £2,000 a year in energy bills.
Turn down the thermostat
Ultimately the ‘price’ you are quoted is only ever an estimation by the energy company of what they think you will use.
If you live in a three-bed house and they estimate you’ll use £1,500 of energy per year, it doesn’t mean you’ll actually use that amount. The one sure-fire way to pay less for your energy bills is to simply use less energy! This means turning down the thermostat, putting on a jumper and slippers and having a hot water bottle in bed at night.
Although it is not advisable to slash your energy usage in mid-winter, especially if you’re older or have any health conditions, finding ways to cut down on overall energy usage can have miraculous effects on your bills.
Minor changes such as turning off electric appliances you’re not using at the wall socket, cutting down on tumble dryer cycles, and switching to energy efficient lightbulbs will have a significant impact on your bills in the end.
Budget 2021: Here’s what to expect from Rishi Sunak’s upcoming tax announcements
The Chancellor, Rishi Sunak, will deliver his latest taxation and spending policies on 27 October.
The Budget will account for the government’s spending plans and how it intends to fund that spending. While we can only predict what is likely to come up, we already know that the government is adding 1.25% to the annual cost of National Insurance. This will already add hundreds to the tax bills of anyone who earns an income via salaried employment or company dividends.
Other policies we already know are on the horizon:
- Self-employed tax tweak – as part of the government’s ‘Making Tax Digital’ shift, basis periods for self-employed workers are being reformed. While not costing them more upfront, it will net more income for the Treasury as it speeds up the timeline for taking revenue.
- Corporation tax hike – a range of coronavirus relief measures are due to expire, meaning that overall corporation tax burdens will rise significantly in the new tax year.
- Minimum wage hike – announced by Boris Johnson at the Conservative Party conference, the so-called living wage is set to be raised to £9.42 an hour.
- Student loan repayment threshold – this is likely to be lowered from the current £27,295 salary threshold, meaning more graduates will have to start paying the 9% levy on their incomes.
It is possible that further tax rises or changes to personal allowances may be limited. The government will be (politically) aware that more tax hikes will not be welcomed by the public. But Boris Johnson’s Government still has a lot of time before the next election. With restraint and paying down the debt of the coronavirus heavy on Sunak’s mind, what else could be coming up?
Here are some potential policies the Chancellor could unveil.
Capital gains tax
Recently touted and often referred to, a capital gains tax hike might hit the Conservative’s wealthier voters hardest but would be the easiest to square with the so-called ‘Red Wall’. Capital gains are taxed at a lower level than income, with many critics saying the rates should be equivalent as it effectively gives a tax break to those able to earn a living via capital gains – i.e. people who already have capital.
Inheritance tax
This is another one that has been on the cards for some time, but hasn’t yet materialised. Inheritance tax (IHT) is a much-loathed duty for families to pay after the death of a loved one. But it is also the target of the Office for Tax Simplification (OTS) because it is a very complicated levy to pay and is riddled with rules, exemptions and differing allowances.
Chances are that if Sunak does anything, he’ll work to simplify rather than raise or lower IHT rates. This would likely have the effect of not directly seeming like a hike – but will most likely raise more revenue for the Treasury as people will lose ways to avoid paying.
Pensions tax relief
Almost always on the chopping block but never actually cut (yet) – the rate of pensions tax relief for higher rate payers has been a low-hanging fruit for a long time. Doing away with higher rate tax relief on pensions could net the Chancellor an immediate multi-billion-pound windfall and would only affect higher earners.
If you would like to discuss your portfolio or any of the potential changes mentioned in this article, don’t hesitate to get in touch with your adviser.
Inflation is causing chaos, but good wealth management can bullet-proof your finances
Inflation is rising quickly, and with it the cost of living for everyone. But canny wealth management can be the best safeguard against the rising tide of costs.
Inflation – or the pace at which the price of goods and services rises – is at its highest level since March 2021. The current rate of inflation, as of 15 September, is at 3%, based on the Office for National Statistics (ONS) CPIH which includes housing costs and is considered the most accurate measure.
Areas such as petrol costs, energy bills prices, food shops and all manner of other expenses are soaring in price as the country adapts to demand after the worst of the pandemic. But day-to-day personal finance pressures of rising bills aside, one of the most pernicious impacts of high inflation is the erosion it causes to wealth.
Inflation is the very reason why good wealth management matters. The current top-rated easy access cash ISA offers a rate of just 0.6%, according to Savers Friend.
Inflation is still expected to increase this year, but relatively speaking the average rate on inflation over the last 30 years has been 2.9%.
Using this calculator from Candid Money, we can see the impact inflation has on savings. At a rate of 3%, £100,000 of savings today will only have the purchasing power equivalent to £54,379 in 20 years’ time. That is an extraordinary erosion of wealth.
Were this pot of cash to sit in the best-buy cash ISA mentioned above, it would grow to £112,746 and have today’s equivalent purchasing power of just £62,425.
Instead, if you were to invest that £100,000 with an average return of 5%*, after inflation averaging 3% over 20 years, you’d be left with a pot worth £271,264 – which would have the equivalent purchasing power today of £150,192. And this is without added future contributions.
The importance of tax
The other greatest factor that will have an impact on the value of your wealth, ultimately, is tax. While it is unknown what the government will do with its latest measures, we have a taster of what is to come in the form of the National Insurance hike.
There’s no guarantee on what measures will be changed, but it is likely as the government looks to pay down coronavirus debt it will at the very least attempt to close some loopholes and end some tax perks.
The issue here is it is extremely difficult to keep ahead of these kinds of tax changes. While it’s a reasonable bet that ISAs will be protected, other tax wrappers such as pensions are under constant scrutiny for what is called ‘salami slicing’ or the whittling down of allowances and closing of other benefits.
Combined with the harsh realities of inflation, smart wealth management, undertaken in conjunction with a qualified financial adviser, is a no-brainer that will save your hard-earned nest egg from crumbling.
*Investment returns are never guaranteed, this is taken as a representative example.
National Insurance hike: From dividends to salaries - what it means for your money
The government has announced that it intends to hike National Insurance payments by 1.25% from April next year.
The change will take effect from the new tax year, 6 April 2022. It will have an impact on anyone in employment, self-employment and those over state pension age but still in work. Workers’ wages, investment incomes and anyone who takes an income via dividends will be affected.
The government says it is raising the tax in order to help fund the cost of social care, while also using some of the cash in the short term to clear the backlog of NHS patients caused by the pandemic.
How much will I pay?
When it comes to extra tax on salaried income – a basic rate payer who earns £24,100 a year would be £180 worse off after the NI hike in 2022-23. A higher rate payer on a wage of £67,100 would contribute £715 more in the same period.
What about dividends?
The government says it will also increase the tax paid on dividends to help fund the cost of social care. The current tax-free allowance for dividend income is £2,000 per tax year. Above this, basic-rate taxpayers have to pay 7.5% tax on dividend income. This will rise to 8.75%. Higher rate and additional rate payers will see dividend taxes rise to 33.75% and 39.35% respectively.
Are limited company owners affected?
The move will also affect anyone who owns a limited company. Many adopt this structure as a way to pay themselves an income via dividends, as the rates are generally speaking around 5% lower than income taxation. Anyone who takes a salary from their company and dividends too faces a double hit of extra taxation.
If you would like to discuss the National Insurance rise and what it might mean for your portfolio or income, don’t hesitate to get in touch with your adviser.
Is bank account switching back? Here’s what to consider before diving in
Current account switching was until recently a lucrative pursuit which could reward dedicated switchers with hundreds of pounds a year.
But in recent times, and especially during the pandemic, the offers available have collapsed.
That now seems to be changing though as high street banks up the stakes to attract new customers. But anyone thinking about switching their current account should consider a few things first. Some of the best deals, we will caveat, come from providers with the biggest customer loss rates. For example, according to data from the Current Account Switching Service (CASS) owner pay.uk, between April and June this year HSBC lost 26,743 customers.
In August HSBC also had the best current account switch deal on the market, with £140 to move your banking to it. That deal has now unfortunately closed, but will most likely be back when executives at the bank feel they need to 'up' customer numbers again.
The lesson here before making the switch based on a monetary reward, is to ask yourself why so many customers are leaving the bank. HSBC’s net losses were only -2,851 as the provider used switching incentives to gain new customers too. But the biggest net losers were Santander (-10,965), NatWest (-10,605) and TSB (-8,502).
HSBC’s switching offer is masking a bigger picture where many dissatisfied customers are leaving the bank for greener pastures. Before you dive into a new current account then, it is worth keeping these stats in mind – you might be getting a freebie, but you may soon tire of the service from your new provider.
Deals come and go frequently, as mentioned with the above HSBC deal which didn’t last long, so it is worth keeping an eye out if you are keen to get a switching reward.
At the time of writing there are two switching deals on the market.
- Nationwide
Nationwide currently has the only cash offer on the market, with £100 to switch if you’re not a customer. If you are a customer, for instance with a mortgage or a savings product with the Building Society, then you can get £125 for switching your current account.
To qualify for the reward you must complete a switch via the Current Account Switching Service (CASS) and pay out at least two direct debits from the new account.
The account also comes with 2% fixed interest on deposits up to £1,500 for the first 12 months you hold it.
- Virgin Money
Virgin Money isn’t offering a direct cash reward, but it is offering a £150 voucher for Virgin Experience Days. It is however a little complicated to obtain the reward.
You must apply for the account online then switch from your current provider within 45 days including at least two direct debits. Once this is done you’ll need to download and register the mobile banking app for Virgin Money and add £1,000 to the linked savings account.
You’ll need to keep the deposit there until your voucher arrives. The account pays 2.02% interest on balances up to £1,000.
Daniel Craig’s kids won’t see any of his money, but there are ways to bequeath responsibly
With the release of ‘No Time To Die’, James Bond star Daniel Craig says he’d prefer to spend or give his money away than leave it to his kids.
Actor Daniel Craig announced in an interview that he intends to give away most of his wealth when he dies, rather than leave it to his kids.
The James Bond actor went as far as to call inheritance ‘distasteful’. In his interview with The Telegraph, he did however demure slightly saying he does not intend to leave “great sums.”
Craig explained he intended to give away his money to charitable causes, and to otherwise spend his wealth before he dies rather than bequeath it to his children.
The James Bond actor’s approach could be seen as a noble one – his wealth will go to good causes and his kids won’t have the poison chalice of unearned wealth thrust upon them.
But there needn’t be such a gulf between approaches. There are several, arguably more responsible, ways to see that loved ones are looked after outside of the ‘traditional’ inheritance.
Gifts
Regular gifting is a great tax efficient way to use some of your wealth to help out loved ones. The rules are pretty straightforward, and the allowances not so high that you’ll need to worry about spending splurges.
The annual limit for gifting is £3,000, known as your ‘annual exemption.’ You can gift up to £3,000 to one person, or split this amount between as many people as you want.
It is also possible to carry forward the allowance for one year if you don’t use it in the previous tax year – meaning you could give £6,000 away.
You can also give up to £250 to anyone with no limit on how many £250 gifts you give – as long as you don’t use any other allowance to give to that person.
Finally, if your child is getting married you can gift them up to £5,000, separate from the above allowances. For a grandchild the marriage gift can be up to £2,500. Anyone else and you can write off a gift of up to £1,000 for a wedding.
JISAs
If you would like to share wealth with a child over time but they’re still too young to take responsibility for the cash, a Junior Isa (JISA) could be a fantastic option to help grow a nest egg for them.
The allowance for JISAs is now very generous - £9,000 per year per child. If you contribute regularly to a JISA it is classed as ‘excess income’. As long as it is not materially affecting your lifestyle, it is therefore inheritance tax exempt.
Pensions
The ultimate in responsible inheritance – setting up a pension for your child can be both tax efficient, and will ensure they can’t access in until pension freedom age (currently 55 but set to rise to 57 in 2028).
The Junior Sipp allowance is more restricted at £3,600 a year, but like the JISA is exempt from Inheritance Tax (IHT) as long as you can prove it doesn’t affect your day-to-day finances.
The ultimate benefit of a pension for your child is that they can’t access it until retirement. Plus with so many potential years of gains and compounding to be had, the sum you leave in their account could become extremely valuable over time (performance permitting).
If you would like to discuss any of the above options for inheritance planning, don’t hesitate to get in touch with your adviser.
Savings rates are rising – is it time to lock in a deal?
Savings rates have been in the doldrums for some time but are beginning to move upwards across the board for the first time in years.
Unfortunately, though, rates are still historically low, despite the reversal in fortune.
Why do savings rates matter?
The interest rate you get on your cash savings matters principally because of inflation. Inflation is of special concern at the moment as it is rising quickly. This means that any money you have saved that isn’t growing in value at the same as the rate of inflation will essentially be losing its purchasing power.
The Bank of England has an excellent historic inflation calculator to demonstrate this. For instance, £100 in 2010 would have to have grown to £131.13 to match the equivalent purchasing power in 2020.
All this is to say that if your wealth isn’t beating the long-term inflation average (in the case of the example above, 2.7% over 10 years) then your money is ultimately losing value.
What are the current top deals?
The top cash savings deals, while growing in value, are still very low. Data from the Bank Of England shows that rates are only really rising on long-fixed term accounts too.
The average rate on a three-year fixed savings bond, for example, has risen from 0.57% in March to 0.71% in July. But these are just averages and do not represent the best possible deals.
The current top rate easy access savings account is from Tandem Bank and will earn you 0.65% on your savings.*
When it comes to easy access Cash ISAs, the best rate on the market is even worse at 0.6% from Cynergy Bank.
At the other end of the market, if you lock your money away for five years, Atom Bank will pay you 1.84% interest on your cash. The best Cash ISA over five years is with Furness Building Society, returning just 1.25%.
What should I do with my money instead?
The reality is that cash savings rates are still extremely poor. For your day-to-day money you can get an interest-bearing account with providers such as Nationwide, who will pay 2% on deposits up to £1,500 per month. That rate drops to just 0.25% after 12 months unfortunately.
A rainy-day fund should be in an easy-access savings account. Although this won’t keep up with inflation, it should only be a limited pot of cash anyway. The general rule of thumb is to keep 3-6 months’ worth of expenses in cash.
Over and above this, any money you have set aside could be working harder elsewhere. Think investing in the stock market, either through a stocks and shares ISA or a pension.
If you would like to discuss your options, don’t hesitate to get in touch with your adviser.
*Please note all rates quoted in the article were correct at the time of writing but are subject to change.
Wages are rising: here’s how to get yourself a pay rise without leaving your job
Wages are rising at a rapid pace across the economy, latest figures from the Office for National Statistics suggest.
As per the most recent wage growth data, workers are due to get a bumper 8.8% increase in their pay packets. This number has been called into question however, amongst concerns that base effects of falls in wages in 2020 have skewed the comparative data.
That being said, there is no doubt that salaries are increasing across the UK. Worker shortages are biting businesses that are looking to expand after the various lockdowns, while changes to employment visas post Brexit have left many firms with less access to pools of talent from abroad.
But unless your boss offers you a pay rise, or you quit your job for a better paying one – it can be hard to get in on these bumper rises.
The best way to get a pay rise then is to sit down with your manager and explain to them why you are worth it.
There are a few ways to broach the topic though. Here are some ideas.
- Do your research
It can be difficult to find average rates for the type of work you do but do try doing some research. That way you’ll know whether you’re being remunerated fairly or not.
- Don’t use personal issues to bargain
When appealing to your manager for a pay rise, don’t use personal circumstances as a reason to request an increase. As true as it may be, it is not reflecting to them why you are worth more money each month than you currently get.
- Don’t make ultimatums
Threatening to leave your job if you don’t get a pay rise only works if you are prepared to carry it out. Avoid making such ultimatums unless you have a plan to make it happen.
- Don’t use colleagues’ pay rises as an excuse
Although you may have a colleague doing the same job as you, unfortunately the nature of salaries is such that often people earn different amounts for the same work. But if you find this out, using it as a reason to ask for a raise will not necessarily convince your boss you are worth it too.
- Make a positive case
If you feel you deserve a raise for the work you do, be ready to prove it. List the tasks you do and responsibilities you have that you feel go above and beyond your basic job description. Make the case for the value you add to the company and what makes you worth more money to them.
- Make yourself indispensable
If you feel like you could take on more that would lead to your pay packet increasing, dive in. An employer will take no signal better than a sign you’re going above and beyond to deliver for them.
What different types of pensions are there?
The information below shows a breakdown of your pension options.
Source: www.finder.com/UK-pension-statistics
Source: https://www.gov.uk/workplace-pensions
Source: https://www.yourpension.gov.uk/
Source: https://www.ipse.co.uk/ipse-news/ipse-blog/how-much-should-i-pay-into-my-pension.html
Source: https://www.raconteur.net/finance/pensions/young-people-pensions/
Could the State Pension be in line for a bumper increase?
The State Pension looks set to rise by a record amount, but Chancellor Rishi Sunak may have other plans for it.
The State Pension could be in line for a bumper hike this year thanks to distortions in the way its increases are calculated through the so-called ‘triple lock’. The triple lock was conceived during the Coalition Government’s early days as a protection to ensure the State Pension always rises – either by matching the rate of wage growth, inflation or 2.5% - whichever is higher.
However, the triple lock has come under criticism in recent times for its perceived lack of fairness. In times such as 2020 when wage growth was plummeting thanks to the COVID-19 crisis, pensioners enjoyed a healthy 2.5% rise as this was higher than both wage growth and inflation at the time.
Now the situation has become even more distorted as wage growth is sky high – around 7.3% at the most recent set of figures from the Office for National Statistics (ONS). The ONS itself concedes that this may not be truly reflective of the average growth in wages as the low levels of last year, plus the effects of the furlough scheme, have put the data way out of whack.
But thanks to the way the triple lock is set out this may not matter, leaving pensioners with a bumper pay rise.
However, sources in the Government are now intimating that Chancellor Rishi Sunak could be set to thwart the triple lock in the interest of preventing an expensive hike in the Treasury’s bills.
It would make for a fairly extraordinary intervention to break the triple lock. The suggestion is that the Chancellor will likely make it a temporary fix thanks to the unforeseen circumstances, but calls for a double lock to be made permanent have been heard for some time now.
Does the State Pension matter?
The State Pension, while a relatively modest sum on the face of it, is an incredibly important consideration for all but the wealthiest retirees. In later life it can account for a significant sum.
Currently paid at a rate of £179.60 a week from age 67, it forms a core part of many retiree’s later life income. With an uplift on the cards of, conservatively, 7.3% - pensioners could see an extra £629 per year. Some estimates suggest the month when the news uplift is calculated could lead to an 8.5% rise – which would mean an extra £729 next year.
Former pensions minister Steve Webb, who put the triple lock into law and is now a partner at Lane Clark & Peacock, says: "The Chancellor will no doubt be considering a wide range of options to avoid a hike in the state pension. Dropping any earnings link would be quite controversial as ‘restoring the earnings link’ has always been a rallying cry for the pensioner movement.
"It would also be an explicit breach of the Conservative manifesto. I suspect that a modified earnings figure will remain the most attractive option to a Chancellor who will want to avoid opening up battles on too many fronts at the same time."
If you’d like to discuss the issues raised in this article more, don’t hesitate to get in touch with your adviser.